MEWA Fraud Verdict – Finally

Five years after a federal indictment was handed down and nearly eight years after state officials first ordered an illegal workers’ comp program to cease and desist operations, a jury of 12 individuals convicted Marcus Asay (see photo), Antonio Gastelum, and the American Labor Alliance (ALA) of fraud. Federal officials estimate losses related to the workers’ comp fraud scheme exceeded $2.25 million.

Founder Asay was convicted on all 18 felony counts filed, including those related to the workers’ comp fraud perpetrated on California employers. Gastelum, ALA’s chief operating and financial officer, was convicted on three felony counts related to a fraudulent pension plan. ALA, the company, was found guilty on all 16 counts lodged against it.

The convictions came down last week following a 19-day trial that began in late April. Once the case went to the jury, the members needed only a day of deliberations to reach a verdict. At the end of that day, the jury requested eleven additional verdict forms so each member could visually review their findings the following morning before submitting the verdicts to the judge.

What it sold

The company sold a purported alternative to workers’ compensation insurance that it claimed was exempt from the California Department of Insurance as an entity claiming an exception to the federal multi-employer welfare arrangement (MEWA) rules. It claimed to provide federal ERISA benefits in lieu of traditional workers’ compensation insurance. The California Department of Insurance found otherwise and ordered the MEWA to cease and desist operations. The scheme morphed into an alter ego and began operating as Omega Community Labor Union, which was also ordered to cease operations.

The illegal workers’ comp program was marketed as CompOneUSA and later CompassPilot. Several brokers in California sold it, but neither CDI nor other authorities took action against the brokers.

Beyond selling employers a product that did not provide the statutorily required workers’ compensation coverage required by Labor Code section 3700, Asay and ALA were convicted of mail fraud for providing fake workers’ comp certificates and policy declarations that falsely listed Travelers as the workers’ comp carrier on the policy.

Later, Omega created a form that looked like an ACORD Certificate of Liability Insurance form. The form slyly replaced the term “insurer” with “issuer.” CDI attorneys and investigators failed to notice the difference, which the defense pointed out while an investigator was in the witness box during the Department’s administrative hearing. While deceptive, Omega’s faux ACORD form was not part of the federal charges.

Asay and ALA were also convicted of mail fraud for sending a letter telling clients not to provide any information to investigators from the United States Department of Labor. Gastelum was found not guilty of the charge. Asay was also convicted of two counts of money laundering involving depositing $23,330 in cash in one instance and another count involving a check for $20,321 deposited into Asay’s personal retirement account.

Workers’ Comp Executive, as part of its investigative reporting series, discovered that ALA was “assessing” employers for CIGA and DIR-assessed fees on employers. Workers Comp Executive confirmed ALA was not a member of CIGA, nor was it remitting the fees it collected to DIR.

Pension Fraud

Asay, Gastelum, and ALA were each convicted of conspiring to commit mail fraud and mail fraud for falsely marketing a pension plan known as the ALA Trust to over 3,000 people. The felons told the individuals that their retirement dollars would be invested in a 401(K) plan but then used the money for personal and business expenses.

Federal officials say the defendants took over $750,000 from the pension fund to pay for travel, dinners out, rare coins, credit cards, and other personal expenses. Prosecutors say they covered up the missing funds by taking monies received through the workers’ comp scheme and holding them as pension funds.

Hardship Exemptions

The U.S. Attorney also secured convictions against Asay and ALA for wire fraud related to the sale of hardship exemptions to individuals. The hardship exemptions were designed to allow individuals to avoid a tax penalty for not complying with the individual mandate in the Affordable Care Act, also known as ObamaCare.

Prosecutors charged the scam with false statements that a government entity had granted ALA an organization-wide hardship exemption and that it could then sell these exemptions to taxpayers. The U.S. Attorney notes that only government agencies were allowed to issue these exemptions, and when someone qualified for an exemption, it was free.

Next Steps

The principals are likely going to the Hoosegow. Each count has a maximum sentence of 20 years in prison. Sentencing is scheduled for later this year. In addition to jail time, Asay and Gastelum face fines ranging from $250,000 to $500,000 per count, while the company faces a fine of up to $8.5 million.

The California Department of Insurance levied a $4.3 million fine for operating without the required state approval. The MEWA claimed to be too poor to pay the penalty, but a state hearing officer concluded they did have the funds. The fines are still unpaid, but the case to collect the fines and interest is set to go to trial this fall.

Workers’ Comp Executive is aware of only one employer that was issued a stop work order and fined nearly $190,000 for operating without valid workers’ comp insurance when it was covered by an ALA policy. That case is still in litigation between the employer and ALA, with a trial set to start next May.

Further, Workers’ Comp Executive has seen no evidence during or to date that the Department of Industrial Relations, despite being aware of over 300 employers using the program, ever took any widescale enforcement actions against ALA or its employer clients for operating without valid workers’ comp coverage even after being provided with lists of those same clients.

At least one insurance broker in Los Angeles County was sued by an employer for providing “coverage” through ALA. The broker’s Errors and Omission policy paid the claim.

More Indictments

Federal prosecutors are also pursuing a separate indictment against Asay for income tax and Social Security disability fraud. Filed in early 2022, the U.S. Attorney charged Asay with filing false income tax returns that did not show roughly $300,000 taken out of ALA for his benefit and committing disability benefit fraud. The indictment alleged Asay caused the company to spend $50,000 on dating service websites, $126,000 to cover rent for his lakefront home, and over $40,000 withdrawn by check from ALA’s coffers.

The indictment also alleged that Asay was collecting approximately $1,700 a month in disability benefits while working full-time for ALA and earning $1,000 monthly from the company. His dependent also collected roughly $900 per month from the disability program.

An extensive library of past articles related to fraudulent operations is available in our Investigations section here.