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California Couple Charged with Huge Workers Comp Scam

Source: Business Week

Posted on 01 May 2009

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Officials announced on Thursday that a California couple were charged with running a $38 million workers' compensation insurance scam that supported a lavish lifestyle filled with luxurious cars, shopping sprees and homes in two states.

Michael Petronella, 50, a roofing and general contractor, and his wife, Devon Kile, 44, both of Laguna Hills, were arrested Wednesday. Each face 106 counts, including insurance fraud, grand theft and conspiracy to commit a crime. If convicted, they could receive prison sentences ranging from five years to 102 years.

It wasn't immediately known if they had retained an attorney. They were being held on $10 million bail and scheduled to be arraigned Thursday.

Prosecutors said the pair defrauded the State Compensation Insurance Fund, California's biggest workers' compensation insurer, of $38 million between 2000 and 2008 -- the largest in state history.

The couple fraudulently filed 42 claims for uninsured injured workers totaling $253,000 and reported only one tenth of a $29 million payroll for three companies, Petronella Corp., Western Cleanoff Inc. and The Roofing Specialists Inc., in Orange and Riverside counties, authorities said.

The savings from not paying insurance premiums helped the couple spend money on five properties in California and Texas; purchase a Bentley and two Ferraris; and buy expensive jewelry and clothing at designer stores, authorities said.

Recovered from the couple's homes and businesses were $500,000 in jewelry, more than $50,000 in cash and an application from Kile to be on the reality TV series "The Real Housewives of Orange County."

"I want to send a message out there that these types of fraud hurt our economy, our infrastructure and our workers," said Orange County District Attorney Tony Rackauckas. "If you commit these crimes, you may be looking at the 'real jail cell of Orange County.'"

Rackauckas also said the couple underreported their income on state tax returns. Between 2005 and 2007, Petronella shorted the state about $2.3 million, while Kile didn't claim $1.7 million in income, authorities said.

They also spent about $2.1 million on their business credit card for personal items, Rackauckas said.

California law requires employers to have workers' compensation insurance for their employees. By intentionally misrepresenting payroll and other figures to the state, employers can purchase insurance at a lower rate or avoid buying it at all, state officials said. The practice can give an unfair advantage over competing businesses that often see their insurance premiums go up.

"Employees deserve to be taken care of when they are injured on the job, and this type of workers' comp fraud jeopardizes this vital protection," said California Insurance Commissioner Steve Poizner.