The Los Angeles County District Attorney’s Office announced that two clothing manufacturing executives and their accountant were sentenced this week for their roles in a $3.8 million workers’ compensation fraud scheme.
In December, Sung Hyun Kim and Jae Young Kim each pleaded no contest to two counts of workers’ compensation fraud, while Choi entered her plea to two counts of failure to pay state payroll taxes.
Sung Hyun Kim, 59, was sentenced to two years in local custody or electronic monitoring and two years of mandatory supervision. Jae Young Kim, 73, and Caroline Sung Choi, 61, were each sentenced to one year in custody or electronic monitoring and placed on probation for five years.
Choi and her sister, Sung Hyun Kim, were corporate officers for Meriko, Inc., and its successor, SF Apparel, both garment manufacturing companies that make high-end brand jeans such as the True Religion Brand Jeans. True Religion Brand Jeans was not suspected of any fraud or wrongdoing in this case.
Beginning as early as 2006, Sung Hyun Kim and Jae Young Kim, an accountant, underreported millions of dollars in payroll to insurance carriers. Losses were estimated to be roughly $3.8 million.
The State Fund notified Department of Insurance detectives when they discovered payroll reports submitted to them by the companies showed significantly less total payroll than similar reports submitted to the California Employment Development Department (EDD). Evidence also revealed many employees were paid under the table through a bank account that was never disclosed to EDD or insurance carriers.
Companies pay significantly reduced workers’ compensation premiums when they underreport the number of employees and the amounts actually paid, prosecutors added. Victim insurers include: State Fund, Tower Insurance/AM Trust North America, Star Insurance Company, Granite State Insurance Company (Chartis), Insurance Company of the West, National Liability and Fire Insurance Company (owned by Berkshire Hathaway) and Cypress Insurance Company (owned by Berkshire Hathaway).
Restitution, investigative costs and fines totaling $4.6 million have been paid.
Deputy District Attorney Theresa Mitchell of the Healthcare Fraud Division prosecuted the case. This case was a joint effort of the LA County Premium Fraud Task Force including State Fund and EDD.