Chatsworth Man Arrested for Alleged Work Comp Fraud

May 25, 2004

A Chatsworth man was arraigned on 26 felony counts on May 23 in connection with a nearly $1 million workers' compensation scam.

John Theodore Zabasky, Jr., 38, was charged with nine counts of worker's compensation insurance fraud and 17 counts of grand theft embezzlement in the case. If convicted on all charges, he faces more than ten years in state prison. Investigators expect more allegations and charges as more potential victims come forward.

Zabasky was arrested at his house on May 20 after a joint investigation by the California Department of Insurance's Investigation Division (CDI), California Division of Labor Standards Enforcement, and the Los Angeles County District Attorney's Office, which is prosecuting the case. He is being held in custody at the Los Angeles County Jail on $1 million bail. If bail is met, Zabasky will be released under house arrest.

Zabasky, a former insurance agent, is president and owner of Softex, Inc., a professional employee organization (PEO). He is charged with obtaining at least $943,000 in workers' compensation premiums from client companies but failing to purchase workers' compensation insurance for those firms. Zabasky allegedly supplied insurers with purportedly false workers' compensation certificates.

Because Zabasky allegedly failed to remit workers' compensation premiums to a number of insurance companies, it is feared there are many injured workers with pending claims and no insurance company to pay for treatment or benefits.

Additionally, Zabasky allegedly collected payroll from Softex's client companies and subsequently appropriated substantial monies from Softex accounts illegally, causing hundreds of employees' payroll checks to be returned, wages to be reissued and banking fees to be shouldered by Softex client companies.

PEOs, also known as labor leasing or employee leasing organizations, are firms that provide a variety of services (e.g., payroll, human resource services, and health and workers' compensation insurance) to employers. Many employers join PEOs because the PEO claims it can provide insurance at discounted group rates, which is not always the case.