Calif. Employment Agency Settles Charges, Will Repay State Fund

A California temporary employment agency will pay up to $20 million in restitution in a plea bargain on charges of defrauding the State Workers' Compensation Fund.

Staffing Services Inc. will remain under three years probation, but will be subject to no further penalties if it makes restitution to the state fund, said Scott Carbaugh, a Los Angeles Deputy District Attorney who heads the health care fraud division. As part of the plea, authorities dropped charges against the company's principals, David Zahler and David Tai, Carbaugh said. The two could have faced up to 24 years in prison and up to $60 million in restitution and fines, if convicted of deliberately providing false information to the state fund to fraudulently receive workers' compensation coverage.

"Our goal was really to make sure SCIF, the victim in this case, is made whole as much as possible," Carbaugh said.

In December 2008, the California Department of Insurance said a 30-month investigation found the men allegedly deliberately misrepresented the types of employees for which they obtained coverage in order to avoid premium payments. Zahler was chief executive officer and Tai chief financial officer for the Bellflower, Calif.-based company. Insurance Commissioner Steve Poizner called the two "scam artists" (BestWire, Dec. 2, 2008).

All lawsuits against Staffing Services in this matter are now resolved, according to a statement from Ronald A. Ziff and Drew E. Pomerance, attorneys for the company. Despite the $20 million figure, the actual payout will be less, Ziff said in the statement.

"In actuality, the net effect of what Staffing Services is required to payout is an agreed upon amount of $5 million over a 24-year period," he said. "Provided the incremental payments of the $5 million settlement are made on time and in full, that $5 million amount will bring about full restitution by Staffing Services as well as a release of all claims against the corporation."

The top five writers of workers' compensation in California in 2008, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database, were: State Compensation Insurance Fund of California, with 22.6% market share; American International Group Inc., with 7.6%; Liberty Mutual Insurance Cos., with 6.7%; Travelers Group, with 6.3%; and Berkshire Hathaway Insurance Group, with 5.7%.

(By Sean P. Carr, Washington Correspondent: [email protected])