Bagel Man Hides the Dough: H and H Bagels Owner Arrested for General Tax and Unemployment Insurance Tax Fraud
Insurance fraud occurs most often when an insured individual or entity makes a false or exaggerated insurance claim, seeking compensation for injuries or losses that were not actually suffered. Insurance fraud can also be committed upon customers, through 1) the sale of unlicensed or bogus insurance coverage to unsuspecting clients, or 2) an insurance broker or agent’s diversion or theft of insurance premiums paid by clients.
Insurance fraud refers to any duplicitous act performed with the intent to obtain an improper payment from an insurer. Insurance fraud is committed by individuals from all walks of life. Law enforcement officials have prosecuted doctors, lawyers, chiropractors, car salesmen, insurance agents and people in positions of trust. Anyone who seeks to benefit from insurance through making inflated or false claims of loss or injury can be prosecuted. The pervasiveness of insurance fraud drives up costs for all consumers and costs the insurance industry billions of dollars each year. One authority estimates that the annual value of insurance fraud approaches $80 billion. Detecting insurance fraud is difficult because of the surreptitious nature by which the criminal perpetrates the fraud.
When someone collects unemployment insurance (UI) benefits by lying to the Department of Labor, he or she is committing fraud. We take UI benefits fraud very seriously. It is a crime that affects businesses and workers. It drives up UI costs to law-abiding businesses, and it leaves honest workers unprotected. We need every dollar to help those who honestly need these benefits.
Some examples of UI benefits fraud include:
• Providing false information or failing to disclose information on your application for benefits, including lying about how you lost your job
• Working while collecting unemployment benefits and inaccurately reporting your days and earnings
• Working any amount of time in a week while collecting benefits and telling us you did not work
• Earning more than $420 from employers in one week where benefits are collected and not correctly reporting true total earnings for that week
• Failing to be ready, willing and able to work (e.g., out of the area, on vacation, sick, suffering total disability) while collecting UI benefits
• Working “off the books” while collecting benefits
• Using another person’s identity (e.g., name, social security number) to file fraudulent claims
• Helping another person file a false unemployment insurance claim
• Collaborating with an employer to illegally claim unemployment insurance benefits
Types of Insurance Fraud
Police and prosecutors typically refer to an insurance fraud scheme as either “hard fraud” or “soft fraud.” Hard Fraud: Someone deliberately fakes an accident, injury, theft, arson or other loss to collect money illegally from insurance companies. Crooks often act alone, but increasingly, organized crime rings stage large criminal schemes to steal millions of dollars. Soft Fraud: Normally honest people often tell “little white lies” to their insurance company for the purposes of filing or maximizing a claim. Many people think it’s just harmless fudging. But soft fraud is a crime, and raises everyone’s insurance costs.
Whatever the recipe, the dough was a little too sticky. According to the Manhattan District Attorney’s Office and a Grand Jury has indicted a bagel wholesaler for Grand Larceny, Offering a False Instrument for Filing and violating the labor law through unemployment insurance tax rate manipulation. Prosecutors allege that the bagel wholesaler, the owner of H & H Bagels, collected, but failed to pay, $369,318.77 withheld from his bagel business employees. This occurred during a six year period from 2003 through his arrest in 2009.
According to the Manhattan District Attorney’s Office: “The investigation further revealed that during the period of this criminal indictment, the bagel wholesaler filed State and City withholding tax returns under six successive company names. Sporadically, he made nominal payments to the New York State Department of Taxation and Finance even though he knew he was obligated to turn over all withheld tax. Through shell companies, he committed unemployment insurance tax rate manipulation by transferring a large segment of his workforce from an existing business to a new business for the purpose of obtaining a lower unemployment insurance tax rate. Although he formed a new company, many of the same workers were being employed at the new company and he was able to therefore obtain an advantageous rate for his unemployment insurance payments to the trust fund operated by the New York State Department of Labor.”
The first prosecution of unemployment insurance tax rate manipulation under the New York State Unemployment Tax Act (also known as the SUTA dumping statute) since it became effective on January 1, 2006, it was stated: “This case is a wakeup call to all employers who fail to fulfill their fiduciary obligation to pay over taxes withheld from their employee’s salaries. It also demonstrates how tax evasion hurts our workers when an employer deliberately fails to contribute the appropriate amount into the unemployment insurance trust fund.”
SUTA is the “State Unemployment Tax Act.” SUTA Dumping is an attempt to manipulate businesses to get a lower contribution rate. Employers and their representatives engage in criminal SUTA dumping. They do this to get a lower contribution rate than their unemployment experience allows. This is illegal. Employers who meet either of the following conditions are involved in SUTA dumping if they knowingly attempt to manipulate businesses to get a lower contribution rate: Transferring some or all of their workforce to another business when they own, manage or control at least 10% of both businesses. Acquire another business for the sole purpose of getting a lower contribution rate when they were not previously liable for contributions
The Grand Jury indicted the bagel wholesaler on five counts of Grand Larceny in the Second Degree, a class C felony punishable by up to 15 years in prison; one count of Grand Larceny in the Third Degree, a class D felony punishable by up to 7 years in prison; three counts of Filing in the First Degree, a class E felony punishable by up to 4 years in prison; and two counts of a violation of Labor Law ､581(7)(c)(5) (Unemployment Insurance Tax Rate Manipulation), a class E felony also punishable by up to 4 years in prison.
Under the New York Penal Law, grand larceny in the second degree is committed by any person when he steals property and when:
1. The value of the property exceeds fifty thousand dollars; or
2. The property, regardless of its nature and value, is obtained by extortion committed by instilling in the victim a fear that the actor or another person will (a) cause physical injury to some person in the future, or (b) cause damage to property, or (c) use or abuse his position as a public servant by engaging in conduct within or related to his official duties, or by failing or refusing to perform an official duty, in such manner as to affect some person adversely. Grand larceny in the second degree is a class C felony.
Whatever the appropriate defense might be in this case, he should implement that defense immediately. The Money Laundering and Tax Crimes Unit, a highly skilled boutique unit of the Manhattan District Attorney’s Office, is represented by prosecutors and investigators with significant experience in these types of schemes. As is the case for many of these alleged crimes, the longer the matter progresses without ascertaining and implementing one’s defense, the more difficult it is to defend them.
Stephen Bilkis and Associates has successfully represented clients in alleged frauds involving thefts in the tens of thousands of dollars to alleged tax crimes involving multiple millions of dollars. If you are in need of our services, call and our New York Fraud Attorney and New York Criminal Defense Attorney will help you.