San Jose based security company busted for $3.2 million premium fraud
News: 2018 Press Release
SAN JOSE, Calif. — Security Code 3, Inc. owner Troy Carson, 55, of San Jose was arrested by Department of Insurance detectives for allegedly underreporting payroll by more than $12 million in an attempt to secure a lower workers' compensation rate under false pretenses and cheating his insurer out of more than $3.2 million.
Victoria Cruz, 46, Lanette Wiegand, 46, both from San Jose and Jaime Lugo, 60, of La Crescenta also face charges in connection with the fraud scheme. In total, the quartet is charged with 18 felony counts of workers' compensation insurance premium fraud.
According to detectives, the investigation began after irregularities surfaced regarding how the company reported and handled employee injuries, including allegations that employees were dissuaded from reporting on-the-job injuries. Evidence revealed a complex scheme was hatched because the number of employee injuries led an increase in the company's workers' compensation premiums.
Investigators allege Carson formed a new company called SC3 DVBE Security Services Inc. and then underreported the payroll and number of employees to their insurance company, which reduced their workers' compensation insurance premiums under false pretenses. Evidence also revealed their insurance broker, Jaime Lugo, was allegedly aware of the scheme to create a new company to secure a more favorable workers' compensation rate and wrote a new policy for SC3 DVBE Security. As a result of the alleged fraud, the insurer was cheated out of $3.2 million in premiums.
"California consumers and businesses pay the price for insurance fraud through higher premiums and increased costs for goods and services," said Insurance Commissioner Dave Jones. "When business owners cheat the system by operating in the underground economy, they create an unfair advantage that puts legitimate businesses at risk."
In a complex scheme, Carson operated two security companies, Security Code 3 and SC3DVBE Security Services Inc., when in fact they functioned as one company. An investigation revealed that over a six year period, Wiegand and Cruz, as part of the management team, submitted payroll and insurance premium payments for the 500-employee company.
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- On May 18, 2018, the California Department of Insurance issued an Order suspending the insurance license of Jaime Gonzalez Lugo.
- Troy Carson: IC 11880(A) (5 counts), IC 11760(A) (1 count), PC 550 (b)(3) (2 counts) and SDPN10115.10(a)(1)
- Lanette Wiegand: IC 11880(A) (4 counts), PC 550(b)(3) (2 counts)
- Victoria Cruz: IC 11880(A) (4 counts)
- Jaime Lugo: IC 11880(A) (5 counts), PC 550(b)(3) (2 counts)
The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at www.insurance.ca.gov. Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.