The Department of the Treasury and the Internal Revenue Service released new guidance that is “designed to expand the use of income annuities in 401(k) plans.”
June 19--Hundreds of thousands of dollars of company funds, spent on luxury cars and a house.
Federal tax code violations.
Bogus insurance documents, that an in-house lawyer has admitted sending to company clients.
Those are among alleged activities of HR Comp Employee Leasing that are under federal investigation and led to last month's seizure of records from the Knoxville-based professional employer organization (PEO) business, according to recently filed court documents.
The investigation extends to a cluster of companies affiliated with HR Comp. No charges have been filed against the firm's owner, Andrea Rudd (formerly Andrea Ball) or any employee.
Meanwhile, a petition by HR Comp, seeking to have seized records returned, is set for a hearing on June 30 at 1:30 p.m. in U.S. District Court.
A PEO provides payroll administrative services, mainly to small- and medium-sized businesses. The client pays the PEO a fee, and costs associated with the services. Services can be as simple as payroll management, with the client paying the PEO money that is owed the IRS for payroll taxes, or so extensive that the PEO becomes the official "employer of record" for the client firm's workers.
In its petition for return of the records, HR Comp says that without them it is experiencing extensive business difficulty and in some cases "irreparable harm." This drew a sharp comment from Assistant U.S. Attorney Frank M. Dale Jr, in his response to the petition.
"Indeed, 'irreparable harm' through the loss of one's customer base could be viewed as an occupational hazard of operating a business that seeks to maximize profits through defrauding its customers," since clients could be expected to leave HR Comp "upon learning that they had been hornswoggled."
"As you know, there are two sides to every story," John Owings, attorney for Rudd and HR Comp, told the News Sentinel in an email. "We cannot comment about the statements by the government, the ex-husband, or ex-business associates. This is not the proper forum or the right time to tell our side as we are constrained by the rules of the federal court. We have a lot to talk about, however, and we look forward to being fully heard."
Some details of the ongoing investigation by the FBI and IRS are outlined in Dale's response to the challenge of the search warrant and records seizure.
The warrant was properly obtained for valid reasons, Dale wrote. "Even a cursory review of the facts surrounding Andrea Rudd and HR Comp is sufficient to demonstrate the pervasiveness of the criminal activity under investigation."
The affidavits presented to a federal magistrate to obtain the warrant do not include all facts known to investigators, and since the records were lawfully seized, there is no basis for returning them, Dale wrote.
Dale cited incidents of prior business tax delinquencies and disputes and allegations of diversion of client funds of clients of HR Comp and other PEO firms earlier operated by Rudd.
Rudd, when she was Angela Bishop began work in the PEO industry in 2005, as an employee of Service Provider Group, a PEO run by Zebbie Joe Usher III.
According to Dale, Usher told federal agents that he fired Rudd in 2006, after learning that she had embezzled $150,000 by forging checks.
Usher said that in exchange for not reporting her to authorities, she gave him a signed admission of guilt, and a lien on her home, Dale wrote.
Usher recently pleaded guilty to conspiracy and tax fraud and is awaiting sentencing
Rudd's former husband, Chris Ball, was an HR Comp employee when the couple were married. He has "told investigators that he and Rudd had used company funds for personal expenditures. He described a $300,000 down payment for the house he had jointly purchased with (her) ... $142,739.48 of (a $300,000) that down payment was paid directly from funds drawn from an HR Comp account."
Ball also cited a 70-foot boat, six luxury cars and a pickup that he said he believed was bought with funds from HR Comp.
Ball's lawyer, Keith Stewart, said federal investigators initiated contact with Ball, and that Ball has willingly shared everything he knows with them, with no promise of immunity.
"I am not aware of anything wrong that he has done, but he is willing to answer for anything wrong that he may have done," Stewart said. "He was not complicit. He was kept in the dark by HR Comp."
As part of the couple's 2012 divorce settlement, Andrea Ball retained all ownership rights of the HR Comp group of companies and later married Michael Redd.
"During the course of its investigation of (Andrea) Rudd and HR Comp, it came to the attention of investigators that the company was being used to defraud workers' compensation insurance purchasers," Dale wrote.
Later, "additional facts came to light which confirmed earlier reports that HR Comp was potentially engaging in insurance fraud."
A California business learned that HR Comp was not providing the workers' compensation insurance that it had been paid for, according to Dale.
HR Comp's in-house lawyer Michael Houbre, sent 20 certificates of insurance to the California company, each of which "was invalid and fraudulent," Dale wrote.
According to an affidavit, Houbre admitted to a federal agent that he sent the bogus certificates, and stated that another employee, Shannon Matthewson, would inform clients that they would have workers' compensation coverage" when they did not. Houbre's attorney, Bob Jolley, could not be reached for comment. Matthewson's attorney, Joe Lodato, declined to comment.
According to state records, the company has been represented by lobbyist Tom Ingram, a political consultant to Gov. Bill Haslam.
In 2012, Andrea and Chris Ball stood with Haslam at a signing of legislation that designated the Tennessee Department of Commerce and Insurance as regulator of the PEO industry. After their divorce, she married Mike Rudd.
On the HR Comp website, she is listed as Andrea Ball. Mike Rudd has been listed on the HR Comp staff as director of security.
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