Category Archives: Fraud

Mayberry Sheriff Andy Taylor Would be Blushing Right Now

Andy Griffith as Sheriff Andy Taylor

Today’s post comes from guest author Leonard Jernigan, from The Jernigan Law Firm.

Mayberry was a small town, loosely based on Mount Airy, N.C., the hometown of actor Andy Griffith, who played the part of Sheriff Andy Taylor. Mayberry was a slow, sleepy town where city slickers came by occasionally and Andy or Deputy Barney Fife or some other innocent person smoked them out and the story usually ended on a good moral note.

But my goodness, if Sheriff Taylor was around today (Griffith died in 2012) he would be blushing at what has transpired in Mount Airy, N.C. this year. A city slicker has taken taxpayer dollars to bring jobs to Mount Airy, but it turns out he’s a convicted felon in the state of California. That’s bad enough, but after Todd Tucker, president of the County Economic Development Partnership, was told about this conviction for fraud, he is still standing by his man. Incredible. L.D. Hardas, President of Awesome Products, was convicted in California in September of underreporting his workers’ compensation payroll by more than $8 million and sentenced to five years in jail, suspended if he paid a fine and unpaid premiums and completed 10 years of probation.

In February he was hailed as the savior of Mount Airy when he promised to create 140 jobs by opening a household chemical plant out of a former furniture facility. In exchange, he was eligible for $300,000 of state funds and at least $543,448 from Surry County taxpayers. What’s the lesson for Mayberry? It’s okay to cheat another state and their employees as long as you help Mount Airy get some jobs and bring some money to the county. Wonder what Aunt Bee and the boys at the barber shop would say about that.

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Misclassification Fraud Across the Country

North Carolina Governor Bev Perdue Signed Executive Order 125

Today’s post comes from guest author Leonard Jernigan from The Jernigan Law Firm.

“Misclassification” is a poorly chosen word to describe fraudulent conduct by employers who misclassify the status of their employees. For example, a roofing company may have 30 roofers doing the actual work but these workers are classified as “independent contractors” instead of employees. Why would they do that? At the end of the year these workers are sent a 1099 tax form that reports the wages paid, but the employer does not make any deductions for Medicare or unemployment, and doesn’t pay for workers’ compensation insurance. If you have a roofing company and you properly classify your employees, you are at a competitive disadvantage in bidding on jobs. Honest businesses are hurt by misclassification, and taxpayers are hurt because they pick up medical bills and other expenses created when one of these “independent contractors” gets hurt.

Another form of misclassification is when a construction company with 85 employees reports to its workers’ compensation insurance company that 75 of these people are staff workers, which results in a significantly reduced premium. Obviously, a construction worker is at greater risk of injury than an office worker. Again, the honest company who accurately reports the status of its employees is at a competitive disadvantage with the dishonest employer.

New York, New Jersey, Massachusetts, Virginia, Michigan, Florida, California, Texas and the vast majority of states across the country have been looking into this issue for several years and they have been aggressively prosecuting dishonest employers who try to game the system. North Carolina has finally joined these states. On August 22, 2012, Governor Beverly Perdue issued Executive Order 125, which created a task force to study this issue and try to get different agencies to communicate with each other and share information to identify employers who are failing to pay employee taxes. Hopefully, this task force will figure out how to enforce existing law. This blog will follow the progress of this task force. Stay tuned.

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$97 Million In Fraud: 2012’s Top 10 Workers’ Compensation Fraud Cases

CFO Jeff Atwater and Broward Sheriff Al Lamberti announced multiple arrests in Operation Dirty Money.

Today’s post comes from guest author Leonard Jernigan from The Jernigan Law Firm.

Over the past few years, many states have aggressively gone after workers’ compensation fraud (whether it’s the employee or the employer) and the amount of employer fraud being discovered continues to be staggering, notwithstanding these efforts. Legitimate business owners that pay for workers’ compensation, as required by law, are at a competitive disadvantage with those who cheat the system, and when people suffer a workplace disability and have no insurance local businesses that provide goods and services feel the pain along with health care providers who cannot get properly paid for their services. The cost of medical care and disability ends up being shifted to the taxpayer through Social Security, Medicare and Medicaid, and in states where compliance is not vigorously enforced a culture of cheating continues. The top ten cases for 2012 are listed below.  

