Workers’ compensation fraud occurs when individuals intentionally make false representations to obtain or to deny workers’ comp benefits, which reimburse employees injured on the job.
Individuals committing workers’ comp fraud carry many faces—employees, employers, and healthcare providers all qualify as potential violators. Employees become violators when seeking benefits by misrepresenting their injuries, employment status, or treatment. Alternatively, employers commit workers comp fraud not to receive benefits, but to avoid responsibility. Employers often seek to avoid responsibility by underreporting employee payrolls and avoiding premiums. Last, health care providers, such as doctors, counselors, and pharmacists, become violators by duplicating bills, billing patients for improper services, and receiving payments from multiple insurance carriers for the same treatment.
2012’s Top 10 Cases
In 2012, the top ten workers’ comp fraud cases cost America $97,446,500. Below is a short description of each case and its damages:
1. Florida: “Operation Dirty Money”
Hugo Rodriguez, owner of the Oto Group, Inc. and 10 Shell companies, and seven other individuals funneled over $70 million in undeclared and undetected payroll through different money service businesses. Using Shell companies, Rodriguez sidestepped paying workers’ compensation coverage, leaving employees at risk and scamming legitimate businesses.
2. Ohio: 41,247 Private Employers Failed to Report Payroll Data
Thousands of private companies in Ohio violated state law by failing to pay their workers’ compensation premiums, totaling almost $5.6 million, which drove up insurance costs for other businesses.
3. Texas: Case Proves Employee Leasing too Good to be True
Jackson Brothers Hot Oil Service hired a staffing agency in 1999 to provide the oil company with temporary workers. Jackson Brothers required the agency to purchase workers’ compensation insurance for its employees, so the agency bought a policy for $4,100. Shortly after, one of the agency’s oil workers suffered severe injuries from an explosion, and the agency refused to pay the worker’s medical bills. The employee and Jackson Brothers sued the agency for fraud and won a judgment worth $4,466,500.
4. California: Business Owner Under-Reports Payroll by $3.5 Million
From 2001 to 2006, construction business owner, George Osumii, under-reported employee payroll to the State Compensation Insurance Fund by $3.5 million, preventing Osumii from paying $814,000 in insurance premiums.
5. Massachusetts: Watertown Roofing Company and its Owners Sentenced for Labor Violations
The Massachusetts Insurance Fraud Bureau discovered that Newton Contracting Company, Inc. and its owners misclassified half of its workforce as subcontractors, as well as failed to disclose more than $3.4 million of payroll during its annual workers’ compensation audits.
6. California: 7-Year Sentence for Dad and 4-Year Sentence for Son
Steven Morales, of Wildomar, California, was convicted and sentenced to seven years in prison for hiding payroll and avoiding workers’ compensation premiums totaling $3.1 million. His son Brian was also convicted and sentenced to four years in prison.
7. Florida: Construction Company President Accused of Payroll Fraud
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 intentionally under-reported his corporation’s payroll to his insurance carrier. If convicted, Seltzer could face up to 30 years in prison and pay over $2.8 million in restitution.
8. Florida: Owner of Fake Company Created Fraudulent Insurance Certificates
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. Massachusetts: $1.2 Million in Workers’ Compensation Violations at Boston Marriott Project
Through twelve audits, authorities discovered $584,249.00 in misclassified 1099 wages and $584,287 in unreported W-2 earnings, totaling $1,171,536.00 in unreported wages by subcontractors on the Boston 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. California: Inn Owners Face Fraud Charges
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.