Category Archives: Fraud

2014 Top Ten Workers’ Compensation Fraud Cases

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

  Number Value
Non-Employee Fraud Cases 9 $ 74,876,000.00
Employee Fraud Cases 1 $ 450,000.00
Total $ 75,326,000.00

Five of the top ten fraud cases in 2014 are from California. The other five cases are from Florida, Texas, Arizona, Washington and Georgia. As usual, non-employee fraud cases dominated the list and the dollar amounts are staggering, led by the $36 million over-billing case out of southern California. An emerging issue is the misclassification of workers, and we will likely see more of these cases in 2015 as enforcement steps up in this area.

1. (California) Medical Equipment Company Overbills $36 Million (3/17/14)

The owners of Aspen Medical Resources were indicted in on 49 felony counts of fraud.
The owners of Aspen Medical Resources were indicted in on 49 felony counts of fraud.

The owners of Aspen Medical Resources had all their assets seized and put into receivership by the Orange County District Attorney. They were indicted in on 49 felony counts of fraudulent overbilling of $36 million for hot-cold physical therapy machines. Although these machines retail between $250 and $500 Aspen often billed Southern California workers’ compensation claims departments thousands of dollars each time a machine was rented.  

2. (California) 15 Medical Professionals Indicted in $25 Million Scheme – Small Child Dies (6/24/14)

Ahmed Kareem, one of 15 doctors accused of participating in a workers’ compensation scam.
Dr. Ahmed Kareem   is accused of participating in a workers’ comp scam.

Fifteen doctors, pharmacists and other medical professionals in Southern California were charged in a $25 million workers’ compensation scam which was linked to the death of a baby. Prosecutors alleged insurance fraud and conspiracy in the 44 count indictment which detailed that the head of a workers’ compensation claims management firm hired pharmacists to produce a pain-relief cream and then gave kickbacks to the doctors that prescribed it and conspired to submit phony claims. A 5-month old boy ate the cream and died when his mother, who was using the prescribed cream for back and knee pain, allowed her son to suck her fingers to sooth him. The next morning he was found dead and tests showed he had ingested lethal amounts of drugs in this cream.

3. (California) Lowe’s Settled Independent Contractor Misclassification Case for $6.5 Million (7/3/14)

Lowe’s misclassified its installers as independent contractors, rather than employees.
Lowe’s misclassified its installers as independent contractors, rather than employees.

Over 4,000 “Lowe’s professionals” in California are members of a class action alleging that Lowe’s misclassified its installers as independent contractors, rather than employees, thus depriving them of a variety of employee benefits, from workers’ compensation insurance coverage to 401(k) plan participation. Lowe’s, without admitting liability, recently settled the case after mediation for a sum that could be as much as $6.5 million. The plaintiffs claimed that Lowe’s retained and exercised control over their work by requiring them to identify themselves as working for Lowe’s, wear Lowe’s hats and shirts, and attend training by Lowe’s.

4. (California) Paving Company Cheats System of $4 Million (6/19/14)

Sabas & Lucia Trujillo
Sabas & Lucia Trujillo face criminal charges for workers’ comp’ fraud.

Five owners (Sabas Trujilo, Lucia Trujilo, Rick Trujilo, Laura Fitzpatrick and Alex Trujilo), operators and employees of a Corona, California based paving company are facing criminal charges for alleged wage theft, premium fraud, workers’ compensation and payroll fraud. The Riverside County District Attorney’s Office alleges that the individuals’ criminal actions enabled them to illegally obtain about $4 million. After launching an investigation, the state obtained search warrants for both companies, seizing computers and bank, payroll and other documents. The state conducted several wage audits on several hundred projects, which ultimately led to the filing of criminal charges.

5. (Florida) False Insurance Certificates Check Cashing Scheme Defrauds Insurance Company of $1 Million (11/18/14)

Arturo Santos Zuniga paid laborers cash to avoid paying workers' comp'.
Arturo Santos Zuniga paid laborers cash to avoid paying workers’ comp.

Arturo Santos Zuniga, who also went by the name David Hernandez, was busted for paying laborers in cash to avoid paying workers’ compensation insurance premiums. Zuniga paid a North Lauderdale man to create and insure a fake or “shell” company, Behar Services Incorporated, and “rented” out insurance certificates to uninsured subcontractors in South Florida. Payments to the uninsured subcontractors were made through checks to the fake company, which were then cashed at check cashing stores. Behar Services Incorporated got its insurance policy by saying it had 10 employees doing carpentry and office work with an annual payroll of $210,000. The annual premium was about $26,500. Law enforcement financial reports show that just in the months from July to October, more than $7.3 million had been cashed out at check cashing stores to Behar Services Incorporated and/or the North Lauderdale man who started the company. A $7.3 million payroll would have cost more than $1 million more than the existing policy. No estimate of lost tax revenue was given.

6. (Texas) Man to Pay $806,000 for Underreporting Payroll to Workers’ Comp Carrier (3/11/14)

Howard Douglas Whiddon of Travis County was ordered to pay $806,000 in restitution.
Howard Douglas Whiddon was ordered to pay $806,000.

Howard Douglas Whiddon was ordered to pay $806,000 in restitution to workers’ compensation insurer Texas Mutual Insurance Co. after pleading guilty to workers’ comp fraud-related charges. He intentionally misrepresented the payroll of a related company, thus lowering his premiums. Mr. Whiddon was sentenced by a Travis County, Texas court to 10 years of deferred adjudication and 160 hours of community service.

