Company owners plead guilty in nearly $7-million hotel-worker fraud case in San Diego

The owners of a company that provided workers for luxury hotels including the Hotel Del Coronado have pleaded guilty in a nearly $7-million insurance fraud and tax evasion scheme, according to the San Diego County district attorney’s office.

Prosecutors described the case, which involved the owners of Irvine-based Good Neighbor Services, as the largest fraud case of its kind in San Diego County history.

Hyok “Steven” Kwon and Woo “Stephanie” Kwon, who are married, were accused of working with a group of accomplices to hide the existence of at least 800 housekeeping and janitorial workers, so they could avoid paying millions in workers’ compensation insurance rates and payroll taxes.

Last month, Steven Kwon pleaded guilty in San Diego Superior Court to felony charges related to fraud and employment tax evasion, and was sentenced to eight years in state prison.

His wife pleaded guilty to similar charges in December and agreed to a six-year, eight-month sentence. She spent time in jail and is now serving the remainder of her term under mandatory supervision by probation department authorities.

As part of her plea agreement, Stephanie Kwon surrendered $398,000 in cashier’s checks, said Deputy Dist. Atty. Jeanie Williams, a prosecutor in the insurance fraud division.

The money from the checks, as well as proceeds from the sale of a commercial building in Orange County, will go toward the more than $6.3 million the defendants owe the government in restitution.

So far, Stephanie Kwon has paid a little more than $1.2 million, Williams said.

The Kwons were among a group of people indicted by a grand jury in 2015 in connection with the fraud scheme. Seven others, including the Kwon’s son and daughter, have pleaded guilty to charges ranging from felonies to infractions.

Some of them are expected to be sentenced Aug. 22.

“These defendants lied on the backs of their employees who were cleaning rooms in some of the most prestigious hotels in San Diego and California,” Dist. Atty. Bonnie Dumanis said in December 2015, when the indictments were announced.

In addition to the Hotel Del Coronado, the Kwons’ company provided employees to other luxury hotels including Loews Coronado, La Costa Resort and Spa, the Grand Del Mar, L’Auberge Del Mar, the Ritz Carlton, Four Seasons, and the Hilton and Hyatt hotel chains.

Investigators have said there was no indication the hotel owners and operators knew of any fraud.

“When cheaters scam insurance companies, and lie their way out of paying premium taxes, ordinary citizens end up footing the bill,” Dumanis said at a news conference.

According to the district attorney’s office and the California Department of Insurance, the Kwons used an elaborate scheme involving at least a dozen “shell companies” to defraud insurance providers and the state. The couple misrepresented the number of people they employed, and the size of their payroll, in order to reduce their insurance and tax obligations.

By cheating the state, the Kwons gained an unfair advantage over other businesses that provided employees to hotels, the prosecutor explained. Businesses that legitimately paid taxes and insurance costs lost out on lucrative bids, and sometimes had to cut staff as a result.

“Everybody suffers,” Williams said.

State and local authorities were first made aware of a problem when they were notified by a statewide watchdog organization that works to abolish illegal and unfair business practices in the janitorial industry.

One of Good Neighbor Services’ competitors notified the organization, called Maintenance Cooperation Trust Fund, in 2010 that the Kwons might be engaged in illegal activity.

Employees told investigators that they were paid with checks that carried the names of other businesses, even though they wore uniforms with the Good Neighbor Services logo and identified the Kwons as the owners.

They also said they did not receive overtime pay or workers’ compensation benefits when they were injured on the job. Many feared retaliation if they reported their injuries.

While the case moved through the court system, investigators identified other suspects linked to the fraud scheme, bringing the total losses to more than $6.6 million, Williams said.

A separate criminal case was filed, and the Kwons were listed as co-defendants along with several others.

Charges filed against Stephanie Kwon in the new case were dismissed in December as a result of her guilty pleas. Her husband pleaded guilty to felony charges stemming from the new case on March 14.

Other defendants are expected to be arraigned in San Diego Superior Court at the end of this month.

Littlefield writes for the San Diego Union-Tribune.

dana.littlefield@sduniontribune.com