California State Fund Fraud Program Nets $5 Million from Convictions

State Compensation Insurance Fund’s anti-fraud program has enabled California district attorneys to win more than $5 million in restitution orders. The restitution judgments are reportedly a direct result of 155 premium fraud convictions during the last six years.

In San Diego County alone, restitution decisions this year totaled more than $2 million.

For example, the owners of the Branco Construction Company were ordered by San Diego County Superior Court to pay $834,000 in restitution following their conviction on felony workers’ compensation and unemployment insurance fraud.

In a similar case, owners of C & H framing were ordered to pay State Fund $800,000. C & H pleaded guilty to workers’ comp fraud, state income and payroll tax evasion, and conspiracy to file false tax returns.

On May 25, 2004, the owners of JDM Enterprises—a construction company operating in Carlsbad, Calif.—were ordered by a San Diego Superior Court judge to pay $394,940 to State Fund following JDM’s conviction on premium fraud.

In most cases, premium fraud involves an employer misrepresenting business operations to obtain workers’ comp insurance at a lower rate. Common examples include an employer under-reporting the number of staff on the payroll or misclassifying payroll and hourly wages.

“Fraud is a huge problem and is a contributing factor in driving rates up for California employers,” Donna Gallagher, manager of State Fund’s Fraud Investigation Program, said. “If all employers reported and classified payrolls accurately, we would undoubtedly see a drop in the overall rates.”

State Fund’s partnership with law enforcement offices has reportedly proven effective.

San Diego County Deputy District Attorney Ernie Marugg has served as a prosecutor on dozens of fraud cases involving State Fund. He agrees with Gallagher and commented, “I receive a great deal of cooperation from State Fund whose cases are always thoroughly documented, well outlined and have all the evidence properly laid out.” Marugg is among various law enforcement officials who have commended State Fund’s anti-fraud efforts.

In recent California Department of Insurance (CDI) annual reports submitted to the legislature, CDI cited 23 fraud cases of which 17 were the result of State Fund referrals or involved State Fund.

State Fund’s Fraud Investigation Program addresses all aspects of workers’ comp insurance fraud, including employee, employer, medical, legal and internal fraud. In the last decade, State Fund has produced hundreds of arrests and convictions in a wide range of workers’ comp cases, including some which were described as milestones in California’s fight against fraud.