State Fund Awarded $834,000 in Work Comp Fraud Case

May 14, 2004

State Compensation Insurance Fund will collect approximately $834,000 in restitution from the principals of an El Cajon-based (San Diego County) construction company. San Diego residents Milton Perry Smith and his wife, Michelle Smith — owners of El Cajon-based Branco Construction — were ordered to pay restitution as part of their sentence in San Diego County Superior Court following their conviction on felony workers’ compensation and unemployment insurance fraud.

State Fund — which assisted the San Diego County District Attorney’s Office in its investigation — insured Branco Construction from Jan. 1, 2000 to March 18, 2002.

State Fund audits revealed that Milton and Michelle Smith falsified information — such as misclassifying payroll and hourly wages — to avoid paying proper workers’ compensation premiums.

A San Diego County Superior Court judge sentenced Milton Smith to five years probation. Michelle Smith, who pleaded guilty to a misdemeanor charge, was sentenced to three years probation.

The Smiths were convicted on felony workers’ compensation insurance premium fraud (Insurance Code 11880) and unemployment insurance fraud (Insurance Code 2117.5), according to San Diego County Deputy District Attorney Ernie Marugg.

“This conviction underscores State Fund’s commitment to investigate and combat all types of fraud which robs California’s workers’ compensation system of millions of dollars each year,” said Donna Gallagher, who manages State Fund’s Fraud Investigation Program (FIP). “Through our Fraud Investigation Program and positive relationships with law enforcement officials, State Fund will continue its effort to protect California’s employers, injured workers and the integrity of the workers’ compensation system.”

In addition to falsifying information, Marugg said that the Smiths — whose construction firm specializes in framing — paid employees cash and did not report cash payroll to State Fund. During the investigation, Branco would pay a subcontractor a percentage of the cash payroll so that the subcontractor could, in turn, cash employee payroll checks and return the money (earnings) to Branco employees.

The sentencing capped a yearlong investigation aided by State Fund.

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