Insurance Commissioner Jones Announces Sentencing of Bay Area Business Owners and Employee for Insurance Fraud
News: 2011 Press Release
Insurance Commissioner Dave Jones today announced that Cheryl Lee, 40, Jeffrey Ottoveggio, 49, and Bruce Campbell, 55, were sentenced in Santa Clara County Superior Court. Lee pled guilty to one misdemeanor count of unemployment insurance tax fraud and received a sentence of 100 hours of community service. Ottoveggio and Campbell both pled to one felony count of workers' compensation insurance fraud and one felony count of unemployment insurance tax fraud. Ottoveggio and Campbell were sentenced to six months in county jail and probation. Restitution was ordered in the amount of $698,581.49.
The company, Posh Bagel, was founded by Jeffery Ottoveggio in 1992 and established as a whole sale bakery in Santa Clara in 2004. Ottoveggio's wife Cheryl Lee was recorded as the CEO of the business and Bruce Campbell was their account manager. On June 6, 2006, an internal spreadsheet was discovered by their workers' compensation carrier, Applied Underwriters, which indicated Posh Bagel was only reporting 20 percent of their payroll to their carrier, 80 percent to Paychex and any overtime was reported under a different company name, "CLO."
An initial audit was conducted by the California Department of Insurance (CDI) which revealed that Posh Bagel reported $361,178.43 to their carrier, Applied Underwriters, but owed $295,890.07 in additional premium because they underreported their payroll by $1,622,391.27 during a ten month period in 2006. Of this amount $852.036.29 was not reported to the Employment Development Department (EDD).
Also discovered in the audit, which was conducted for the time period of October 2006 through May 2008, it was revealed that payroll was being reported under businesses which were incorporated in Nevada under the names of delivery truck drivers that were employed by Posh Bagel. These Nevada companies shared the same business address and had common employees as Posh Bagel in Santa Clara. This audit showed that Posh Bagel underreported their payroll to Endurance Insurance Company and to EDD in the amount of $1,530,806.20. It was determined that the total premium owed for all time periods was $433,512.31 with an additional $431,174.79 owed to EDD.
On April 29, 2010, Arrest Warrants and Search Warrants were served concurrently for Lee, Ottoveggio and Campbell.
Based on information gained from the search warrant, CDI and EDD conducted a final audit and determined the restitution amount of $698,581.49. The restitution amount ordered was paid at the time of sentencing and in the amounts as follows: EDD received $339,722.24, Applied Underwriters received $248,420.75 and Endurance Insurance Company received $110,438.50.
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California, regulating the $123 billion insurance marketplace. In 2013 the California Department of Insurance received more than 170,000 calls from consumers and helped recover over $63 million in claims and premiums. Please visit the Department of Insurance web site at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.