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The owner of a San Jose, California, security company was arrested for allegedly underreporting payroll by more than $12 million in an attempt to secure a lower workers compensation rate under false pretenses and cheating his insurer out of more than $3.2 million, the California Department of Insurance announced Thursday.
Security Code 3 Inc. owner Troy Carson, 55, of San Jose, was arrested in the sting, according to the department. Managers Victoria Cruz, 46, Lanette Wiegand, 46, both from San Jose, and insurance broker Jaime Lugo, 60, of La Crescenta, California, also face charges in connection with the fraud scheme. In total, the foursome is charged with 18 felony counts of workers compensation insurance premium fraud, according to a statement from the insurance department.
The investigation began after irregularities surfaced regarding how the company reported and handled employee injuries, including allegations that employees were dissuaded from reporting on-the-job injuries, according to the statement. Evidence revealed a complex scheme that was born out of an increase in the number of employee injured, which led an increase in the company's workers compensation premiums, the department said.
Investigators allege Mr. Carson formed a new company called SC3 DVBE Security Services Inc. to get around the increases. By underreporting the payroll and number of employees for the new company to their insurance company, they were able to reduce their workers compensation insurance premiums, according to the statement. Evidence also revealed their insurance broker, Jaime Lugo, was allegedly aware of the scheme to create a new company to secure a more favorable workers compensation rate and wrote a new policy for SC3 DVBE Security.
PHILADELPHIA — The red flags indicating potential workers compensation fraud are evolving, and employers and workers comp insurers must be aware of these new indicators, especially the nature of the injuries.