California Workers' Compensation Fraud

From the Desk of:

Barry A. Saperstein

Shareholder

Managing Attorney, Northern & Central California

Certified Specialist,

Workers’ Compensation Law,

The State Bar of California

Board of Legal Specialization.

As I work from home during the nadir (hopefully) of the greatest pandemic of my lifetime, I am reading recent workers' compensation fraud cases. I wonder how some people try to "work the system" without fear they will be caught. In this day and age of computer technology and information gathering, there is only the issue of "when" a person who engages in workers’ compensation fraud will be discovered and prosecuted.

Here are just a few cases with my comments:

Article #1: A retired San Jose police officer accused of dissuading workers at his Northern California security company from reporting on-the-job injuries pleaded no contest to multiple felony fraud charges, prosecutors announced, for underreporting payroll. The Santa Clara County District Attorney’s Office said Robert Foster, 48, was convicted Friday after entering his plea. He faces up to three years in county jail under the terms of the deal and will be required to pay $1.13 million to Everest National Insurance and the state Employment Development Department. Foster owns Atlas Private Security, now Genesis Private Security. The company reduced its insurance premiums and taxes by reporting false and inaccurate payroll, underreporting the number of workers, paying employees off the books, and underreporting workplace injuries, prosecutors said.

COMMENT: It took an employee of the company to file a claim for injuries suffered from an MVA for the fraud to be discovered. When questioned, Robert Foster responded to the guard’s medical bills totaling $1 million by telling the insurance company the guard was not an Atlas employee. Investigators found records showing that the guard was driving an Atlas vehicle and wearing an Atlas uniform at the time of the collision. It appears that Mr. Foster is going to be wearing an orange uniform for a while.

Article #2: The owners of a chicken processing business that employed butchers and meatpackers in El Monte were arrested for allegedly underreporting nearly $4.5 million in payroll to reduce their workers’ compensation premiums, the California Department of Insurance announced. Wei Wen Wu, 54, and his wife, Feng Wen Lam, 49, are facing 43 felony counts of insurance fraud, grand theft, and conspiracy. The Insurance Department said the scheme to underreport payroll resulted in a loss of about $1.7 million in unpaid workers’ compensation premiums.

COMMENT: The fraud was discovered due to the insurance carrier, SCIF, suspecting fraud after reviewing a comparison of annual payroll audits with payroll reported to the state Employment Development Department. The California Insurance Department said, that after executing a search warrant, they found true payroll records and fake tax reporting forms. $1.6 million in losses is certainly not chicken feed.

Article #3: A federal judge on Friday sentenced Sam Solakyan to serve five years in prison and to pay $27.9 million in restitution to California workers’ compensation carriers that were victims of what the U.S. Attorney’s Office describes as a $250 million fraud scheme. A jury in July 2021 convicted Solakyan, 40, on one count of conspiracy to commit honest services mail fraud and health care fraud, and 11 counts of honest services mail fraud. Solakyan was CEO of several medical imaging companies, including Vital Imaging Inc. in Glendale and San Diego MRI Institute.

COMMENT: Mr. Solakyan was the CEO of these companies (and others) involved in kickback schemes with various physicians’ offices. Other companies controlled by the offender were: Vital Imaging, San Diego MRI Institute, Beverly Hills Radiology, Empire Radiology, Mid-Valley Imaging, and Radstar. Prosecutors said Solakyan submitted or caused to be submitted more than $250 million in claims for services procured through illicit payments. The court directed Solakyan to pay $9.6 million in restitution to Sedgwick, more than 33% of the total $27.9 million ordered. The court ordered Solakyan to pay State Fund $5.2 million in restitution, 18.6% of the total amount, with another $3.6 million going to Employers and $5.3 million for AIG, about 12% each.

Article #4: An unlicensed insurance agent who sold workers’ compensation coverage to businesses throughout California from 2012 through 2019 was sentenced to four years in prison and ordered to pay more than $1.4 million in restitution, the state Insurance Department announced. Karyl Lynn Reed, 58, was convicted last week on multiple felony counts of embezzlement with white-collar fraud enhancements for defrauding three companies. Reed acted as an agent and despite not having a license, she collected premiums for workers’ compensation coverage through companies including Envoy Business Partners and Allenn Specialty Group. She provided businesses with fraudulent insurance certificates leading them to believe they had coverage when they did not.

COMMENT: The scheme was discovered when two companies had claims filed by injured workers, and the companies discovered they did not have insurance.



Article #5: Federal prosecutors announced that a Northern California psychiatrist was sentenced to 120 days in jail and ordered to pay $1.4 million in restitution after pleading guilty to a scheme to falsify disability reports to allow clients to receive workers’ compensation benefits to which they weren’t entitled. The government’s sentencing memorandum describes meetings between Karalis and undercover agents in which he instructed clients on how to obtain federal and state benefits. “According to his plea agreement, Karalis admitted that between August 2015 and June 2020, he treated U.S. Postal Service employees who received Federal Employees’ Compensation Act workers’ compensation benefits for stress, and alleged psychological disorders,” the U.S. Attorney’s Office said in a statement. “Karalis advised non-disabled clients on how to continue to receive benefits to which they were not entitled. Karalis also admitted to submitting false reports and certifications about his clients so that they could continue to receive FECA benefits.”

COMMENT: In my opinion, this is the tip of the iceberg. Hopefully, more doctors who prepare fraudulent reports in order for uninjured workers to continue receiving benefits shall be investigated and prosecuted in the future.

Article #6: A husband and wife convicted of failing to report employees and payroll to the California State Compensation Insurance Fund over a three-year period were sentenced to 120 days in jail and ordered to pay $925,000 in restitution, the Department of Insurance announced. The department said it opened an investigation into Soruco Structures, a general contractor company after a worker filed a workers’ compensation claim alleging injury on a job site. “The investigation revealed Hall and Soruco committed workers’ compensation insurance premium fraud by failing to report employees and payroll to SCIF from Oct. 15, 2013, through Dec. 8, 2016,” the department said. “The investigation further revealed unreported payroll to SCIF, leading to a premium loss of approximately $585,666.” Investigators also discovered that Hall and Soruco committed payroll tax evasion by failing to report employees and payroll to California’s Employment Development Department from Oct. 15, 2013, through Feb. 6, 2019, which resulted in a payroll tax loss of approximately $342,405.

COMMENT: What appeared on the investigator’s radar was an employee filing a claim who was not listed as an employee on the insurance policy until after the claim was filed. Too little, too late.

We have almost finished the first half of 2022 and several cases of fraud have been exposed. The above individuals tried to skirt the law in attempts to either save money or profit from the workers’ compensation system. They may get away with their illegal activities for a while, but they usually are caught and face prison time, and high penalties with restitution.

The above cases reviewed and referenced were originally found on workcompcentral.com