01The Shell Game
When employers commit workers' compensation fraud, their intent is usually to avoid paying workers' compensation premiums. Employers use a variety of tricks to accomplish this goal. One involves the use of shell companies. This was the tactic utilized by Ousama Karawia.
Karawia was a reserve Sheriff’s Deputy for Los Angeles County. He created several security companies called International Protective Services (IPS) or similar names. The firms employed approximately 2,700 security workers in California.
Karawia created a fake holding company called International Armored Solutions (IAS). He then insured this company under a workers' compensation policy. Karawia told his insurer that his business employed only 35 workers. He did not buy any coverage for the companies that employed most of his workers. Karawia then submitted claims under the IAS policy for workers employed by IPS. Karawia's insurer uncovered his scheme when it conducted a workers' compensation audit.
Karawia was convicted of grand theft of labor, insurance fraud, and illegal possession of assault weapons. He received a five-year suspended sentence for fraud and was ordered to serve at least 240 days in custody. His deception cost his insurer an estimated $10.1 million in lost premiums.
02They're Owners, Not Employees
Some employers attempt to reduce their workers' compensation premium by misclassifying employees or underreporting payroll. Shawn Campbell did both of these. As he later discovered, such actions can have very costly consequences.
Campbell and his wife operated a drywall business in Washington called E&E Acoustics. Washington is a monopolistic state, and all workers' compensation policies are issued by the Department of Labor and Industries (L& I). Campbell purchased a workers' compensation policy, classifying some employees as company owners. He also understated his payroll.
Campbell's fraud was uncovered after a carpenters union reported his activities to the L& I. Campbell was ordered to pay over $1 million in back premiums, late fees, and interest.
03Insurance Policy for Rent!
Some employers are creative, finding new ways to commit workers' compensation fraud. A Florida woman named Yucet Batista "rented out" her policy to others.
Batista created a shell company called Y&L Construction, for which she purchased a workers' compensation policy. She told her insurer that she had worked in construction for ten years and employed five workers. In reality, she had never worked in the construction industry and employed no one.
Bautista issued insurance certificates that listed her policy number in the workers' compensation section. She sold the certificates to uninsured contractors so they could avoid paying workers' compensation premiums. According to the Florida Department of Financial Services, Bautista issued more than 250 certificates and helped contractors avoid $2.1 million in workers' compensation premiums. Bautista was arrested and charged with multiple felonies.
04I'm Too Injured to Work but I Can Skydive!
Employees may also commit workers' compensation fraud. Some, like Donald Simmons, Jr., attempt to obtain disability benefits by filing a claim for a nonexistent or exaggerated injury.
Simmons was employed as a concrete cutter by a construction company in Santa Clara, California. Simmons filed a claim for an alleged on-the-job injury to his left hand. He alleged that the pain from the injury was so severe that he could not use his left arm. He said he was unable to drive and could not return to work.
Simmons had been out of work for three months when an investigator videotaped him. Not only was Simmons driving, he was giving skydiving lessons. He appeared to have no difficulty at all using his left arm. Simmons was observed boarding a plane with skydiving equipment and landing a parachute with clients tied to his body.
Simmons was charged with defrauding his employer's workers' compensation insurer of about $52,000. If convicted, Simmons could be imprisoned for over five years and be forced to pay restitution for the benefits he stole.
05What Out for Those Facebook Posts!
If you file a false workers' compensation claim, don't broadcast your misdeed on social media. Kayla Fortman of Ohio learned this lesson the hard way. Fortman had filed a claim alleging that she was injured in a slip and fall incident in a company parking lot. In a Facebook post, however, she stated that the fall occurred at a nearby gas station. The Ohio Bureau of Workers' Compensation learned about the post. Fortman was ordered to pay a fine and to return all the benefits she had received.
06The Ultimate in Faked Injuries
Some workers will go to extreme lengths to fake an injury. One of the most notorious was Bruce Gilbert, a con-artist who enlisted his wife to help carry out his scheme.
Gilbert was a bus driver for the Sun Coast Transit Authority in Florida. He sustained a slip-and-fall injury on the job and was declared totally and permanently disabled. Over the next 10 years, he collected $750,000 in disability benefits. Eventually, the transit authority's insurer became suspicious. Believing Gilbert's disability was fabricated, it sent an investigator to interview him. When questioned, Gilbert pretended he was mentally impaired and responded in a childlike voice. His wife claimed that the injury had caused her husband to regress to the mental age of a 5-year-old. She also maintained he'd suffered a stroke.
The investigator later observed Gilbert driving, hunting and playing golf with no sign of any disability. Gilbert and his wife were convicted of grand theft and workers' compensation fraud. They were ordered to reimburse the insurer $700,000.
07Operation Spinal Cap
Some workers' compensation fraud is committed by providers. This type of fraud can be very costly, especially when it involves multiple perpetrators.
Six healthcare professionals in California engaged in a complex game of workers' compensation fraud. The players included a hospital CEO, the CFO of a different hospital, two spine surgeons, a chiropractor, and a health care marketer. The hospital executives paid kickbacks to the spine surgeons and the chiropractor for patient referrals. The physicians and chiropractor received a payment for each surgery. They hid the kickback payments by creating fake contracts for work they never performed. They also inflated the cost of medical implants used in the surgeries.
The hospitals then billed workers' compensation insurers and the Department of Labor (which operates some federal workers' compensation programs). The fraud lasted for 15 years. During that time, one surgeon received over $5 million in kickbacks. The other surgeon and the chiropractor each received over $1 million. The conspiracy was discovered by FBI investigators, which dubbed it Operation Spinal Cap. All six defendants plead guilty to various fraud charges. All face prison sentences and must pay back the money they stole.
08Spanish Translation for Spanish Speakers
Provider fraud may be committed by individuals other than medical professionals. G&G Translation Services was owned by a California man and his sister. The company provided translation services to injured Latino workers.
Between 2008 and 2012, G&G billed insurance companies over $24.6 million in fraudulent charges. The siblings billed for services at clinics where physicians and staff were fluent in Spanish, so no translation services were needed. According to the California Insurance Department, the company billed $422,000 for services provided by an interpreter who was in prison when the services were supposedly performed. It also billed for service events lasting more than 12 hours in a day. This was more hours than the clinic was in operation. The scheme involved nine people, all of whom were arrested and charged with fraud.
09Self-Enrichment Through Self-Insurance
Employers, employees, and providers aren't the only people who commit workers' compensation fraud. A county in Pennsylvania lost almost $650,000 due to the acts of a corrupt third-party claims administrator.
Charles Costanzo and his partner, Marc Boriosi, owned a business called Executive Claims Administration, Inc. The company was hired to administer a workers' compensation self-insurance fund operated by Lackawanna County. As the fund administrator, the firm was supposed to review bills from providers, pay claims, and issue various reports. Instead, the partners spent their work days smoking cigars and watching porn on the Internet.
Costanzo and Boriosi embezzled money from the fund and used it for personal expenses. The two even took a crooked county commissioner on a trip (at the public's expense) to the Playboy Mansion in California. Both men were convicted of various charges, including money laundering, tax evasion, and insurance fraud. Boriosi was sentenced to 10 months in prison while Constanzo received 70 months.
9 Workers' Compensation Fraud Examples
Insurance fraud is pervasive in workers' compensation. The perpetrators may be employers, employees, providers or virtually anyone else involved in the system. Here are some examples of insurance fraud.