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Sep
2014
18

Florida’s Institutionalized Workers Compensation Fraud Finally Beginning to be Addressed

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A recent report by the Miami Herald exposed “The Florida Plan,” a form of fraud that affects injured workers seeking workers’ compensation.  The report is part of the wave-making series by McClatchy which reveals the various ways in which misclassification harms workers and employers who abide by the law.  

Author Nicholas Nehamas uses the example of Joseph Barrs, a 51-year old electrician who went 15 months without a paycheck or medical attention after a workplace injury:

Here’s how this particular scheme works: In Florida, contractors are required to purchase a workers’ compensation insurance policy for their employees. Contractors can’t get hired on construction sites without showing their “certificate of insurance” to a project’s general contractor. But workers’ comp premiums are expensive.

To get around the premiums, a new kind of criminal has emerged. This person is known as a “facilitator.” The facilitator sets up a shell company with a vague name. The shell company doesn’t perform any construction work or hire employees, but it does do one thing: purchase a cheap workers’ comp policy. The facilitator then “rents” the shell company’s name and insurance to subcontractors without insurance. The uninsured subcontractors present the shell company’s insurance to general contractors as proof of coverage, while keeping the majority of their employees off the books and potentially unprotected by workers’ comp.

In many other states, construction companies don’t have to buy workers’ comp for independent contractors. In those states, unethical company owners can simply misclassify their workers as independent contractors instead of regular employees to avoid paying premiums. But in Florida, companies are generally required to have coverage for both employees and independent contractors. “The Florida Plan” is one way crooked firms get around the requirement.

In the video below, Barrs explains what happened and that he knew he “was going to have to suffer the consequences.”

The main culprit in the scheme that placed Barrs in this nightmare scenario was Honduran native Hugo Otoniel Rodriguez, who had figured out how to cheat the system and did it so well that while Barrs sought medical attention Rodriguez and his wife got to live a life of luxury.  The Herald provides the details of how Rodriguez scammed the system for his own personal profit:

According to a criminal case filed in Broward County in 2012, Rodriguez set up a network of 10 different shell companies over the prior eight years. Before it was busted, Rodriguez’s criminal network allowed uninsured subcontractors to work on more than 1,600 projects and collect more than $73 million in contracts. Rodriguez’s companies, which he paid associates to set up, each operated for only a year or so each. After that, he would “burn” the old company and set up a new one so investigators couldn’t trace him.

On April 22, 2009, a man who called himself Luis Manuel Figueroa — one of several aliases — registered a new company in Deerfield Beach: LMF Construction. The company obtained a minimal workers’ comp policy through Guarantee Insurance, saying it had a small payroll of about $50,000. The policy cost just $4,000 a year.

In a sworn statement to investigators, Rodriguez admitted paying Figueroa $2,000 a month. In return, Figueroa allowed Rodriguez to rent out LMF’s insurance to subcontractors on 254 jobs — including the strip mall on Route 41 where Barrs was hurt.

Lying in his hospital bed in November of 2009, Barrs found himself caught in the middle of a scam.

“The Florida Plan” has become so prevalent that Florida lawmakers have introduced legislation to stop it.  State officials are now using newfound powers to monitor fraud in real-time:

In 2013, legislators approved the creation of a real-time database that will track check-cashing throughout the state. Investigators will be able to see companies cashing lots of business-to-business checks — a sign of potential fraud — instead of depositing them in a corporate bank account. They will also be able to use the database to check the company’s incorporation records, reported payroll and proof of insurance.

“This way, we can see the fraud unfold as it happens,” said Maj. Buddy Hand, the current chief of the Bureau of Workers’ Compensation Fraud. Hand said the database should be online within six months and would aid the work of “Operation Dirty Money,” an ongoing investigation by the state Division of Insurance Fraud and the sheriffs’ offices of Broward and Palm Beach counties, which apprehended Rodriguez and other members of his ring. Prosecutors secured 259 convictions for workers’ comp fraud in the most recent fiscal year, an increase of 25 percent from the year before, according to the Division of Insurance Fraud.

In the end Barrs took his case to a workers compensation judge who decided he had been an employee all along and settled his case for $75,000:

“I wish I hadn’t signed those papers,” Barrs said. “I didn’t know what I was signing. I just needed that money bad.”

The man who organized the scheme that Barrs got caught up in, Hugo Rodriguez, pleaded guilty to six counts of workers compensation fraud.  He was sentenced to 17 months served and five years probation.  He was forced to pay restitution of $125,391.15.

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