Details have emerged about the part fraudulent letters of credit (L/Cs) played in the financial collapse of a cooperative health insurer in the US state of Alabama.

A fraud investigation is now underway into the activities of S C Health Cooperative and the fraudsters may even have duped senior executives of the self-funded health plan.

L/Cs invalid

According to the cooperative's regulatory attorney, Alabama's state insurance department has been the holder and beneficiary of Bank of America L/Cs obtained by the S C Health Cooperative.

But the cooperative received information that that there could be issues with the validity of L/Cs and it duly notified the insurance department so it could investigate the matter.

Investigations

Subsequently, state investigators were told by a Bank of America official that the L/Cs were fraudulent.

There were two such L/Cs, one for US$5 million and another for US$3 million.

Fraud ring

The L/Cs were put up by the cooperative in 2012, but investigators at the end of 2014 could find no one at the cooperative with information about how the fraud was perpetrated.

But Alabama's state attorney has revealed that they had been conducting an investigation into a fraud ring for several years and that this ring may be responsible for the fraud at S C Health Cooperative.

Sophisticated arrangement

S C Insurance director, Ray Farmer, is working with investigators to unearth more details about the fraud.

"I looked at the L/Cs," he told local media. "They had two signatures. Those were both bank employees. You call the bank. They are bank employees. It is a sophisticated arrangement. I don't know a lot of details. That information is going to come out at some point, and we look forward to it," he added.

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