$12 million workers' comp fraud scheme busted in San Jose
Four California workers are charged on 18 felony counts of workers' compensation insurance premium fraud.
Troy Carson, the owner of Security Code 3, Inc., was arrested by California Department of Insurance detectives for allegedly underreporting payroll by more than $12 million in an attempt to secure lower workers’ compensation costs.
Investigators say Carson cheated the company’s insurer out of more than $3.2 million in premiums.
To conduct this scheme, investigators say Carson operated two security companies, Security Code 3 and SC3 DVBE Security Services Inc., when in reality they functioned as one company.
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Victoria Cruz, 46, and Lanette Wiegand, 46, both from San Jose, and Jaime Lugo, 60, of La Crescenta, also face charges in connection with the fraud scheme. As part of the management team at Security Code 3, Cruz and Wiegand allegedly submitted payroll and insurance premium payments for the 500-employee company.
In total, 18 felony counts of workers’ compensation insurance premium fraud were charged against the foursome.
Inside the investigation
According to detectives, the investigation began after irregularities surfaced regarding the way the company reported and handled employee injuries, including allegations that employees were dissuaded from reporting on-the-job injuries. Evidence revealed Carson deployed the complex fraud scheme as the number of employee injuries led to an increase in the company’s workers’ compensation premiums.
Investigators allege that to reduce these workers’ compensation costs, Carson formed a new company called SC3 DVBE Security Services Inc. and then underreported the payroll and number of employees to its insurance company.
Evidence also revealed the 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.
“California consumers and businesses pay the price for insurance fraud through higher premiums and increased costs for goods and services,” said Insurance Commissioner Dave Jones in a statement. “When business owners cheat the system by operating in the underground economy, they create an unfair advantage that puts legitimate businesses at risk.”
Related: Prison for man who forged & falsified docs to obtain $1M in auto insurance