Tag Archives: Texas

2014 Top Ten Workers’ Compensation Fraud Cases

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.

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
www.jernlaw.com
@jernlaw
Blog: www.ncworkcompjournal.com

“Opting Out” of Worker’s Compensation Hurts Workers and Employers (Part 2)

Today’s post comes from guest author Tom Domer, from The Domer Law Firm.

Last week we explained Wisconsin’s rich history of protecting injured workers through its mandatory workers’ compensation system. This week we’ll look at what is happening in Texas and Oklahoma, where it is not mandatory for employers.

Alternative worker’s compensation programs( like that of Texas’—and now Oklahoma— non-subscriber / “Opt Out” scheme) have the potential to significantly reduce workplace safety. Since experience rating is a fundamental component of worker’s compensation insurance systems, the comp system provides economic incentives to employers through reduced insurance costs to companies with reduced injury rates and safe workplaces.  Texas’ “opt out” option  means that an employer can choose to be self insured or become a non-subscriber and opt out of worker’s compensation insurance entirely. Those employers opting out of worker’s compensation systems are not experience rated and there is no economic incentive to reduce workplace injuries and ensure safe work environments for their employees.

Most recently on April 17, 2013 a fertilizer plant exploded in Texas, killing 15 and injuring approximately 200 people. EMS workers, firefighters, and other first responders were among the casualties.  The West Fertilizer Company was approved to have no more than 400 pounds of ammonium nitrate in the plant, but instead, 270 tons were reported to be on site. West Fertilizer failed to inform the Department of Homeland Security of the amount of fertilizer it had. Texas had as well the worst recorded industrial accident in America in 1947 when 3,200 tons of ammonium nitrate resulted in almost 600 deaths and 3,500 injuries.

Texas has the worst work-related fatality rate in the nation.

Texas has the worst work-related fatality rate in the nation. According to the Bureau of Labor Statistics, 433 reported fatalities occurred in 2011 alone in Texas with the highest (4.79 per 100,000 workers) for the last ten years. (Oklahoma is in line to follow). 

Oklahoma’s worker’s compensation measure was signed into law May 5 and it drastically changes how Oklahomans are compensated for on the job injuries. Republican Governor Mary Fallin has tried to change the worker’s compensation system for over 20 years in State politics.  She indicated the bill would reduce costs for businesses. The law changes worker’s compensation system from a judicial to an administrative one, allowing businesses to opt out of the worker’s compensation systems as long as they provide “equivalent” benefits to injured workers. Opponents of the law indicate that it is unfair to injured workers because it will reduce their benefits. The implementation of “equivalent” benefits, and what kind of injuries are covered or uncovered by those who “opt out” of the system is yet to be determined.

Cautionary note to employers: since those employers that “opt out” of worker’s compensation are no longer allowed the benefit of the exclusive remedy provision of worker’s compensation, workers who are not covered by worker’s compensation can sue their employers. For example, in a recent Colorado case where an undocumented worker (who by Statute in Colorado was not covered under worker’s compensation) received over a $1 million verdict against the negligent employer.

http://en.wikipedia.org/wiki/List_of_industrial_disasters

Worker’s compensation systems benefit both employers and workers, and the dangers of opting out of the system means a retreat to harsh industrial conditions, producing  the same kind of inequities  that workers’ comp remedied over a century ago. The situation calls to mind the maxim that those who don’t remember history are doomed to repeat it.

“Opting Out” of Worker’s Compensation Hurts Workers and Employers (Part 1)

Today’s post comes from guest author Tom Domer from The Domer Law Firm.

More than a century ago, Wisconsin’s initial efforts in worker’s compensation led the nation. In 1911 Wisconsin became the first state in the nation to place a broad constitutionally valid worker’s compensation system into operation. Recent events, specifically Oklahoma’s passing legislation to allow employers to “opt out” of worker’s compensation (following the “lead” of Texas) calls into question the great bargain made between employers and workers over a century ago. Prior to the enactment of worker’s compensation in the early 20th Century, workers who were injured on the job had to overcome three common law obstacles in order to recover from their employer.

Under contributory negligence, a worker could not recover from the employer if the worker had been negligent in any way and that negligence contributed to the accident, regardless of how negligent the employer may have been.

Under assumption of risk, if a worker knew or should have known of the danger inherent in the task at issue before undertaking it, the employer was not liable for an accident arising from the task even if the employee was not negligent.

Under the fellow servant rule, employers could not be held liable for accidents caused by fellow employees. 

The combined effect of these common law defenses served to deny Continue reading

All This Tragedy Should Be A Catalyst For Change

Today’s post comes from guest author Edgar Romano from Pasternack Tilker Ziegler Walsh Stanton & Romano.

This has been a tragic week in our country. Monday’s Boston Marathon attack was followed by Wednesday’s massive blast at the West Fertilizer Company in Texas. As I write, the final death toll from the West Fertilizer Co. fire has yet to be determined. It is currently unknown what caused the blast and it is unknown whether the casualties included employees, first responders or citizens. However as we look at this tragedy we should be reminded that this spring marks the 102nd anniversary of the Triangle Shirtwaist Fire. That terrible event which took place on March 26, 1911 was followed by a swift and aggressive response by workers and labor activists. Their response led to the establishment of many of the protective organizations American workers now rely on, including the workers’ compensation system, the American Society of Safety Engineers, and the U.S. Department of Labor.

As with the Triangle fire, this should be a time for action as well as reflection. April 28th is Workers’ Memorial Day, a great opportunity to talk about how to establish better workplace safety so that no tragedies like the Triangle factory or West Fertilizer explosion – if caused by unsafe work conditions – occur again. Whatever the cause, let this tragic week be a wake up call to us to prevent more people from dying needlessly in the future,

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

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

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

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.