2012 TOP TEN WORKERS’ COMPENSATION FRAUD CASES Total Fraud: $97,466,500.00

1. ‘Operation Dirty Money,’ Stings Workers’ Comp Fraud Check Cashing Scheme

Florida: July 27, 2012

Multiple arrests were announced in Florida’s joint task force’s ‘Operation Dirty Money,’ which led to the arrest of alleged ringleader Hugo Rodriguez, owner of the Oto Group, Inc., and seven other individuals. Mr. Rodriguez was the facilitator of 10 known shell companies that funneled in excess of $70 million in undeclared and undetected payroll through different money service businesses. By using shell companies, Rodriguez was able to run a large construction operation and avoid paying the cost of workers’ compensation coverage, leaving employees at risk and scamming legitimate businesses.

 

2. Firms Face Charges for Skipping Workers’ Comp Payments

Ohio: May 13, 2012 Thousands of Ohio companies violated state law by not paying their most recent workers’ compensation premium, which can drive up insurance costs for businesses that follow the rules, a Dayton Daily News analysis found. The bureau identified about 41,247 private employers in the state that failed to report their payroll data and submit premium payments by the deadline. As of May, more than 12,200 accounts remain outstanding, and those companies owe an estimated $5.6 million in premiums.  

3. Case Proves Employee Leasing too Good to be True

Texas: July 10, 2012

$4,466,500.00 was awarded in a Texas court against a staffing agency and its workers’ compensation insurance company. Jackson Brothers Hot Oil Service hired Business Staffing, Inc., (BSI) in 1999 and required BSI to have workers’ compensation insurance for its leased employees. BSI had 150 client companies with 2,000 employees. BSI bought a policy from Transglobal Indemnity for a total premium of $4,100.00 to cover all its employees. After failing to pay the medical bills of a 27-year-old oil field worker who was in an explosion and had 18 surgeries, the employee and Jackson Brothers sued BSI and Transglobal for fraud. Neither Transglobal (who had its corporate headquarters in the Turks and Caicos Islands) nor BSI had a license to conduct insurance business in Texas.

4. Business Owner Faces Insurance-fraud Charges

California: May 2, 2012


George Osumi was indicted on numerous felony counts.

Construction business owner George Osumi of Irvine, California was indicted on numerous felony counts of misrepresenting facts to the State Compensation Insurance Fund, among other charges. From December 2001 to March of 2006, Mr. Osumi committed workers’ compensation premium fraud by reporting his payroll to SCIF at just over $1 million, under-reporting over $3.5 million in payroll. This fraud resulted in a loss of over $814,000.00 in premium owed to the insurance fund.

5. Watertown Roofing Company and its Owners Plead Guilty and are Sentenced for Labor Violations

Massachusetts: January 11, 2012


Newton Contracting Company misclassified half of its workforce as subcontractors.

The Massachusetts Insurance Fraud Bureau discovered that the company, Newton Contracting Company, Inc., owned by Shaun Bryan and Antoinette Capurso-Bryan, misclassified half of its workforce as subcontractors, as well as failing to disclose to auditors more than $3.4 million of their company’s misclassified subcontractor payroll during its annual workers’ compensation audits.

6. 7-Year Sentence in $3.1 Million Fraud Case

California: November 30, 2012

Steven Morales, 65, of Wildomar, CA was convicted and sentenced to seven years in prison for his part in a $3.1 million workers’ compensation scheme. His son Brian was also convicted and sentenced to 4 years in prison. Morales and his son had set up a sophisticated system of shell companies to hide payroll and avoid paying workers’ compensation premiums.  

