What have you heard about fraud in workers’ compensation? Respected colleague Professor Leonard Jernigan presents his top 10 workers’ compensation fraud cases in today’s blog post. Professor Jernigan is from The Jernigan Law Firm in North Carolina and also serves as an Adjunct Professor of Workers’ Compensation Law at the N.C. Central University School of Law.

Adding in this year’s tally of cases to previous ones, the economic fraud of non-workers involved in the workers’ compensation system is dominant by a 77 non-workers’ fraud to 3 workers’ fraud margin, for the eight years total that Professor Jernigan has compiled the list. Be sure to think of this article the next time someone tells you about the need for workers’ compensation “reform” on the state level because of workers’ compensation fraud of employees – ask that person if they have any references for the alleged worker fraud – and feel free to use this blog post as a reminder that non-worker fraud is a much bigger issue in workers’ compensation systems.

It is unfortunate that this article is necessary, but I appreciate the important work Professor Jernigan does to compile these fraud cases each year. It makes for very interesting reading and reminds folks that fraud occurs on both sides of the workers’ compensation debate, though from a dollar amount, worker fraud is minimal compared to non-worker fraud.

Here are the links to previous years’ posts that have run on our firm’s blog, which were published in 2016, 2015, 2014, and 2013, so they include cases that were compiled regarding 2015, 2014, 2013, and 2012, with the post below being 2016’s edition, to provide more historical context of this issue.

• $97 Million In Fraud: 2012’s Top 10 Workers’ Compensation Fraud Cases; 2012 TOTAL: $97,446,500
• $46 Million Stolen: 2013’s Top Ten Workers’ Compensation Fraud Cases; 2013 TOTAL: $46,562,492
• 2014 Top Ten Workers’ Compensation Fraud Cases; 2014 TOTAL: $75,326,000
• 2015 Top Ten Workers’ Compensation Fraud Cases; 2015 TOTAL: $849,500,000

Here’s to a safe and productive 2017 for all.

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 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)
   

   (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

   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, 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) Michael 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) Force 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

   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, 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