A Southern California temporary staffing firm accused of bilking the State Compensation Insurance Fund out of more than $18 million in premiums has agreed to plead guilty to the charges and pay approximately $20 million in fines and restitutions. The plea agreement was officially made by the corporation, Bellflower-based Staffing Services Inc., and allowed company executives to avoid any jail time.
Under the original case filed in November 2008, company CEO David Zahler, 52, of Huntington Beach and CFO David Tai, 66, of Hacienda Heights, faced felony charges and up to two decades in jail for their role in the scam. The case stemmed from a two-and-a-half-year investigation by the State Fund's special investigations unit and then by the California Department of Insurance. The company allegedly began misrepresenting the number of employees on its payroll and the type of work that they performed in the fall of 2002. The scheme then continued on through 2005.
The criminal complaint filed by the Los Angeles County District Attorney’s Office maintained that the actions amounted to fraud and embezzlement, and involved a pattern of related felony conduct. In addition to the jail time and the recovery of the lost premiums, the company and executives could have faced $40 million in fines if convicted on all counts. As it is, it'll pay just $2 million in fines plus restitution for the premiums.
And company executives will avoid any jail time under the deal. A source in the Los Angeles District Attorney's office says that jail time was dropped during the negotiations for a variety of reasons, not the least of which is Zahler's failing health. He added that they agreed to drop jail time for Tait because the evidence against him of any wrong-doing was "minimal." If Zahler's health were not an issue, however, the source maintained that the office would have pursued a different outcome for the case.
In addition to calling for the payment of the fines and restitution, the plea deal includes three years felony probation for the company. The DA's office notes that attorneys for State Fund and the company are negotiating a payment schedule for the lost premium and the fines.
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