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Sisters Owning Sewing Contractors Face Criminal Charges for Payroll Fraud

June 09, 2015

Posted in Business Start Ups, Employment Law

photo - payroll fraud by IozikikiIt must’ve made sense at some point for the business owners. Paying employees under the table and under reporting employees for workers compensation purposes must’ve been a money saver. That cost cutting strategy for two sisters owning sewing subcontractors unraveled in a big way after being arrested (with their accountant) for workers compensation fraud.

Sisters Sung Hyun Kim and Caroline Choi and their accountant, Jae Kim, 71, face charges of suspicion of workers’ compensation insurance premium fraud (which involves an employer scheming to defraud their workers’ compensation insurer by paying less for their insurance than they should). Their arrests were announced by California Insurance Commissioner Dave Jones in April, according to a story by the Associated Press.

Their alleged scheme involved underreporting the number of their employees and $78.5 million in payroll to insurers and California agencies. Kim and Choi are CEO’s of two apparel sub-contractors, Meriko, Inc., and SF Apparel, Inc. The Los Angeles County district attorney’s office is prosecuting the case.

The women are accused of conspiring with their accountant to hide payroll and avoid paying workers’ compensation insurance premiums. This resulted in multimillion-dollar premium losses for several workers’ compensation insurers including State Compensation Insurance Fund. Many employees were found to be paid “under the table” from a bank account that was never disclosed to the state agency or insurance carriers.

This scheme was discovered because of inconsistent documents covering the same topic (payroll) provided by the companies to different government agencies. Officials claim payroll records were fabricated and the investigation started after insurance officials found reports by their companies showed significantly less payroll than similar reports given to the California Employment Development Department.

Premium fraud in California may be punished by imprisonment for over a year in county prison, or in a state prison for two to five years. A fine can also be imposed, not exceeding $150,000, or double the amount of the fraud, whichever is greater. If someone is convicted of workers’ compensation fraud the court must order restitution to be paid and a convicted person may also be charged the costs of the investigation.

Workers compensation costs can be high and could present a challenge for a business, especially if the nature of the employees’ work is potentially hazardous. Whatever the cost may be, a business owner facing workers compensation fraud charges is looking at potential jail time and financial penalties that could cripple a business. Trying to save money by workers compensation fraud is a mistake you need to avoid.

If you have any questions about workers compensation premium fraud, or other legal issues facing your business, contact my office so we can talk about what’s going on and how the law applies to your situation.