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September 3, 2013

BUSINESS OPERATOR SENTENCED TO SIX YEARS IN STATE PRISON FOR STEALING $2.7 MILLION WORTH OF WINE FROM CLIENTS' STORAGE LOCKERS AND UNDER-REPORTING OVER $3.5 MILLION IN PAYROLL

Filed under: California Defense Attorney — fayarfa @ 12:10 am

SANTA ANA - A business operator was convicted and sentenced to six years in state prison today for stealing $2.7 million worth of wine from his clients’ storage lockers and under-reporting over $3.5 million in payroll to his workers’ compensation insurance carrier.

George Osumi II, 65, Irvine, pleaded guilty today to 18 felony counts of misrepresenting facts to State Compensation Insurance Fund (SCIF), 14 felony counts of failing to file a return with intent to evade tax, 14 felony counts of willful failure to pay tax, 14 felony counts of willful failure to pay unemployment insurance and employment training tax, nine felony counts of willful failure to pay disability insurance deductions, one felony count of identity theft, and one felony count of perjury. He faces sentencing enhancement allegations for misrepresenting facts to SCIF, committing an aggravated white collar crime over $500,000, property damage over $65,000, and crime-bail-crime (Case #12ZF0129).

Osumi also pleaded guilty today to three felony counts of second degree commercial burglary, one felony count each of grand theft, embezzlement by employee, receiving stolen property, and one misdemeanor count for possession of burglary tools with sentencing enhancements for aggravated white collar crime over $500,000 property damage over $1.3 million, and crime-bail-crime (Case #12CF2828). Osumi is scheduled for a restitution hearing Nov. 1, 2013, at 9:00 a.m. in Department C-30, Central Justice Center, Santa Ana.

What is Premium Insurance Fraud and Why Does it Hurt the Economy?

California law requires that all employers maintain workers’ compensation insurance for their employees. Payroll records showing the number of employees and their income must be submitted to both the insurance company and the Employment Development Department (EDD), who oversee the audit and collection of payroll taxes and employment records for workers in California. Workers’ compensation Insurance rates are determined by a formula, which takes into consideration the factors above and the company’s loss history on claims.

Premium insurance fraud is committed when an employer intentionally misrepresents to the State or his/her insurance company the number of employees, the nature of work performed by certain employees, the amount of payroll, and the loss history. These illegal misrepresentations allow deceitful employers to purchase workers’ compensation insurance at a significantly lower rate, or to avoid purchasing the insurance at all. This practice also places their competitors at a disadvantage because it forces them to compete against a company with lower operating costs.

This deceptive under or non-reporting, drives up the cost of insurance premiums for legitimate businesses, which pay higher rates for their employee’s workers’ compensation insurance. These legitimate businesses are less competitive against crooked companies who are able to under-bid their competitors due to lower business costs resulting from insurance fraud. This also endangers injured employees who may be denied the workers’ compensation insurance benefits intended to meet their physical, psychological, and financial needs for a work-related injury.

Circumstances of Case #12ZF0129

Osumi owned and operated several construction businesses at the time the following incidents occurred.

Between 2001 and 2011, Osumi created companies under the ownership names of family and close friends to avoid tax liability while personally operating his businesses. During that time, Osumi created the following businesses in California and Nevada: dba PMC Inc., JECM, JECM, Inc., Kate Osumi Enterprises, Inc., KIO LLC, Legend Cellars, Inc., Legend Company Group LLC, P.M.C. Group IV Inc., Property Maintenance & Construction, LP, and TMS Inc.

Between December 2001 and March 2006, Osumi committed workers’ compensation insurance premium fraud after he reported his payroll to SCIF at just over $1 million. He actually maintained a payroll of over $4.5 million, a difference of over $3.5 million from his reporting to SCIF. This resulted in a loss of over $814,000 in premium owed to SCIF.

Between May 2004 and October 2011, Osumi obtained an American Express Card under the name of one of his former business associates and made unauthorized purchases.

On April 2011, Osumi committed perjury under the California Contractors State License Board (CSLB) contract code after he declared and stated as true a material matter he knew was false under penalty of perjury that he did not operate a business which required workers’ compensation insurance.

Between 2009 and 2011, Osumi withheld state taxes and disability insurance benefits payments from his employees and failed to forward these withholdings to the State or filing payroll reports with EDD. Osumi filed false reports, which did not contain the identity of all of his employees. Consequently, when two of his employees filed a claim with EDD to collect unemployment benefits, EDD had no record of their employment and these employees had to provide proof of their employment. Osumi distributed paychecks with insufficient funds to employees, despite him operating a business that earned income.

The Orange County District Attorney’s Bureau of Investigation, EDD, and CSLB investigated this case.

Circumstances of Case #12CF2828

Between Jan. 1, 2008, and June 21, 2012, Osumi operated the commercial building Legend Cellars, Inc. in Irvine. The business allowed people to store their wine in storage lockers at a controlled temperature. On three occasions, Osumi broke into the private storage lockers of three different owners and stole their wine that had a total estimated value of $2.7 million. Osumi replaced the bottles of wine he stole with much cheaper brands.

In 2008, Osumi hired a friend, who did not know the wine was stolen, to auction off some of the stolen wine in exchange for a portion of the proceeds. Osumi had approximately $280,000 deposited into his business account and used the money to pay for personal expenses and legal fees.

Between July 20, 2011, and June 7, 2012, Osumi directly auctioned some of the stolen wine for over $300,000 and had the money deposited into his business account.

A family member of one of the clients reported the theft to the Irvine Police Department (IPD), who investigated this case.

Deputy District Attorney Shaddi Kamiabipour of the Insurance Fraud Unit is prosecuting these cases.

Orange County District Attorney / Case # 12ZF0129 & 12CF2828 / August 30, 2013

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