MARRIED OWNERS OF TWO BUSINESSES SENTENCED TO FIVE YEARS IN PRISON FORCOMMITTING $2 MILLION IN FRAUD

MARRIED OWNERS OF TWO BUSINESSES SENTENCED
TO FIVE YEARS IN PRISON FOR COMMITTING
$2 MILLION IN FRAUD

SANTA ANA – A husband and wife who own two businesses for gardening and tree-trimming were each sentenced yesterday to five years in state prison for committing $2 million in fraud. James Joseph Klinger, 64, and Dorothy Louise Klinger, 64, both of San Juan Capistrano, pleaded guilty yesterday, Nov. 7, 2011, to 29 counts of misrepresenting facts to State Compensation Insurance Fund, 28 counts of failing to file a return with intent to evade tax, 28 counts of willful failure to pay taxes, five felony counts of misrepresenting facts to a workers’ compensation insurance company and sentencing enhancements for loss over $100,000 and taking involving more than $500,000. Joseph Klinger was convicted of an additional 11 felony counts each of filing false tax returns and willful failure to file or make fraudulent tax returns. Dorothy Klinger was convicted of an additional 7 felony counts each of filing false tax returns and willful failure to file or make fraudulent tax returns. The five year prison sentence is stayed pending successful completion of 10 years of formal probation. The defendants are also ordered to pay $3.4 million in restitution for $2 million in fraud plus penalties and interest. 

Joseph Klinger and his wife Dorothy Klinger have co-owned and operated Modern Tree Service, Inc. and Jamo’s Gardening since the 1970’s as two separate companies. Between 2003 and 2010, they set up Jamo’s Gardening with the express purpose of hiding Modern Tree Service, Inc. employees’ payroll. The defendants paid almost all of Jamo’s Gardening expenses and payroll with money from Modern Tree Service, Inc.

The defendants fraudulently classified Jamo’s Gardening as a landscape gardening business instead of a tree-trimming business, allowing them to insure tree-trimmers as gardeners to substantially lower the insurance premiums. Due to the increased risks of the job, the insurance premium for tree-trimmers is a higher cost then the insurance premium for a gardener.

Joseph and Dorothy Klinger kept two sets of financial documents, one set of records showing the actual income and payroll expenses for each company and the other showing an edited version, which was used to underreport lower levels of income and wages to the State and insurance companies. They did not report over half of the actual payroll for both businesses to the insurance companies or the Employment Development Department (EDD). The defendants did not report over $3.6 million in income to the Franchise Tax Board (FTB) on the tax returns from 2004 through 2009, and over $3 million in employee wages to the EDD and insurance carriers.

In July 2009, the State Compensation Insurance Fund audited one of the businesses and found large amounts of money transferred from Modern Tree Service, Inc. to Jamo’s Gardening to pay for payroll and expenses. Further investigation by FTB and EDD uncovered the tax fraud. The defendants committed $2 million in fraud, totaling $3.4 million including penalties and interest.

Deputy District Attorney Debbie Jackson of the Insurance Fraud Unit prosecuted this case. 

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