2 Plead Guilty to Fraud Involving Workers' Comp


At the end of last month, two Florida men pleaded guilty to a scheme to avoid taxes and construction workers’ compensation requirements. The U.S. Department of Justice is seeking forfeiture of $1.4 million — the approximate amount of proceeds obtained — as well as other funds.

The DOJ named Gregorio Jose Fuentes-Zelaya, 27, of Orlando, and Dennis Alexander Barahona, 38, of Chelsea, Massachusetts, in the release, noting that they pleaded guilty to conspiracy to commit wire fraud and conspiracy to commit tax fraud.

Fuentes-Zelaya has pleaded guilty to five counts of wire fraud and two counts of tax fraud. Barahona has pleaded guilty to one count of wire fraud and one count of tax fraud. Each wire fraud count carries a maximum penalty of 20 years in prison and each tax fraud count carries a maximum penalty of five years in prison.

In addition to the $1.4 million, the DOJ is also seeking funds seized from two bank accounts utilized during the scheme, with balances totaling about $230,000. Fuentes-Zelaya and Barahona also owe a total of approximately $5.7 million in restitution for the tax fraud offenses.

Fuentes-Zelaya is scheduled to be sentenced on May 10. A sentencing date for Barahona has not yet been scheduled.

What Happened

According to court documents, Fuentes-Zelaya and Barahona created “shell companies” that purported to be involved in the construction industry. They obtained workers’ compensation insurance policies in the name of those companies to cover a minimal payroll for a few purported employees.

Then, they “rented” the workers’ compensation insurance to work crews who had obtained subcontracts with construction contractors on projects in various counties in Florida. Fuentes-Zelaya and Barahona then sent the contractors a certificate as “proof” of workers’ compensation insurance, as required by Florida law.

According to the DOJ, by sending the certificate, the defendants falsely represented that the work crews worked for their companies. Over the course of the scheme, the Fuentes-Zelaya and Barahona “rented” the certificates to hundreds of work crews.

The contractors issued payroll checks for the workers’ wages to the shell companies and the conspirators cashed these checks, then distributed the cash to the work crews after deducting their fee, which was typically about 6% of the payroll.

During the period of the scheme, the conspirators cashed payroll checks totaling approximately $22.7 million with their fees totaling approximately $1.3 million. Neither the shell companies nor the contractors reported to government authorities the wages that were paid to the workers, nor did they pay either the employees’ or the employers’ portion of payroll taxes—including Social Security, Medicare or and Federal Income tax.

The scheme also reportedly facilitated the avoidance of the higher cost of obtaining adequate workers’ compensation insurance for the hundreds of workers on the work crews to whom Fuentes-Zelaya and Barahona “rented” the workers’ compensation insurance.


Tagged categories: Ethics; Fraud; Good Technical Practice; Laws and litigation; Lawsuits; NA; North America

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