Construction Bandit Arraigned in California

A construction business owner appeared in court last week to face several felony charges which could land him up to 63 years in prison if he is found guilty.  One of the crimes he is charged with committing is reporting less than one quarter of his payroll to his workers’ compensation insurance carrier so that over a 5-year period he failed to pay over $814,000 in premiums owed.

According to the office of Orange County District Attorney Tony Rackauckas, George Osumi II of Irvine, California reported maintaining a total payroll of just over one million dollars from 2001 to 2006, when his actual payroll was closer to $4.5 million.  In a May 1st press release, the district attorney’s office listed Osumi’s charges:

“George Osumi II, 64, Irvine, was indicted Feb. 10, 2012, on 18 felony counts of misrepresenting facts to State Compensation Insurance Fund (SCIF), 14 felony counts of failing to file a return with intent to evade tax, 14 felony counts of willful failure to pay tax, 14 felony counts of willful failure to pay unemployment insurance and employment training tax, nine felony counts of willful failure to pay disability insurance deductions, one felony count of identity theft, and one felony count of perjury. He faces sentencing enhancement allegations for misrepresenting facts to SCIF, committing an aggravated white collar crime over $500,000, property damage over $65,000, and committing a crime while released from custody on bail on another felony.”

Osumi is accused of creating several companies under various names, often using names or initials of friends or family members, in order to hide his actual finances from government and insurance agencies over the past 10 years.  He is also accused of withholding insurance premiums and state taxes from employees’ paychecks, but failing to pass that money on and failing to file accurate payroll reports to California’s Employment Development Department (EDD).  When two of his employees filed a claim with EDD to collect unemployment benefits, EDD had no record of their employment.

The DA’s press release offered the following statements regarding these kinds of practices and their effect on the economy:

“What is Premium Insurance Fraud and Why Does it Hurt the Economy?

“California law requires that all employers maintain workers’ compensation insurance for their employees. Payroll records showing the number of employees and their income must be submitted to both the insurance company and the Employment Development Department (EDD), who oversee the audit and collection of payroll taxes and employment records for workers in California. Workers’ compensation Insurance rates are determined by a formula, which takes into consideration the factors above and the company’s loss history on claims.

“Premium insurance fraud is committed when an employer intentionally misrepresents to the State or his/her insurance company the number of employees, the nature of work performed by certain employees, the amount of payroll, and the loss history. These illegal misrepresentations allow deceitful employers to purchase workers’ compensation insurance at a significantly lower rate, or to avoid purchasing the insurance at all. This practice also places their competitors at a disadvantage because it forces them to compete against a company with lower operating costs.

“This deceptive under or non-reporting, drives up the cost of insurance premiums for legitimate businesses, which pay higher rates for their employee’s workers’ compensation insurance. These legitimate businesses are less competitive against crooked companies who are able to under-bid their competitors due to lower business costs resulting from insurance fraud. This also endangers injured employees who may be denied the workers’ compensation insurance benefits intended to meet their physical, psychological, and financial needs for a work-related injury.”

The Orange County District Attorney’s Bureau of Investigation, the Employment Development Department, and the California Contractors State License Board investigated this case.