Everyone has always known that underreporting payroll or
paying employees cash under the table could result in tax issues or civil
liability if a worker is injured. However, now such actions can result in criminal
charges. Therefore, paying an employee cash off the books can be a serious
liability risk for companies and its owners.
In a recent case, not only was the owner of a California business
charged with unemployment and workers’ compensation insurance fraud but she was
also charged with filing a false tax return with the California Employment
Development Department (EDD).
Renee Anne Vicary, age 51 years, allegedly owned and
operated four businesses: Angels Sports Bar and Gentleman’s Club in Corona; Angels Sports Bar and Grill in Anaheim;
Angels Roadhouse in Yucaipa; and Angels Roadhouse in Apple Valley. Angels Sports Bar in Corona was featured on an
episode of the Spike TV show “Bar Repair” in July 2011 during which it was
renamed Racks Billiards and Bourbon.
According to the the Riverside County District Attorney’s (RCDA)
Office, the investigation began nearly two years ago after they received
information that Ms. Vicary was underreporting her employee payroll at the Corona location. It is
common that investigations begin by someone reporting the wrongdoing (often
former employees).
The RCDA alleges that the insurance policy listed Ms. Vicary
as employing four employees at each of the Corona
and Anaheim businesses and three employees at
each of the two San Bernardino
County businesses.
Investigators allege that Ms. Vicary actually employed more employees at each
of the four locations than found on the insurance policy.
Following this discovery, search warrants were served at all
four businesses as well as Ms. Vicary’s Corona
home and several financial institutions. It took many months for EDD and three
insurance companies used by Ms. Vicary to complete audits. Once those audits
were done, it was alleged that losses were in excess of $340,000. She was then charged
by the RCDA’s Office with the following felonies: (1) filing a false tax return
with EDD, (2) failure to collect and pay tax to EDD, (3) willful misrepresentation
to obtain insurance, and (4) willful
misrepresentation to obtain Worker’s Compensation Insurance.
Ms. Vicary was arraigned on June 13, 2012, in Dept. 41 at the Hall
of Justice in Riverside,
following her surrender in court on an arrest warrant that was issued last
month. She entered not guilty pleas and has a felony settlement conference
scheduled for August 13, 2012.
A felony complaint is only an accusation and is not evidence
of guilt. Ms. Vicary is presumed innocent and is entitled to a fair trial at
which the government must prove guilt beyond a reasonable doubt.
If convicted as now charged, Ms. Vicary faces up to a
maximum of 14 years, four months in prison even though such a high sentence is very
unlikely in this case. Typically in these cases, the amount of restitution paid
is a factor in plea negotiations. The case is being prosecuted by the RCDA’s
Insurance Fraud Unit.
Attorney Commentary: This case shows how small businesses can
get into criminal trouble for bad business decisions that did not used to be
prosecuted as crimes. Some employees may even ask to be paid cash for their own
purposes (liens, support obligations, etc.) and employers have to be careful
not to do “favors” for their employees and pay them cash. All it takes is one
accident at work, one cash employee filing for unemployment or a disgruntled employee
to create a criminal case. It’s simply not worth it in today’s world.
What is the fraud? The DA’s Office alleges that the business failed to put the employees on payroll to save money in workers’ compensation premiums and EDD insurance. Even if that was not the company’s motivation, the company would have submitted paperwork under penalty of perjury regarding total payroll to EDD and its workers’ compensation insurance carriers with payroll totals that do not reflect the amounts paid to cash employees.
The State runs EDD and collected the unemployment insurance premiums and has decided to criminalize this conduct rather than conducting audits and collecting the money. If you face an audit, it is important to engage an attorney early and avoid having these type of investigations escalating. It is not clear what went on during the years that Ms. Vicary’s businesses were being investigated but often if the audit is handled early in a professional manner with a repayment for premiums or cash employees, a criminal case can be avoided. Every case is different but it is important to understand that each county DA office has special units for these types of cases and there is a trend towards more aggressive prosecutions of these offenses.
We have represented many employers for issues with underreporting workers' compensation premiums including issues where employees where paid cash, misclassified as independent contractors or with lower risk job titles and related issues. The earlier counsel is obtained, the better since waiting until after the audit is completed and the case is referred out makes it more difficult to resolve. We evaluate the issues and seek to ensure that mistakes and errors do not appear to have the indicia of purporseful underreporting.
What is the fraud? The DA’s Office alleges that the business failed to put the employees on payroll to save money in workers’ compensation premiums and EDD insurance. Even if that was not the company’s motivation, the company would have submitted paperwork under penalty of perjury regarding total payroll to EDD and its workers’ compensation insurance carriers with payroll totals that do not reflect the amounts paid to cash employees.
The State runs EDD and collected the unemployment insurance premiums and has decided to criminalize this conduct rather than conducting audits and collecting the money. If you face an audit, it is important to engage an attorney early and avoid having these type of investigations escalating. It is not clear what went on during the years that Ms. Vicary’s businesses were being investigated but often if the audit is handled early in a professional manner with a repayment for premiums or cash employees, a criminal case can be avoided. Every case is different but it is important to understand that each county DA office has special units for these types of cases and there is a trend towards more aggressive prosecutions of these offenses.
We have represented many employers for issues with underreporting workers' compensation premiums including issues where employees where paid cash, misclassified as independent contractors or with lower risk job titles and related issues. The earlier counsel is obtained, the better since waiting until after the audit is completed and the case is referred out makes it more difficult to resolve. We evaluate the issues and seek to ensure that mistakes and errors do not appear to have the indicia of purporseful underreporting.
Posted by Tracy Green, Esq. Please email Ms. Green at tgreen@greenassoc.com or call her at
213-233-2260 to schedule a complimentary 30-minute consultation.
Tracy Green is a very experienced California insurance fraud attorney, worker's compensation premium fraud attorney and Los Angeles white collar criminal defense attorney.
The firm focuses its practice on the representation of licensed professionals, individuals and businesses in civil,administrative and criminal proceedings. They have a specialty in representing companies and individuals in insurance fraud related matters in California. Their website is: http://www.greenassoc.com/
