In late February 2013, the owner of Genesis Building Services, Inc., a janitorial and pest control company in the Bay Area, was sentenced for insurance premium fraud. The owner, Teresa Reif, plead no contest to 8 counts and was sentenced to serve one year in jail, five years’ probation as well as being ordered to pay $1,651,148 to State Compensation Insurance Fund and $451,310 to Berkshire Hathaway (Redwood Fire and Casualty) in restitution to the insurers.
Ms. Reif will not have to serve time in county jail since in April 2013, the judge agreed to modify her sentence and allow her to serve her sentence on home confinement with electronic monitoring so she could care for her three children. The prosecution objected but the judge granted the defense's request for modification in a humane and reasonable ruling.
Ms. Reif was originally arrested in April 2011 after an investigation
that lasted several years. She was accused of having failed to report more
than $10.5 million of her payroll over a four-year period. The company
allegedly omitted more than half of the company's payments to its more than 140
employees from the monthly reports filed between March 2005 and March 2009. This was a family business and Ms. Reif ran the business with her brother. The
company was originally accused of fraudulently avoiding nearly $3 million in
insurance premiums but it was agreed by the time of the plea that the loss
amount was $2 million.
The company was accused of omitting more than half of the company's
payments to its more than 140 employees from the monthly reports Ms. Reif filed
between March 2005 and March 2009. The carrier, Redwood Fire and Casualty,
became suspicious after it received conflicting statements from Genesis
staff regarding the actual number of employees at the company. The company had also obtained insurance from State Compensation Insurance Fund (SCIF).
Based on these conflicting reports, the insurer notified the Department of Insurance and the fraud division began an investigation. During a search of the business, a second set of fraudulent books were found.
Based on these conflicting reports, the insurer notified the Department of Insurance and the fraud division began an investigation. During a search of the business, a second set of fraudulent books were found.
White Collar Criminal Defense Attorney Commentary On This Workers' Compensation Insurance Premium Fraud Prosecution
A number of lessons can be gleaned from this particular case. First, it
can take years for these cases to be resolved since this case was not filed
until 2011 for conduct that ended in 2009. It appears that the prosecution
waited until the statute of limitation was about to run before it filed.
Second, the prosecution can go back years if they can show that the
fraud was not discovered. We have seen cases go back 10 years in seeking to
collect premiums. The case was prosecuted by the San Mateo County District
Attorney's office.
Third, in this case it does not appear that the company was able to pay
the restitution before sentencing. This is often key in plea negotiations. In a
number of cases, we have had parallel civil lawsuits which we have negotiated
at the same time in order to avoid jail time.
Fourth, the prosecution prefers to file against individuals and not
companies. In some of our cases, we have been able to have the companies added
as defendants and have the individuals dismissed where we have been able to pay
restitution and work out a mutual resolution.
Fifth, what we have seen is that once the Department of Insurance gets
involved with a fraud complaint, they will request payroll information from the
State of California. Often employers will report the correct payroll
information to government authorities but report different numbers to workers’
compensation insurance companies. In those cases, it becomes fairly simple for
the prosecution to prove the fraud.
Sixth, we have seen cases that became criminal where the employer
decided to be aggressive and fight the insurance carrier on the demand for
payment after an audit. In some cases, it makes sense to fight the carrier but
there needs to be a full evaluation of the facts and reporting and ensure that
an insurance fraud report will not be a viable option for the carrier. We have
seen disputes over $90,000 turn into criminal cases where they could have been
settled early on.
Seventh, one important factor is where your case is being prosecuted and the judge that is assigned to your case. A sentencing analysis in this case would show exposure of 17 years for all counts and due to the large loss amounts. However, that is not the type of sentence that is usually imposed. In this case, the prosecution and court understood that the large amount of restitution, the felony convictions were significant punishments and did not insist on a lengthy jail sentence. However, we have seen that these cases are handled with an understanding of the underlying business issues facing employers in the worst recession of our lifetime (high workers' compensation premiums that could close an employer's business).
Seventh, one important factor is where your case is being prosecuted and the judge that is assigned to your case. A sentencing analysis in this case would show exposure of 17 years for all counts and due to the large loss amounts. However, that is not the type of sentence that is usually imposed. In this case, the prosecution and court understood that the large amount of restitution, the felony convictions were significant punishments and did not insist on a lengthy jail sentence. However, we have seen that these cases are handled with an understanding of the underlying business issues facing employers in the worst recession of our lifetime (high workers' compensation premiums that could close an employer's business).
Finally, for those businesses that are run by licensed individuals
(physicians, contractors, etc.) we have had success in reaching agreements so
that the business will not lose the license and livelihood. Most of the
prosecuting agencies do not want to close businesses and put employees out of
work. This should be part of the evaluation of the case, risks and potential
resolution.
Posted by Tracy Green, Esq.
Ms. Green is an experienced workers' compensation fraud attorney and white collar criminal defense attorney who has handled
cases representing employers, providers and individuals over the last 20 years.
