Dirty Business

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California’s Labor Code states that employees in the state are employed at will, meaning that either the employer or the employee can terminate employment at any time without cause and without notice. (For employees that are desperate to keep their job, there are usually very few complaints for fear of termination.) Such is the case for today’s “Fraud of the Day” article which details how a couple, who owned a company that provided housekeeping and janitorial staff for luxury hotels in California, committed workers’ compensation fraud and victimized their employees, who were reluctant to report their injuries for fear of losing their jobs.

 The article states that the man and wife, who owned the janitorial company that supplied workers to luxury hotels in the San Diego area, worked with a group of accomplices to hide approximately 800 housekeeping and janitorial workers. (This was so they could avoid paying millions of dollars for workers’ compensation insurance and payroll taxes.)

State and local authorities learned of the scam after a competitor notified a watchdog organization, whose mission is to abolish illegal and unfair business practices in the janitorial industry, that the couple may be involved in illegal activity. (It turned out that the competitor was right.)

 An investigation was opened and employees revealed that their paychecks had the logos and names of other businesses than their own. It turns out that the couple used at least a dozen “shell companies” to defraud workers’ compensation insurance providers and the State of California. (They lied about the number of people their company employed, which reduced the company’s payroll as well as their insurance and tax obligations.)  Employees also reported that they did not receive any overtime pay or workers’ compensation benefits when injured on the job. (They feared termination if injuries were reported.)

Today’s fraudulent duo caused a loss of more than $6.6 million in what is deemed the largest fraud case of its kind in San Diego County. They not only cheated the State of California, but also gained an unfair advantage over competitors who ultimately lost out on bids and most likely had to cut staff.

The husband, who pleaded guilty to felony charges related to the tax evasion and workers’ compensation fraud scheme, received a sentence of eight years in state prison. His wife pleaded guilty to similar charges and received a six-year and eight months sentence. (Lucky for her, after spending some time in jail, she is now serving out the remainder of her term on probation.) As part of her plea agreement, the wife turned in $398,000 in cashier’s checks. Also, money from the sale of a commercial building will also go towards the more than $6.3 million the couple owes in restitution. (Seven other co-conspirators, including a son and daughter of the couple, have also pleaded guilty to charges related to the fraud scheme.)

This greedy couple got exactly what they deserved for running a dirty business. While they tried to make the state, workers’ compensation insurance companies, and ordinary citizens foot their tax and insurance bills, they ultimately got stuck with the tab. Congratulations to the investigators involved and the justice system for preventing this dirty deed from being swept under the rug.

Today’s “Fraud of the Day” is based on an article entitled, “Company owners plead guilty in $7 million San Diego hotel-worker fraud case,” published by The San Diego Union-Tribune on April 9, 2017.

The owners of a company that provided workers for luxury hotels including the Hotel Del Coronado have pleaded guilty in a nearly $7 million insurance fraud and tax evasion scheme, according to the District Attorney’s Office.

Prosecutors described the case, which involved the owners of Irvine-based Good Neighbor Services, as the largest fraud case of its kind in San Diego County history.

 

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.