Two Apparel Executives and Their Accountant Plead No Contest to Workers' Compensation Premium Fraud for Underreporting Payroll to Insurance Carriers

On December 1, 2016, two clothing manufacturing executives and their accountant pleaded no contest for their roles in underreporting workers' compensation premiums in a Case No. BA435018 prosecuted by the Healthcare Fraud Division of the Los Angeles County District Attorney’s Office. The loss amount was alleged to be $3.8 million in lost workers' compensation premiums.

The case was originally filed in 2015 with 18 counts. Sung Hyun Kim and Jae Young Kim each pleaded no contest to two counts of workers’ compensation fraud. Caroline Sung Choi entered her plea to two counts of failure to pay state payroll taxes. Ms. Choi and her sister, Sung Hyun Kim, were corporate officers for Meriko, Inc., and its successor, SF Apparel, both garment manufacturing companies that make brand jeans for other jeans companies. 

The DA's Office alleged that beginning as early as 2006, Sung Hyun Kim and Jae Young Kim, an accountant, underreported millions of dollars in payroll to insurance carriers. Losses were estimated to be roughly $3.8 million. The original allegations were that $7.8 million was underreported. Sentencing for all three individuals is set for January 24.

Attorney Commentary: In a workers' compensation premium cases, by not reporting accurate payroll figures, companies pay reduced workers’ compensation premiums when they underreport the number of employees, adjust their work categories or underreport the amounts actually paid. Sometimes this includes paying employees cash. 

We see these cases in industries where workers' compensation premiums are significant. In some industries, the premiums can be as high as 25%. The local county District Attorneys' Offices are funded by a special fund to prosecute these cases. Generally, the key to resolving these types of cases is reaching a restitution agreement with the insurance carriers. Often the goal is not to put the companies out of business. There can also be civil cases that run parallel to the criminal cases which need to be resolved. 

Workers' compensation carriers are now able to obtain the EDD reports and see what employers report to the government on payroll to see if there are any differences in what was reported to the insurance carriers. Workers' compensation carriers are also increasing the number of audits. If there are audits, it is important to obtain representation early in order to assess any issues and determine an overall strategy for the company and key officers or employees.

Posted by Tracy Green, Esq.
Green and Associates, Attorneys at Law
Phone: 213-233-2260
Email: tgreen@greenassoc.com