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Orange County District Attorney
Press Release
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Tony Rackauckas, District Attorney
401 Civic Center Drive West
Santa Ana, CA 92701
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For Immediate Release
Case # 12ZF0129
May 1, 2012
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Contacts:
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Susan Kang Schroeder
Chief of Staff
Office: 714-347-8408
Cell: 714-292-2718
Farrah Emami
Spokesperson
Office: 714-347-8405
Cell: 714-323-4486
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CONSTRUCTION BUSINESS OWNER TO BE ARRAIGNED FOR UNDER-REPORTING OVER $3.5 MILLION IN PAYROLL TO WORKERS COMPENSATION INSURANCE CARRIER
SANTA ANA A construction business owner will be arraigned tomorrow for under-reporting over $3.5 million in payroll to his workers compensation insurance carrier. 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. If convicted, Osumi faces a sentence ranging from probation up to 63 years in state prison. Osumi is scheduled for continued arraignment on the indictment May 2, 2012, at 9:00 a.m. in Department C-5, Central Justice Center, Santa Ana.
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 companys 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 employees 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.
Circumstances of the Case
The defendant is accused of owning and operating several construction businesses at the time the following incidents occurred.
Between 2001 and 2011, Osumi is accused of creating companies under the ownership names of family and close friends to avoid tax liability while personally operating his businesses. During that time, Osumi is accused of creating the following businesses in California and Nevada: dba PMC Inc., JECM, JECM, Inc., Kate Osumi Enterprises, Inc., KIO LLC, Legend Cellars, Inc., Legend Company Group LLC, P.M.C. Group IV Inc., Property Maintenance & Construction, LP, and TMS Inc.
Between December 2001 and March 2006, the defendant is accused of committing workers compensation insurance premium fraud by reporting his payroll to SCIF at just over $1 million. He is accused of actually maintaining a payroll of over $4.5 million, a difference of over $3.5 million from his reporting to SCIF. This resulted in a loss of over $814,000 in premium owed to SCIF.
Between May 2004 and October 2011, the defendant is accused of obtaining an American Express Card under the name of one of his former business associates and making unauthorized purchases.
On April 2011, the defendant is accused of committing perjury under the California Contractors State License Board (CSLB) contract code by declaring and stating as true a material matter he knew was false under penalty of perjury that he did not operate a business which required workers compensation insurance.
Between 2009 and 2011, the defendant is accused of withholding state taxes and disability insurance benefits payments from his employees and not forwarding these withholdings to the State or filing payroll reports with EDD. The defendant is accused of filing false reports, which did not contain the identity of all of his employees. Consequently, when two of his employees filed a claim with EDD to collect unemployment benefits, EDD had no record of their employment and these employees had to provide proof of their employment. The defendant is accused of distributing paychecks with insufficient funds to employees, despite Osumi running a business that earned income.
The Orange County District Attorneys Bureau of Investigation, EDD, and CSLB investigated this case.
Deputy District Attorney Shaddi Kamiabipour of the Insurance Fraud Unit is prosecuting this case.
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