7. Construction Company President Accused of Payroll Fraud

Florida: March 29, 2012

Randall Seltzer, president of Navarre Industries, Inc., was charged with multiple felony counts, including workers’ compensation fraud. An investigation by Florida’s Department of Financial Services’ Division of Insurance Fraud revealed that Seltzer systematically and intentionally under-reported his corporation’s true payroll to his insurance carrier. The department’s Division of Workers’ Compensation issued the company two stop-work orders within a five-year period. Seltzer allegedly established a shell corporation in 2011 to intentionally violate the stop-work orders and continue operating his construction business illegally. If convicted, Seltzer could face up to 30 years in prison and pay over $2.8 million in restitution.

8. CFO Jeff Atwater Announces Arrest of Owner of Fake Company for Creating Fraudulent Insurance Certificates and Avoiding Millions in Premiums

Florida: April 13, 2012


Yucet Batista allegedly used a shell company to commit large-scale fraud.

Yucet Batista was arrested for allegedly creating more than 250 fraudulent certificates of insurance to help uninsured contractors avoid $2.1 million in workers compensation premiums. Batista created the company and obtained the workers’ compensation insurance policy for the purpose of “renting” it, or making it available to dozens of uninsured subcontractors for a fee.

9. Audits Uncover Almost $1.2 million in Workers’ Compensation Violations at Boston Marriott Project

Massachusetts: September 4, 2012

In 12 audits conducted by the Joint Enforcement Task Force on the Underground Economy and Employee Misclassification and the Executive Office of Labor and Workforce Development, it was discovered that there were $584,249.00 in misclassified 1099 wages and $584,287 in unreported W-2 earnings, for a total of $1,171,536.00 in unreported wages by subcontractors on the Marriot renovation project. Six companies misclassified workers as contractors rather than employees, and seven companies failed to report wages. Among the worst of the offenders were one company that misclassified 28 workers and failed to report over $410,000.00 in wages; another failed to report $462,081 in W-2 wages.

10. Inn Owners Facing Workers’ Compensation and Insurance Fraud Charges

California: June 13, 2012


Owners of the historic Brookdale Inn and Spa are facing trial on charges of falsifying wage information to obtain lower insurance premiums.

The owners of historic Brookdale Inn and Spa, Sanjiv and Neelam Kakkar, are facing trial on charges that they falsified wage information to obtain lower insurance premiums. According to records, the couple paid approximately $800,000 less in insurance premiums than they should have over a period of several years.

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Wage Theft Is Illegal And Immoral

Kim Bobo

Today’s post comes to us from our colleague Leonard Jernigan of North Carolina. The work Kim Bobo is doing on behalf of working people is commendable and we hope that anyone who feels that they have been stolen from by their employer get in touch with her or us.

Kim Bobo, the Executive Director of Interfaith Worker Justice and the author of “Wage Theft in America,” recently spoke at Duke Divinity School and then at N.C. Central University School of Law in Durham, N.C. Ms. Bobo, who was awarded the Pacem in Terris Peace Award in 2012 (other recipients are John F. Kennedy, Mother Teresa, and Martin Luther King, Jr.), has a simple reason for the work she does: as a person of faith, she recognizes injustice and seeks to correct it. Wage theft, which is defined as stealing from workers what they have rightfully earned, is not only illegal it is immoral. She is simply trying to get people to do something about it.

In September a $4 million settlement was announced by the Harvard Club of Boston for not paying tips to its staff.

At N.C Central law school, Bobo spoke to students about waiters not getting tips, even though the restaurant collected those tips when the bill was paid, and asked if anyone in the room had experienced that type of theft. Indeed, one student shared a story about working at an exclusive club in South Carolina where that practice was routine. After reporting the problem and getting nowhere, he finally gave up and quit. He is still bitter about it. In September, a $4 million settlement was announced by the Harvard Club of Boston for not paying tips to its staff. Small amounts can add up for the employer.

Bobo gave some action items to the audience that I wanted to share with you.  She said we need to:

  • start recognizing the seriousness of the problem;
  • start getting attention about the problem in order to fix it;
  • stay focused; and
  • if necessary, cross of the lines of our comfort zone.

For more information about Interfaith Worker Justice, go to: www.iwj.org/

 

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