Couple accused in California’s largest workers’ comp. fraud case

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A husband and wife from Laguna Hills, Calif., stand accused of what officials say is the largest known workers’ compensation insurance fraud case in the state’s history.

handcuffs2newMichael Vincent Petronella, also known as Michael Constantine, 50, and his wife Devon Lynn Kile, 44, face 106 felony counts, including insurance fraud, that could net the pair up to 102 years in prison, if convicted.  The pair operate three roofing and construction companies in California.

They were being held on $10 million bail each and must prove the money is from a legal and legitimate source before posting bond, according to the California Department of Insurance.

Investigators in the case included the insurance department, the California Employment Development Department and the Orange County District Attorney’s Office.

The agencies uncovered details that indicate that beginning in 2000, the couple allegedly  obtained workers’ compensation insurance for their three companies through the State Compensation Insurance Fund. Between 2000 and 2008, Petronella is accused of fraudulently submitting 42 claims for uninsured workers and underreporting $29 million in payroll to the non-profit insurance company in order to avoid paying his workers’ compensation premiums. The pair reported $2.9 million in payroll rather than the $29 million, according to officials.

In order to avoid paying workers’ compensation for all of their employees, Petronella and Kile are accused of underreporting the number of workers at their businesses, including reporting no workers at one of their offices.

Petronella and Kile are accused of engaging in a scheme that resulted in the insurer incurring more than $253,000 in uncovered injured worker claims and insurance premium losses exceeding $38 million.

Steve Poizner, California’s insurance commissioner said “this type of workers’ comp fraud jeopardizes this vital protection.”

“We will work tirelessly with our partners like the Orange County District Attorney’s office to track down all types fraud,” he said in a statement. “I want to remind potential criminals out there that no matter how bad the economy is, no matter how enticing it is, if you commit insurance fraud, we will work day and night to bring you to justice.”

Officials say the savings from premiums helped the couple afford a lavish lifestyle, including properties in California and Texas, and vehicles including a Bentley, two Ferraris, and a Range Rover. A search of the couple’s homes and businesses turned up more than $500,000 in jewelry, $51,000 in cash an application from Kile to appear on Bravo’s “Real Housewives of Orange County.”

Between 2005 and 2007, Petronella and Kile are accused of claiming less than $290,000 of income on their tax returns, according to officials, but spending more than $2.1 million on their American Express credit card for personal items.

The defendants are also accused of underreporting their income on their individual state income tax returns. Petronella allegedly underreported his income between 2005 and 2007 on his tax returns by more than $2.3 million. He is accused of owing the state more than $632,600 in taxes, fines, penalties, and the cost of the investigation. Kile is accused of underreporting her income by more than $1.7 million during the same time and owning the state more than $530,000.

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