Case Update - Janitorial company owner enters guilty plea in multi-million dollar premium and tax fraud case
News: 2017 Press Release
Hyok Kwon, owner of Good Neighbor Services, a janitorial company that provided services to some of San Diego's most exclusive hotels and resorts pleaded guilty yesterday to seven felonies, including premium and employment tax fraud in an elaborate scheme to avoid paying workers' compensation insurance premiums and employment taxes. Kwon stipulated to an eight-year prison sentence and to pay restitution exceeding $5 million.
Woo Hui Kwon pleaded guilty on December 6, 2016 to two counts of premium fraud and two counts of employment tax fraud. She was sentenced to four years and eight months, and restitution that totaled over $5 million to insurance carriers and Employment Development Department.
Original news release below issued by San Diego District Attorney Bonnie Dumanis on December 21, 2015 –
SAN DIEGO, Calif. - San Diego County District Attorney Bonnie M. Dumanis announced today that a grand jury has indicted the owners of Good Neighbor Services as well as six accomplices for a massive, ongoing insurance fraud and tax evasion scheme. Two defendants, Hyok "Steven" and Woo "Stephanie" Kwon, own a janitorial company that provides cleaning staff to major hotels across San Diego, Los Angeles and Riverside Counties, including The Hotel Del Coronado, Loews Coronado, La Costa Resort and Spa, The Grand Del Marin La Jolla, L'Auberge Del Mar, The Ritz Carlton, Four Seasons, Hilton and Hyatt hotel chains.
The Kwons have been indicted on 11 counts of workers' compensation premium fraud, 18 counts of payroll tax evasion and one count of extortion. The investigation uncovered a methodical and systematic shell game involving six straw owners. These straw owners were used to conceal the existence of hundreds of hotel workers to avoid paying millions of dollars in insurance premiums and payroll taxes. If convicted of all charges, they each face up to 31 years in prison.
"These defendants lied on the backs of their employees who were cleaning rooms in some of the most prestigious hotels in California," DA Dumanis said. "If employees got hurt on the job, they were threatened with being fired.
Insurance fraud and tax evasion is not a victimless crime.
"When cheaters scam insurance companies and lie their way out of paying taxes, ordinary citizens end up footing the bill," DA Dumanis said. "Our insurance fraud team did an excellent job collaborating with the California Department of Insurance and state investigators to investigate and prosecute the Kwons."
For nearly a decade, Good Neighbor Services concealed their real payroll information in order to fraudulently obtain workers' compensation insurance from multiple companies including Travelers, Norguard, AIG, Southern Insurance, Everest National, Preferred Employers, State Compensation Insurance Fund and Employers Compensation Insurance. In doing this, the company avoided paying more than $3.6 million in insurance premiums and evaded paying over $3.3 million in payroll taxes.
Employees who were interviewed said they were paid with checks bearing the name of businesses other than Good Neighbor Services throughout the course of their employment, even though they wore uniforms with the Good Neighbor Services' logo and identified the Kwons as the owners. The employees also said they did not receive overtime pay or workers' compensation benefits when they were injured on the job, and they feared retaliation if they reported their injuries. One employee said she had to repeatedly ask for medical attention for her injury. When she was finally sent to a doctor, she found out later the Kwons sent her to a dentist rather than a physician.
"The Kwons treated their workers like chattel when they fraudulently did not provide workers' compensation insurance coverage for their workers," said Insurance Commissioner Dave Jones. "While hundreds of GNS employees working as janitors put in long hours to make money for the Kwons, Steven and Stephanie Kwon allegedly put the health and well-being of these workers at risk and ripped off at least $6.5 Million that should have been paid for workers' compensation and unemployment insurance."
The District Attorney's Office is asking additional employees who worked with the Kwons and were denied workers' compensation benefits to come forward. Anyone with information about the abuse of employee rights or the Kwons' use of shell companies should call: 800-315-7672 or 800-927-4357.
The San Diego District Attorney worked with the California Department of Insurance, Employment Development Department, Maintenance Cooperation Trust Fund, and Department of Industrial Relations to bring this complicated, underground economy case to light. The extensive amount of fraud would not have been uncovered without the efforts of these community partners.
"Workers' compensation premium scams are deeply unfair to honest businesses that play by the rules," said Dennis Jay, Executive Director of the Coalition against Insurance Fraud. "Cheaters gain an unfair competitive advantage and raise workers' compensation premiums, which are passed along to consumers in higher prices."
Steven Kwon will be arraigned today at 1:30 p.m. in Dept. 11 of the San Diego Superior Court.
Six co-defendants have also been charged with workers' compensation premium fraud and tax evasion. They are Melquiades Brizuela Jr., Manuel Rodriguez, Veronica Lucas Cuin, Aimee Sunmyung Kwon, Daniel Kwon and Hyun Bung Chae for their involvement in the scheme. They face sentences between six and eight years in prison. The co-defendants are expected to appear in court on January 5, at 1:30 p.m. in Department 11 of the San Diego Superior Court.
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.