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2016 Top Ten Workers’ Compensation Fraud Cases

Number Value
Non-Employee Fraud Cases 10 $ 412,000,000
Employee Fraud Cases 0 $ 0
Total $ 412,000,000

Four of the top ten cases in 2016 are from perennial offender California, three from Florida, one each from Massachusetts and Texas, and one involving 20 different states. The misclassification of employees by employers continues to create dramatic financial fraud, with resulting cost shifting, lost tax revenues and hardship to inured employees. As we noted last year, while the “gig economy” pioneered by technology companies has lead to debate about new classifications for workers, these companies remain subject to our laws. We are starting to see widespread litigation and settlements like Uber’s $100 million payment to disgruntled drivers in California and Massachusetts. We’ll keep tracking these new developments in the context of the misclassification and fraud actions that we’ve been tracking for many years.

1. (National) FedEx to Settle Driver Lawsuits in 20 States for $240 Million (6/16/16)

FedEx to Settle Driver Lawsuits in 20 States for $240

FedEx Ground Systems, Inc. has agreed to pay $240 million to resolve claims by 12,000 FedEx drivers in 20 states. FedEx was labeling the drivers as independent contractors to avoid paying additional taxes, fringe benefits, health care costs, workers’ compensation insurance, and much more. The drivers were also not paid overtime or reimbursed for expenses.

 

2. (California) Seven People Charged in $98 Million Workers’ Compensation Fraud Case (6/7/16)

Seven in Riverside County charged with $98M medical fraud

(Left): Payman Heidary Top row: Touba Pakdel Nabati, Jason Yang, Cary Abramowitz Bottom row: Quynam Nguyen, Ana Solis, Gladys Ross (Photo: Riverside County Sheriff’s Department)

Seven people have been indicted with 107 felonies in a business scheme designed to commit workers’ compensation fraud. The ringleader, Peyman Heidary, owned or ran numerous businesses, including law firms and health clinics, and used other people to disguise his involvement and create an illegal ownership structure. The clinics were found to have inflated billings to insurance companies by exaggerating patient injuries and treatments. The businesses fraudulently billed more than $98 million to 18 insurance companies, resulting in the businesses receiving over $12.4 million in payments.

 

3. (Texas) Labor Department “Mole” Helps Business Maintain $30 Million Workers’ Compensation Scam (6/28/16)

Tshombe Anderson

Tshombe Anderson

Lydia Taylor worked at the U.S. Department of Labor in Dallas and used her position to give her family members information about federal workers’ compensation claims and warn them when suspicions arose about their fraudulent billing. Taylor’s uncle, Tshombe Anderson, was the ringleader of the group. Anderson and others formed several businesses that fraudulently billed the federal workers’ compensation program $30 million for unneeded and unrequested medical equipment for rehabilitation patients.

 

 

4. (Florida) Fake Construction Company used to Process over $17.4 Million of Fraudulent Payroll (3/28/16)
Orquidea Quezada set up Orquicely Construction LLC and used the company to process payroll for subcontractors who employed hundreds of people. In exchange for her services, Quezada kept a five percent fee. The scheme allowed the contractors to avoid paying payroll taxes, workers’ compensation insurance, and to conceal the employment of undocumented workers.

 

5. (Florida) Fake Construction Company Used to Cash $7.4 Million in Undocumented Worker Payroll (7/7/16)

Yamil Sanjurjo Cordero and Sandro Mendoza Alvarado

Yamil Sanjurjo Cordero, 33, and Sandro Mendoza Alvarado, 35. (Sun Sentinel / Broward Sheriff’s Office Handout)

Two men set up a shell company, Sunrise All Contractor Corp., to receive payments and cash checks for a fee on behalf of other companies that would then pay their undocumented workers. The scheme enabled employers to avoid workers’ compensation premiums and payroll taxes. These schemes are popular among employers of undocumented employees because these employees are less likely to blow the whistle on the fraud out of fear of exposing their undocumented status.

 

 

6. (California) Insurance Company Agent Misappropriated $7.3 Million and Unable to Pay Workers’ Compensation Claims for California Indian Tribe (8/19/16)
The operator of Management Resources Group California LLC, Gregory J. Chmielewski used more than $7.3 million from the company’s reserve accounts for his own personal investments. The company managed another company, Independent Management Resources, which sold workers’ compensation insurance to California Indian tribes. Chmielewski’s actions resulted in the company being unable to cover 117 claims.

