Couple Arrested with California’s Largest Premium Insurance Fraud Scam

A husband and wife accused of living a lavish lifestyle of high-end cars, vacations, and shopping which was financed by committing more than $38 million in premium insurance fraud were arrested, the California Department of Insurance reported. This is the largest known workers’ compensation Insurance fraud case in California’s history, the DOI said.

The case was investigated by the Orange County District Attorney’s Office (OCDA) and the Orange County Premium Fraud Task Force, a collaboration of investigators from the OCDA, Department of Insurance (DOI), California Employment Development Department (EDD), Franchise Tax Board, and Contractors State License Board.

Michael Vincent Petronella, also known as Michael Constantine, 50, and his wife Devon Lynn Kile, 44, both of Laguna Hills, Calif., are charged with 106 felony counts including conspiracy to commit a crime, grand theft, insurance fraud, filing a false tax return, willfully failing to file or filing fraudulent tax returns, misrepresenting facts to State Compensation Insurance Fund, making fraudulent statements, making false statements to discourage an injured worker from claiming benefits, misrepresenting facts to workers’ compensation insurance company, and failing to file a return with the intent to evade tax.

The defendants both face sentencing enhancements and allegations for aggravated white collar crime more than $2.5 million, $500,000, and $100,000. If convicted on all counts, the defendants each face a sentence ranging from five years and four months up to 102 years in state prison. Petronella and Kile are being held on $10 million bail each and must prove the money is from a legal and legitimate source before posting bond. They are expected to be arraigned May 1, 2009, at 9:00 a.m. at the Central Justice Center in Santa Ana. The Department is to be assigned.

“Unfortunately, this episode may be titled “The Real Insurance Fraud of Orange County’. The ‘Real citizens of Orange County’ are struggling to keep their houses, put food on the table, and pay for necessities. This husband and wife team was living a lavish lifestyle. How? By committing more than $38 million in premium insurance fraud and not paying their taxes,” said District Attorney Tony Rackauckas. “I want to send a message out there that these types of fraud hurt our economy, our infrastructure, and our workers. I want to send a message that if you commit these crimes, you may be looking at the “Real jail cell of Orange County.”

“This is about all the honest roofers, plumbers and other contractors who can’t possibly compete against a business operating in the underground economy,” said John Barrett, FTB public affairs spokesman. “This isn’t about leveling the playing field. It’s about pulling those operating in the underground into the light of compliance.”

Petronella is a roofing and general building contractor. Petronella and Kile own three businesses including Petronella Corp., Western Cleanoff Inc., and The Reroofing Specialists Inc. (also known as Petronella Roofing). The businesses are located in Costa Mesa and Cathedral City, Riverside County, and have clients primarily in Southern California, which include the Ocean Institute in Dana Point, Pacific Amphitheater in Costa Mesa, and other commercial properties.

In March 2006, an employee of Petronella fell from a roof and sustained injuries. A payroll stub was submitted to the State Compensation Insurance Fund listing his employer as Western Cleanoff Inc., which SCIF did not insure. SCIF reported the suspected fraudulent claim to the OCDA and DOI.

Following a two-year investigation by the OCDA with assistance from several agencies, Petronella and Kile were arrested. A search of six locations including two residences, two businesses, a storage unit and a certified public accountant’s office turned up more than $500,000 in jewelry, $51,000 cash, and an application from Kile to be featured on the Bravo series Real Housewives of Orange County.

The investigation, which began in 2006, revealed the following: Beginning in 2000, Petronella and Kile are accused of obtaining workers’ compensation insurance for their three companies through SCIF. Between 2000 and 2008, Petronella is accused of fraudulently submitting 42 claims for uninsured injured workers and underreporting $29 million in payroll to SCIF to avoid paying his workers’ compensation insurance premiums. They are accused of engaging in a scheme that resulted in SCIF incurring more than $253,000 in uncovered injured worker claims and insurance premium losses exceeding $38 million. Petronella and Kile are accused of reporting $2.9 million in payroll to SCIF, while having an actual payroll of $29 million, ten times more than reported. The $38 million premium due includes th e $29 million in loss history plus penalties and assessments for inaccurate reporting.

Beginning in 2000, SCIF performed annual audits of Petronella and Kile’s companies, during which they are accused of providing false employee and payroll records. Between 2000 and 2008, Petronella and Kile are accused of fraudulently reporting a $2.9 million payroll to SCIF for The Reroofing Specialists Inc., while reporting $16.6 million in payroll to EDD for the same company during the same time period.

Beginning in 2003, Petronella and Kile are accused of fraudulently reporting no payroll to SCIF for Western Cleanoff Inc., while reporting in excess of $13.9 million in payroll to EDD for the same company between 2000 and 2008.

Between 2007 and 2008, they are accused of paying unreported payroll in excess of $1.6 million in cash to day laborers.

To avoid paying workers’ compensation Insurance for all of his employees, Petronella and Kile are accused of underreporting the number of workers employed at each business, including claiming none for Western Cleanoff. Petronella is accused of fraudulently filing 42 claims for employees injured while working for The Reroofing Specialists to obtain insurance coverage for the injured employee without paying for the insurance. The injured employees have since been identified as Western Cleanoff Inc. and Petronella Inc. employees.

The defendants are accused of underreporting their income on their individual state income tax returns. Petronella is accused of underreporting his income between 2005 and 2007 on his tax returns by more than $2.3 million. He is accused of owing the state more than $632,600 in taxes, fines, penalties, and the cost of the investigation. Kile is accused of underreporting her income by more than $1.7 million during the same time and owning the state more than $530,000.

The couple, who live in Laguna Hills, own five properties in California and Texas, and multiple luxury vehicles including a Bentley, two Ferraris, and a Range Rover. Between 2005 and 2007, Petronella and Kile are accused of claiming less than $290,000 of income on their tax returns, but spending more than $2.1 million on their American Express credit card for personal items. They are accused of spending thousands of dollars on jewelry, shoes, clothes, and other personal items at stores including Balenciaga, Bloomingdale’s, Chanel, Christian Louboutin, Gucci, Kitson, Neiman-Marcus, Nordstrom, Yves Saint Laurent, and others.

Anyone with additional information is encouraged to contact Supervising District Attorney Investigator Baden Gardner at 714-648-3667. Deputy District Attorney Debbie Jackson of the Workers’ Compensation Insurance Fraud Unit is prosecuting this case.

Source: DOI