Security Code 3, Inc. owner Troy Carson, 55, of San Jose was arrested by Department of Insurance detectives for allegedly under reporting payroll by more than $12 million in an attempt to lower workers’ compensation costs.

Victoria Cruz, 46, Lanette Wiegand, 46, both from San Jose and Jaime Lugo, 60, of La Crescenta also face charges in connection with the fraud scheme.

Investigators say the company cheated his insurer out of more than $3.2 million. In total, the four are charged with 18 felony counts of workers’ compensation insurance premium fraud.

According to detectives, the investigation began after irregularities surfaced regarding how the company reported and handled employee injuries, including allegations that employees were dissuaded from reporting on-the-job injuries.

Evidence revealed a complex scheme was hatched because the number of employee injuries led an increase in the company’s workers’ compensation premiums.

Investigators allege Carson formed a new company called SC3 DVBE Security Services Inc. and then under reported the payroll and number of employees to their insurance company. This led to a reduction in its workers’ compensation insurance premiums under false pretences.

Evidence also revealed their insurance broker, Jaime Lugo, was allegedly aware of the scheme to create a new company to secure a more favorable workers’ compensation rate and wrote a new policy for SC3 DVBE Security.

In a complex scheme, Carson operated two security companies, Security Code 3 and SC3DVBE Security Services Inc., when in fact they functioned as one company.

An investigation revealed that over a six year period, Wiegand and Cruz, as part of the management team, allegedly submitted payroll and insurance premium payments for the 500-employee company.