4 Contractors Face Charges in ‘Premium Fraud’

As part of a broad crackdown on insurance fraud in the construction industry, the Los Angeles County district attorney’s office Tuesday charged operators of four area contractors for allegedly misreporting wages or types of workers.

“The underreporting or non-reporting of payroll and the misclassification of workers raises insurance costs for all the honest businesspeople out there,” said Barry Gale, deputy district attorney in the workers compensation division.

This growing scam of “premium fraud” means the loss of an estimated $96 million annually to the Los Angeles County economy and nearly 8,000 jobs, according to Dist. Atty. Gil Garcetti.

Garcetti, along with leaders from the construction and insurance industries, is expected to hold a news conference today to ask the public to help report such fraud.

On Tuesday, Garcetti’s office filed felony insurance fraud charges against Iris Levy and Component Assembly Systems of Woodland Hills; Jack Mohaber of Unispec Construction Inc. in El Segundo; Walter Newell Prince and Fernando Villar of Red Carpet Building Maintenance in Northridge; and Andrew Railla of Ande Contractors in Calabasas.

They are expected to be arraigned today.

Attorneys for the various executives and companies could not all be reached. But Robert Rice, a Glendale attorney representing Unispec, called the criminal charges “totally out of the blue.”

“There is ongoing civil litigation right now involving payroll disputes with my client,” said Rice. “It’s very, very questionable that this is a fraudulent act. My client is not trying to hide anything.”

The charges in each case vary. For example, executives at Red Carpet Building Maintenance allegedly reported that all of their employees were janitors when in fact they were doing construction work for Metrolink, the district attorney’s office said.

This misclassification of workers, since insurance rates are based on how risky jobs are, allegedly resulted in a loss of about $80,000 to the insurance company, Gale said. In the past, contractors cheating on insurance premiums often failed to pay a required living wage to their employees and erected inferior buildings, he said.

“I’m looking at tons of cases; I have 10 sitting right here,” said Gale. “This is a new area for the district attorney’s office. We’re going to be cracking down.”