Attorneys and Cappers Charged in Workers’ Compensation Scheme

California has taken many steps in recent years to help curtail workers’ compensation fraud.  On June 5, 2017, charges were filed against 16 people in an enormous workers’ compensation insurance referral scheme.  California law prohibits individuals or businesses from getting clients (a practice also referred to as “capping”) for attorneys or law offices.  The law also prohibits attorneys from paying cappers for client referrals, and also prohibits copy service companies from offering any consideration to attorneys in exchange for business referrals.  The penal code also prohibits conspiring to illegally referring or paying for clients as well as hiding capping from an insurance company in order to obtain benefits.  The Orange County District Attorney’s Office investigated this case for three years before bringing these charges.

In this case, Carlos Arguello III is accused of forming an “advertising” company in 2005 and securing illegal referral contracts with up to forty other workers’ compensation and personal injury attorneys.  Mr. Aguello is also accused of creating contracts that specified a monthly fee to be paid by these other attorneys in exchange for delivering a specified number of clients each month.  These “advertising” contracts targeted the Hispanic community.  The contracts also required these attorneys to use other companies he owned together with Edgar Gonzalez, which included copy companies.  Several others are accused of capping for Mr. Arguello and Mr. Gonzalez, and distributed flyers and business cards to predominantly Hispanic neighborhoods.  Once a potential client called and showed interest, a capper would be dispatched to the client’s home to have him or her sign important documents, including a retainer agreement, without ever meeting with an attorney.  The documents would then be sent to the subscribing attorney, without any input from that attorney.  The attorneys involved in the scheme are accused of allowing cappers to order, prepare, and submit documents on their behalf without any oversight.  Medical providers are also under investigation for paying for patients recruited by cappers, as well as prescribing medication and medical equipment from companies chosen by the cappers.

The charges include multiple felony counts of conspiring to refer clients for compensation, referring patients/clients with reckless disregard for commission of fraud, and insurance fraud.  The sentencing enhancements involved include aggravated white collar crime over $500,000 and loss of over $1.3 million.  Ten attorneys and six cappers have been charged.  Mr. Arguello faces a maximum of 29 years and eight months in prison, while Mr. Gonzalez faces a possible 20 years and eight months in prison.

Workers’ compensation fraud is a serious problem, and the State is combating it every day.  If you have questions about workers’ compensation and your business, contact me today at (714) 516-8188 to discuss them.

Potential Employer Penalties for Fraud

California law requires that all employers (with a few exceptions) maintain workers’ compensation insurance.  The purpose is to make sure that any employee who sustains a work-related injury will be fairly compensated.  In recent years, the California legislature has recognized that fraud in the workers’ compensation system is an enormous problem, and is costing tax-payers and voters dearly.  Penalties for fraud for both employees and employers can be severe.  It is important to understand what penalties an employer could face if he or she is found to have committed fraud in the workers’ compensation system.

First, it is important to understand that fraud is a criminal act.  Fraud in this context is a person that receives, accepts, offers, or delivers benefits he or she is not entitled to may be guilty of fraud.  These benefits may be in several forms, including commissions, refunds, preferential treatment, discounts, or other profit.  The penalty could be a fine of up to $10,000 and incarceration for up to a year.  These fines and jail sentences may all stack up, resulting in fines that can easily run into the six figures.  Moreover, some employers convicted of certain types of fraud, such as insurance premium fraud, could find their information publically published on the California Department of Insurance website.

Fraud can include several different acts for an employer.  These could include making false representations to the workers’ compensation insurance company, done with the intention of obtaining cheaper insurance coverage.  It could also include presenting false information with the intention of denying benefits to an employee with a work-related injury.  A third way it could occur would be to knowingly aid someone in engaging in fraud.  An example of that could be sending referrals to a medical provider the employer knows will be engaging in some sort of medical provider fraud.  Other common examples of employer fraud would be misreporting payroll or underreporting the number of employees.

Anyone who believes that fraud is occurring must report this suspicion to the DWC.  The reporting individual is not liable for defamation or slander suits, as long as the report is made with a good faith belief that fraud is actually occurring, and acts without malice.  The purpose of this is to make sure that fraud does not go unreported simply because the reporter is concerned about potential civil liability in the form of a lawsuit.

Workers’ compensation fraud can result in serious and sometimes ruinous consequences.  If you have questions about fraud and workers’ compensation, contact us today at (714) 252-7078 to discuss your business and how to protect it.

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