Man Charged in $3-Million Unemployment Tax Fraud

A Glendale businessman was arraigned Wednesday on charges that he engineered a sophisticated scheme to swindle more than $3 million in state unemployment and workers’ compensation taxes.

Since 1975, James P. Lund, 67, had set up 10 fictitious companies and listed four dead relatives as employees in order to establish good safety and employment records, Dist. Atty. Ira Reiner told a press conference Wednesday. That scheme assured that the companies’ workers’ compensation and unemployment tax rates were very low, he said.

“The more accidents you have, the higher your insurance rates are,” Reiner said. “Clearly, Lund’s pretend companies had a low number of accidents. I mean, what could happen to a bunch of dead employees?”

Lund then transferred employees from real client companies to the dummy firms, pocketing most of the resulting tax savings, the district attorney alleged.

Lund pleaded innocent Wednesday in Los Angeles Municipal Court to the felony charges, which included 26 counts of filing a false tax return, 22 of preparing false or fraudulent documents and 15 counts of forgery.

His attorney, calling the charges “fiction,” asked that his $1-million bail be reduced, saying that Lund has no previous convictions and requires medical attention for a heart condition.

Judge David S. Milton denied the request and sent Lund back to County Jail, saying, “If any fraction of the allegations are sustained, Mr. Lund will probably serve time in state prison.”

In Lund’s alleged scheme, he sought contracts with legitimate companies, offering to handle their payrolls and get them lower unemployment and workers’ compensation rates, Reiner said.

To do that, Lund would take his clients’ employees and list them as employees of one of his fake companies, Reiner said, so the clients would be taxed at the lower rate.

Lund would keep the lion’s share of the tax money saved and give a portion back to his clients, the district attorney said.

Tax Rate

When the fake company’s tax rate was increased at the end of the year because of the increase in the number of employees and employee claims, Lund would allegedly fold that firm and shift all the workers into another fictitious company.

“What’s unusual about this case is that (Lund) was very patient,” Reiner said. “Usually con artists want a quick return, but it took Lund a few years to get the pretend companies established before he could start collecting any money.”

Reiner said the investigation is continuing in an effort to discover whether Lund’s clients, who were not named, were aware of the scheme.

Deputy Dist. Atty. Richard Rosenthal said the clients were generally companies that have large numbers of temporary employees, including security firms, a gasoline station personnel company, fireworks manufacturers and a bus company. Rosenthal said Lund handled close to $500 million in quarterly payrolls for the clients.

Client companies were located in Glendale and throughout the Southland, Reiner said.

If convicted, Lund, who his attorney said is married with two daughters, faces 10 years in prison and a fine of $520,000, Reiner said.

‘Great Fiction’

Defense attorney Paul Caruso called the charges “great fiction” and that evidence would prove that the case “is not as impressive as it seems.”

“My client owes $190,000 on a $300,000 home in Westlake Village,” Caruso said. “That doesn’t sound like a man who has lots of money floating around.”

Rosenthal said Lund’s scheme was uncovered after an employee at one of Lund’s three legitimate personnel services businesses in Glendale tipped off the Employment Development Department.

“If not for that informant, I doubt we would have discovered Lund’s ploy,” Rosenthal said. “I’m sure there are other cases like this out there.”

Rosenthal said the Employment Development Department will soon begin using a new computer system to monitor companies and to detect fluctuations in the number of employees or unemployment and workers’ compensation claims.

Lund’s preliminary hearing is scheduled for April 18.