White Collar Sophistication

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The idea of the ”white collar job” brings to mind a number of images? suits and ties, board meetings and business deals. How about fraud? Today’s Fraud of the Day from The Press-Enterprise highlights how one father-son duo committed white collar crime over two decades, leaving previous employees in suffering and despair.

The article reports that investigators brought what is believed to be Riverside County’s largest workers’ compensation fraud scam to a close. The court recently sentenced the defendant (the father of the father-son duo) to seven years in prison for bilking nearly $3.1 million from the California compensation insurance fund, the state employment development department and insurance companies. (Even the big shots turn out to be losers every once in a while.)The fraud, made possible by an underground system that pays employees in cash, was based on a sophisticated system of shell companies that the father-son fraud duo used to hide payroll and avoid workers’ compensation premiums. (The trail of lies and cover ups eventually leads to a cozy cell behind bars.? At least five shell companies that provided workers to conduct framing at construction sites were identified in the case. But how did the duo carry on the scheme for nearly 20 years without getting caught?

The two would hire employees to work for the shell companies and then lay them off. When the laid off employees would seek unemployment insurance or need workers’ compensation insurance, authorities would be unable to locate the shell company’s information. (And it took authorities 20 years to finally catch on?) When authorities would become suspicious, the duo would create another shell company and seek another insurance company. Investigators identified nearly 400 employees cheated in the scam. In addition, the two paid the employees in cash, allowing them to bid much lower on large construction deals, ultimately killing competition for construction in the immediate area. (So illegally pay employees, bid low and win all the construction deals, and don’t even pay workers’ compensation – that’s an excellent business plan if you’re interested in serving time for fraud.)The judge expressed disappointment in the defendant’s fraudulent behavior, maximizing sentencing based on the white collar crime collection of over $500,000. Authorities made it clear post trial that they will continue to investigate the underground construction market and fraudulent behavior with vigor.

And, what about the son? He pleaded guilty to his part in the scam in 2010 and was sentenced to four years in prison.

It seems that building blocks to success are not as sturdy when they employ underground workers that they paid with cash to outbid other construction companies. Looks like the construction frames, upheld by fraud, crashed down in the end.

Source: Today’s ”Fraud of the Day” is based on an article titled, ”WILDOMAR: 7-Year Sentence In $3.1 Million Fraud Case,” published by The Press-Enterprise on December 3, 2012.

A Wildomar man was sentenced to seven years in prison Friday, Nov. 30, in a $3.1 million workers’ compensation fraud case prosecutors believe is the largest ever in Riverside County.

Authorities cite the case as an example of problems spawned by an underground economy of cash-paid workers in the Inland area. A task force formed by district attorney’s offices in Riverside and San Bernardino counties, along with the state Employment Development Department, is investigating cases where workers’ comp fraud is suspected.

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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.