 

7. (California) Contractor Cheated Workers’ Compensation Insurer Out of More Than $5.4 million in Premiums(10/5/16)
State of California Department of InsuranceMichael Harold Kreger, the owner of Michael Kreger Contracting was sentenced to 9 months in jail, 5 years of probation, 1500 hours of community service, and ordered to pay restitution of more than $5.4 million for underreporting his payroll and committing insurance fraud. Mr. Kreger cheated his company’s workers’ compensation insurer out of more than $5.4 million and his employees out of adequate protection for potential workplace injuries.

 

8. (Massachusetts) Construction Companies Ordered to Pay $2.6 Million for Fraud in Misclassifying Workers (8/2/16)
AB ConstructionForce Corporation, AB Construction Group, and employers Juliano Fernandes and Anderson Dos Santos were found by the U.S. Department of Labor to have misclassified the bulk of their employees to avoid paying overtime wages, workers compensation insurance, payroll taxes, and more. A consent judgment was entered requiring the companies and employers to pay more than $2.6 million in damages and penalties for their fraud.

9. (California) Company Underreporting Payroll Defrauds Insurer of $2.1 Million (6/7/16)

Alvin Shih Chen and Fiona Chen of Metro Worldwide, Inc.

Alvin Shih Chen and Fiona Chen

Co-owners Alvin Shih Chen and Fiona Chen of Metro Worldwide, Inc., a trucking company, underreported payroll by $4.7 million. The owners paid their truck drivers in cash to avoid reporting them to the insurer and to reduce their payroll obligation. While the company reported nearly $3 million in payroll to California’s State Compensation Insurance Fund, the actual payroll amount was $7.6 million. An estimated $2.1 million in premiums was lost.

 

10. (Florida) Construction Company Defrauds Workers’ Compensation Insurer of $1.8 Million by Underreporting Payroll (4/6/16)

Maira Chirinos, owner of Pompano Beach-based Tocoa Builders Inc.(Broward County Jail)

Maira Chirinos, owner of Pompano Beach-based Tocoa Builders Inc.(Broward County Jail)

Maira Chirinos, the owner of construction company Tocoa Builders, Inc. misrepresented information regarding the company’s operations, employees, and payroll when applying for a workers’ compensation policy. The misrepresentations enabled Chirinos to avoid paying at least $1.8 million in workers’ compensation premium payments. An investigation found Chrinos grossly underreported payroll to the insurance company. She reported a payroll of $76,000, but more than $11 million in payroll checks were cashed during the period covered by the policy.

 

 

 

For more information, contact:
Leonard T. Jernigan, Jr.
Adjunct Professor of Workers’ Compensation Law
N.C. Central University School of Law

The Jernigan Law Firm
3015 Glenwood Avenue, Suite 300
Raleigh, North Carolina 27612
(919) 833-0299
jes@jernlaw.com
www.jernlaw.com
Twitter: @jernlaw
Blog: www.ncworkcompjournal.com

2015 Top Ten Workers’ Compensation Fraud Cases

Number Value
Non-Employee Fraud Cases 9 $ 848,000,000
Employee Fraud Cases 1 $ 1,500,000
Total $ 849,500,000

The top six of our top ten fraud cases of 2015 are from California, a perennial offender. The other four cases are from New York, Washington, Utah, and Massachusetts. As we continue to discover each year, non-employee fraud cases dominated the list. This year’s dollar amounts were particularly large, with nearly $850 million in total frauds. The largest fraud was a $580 million kickback scheme out of southern California. Authorities have begun to enforce the law against companies who have misclassified their workers and we expect to see a continued increase in these enforcement actions, both against our traditional offenders and against some of the sharing economy companies who are now the subject of multiple lawsuits.

1. (California) Surgeons and Owner of Hospital Charged In $580M Kickback Scheme (11/26/15)

(Credit: MoneyTimes) The kickbacks involving millions of dollars are increasing the insurance costs for patients.Such practice corrupts the relationship between doctor and patient, thus polluting medical profession.

(Credit: MoneyTimes) Kickbacks involving millions of dollars are increasing insurance costs for patients.

Five people have been criminally charged for their involvement in a medical kickback scheme that defrauded the California workers’ compensation system and insurance companies of $580 million over eight years. Two of the five charged were surgeons and one was a former owner of Pacific Hospital. The scheme benefited doctors and chiropractors who referred their patients to two Southern California hospitals for thousands of operations.

 

2. (California) FedEx Settles Misclassification Case For $228 Million (6/16/15)2. fedex
FedEx has agreed to pay $228 million to resolve claims by 2,300 FedEx Ground pickup and delivery drivers in California. FedEx was labeling drivers as independent contractors in order to avoid the costs of trucks, branded uniforms, scanners, fuel, maintenance of the trucks, insurance and much more. Drivers were also not paid for missed meals, rest periods, or overtime compensation.

