$ Billions In Employer Fraud: Top 10 Cases of 2011

Company owners fund lavish lifestyles with the money they steal through fraud.

When we hear about workplace fraud, most of us think of a worker faking an injury to receive benefits that he or she does not deserve. While that kind of fraud does exist, it is minor compared to the big money lost to fraud from companies.

The big money lost to fraud comes from companies, not workers.

Companies are cheating the government out of billions of dollars a year. It baffles me why we never hear about this, especially when, just by prosecuting these bad actors for defrauding the system, states could close large portions of their budget deficits without raising taxes or cutting spending, the overall cost of the workers’ compensation system would be lower, and costs to law abiding employers would be less.

Companies are stealing, and we are stuck paying the bills.

When companies commit workers’ compensation fraud and other kinds of payroll fraud — under-reporting or misreporting the number of employees on their payroll — they do major damage to working people’s lives in 2 major ways:

  1. State workers’ compensation insurance funds are left under-funded, and taxpayers may be called upon to replenish them. It’s a dollar out of your pocket and tacked onto the profits of the company.
  2. Workers are left without insurance if they are hurt on the job. Uninsured injured workers often receive poor medical care, or none at all. When these workers do receive medical care, often tax-supported hospitals or Medicaid (taxpayers again) are left to foot the bill while their employers pocket the profits from not having paid for insurance that they are required by law to have. Middle class workers who have prudently saved all of their lives can end up on the edge of bankruptcy. It’s why companies are required by law to provide workers’ compensation insurance.

This is not a new problem

I have been tracking this issue for over 20 years, as an adjunct professor of workers’ compensation law at NC Central University School of Law and somebody who has been practicing in this field for 30 years, as well as in my capacity as chair of the Workers’ Injury Law and Advocacy Group’s (WILG) national Fraud Task Force. In that time, I have consistently seen companies break the law. Even worse, for the small number of companies that do get caught, the cases are often settled for less than the amount the company saved by acting illegally. You and I wouldn’t expect to keep the stolen cash if we robbed a bank, so why do these employers keep some of their ill-gotten gains when robbing the government? When the victim is the taxpayer, it apparently pays to break the law.

We all need to come together to hold companies accountable for their legal obligations. If we did that, we wouldn’t be forced to make the choice between paying more in taxes and firing teachers and police. This enforcement issue is not about higher taxes; it’s about catching thieves who hide in offices and behind spreadsheets.

TOP 10 EMPLOYER FRAUD CASES OF 2011

This top 10 list represents just a small portion of the company fraud cases in the news this year. More importantly, the total amounts stolen are just a fraction of the amounts companies have managed to steal. For every company that has been caught, we can only assume many more are getting away with the same crime.

Of the $2 billion worth of fraud in just 2 of the following cases, only $498 million has been recovered. That’s over $1.5 BILLION that these employers got away with stealing. Once again, big business wins, while workers and taxpayers lose, big time.

  1. Insurance giant AIG commits $1 billion in workers’ compensation fraud.

    AIG settled the $1 billion suit for $450 million.

    This week, a federal judge approved a settlement by American International Group, Inc. to pay $450 million for shortchanging state insurance pools by nearly $1 billion. This is the same AIG that taxpayers bailed out during the 2007 economic crisis, and just last year they paid $146.5 million in fines, taxes and assessments in a settlement with all 50 states over workers’ compensation reporting errors. A good recovery, but the settlement leaves a potential $550 million in unrecovered funds.

  2. Compensation Risk Managers commits $1 billion in fraud, forcing many small businesses to close.Compensation Risk Managers (CRM), a company that acted as trust administrator for small business in New York State who self-insured for workers’ compensation, was sued in 2009 for $400 million in a lawsuit for fraud. CRM was deliberately underestimating the liabilities of many businesses, making its service seem to save companies money when it was really leaving them with inadequate reserves when workers got hurt. When CRM filed for bankruptcy, New York State was left with no other option than to go after the 900 small businesses that were CRM’s clients, who have collectively under-paid over $600 million. Many businesses were forced to close, and only $48 million has been recovered so far.
  3. California couple underreports payroll by $30 million, buys Ferraris and Rolexes instead.

    Kile and Petronella funded a lavish lifestyle with the money they stole.

    Devon Lynn Kile and her husband Michael Petronella committed a total of $30 million in insurance fraud, while buying $500,000 in jewels, Rolex watches, and a car collection including two Ferraris, a Bentley and a Range Rover. Kile has been sentenced to 10 years probation and a possible 10 years in prison, and has been ordered to pay $2.8 million in restitution. Investigators also found an application by Ms. Kile to appear on Bravo’s “The Real Housewives of Orange County.” The couple are walking off with a profit of more than $27 million for their scheme.

