Separate Books, False Payroll Place Workers’ Comp Fraud in Bigger Scheme

Frank Ferreri

New Orleans, LA ( – The operator of dozens of convenience stores in Louisiana couldn’t separate workers’ compensation fraud charges from other federal counts he faced related to underreporting the wages of both documented and undocumented employees.

Instead, as the court held in United States v. HamdanNo. 19-60-WBV-KWR (E.D. La. 07/15/20), the same steps the operator allegedly took to defraud workers’ compensation insurers, he also used to conceal cash payments to employees and mail in false monthly payroll reports to commit tax and mail fraud.

Fake Books

In the case the government alleged, the operator had a separate set of books to track cash payments made largely to undocumented workers. What he actually reported for tax purposes was contained in an ersatz payroll that excluded the cash payments and undocumented workers.

This scheme involved workers’ compensation because the operator also mailed the false payroll reports to two workers’ compensation insurance companies. Likewise, the operator submitted false documents to the insurers in their annual audits of the stores’ workers’ compensation insurance. These documents included false IRS forms and payroll summaries that failed to report total wages paid to undocumented workers and store managers.

The government charged the operator with mail fraud, tax fraud, and workers’ compensation fraud under federal criminal law. In response, the operator sought to have the workers’ compensation charges separated from the other charges and filed a motion to dismiss the claims. He argued that having the charges brought together would unfairly prejudice his case at trial.

Under federal rules, criminal defendants may be charged with multiple offenses if they “are of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan.”

‘Same Alleged Conduct’

The court held that the workers’ compensation fraud charges could be joined with the mail and tax fraud counts because all of the charges concerned cash wages paid by the convenience stores to undocumented workers.

“The government alleges … that [the operator] harbored illegal aliens by employing undocumented workers at [store] locations and directing store managers to pay them in cash and to record the cash payments in a separate set of books,” the court reasoned. “It is abundantly clear to the court that all of the offenses charged … arise, at least in part, out of the same alleged conduct.”

Each of the three counts, including the workers’ compensation charges, involved the government’s case against the operator that:

  1. Cash wages were paid to undocumented workers.
  2. The wages were recorded in a separate set of books outside of the stores’ regular payroll system.
  3. These wages and separate books were the means by which the operator sought to evade taxes, commit mail fraud, and defraud the stores’ workers’ compensation insurers.

The court explained that the nature of the charges meant that there would be “substantial overlap” in the evidence the government would use at trial to support the offenses against the operator. The court also didn’t find that the operator would experience “unfair prejudice” as the result of having the workers’ compensation charges tied to the other counts.

As a result, the court dismissed the operator’s motion to separate the workers’ compensation charges from the tax and mail fraud cases.

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