American Labor Alliance and Marcus Asay (see photo)– collectively, the operators of an illegal workers’ comp program that was marketed as an alternative to workers’ comp insurance – now face new federal fraud charges. The United States Attorney’s office for the Eastern District of California filed a superseding indictment – this time adding five new wire fraud charges for allegedly selling bogus Affordable Care Act compliance certificates.
Prosecutors say that between the end of 2014 and April 2016, Asay and American Labor Alliance devised a plan to sell “hardship exemptions” to individuals to allow them to avoid the tax penalty for not complying with the ACA’s individual mandate.
The scam allegedly included making “false and fraudulent statements indicating that a government entity had granted ALA an organization-wide hardship exemption and that ALA had the authority to sell hardship exemptions to taxpayers.”
The updated indictment alleges that Asay and others marketed these hardship exemptions to tax preparers. “Representatives of ALA falsely claimed to the tax preparers that taxpayers could purchase an ALA hardship exemption and thereby avoid the shared responsibility payment,” U.S. Attorney McGregor Scott says in the updated indictment.
The five new counts cover the sale of the fraudulent hardship exemptions in both California and Nevada. It is unknown at this time how many exemptions they sold overall.
Prosecutors say that ALA and Asay created a fake form that they presented to the tax preparers and taxpayers that falsely claimed to provide the exemption. The allegations share similarities with the California Department of Insurance’s original case to shut down the workers’ comp program. CDI produced evidence that ALA initially issued fake certificates of insurance that listed Travelers as the workers’ comp carrier.
Later ALA’s alter ego, Omega Community Labor Association, developed a form that mimicked the look of an ACORD Certificate of Liability Insurance form but was labeled instead as a “Certificate of Liability Coverage.” The document also replaced the term “insurer” with “issuer.” The subtle changes escaped the Department’s notice until ALA’s defense itself pointed it out during a penalty hearing.
Asay and ALA allegedly sold the exemptions for $250 each, and prosecutors say the defendants took cash, money orders and even credit cards as payment. The indictment does not say how much Asay and ALA took in from the sale of these hardship exemptions, but the government is asking for forfeiture of $2,896,416.48 in connection with all of the charges.
Federal officials declined to say if any additional charges would be forthcoming in the case that is now nearly two years old. The prosecutors noted this spring that they were continuing their investigation of Asay and ALA’s operations and were planning to file additional charges (see More Federal Charges…). The latest charges also stem from the federal grand jury investigation that produced the original charges filed in January 2019.
Antonio Gastelum, ALA’s head of finances, was not named as a defendant to the additional charges. However, Gastelum is a named defendant to the twelve original counts of mail fraud and a count of conspiracy to commit mail fraud. Asay also faces two individual counts of money laundering for allegedly taking pension plan funds and using them for his own benefit.
The federal docket has the parties heading back to court next month for a status conference. No trial date has been set in the case, which has been delayed due to the COVID-19 pandemic.
Meanwhile, the California Department of Insurance is preparing to hold a new hearing to consider the civil penalty against the defendants for the illegal workers’ comp program run by ALA. The California Department of Insurance issued a $4.3 million penalty covering ALA’s operation of the illegal CompOneUSA program, as well as several months of operations under ALA’s alter ego, Omega Community Labor Association.
A Fresno Superior Court upheld the cease and desist order against ALA earlier this year but stopped short of enforcing the penalty. It sent the case back to CDI’s Administrative Hearing Bureau to determine if the defendants actually can pay the penalty.
Additionally, a decision is pending against Omega Community for continuing the illegal operations initiated by Asay and American Labor Alliance. Omega is challenging the Department’s cease and desist order – the third issued against the illegal program in its various forms. CDI’s chief administrative law judge tells Workers’ Comp Executive that the decision has not yet been issued. Hearings in the case wrapped up roughly one year ago.