  4. Janitorial company owner underreports $10 million in payroll and saves $2 million.

    Teresa Reif, owner of Genesis Janitorial.

    In April, Teresa Reif, owner of Genesis Janitorial in San Mateo, CA, was arrested for under-reporting the number of employees and her payroll to her insurance carriers. Reif allegedly employed more than 140 people but reported fewer than 70 and used fraudulent paperwork to support her lies. Inconsistencies in her numbers alerted her insurance carriers to the fraud and her fraudulent books were found during a search of her business. If convicted, she faces up to five years in prison and a $50,000 fine. That leaves nearly $2 million in unrecovered funds and 70 employees without insurance.

  5. North Carolina man pleads guilty to $2.7 million in fraud.
    $2.7 million of NES’s work’ comp’ insurance payments were stolen by Carl Dale Fuller

    Carl Dale Fuller, a North Carolina business man, defrauded his employer and the company’s employees when he pocketed the $2,716,537 of the company’s workers’ compensation insurance premium payments. He issued fake insurance certificates and even paid a few claims, but was finally caught by the FBI and brought to justice. The fraudster faces up to 20 years in prison, a $250,000 fine and must pay back all of the money he took in premiums.

  6. Maki-Maki restaurant owners are convicted of tax evasion and insurance fraud totaling $2.1 million.

    Maki-Maki restaurant owners were convicted of $2.1 million in fraud.

    In February, the former owners of two high end Japanese restaurants pled guilty to 14 felony counts including $2.1 million worth of tax evasion and insurance fraud. Since 2001 the couple had pocketed the money they were supposed to be paying in workers’ compensation premiums and unemployment insurance. The husband will also serve 2 years in jail, but the $2.1 million remains unrecovered, including an estimated $1.1 million sales tax loss to the state of California.

  7. Bay Area shuttle service owner convicted on 10 counts of workers’ compensation fraud, totaling $1.3 million.

    Owner of bay area shuttle contractor.

    In February, the former owner of a Bay Area shuttle service was sentenced to 10 years in prison and ordered to pay $2.7 million in fines after being convicted of more than 19 counts of workers’ compensation fraud. The company under-reported payroll by more then $5 million, resulting in more than a $925,000 underpayment of payroll taxes. The company also failed to report $11 million in income, costing the state and federal governments more than $500,000 in tax revenue.

  8. California general contractor convicted of multiple counts of fraud and ordered to pay $1.2 million.

    Monica Mui Ung convicted on numerous counts of fraud.

    Monica Mui Ung, owner of NBC General Contractor Corporation, was convicted of numerous counts of workers compensation and wage fraud, including underpaying wages due her employees, and failing to pay for overtime, sick leave, pension, health care, training, vacation, and other benefits as required by labor laws. She has been sentenced to 4 years in prison and ordered to pay $350,000 in restitution to her employees, as well as $850,000 to the State Compensation Insurance Fund. Because Ung was a recipient of public contracts, her actions “created an unfair bidding environment for all other legitimate bidders for public works contracts.”

  9. Gray Container owner ordered to pay $600,000 owed to the Ohio Bureau of Workers’ Compensation.Anthony Gray was recently sentenced for letting his company’s workers’ compensation insurance lapse, unbeknownst to his employees, who were filing valid claims. Gray Container, a 55-gallon drum manufacturer, has been ordered to discontinue operations until he becomes compliant with workers’ compensation law and takes action to repay more than $600,000 owed to the Ohio Bureau of Workers’ Compensation. The CEO of the Ohio Bureau of Workers’ Compensation has remarked that “[t]his is one of the most egregious cases of an employer simply ignoring laws meant to protect workers.”
  10. Ohio business owner fails to pay $73,000 worth of workers compensation coverage for her employees.

    Linda Bommer of R&W Swimming Pools was convicted of failing to maintain work' comp' insurance for her employees.

    In February, Linda Bommer, owner of R&W Swimming Pools in Harrison, Ohio, was convicted of failing to maintain workers’ compensation insurance coverage for her employees. Eight claims were filed against her company while she was operating a business under a lapsed policy. She currently owes approximately $73,000 in past due premiums, in addition to non-compliance claims costs.

Check back on NCWorkCompJournal.com frequently for more news on employer fraud. I’ll be devoting a lot of space to this issue in the coming months.

One thought on “$ Billions In Employer Fraud: Top 10 Cases of 2011

  1. Pingback: Corrupt Employers Just Keep Cooking the Books - North Carolina Workers' Compensation ExpertsNorth Carolina Workers' Compensation Experts

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