 

3. (California) Spanish Translators Caught in $24 Million Workers’ Compensation Fraud Case (12/17/15)Screen Shot 2016-01-16 at 12.21.25 AM
The owners of G&G Translation services and over 200 of their employees fraudulently billed $24.6 million in workers’ compensation cases for services never rendered.  For example, one bill was for $422,000 for translation services by a translator who was actually in prison at the time. G&G obtained a list of patients who needed translation services at medical facilities and used those names to submit bills to large self-insured employers.

4. (California) Sewing Subcontractors Charged With Running $11 Million Dollar Workers’ Comp Insurance Fraud Scheme (4/16/15)
Caroline ChoiJae KimTwo CEOs of a sewing company were arrested on April 15, 2015 for conspiring with their CPA, Jae Kim, to underreport $78.5 million in payroll to multiple insurers. They were arrested on 18 felony counts of workers’ compensation insurance fraud totaling more than $11 million in losses.

 

5. (California) Truck Drivers Awarded More Than $2 Million Due To Misclassification By Employer (2/3/15)

Pacer Cartage drivers protesting in November (Photo from the Teamsters Union)

Pacer Cartage drivers protesting in November (Photo from the Teamsters Union)

Pacer Cartage, Inc. (one of the largest port trucking companies in the U.S.) owes $2,026,483 to seven truckers due to “unlawful payroll deductions and expenses as part of a wage theft scheme” by the company. The employees were incorrectly classified as “contract laborers” who were forced to lease their trucks by their employer, and the employer avoided paying workers’ compensation premiums. Their leases were deducted from their paychecks, and the employees were not allowed to use the trucks for any other business purpose or drive them home.

 

 

6. (California) NFL Player and Gallagher Bassett Adjuster Plead Guilty to Wire Fraud & Filing False Workers’ Comp Claims for $1.5 Million (10/1/15)

Marcus Buckley (55) played for the New York Giants from 1993 to 2000.

Marcus Buckley (55) played for the New York Giants from 1993 to 2000.

Claims Adjuster Kimberly Jones filed fraudulent workers’ compensation claims on behalf of former NFL player Marcus Buckley between 2001 and 2011. In 2006 Buckley filed a workers’ compensation claim that was settled for $300,000 in 2010. After the case was settled, Buckley and Jones filed numerous requests for reimbursement under Buckley’s closed cases providing fictitious invoices, statements and credit bills. Buckley received more than $1.5 million.

 

7. (New York) Plumbing and Heating Contractors Settle for $1.4 Million(4/21/15)
USDOL_Seal_circa_2015.svgFour Long Island City plumbing and heating contractors misclassified and underpaid a total of 300 employees. At least 25 employees were misclassified as independent contractors, several hundred were not paid overtime, and the companies’ recordkeeping did not meet the Fair Labor Standards Act requirements. The companies settled out of court when the Wage and Hour Division’s New York City District Office investigated and litigation began for a total of $710,000 in back wages to cover September 2010-April 2014 and damages for 300 employees equaling $1.42 million dollars.

 

8. (Washington) Drywall Contractor in Walla Walla Must Pay More Than $1 Million in Workers’ Compensation Premiums and Penalties (4/17/15)
drywallShawn A. Campbell and his wife were held personally liable for over $1 million in unpaid premiums, interest and late penalties for their company. Campbell listed his employees as co-owners in order to avoid paying workers’ compensation premiums.

 

9. (Utah) Construction Company to Pay $700,000 for Misclassification Scheme (5/1/15)
CSG Workforce Partners (a.k.a. Universal Contracting, LLC and later as Arizona Tract/Arizona CLA) required their workers to classify themselves as “members/owners” which limited their legal rights and gave them no minimum wage guarantee, no time-and-a-half overtime pay, no workers’ compensation insurance and no unemployment insurance. When the employers found out that the state of Utah was investigating, they packed-up and left for Arizona. However, they were tracked down and charged $600,000 in back wages to employees as well as $100,000 for their willful violations of employment laws.

10. (Massachusetts) Roofing Business Owners Indicted for Workers’ Comp Fraud Totaling $615,000 (3/25/15)
Two business owners allegedly failed to accurately report their payroll and underreported earnings in order to be granted lower insurance premiums in three roofing companies between 2008 and 2014. They avoided paying a total of more than $615,000 in insurance premiums alone.

 

For more information, contact:
Leonard T. Jernigan, Jr.
Adjunct Professor of Workers’ Compensation Law
N.C. Central University School of Law

The Jernigan Law Firm
2626 Glenwood Avenue, Suite 330
Raleigh, North Carolina 27608
(919) 833-0299
ltj@jernlaw.com
www.jernlaw.com
Twitter: @jernlaw
Blog: www.ncworkcompjournal.com