Lawsuit alleges looting of state insurance fund.

Lawsuit alleges looting of state insurance fund

The State Compensation Insurance Fund has filed a civil complaint in Los Angeles U.S. District Court against seven Los Angeles County-based firms, alleging a scheme to loot the fund of an estimated $19.5 million.

The civil suit against the seven self-described labor service, labor consulting and leasing firms alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO).

The civil complaint could be the first of many against employee-leasing in Los Angeles, according to a fund spokesman.

Named in the complaint are Lakewood-based U.M.C. Inc., Western Labor Exchange and American Labor Exchange; Paramount-based Harbor Operators Group and The Shannon Group; Covina-based Central Systems Inc.; and West Covina-based Admiral Systems Inc.

The complaint, filed for the state fund by the Los Angeles offices of Sheppard, Mullin, Richter & Hampton, alleges "fraud on part of defendants in a scheme to defraud state compensation fund for premiums due for worker's compensation insurance coverage."

According to the state fund, the seven companies named in the complaint provided warehouse workers, truck drivers and other laborers on a contract basis to its clients. The firms allegedly misrepresented themselves as small-time trucking and warehousing operators, employing from about 30 to 50 to as few as five. As a result of the alleged misrepresentations, prohibited by RICO, lower premiums were paid into the state fund.

The Cerritos office of the fund discovered the alleged RICO violations while investigating numerous workman's compensation claims. An inordinate amount of claims was being paid for the number of employees claimed by the seven firms.

The case is the first civil complaint filed by the state fund against labor leasing operators for alleged abuses of labor contracting arrangements. Many more complaints could be filed.

"We don't believe this is an isolated incident," said George Vignolo, spokesman for the fund. "This is one instance of abuse - a large one - but just one and the first of many."

Counsel for the state fund said that the RICO violations are threefold.

"What the lawsuit has to deal with is not reporting to the state fund the total number of employees and not reporting accurately their classifications, and failing to tell the state fund that they were labor contracting entities," said Pierce T. Selwood, chairman of the litigation department for Sheppard, Mullin, Richter & Hampton. "We were retained for our expertise in handling RICO cases and have been instructed to prepare, file the lawsuit and prosecute it vigorously."

Selwood is teamed with attorney Gordon A. Greenberg, who tried the ZZZZZ Best case when he was an assistant U.S. Attorney in Los Angeles Federal District Court.

At least four of the firms named in the civil suit - U.M.C. Inc., Western Labor Exchange and American Labor Exchange - have since moved to the Los Alamitos area.

Attorney Donald K. Jorgensen, counsel for U.M.C. Inc., Western Labor Exchange Inc. and American Labor Inc., said that he had not yet been served. Jorgensen had no comment on the civil suit. The fund said that everyone had been served by last Thursday.

Another attorney involved in the defense, Jonathan B. Cole, partner in Nemecek & Cole, did not return calls by press time.

Additional complaints might come from the RICO civil suit, though Selwood said that he did not know if any companies that contracted for employees had done anything wrong, he did say "we are going to pursue discovery at this time to ascertain that."

The suit further alleges that "prior to January 1986, defendants devised and executed a scheme and artiface to defraud state fund by providing to state fund false and/or misleading information, for the purpose of obtaining workers' compensation insurance policies, paying a lower premium for those policies and causing state fund to pay claims pursuant to those policies."

Continuing, the civil suit alleges that "through a series of business organizations, the individual defendants offered labor contracting services to employers and provided workers' compensation insurance for the benefit of said employers."

The 12 individuals named in civil complaint are all officers or employees of the companies. None could be reached for comment except for John L. Junk, president of U.M.C. Inc., who said the allegations in the state fund's suit are false. The 12 individuals:

* Howard James Laird, incorporator, president and agent for Harbor Operators Group, who also held officer's or consulting positions with five of the six other companies.

* Alyce L. Laird, corporate secretary and chief financial officer of Harbor Operators Group.

* Thomas Clayton Walsh, vice president and corporate secretary of The Shannon Group.

* Donald B. Carey, chief executive officer, director, president and registered agent of Central Systems and vice president of Admiral Systems.

* Maurice A. Bowie, chief executive officer, director, president and registered agent of Admiral Systems.

* A. Lavon Good, chief financial officer, chief executive officer, registered agent, corporate secretary and treasurer of The Shannon Group.

* John L. Junk, president of U.M.C. Inc., and agent for Western Labor Exchange and American Labor Exchange.

* Thomas M. Sprague, director of U.M.C. Inc., an employee with The Shannon Group, and a director of both American Labor Exchange and Western Labor Exchange.

* Robert J. Anderson, one-time director of U.M.C. Inc.

* Karen Reese, employee and policy representative for Admiral Systems and president of The Shannon Group.

* Loretta Mulrooney, employee of The Shannon Group and Central Systems Inc.

* Bonnie Parker, an employee with The Shannon Group and Central Systems Inc.