TREE TRIMMING BUSINESS OWNER TO BE ARRAIGNED FOR $2 MILLION INSURANCE FRAUD AND TAX SCHEME

TREE TRIMMING BUSINESS OWNER TO BE ARRAIGNED FOR $2 MILLION INSURANCE FRAUD AND TAX SCHEME

*Defendant is accused of filing fraudulent insurance claim for employee killed by wood chipper

SANTA ANA – A tree trimming business owner will be arraigned Tuesday for illegally paying employees $2 million in unreported cash to avoid paying Workers’ Compensation Insurance premiums and State taxes. Jose Luis Guerrero, 42, Fullerton, is charged with 20 felony counts of failing to file a return with the intent to evade taxes, 20 felony counts of willfully failing to pay taxes, six felony misrepresenting facts to the State Compensation Insurance Fund (SCIF), two felony counts of making fraudulent statements, and one felony count of possession of an assault weapon. He faces sentencing enhancements and allegations for aggravated white collar crime over $500,000, property loss over $200,000, and causing over $100,000 in loss. If convicted, he faces a sentence ranging from probation up to 31 years in state prison. Guerrero is out of custody on $500,000 bail and is scheduled for a continued arraignment Tuesday, Oct. 11, 2011, at 9:00 a.m. in Department C-55, Central Justice Center, Santa Ana.

What is Premium Insurance Fraud?

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 workers’ compensation insurance company and Employment Development Department (EDD), who oversee the collection of payroll taxes. Workers’ Compensation Insurance rates are determined by a formula, which takes into consideration the number and type of employees and the company’s history of injury claims.

Premium insurance fraud is committed when an employer intentionally misrepresents to the State or insurance company the number of employees, the type of work performed, the amount of payroll, and the loss history. These illegal misrepresentations allow deceitful employers to calculate and purchase workers’ compensation insurance at a significantly lower premium rate, or to avoid purchasing the insurance at all.  This practice places their competitors at a disadvantage because it forces them to compete against a company with fraudulently lower operating costs.

Premium fraud drives up the cost of insurance premiums for legitimate businesses that pay higher rates for their employees’ workers’ compensation insurance coverage. 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 workers’ compensation benefits intended to meet their physical, psychological, and financial needs for a work-related injury.

Circumstances of the Case

At the time of the crime, Guerrero was owner of Jose Martinez Tree Service, Inc., a tree-trimming business. Between March 2005 and March 2009, Guerrero is accused of under-reporting his payroll to SCIF in excess of $2 million in order to reduce his Workers’ Compensation Insurance premiums. He is accused of illegally paying cash to his employees to avoid paying State taxes and consequently denied his employees the benefit of State unemployment and disability insurance.