7. (Arizona) Paul Johnson Drywall Inc. Agreed to Pay $600,000 in Back Wages, Damages and Penalties to 445 Employees (5/19/14)

Paul Johnson Drywall Inc. classified its workers as “members/owners” instead of employees.
Paul Johnson Drywall Inc. classified its workers as “members/owners” instead of employees.

Paul Johnson Drywall Inc. classified its workers as “members/owners” instead of employees, which stripped them of workers’ compensation and other protections afforded to employees. The owner, Robert Cole Johnson agreed to take concrete steps to ensure that misclassification of its workforce does not occur again and to pay $556,000.00 in overtime back wages and liquidated damages to at least 445 current and former employees. The employer also agreed to pay $44,000.00 in civil monetary penalties. Investigators found that the drywall contractor violated the Fair Labor Standards Act overtime and record-keeping provisions.

8. (Washington) Summit Drywall, Inc. Ordered to Pay $550,000 in Unpaid Wages and Damages to 384 Workers (2/20/14)

The owner of Summit Drywall, Inc. was ordered to pay damages to 384 employees.
Summit Drywall’s owner was ordered to pay damages to employees.

Thomas Kauzlarich, the owner of Summit Drywall, Inc. was ordered to pay $550,000 in overtime back wages and liquidated damages to 384 current and former employees. An investigation showed that the company violated the Fair Labor Standards Act’s overtime and record-keeping provisions from October 15, 2009 to April 15, 2013. The article did not report the amount of reduced workers’ compensation premiums paid.

9. (Georgia) Nurse Gets 5 Years in Prison for $450,000 Bogus Workers’ Comp Claims (8/26/14)

A VA nurse from Glenwood, GA, will serve five years in prison for mail fraud and fraudulent claims.
A VA nurse from Glenwood, GA, will serve five years in prison for mail fraud and mailing fraudulent claims.[/caption] Loretta Smith, a VA nurse from Glenwood, GA, will serve five years in prison and must repay $450,000.00 in federal funds by filing bogus workers’ compensation claims, pleading guilty to two counts of mail fraud in the mailing of fraudulent claims, in which she received more than $450,000.00. She agreed to forfeit the equivalent of $454,740.06 in cash, real estate and other property. She was also sentenced to three years probation after her release.
10. (California) Drywall Company Owners Arraigned on $420,000 in Fraud Charges (12/11/14) The owners of a defunct drywall company, National Drywall in San Bernardino, CA, were arraigned on charges that they defrauded their workers’ compensation insurance carrier of $260,000.00 and stole $160,000.00 from their workers.
 
Honorable Mention 

(Oregon) Uncooperative Hillsboro Businessman Convicted of $481,519 Tax Evasion – Only Gets 30 Days In Jail (9/30/14)

Stephen Nagy engaged in fraudulent schemes to evade payment of payroll taxes.
Stephen Nagy engaged in fraudulent schemes to evade payment of payroll taxes.

Stephen Nagy was the former president of Hillsboro-based S&S Drywall Assemblies. The IRS assessed the company $481,519 in federal employment taxes, penalties and interest between June 2009 and September 2010. Nagy met with the IRS and chose not to comply with the payment plan and engaged in a variety of interrelated fraudulent schemes to evade the payment of the delinquent payroll taxes. Nagy intimidated, manipulated, and threatened the loss of much needed jobs to gain the cooperation of his employees. Special agents of the IRS learned that Nagy had transferred all of S&S Drywall Assemblies income, contracts, receivables and assets to ASM Drywall, Inc. a shell company he created and placed in his sister’s name. The Oregon attorney general prosecuted Nagy in 2011 on allegations of criminal anti-trust and racketeering. He was sentenced to 30 days in jail and five years of supervised probation.

 
For more information, contact:
Leonard T. Jernigan, Jr.
Adjunct Professor of Workers’ Compensation
N.C. Central University School of Law
The Jernigan Law Firm
2626 Glenwood Avenue, Suite 330
Raleigh, North Carolina 27608
(919) 833-0299
neb@jernlaw.com
Website: www.jernlaw.com
Facebook: https://www.facebook.com/jerniganlawfirm
Twitter: @jernlaw
Blog: www.ncworkcompjournal.com

Voter Fraud / Worker’s Comp Fraud Same Scare Tactics

Studies indicate that employee worker’s compensation fraud is minimal

I’ve said several times in this blog that I view most news through the prism of a lawyer represented injured workers. This morning’s headline noted “Democrats Reject Fraud Tales – Say Make Voting Easier”. Republicans have focused on the voter fraud issue in an attempt to limit voting from those who they assume will vote against them (employees, poor people, people of color). Republicans have resisted efforts at mandatory early voting periods and same day registration to make it easier to cast ballots. Their argument is eerily similar to the scare tactics employed by employers and insurers in worker’s compensation fraud. 

Studies indicate voter fraud throughout the United States is virtually absent.

However, statistic belie these claims. Studies indicate voter fraud throughout the United States is virtually absent. In the same manner, employers and insurers routinely harp on the issue of employee worker’s compensation fraud (alleged malingering, etc.) and studies also indicate that employee worker’s compensation fraud is minimal at best (in Wisconsin studies suggest less than one-sixth of one percent). On the other hand, employer fraud (misreporting classifications of employees, classifying employees as Independent Contractors rather than employees) is rampant and costs the industry millions of dollars.

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.