WOMAN SENTENCED FOR $30 MILLION PREMIUM INSURANCE FRAUD SCAM WITH

*This is the largest known Workers’ Compensation Insurance fraud case in California’s history

 

SANTA ANA – A woman who co-owned three roofing contractor
businesses with her husband was sentenced today for committing $30 million in
premium insurance fraud in one of the largest known Workers’ Compensation
Insurance fraud case in California’s history
. Devon Lynn Kile, 46, Laguna
Hills, pleaded guilty April 12, 2011, to a court offer to 36 felony counts of
misrepresenting facts to the State Compensation Insurance Fund (SCIF), 15 felony
counts of willful failure to pay tax to the Employment Development Department
(EDD), 10 felony counts of failing to file a return with the intent to evade
tax, six felony counts of willful failure to file tax returns, six felony counts
of filing false tax return, one felony count of making fraudulent statements,
and sentencing enhancements for excessive taking over $2.5 million and white
collar crime over $500,000. Kile was
sentenced to 10 years in state prison stayed pending successful completion of 10
years of formal probation. Kile served two years in County jail while her case
was pending. She was ordered to pay $1.3 million in restitution to EDD, $1.5
million in restitution to the Franchise Tax Board (FTB), and restitution to SCIF
is to be determined.

 

Kile’s co-defendant husband Michael Vincent Petronella, also known
as Michael Constantine, 52, was sentenced Nov. 4, 2010, to 10 years in state
prison. He was found guilty by a jury Feb. 11, 2010, of 33 felony counts of
insurance fraud and the sentencing enhancement for aggravated white collar crime
over $500,000 was found true. He was ordered by the court to pay $500,000 in
restitution to SCIF. The Orange County District Attorney’s Office (OCDA) is
appealing Petronella’s restitution amount, arguing for additional restitution to
cover the millions of dollars in loss.

 

WHAT IS PREMIUM INSURANCE FRAUD?

California law requires that all employers maintain workers’
compensation insurance for their employees. Payroll records showing the number
of employees and their income must be submitted to both the workers’
compensation insurance company and EDD, who oversee the collection of payroll
taxes. Workers’ Compensation Insurance rates are determined by a formula, which
takes into consideration the number and type of employees and the company’s
history of injury claims.

 

Premium insurance fraud is committed when an employer
intentionally misrepresents to the State or insurance company the number of
employees, the type of work performed, the amount of payroll, and the loss
history. These illegal misrepresentations allow deceitful employers to calculate
and purchase workers’ compensation insurance at a significantly lower premium
rate, or to avoid purchasing the insurance at all.  This practice places their competitors at a
disadvantage because it forces them to compete against a company with
fraudulently lower operating costs.

 

Premium fraud drives up the cost of insurance premiums for
legitimate businesses that pay higher rates for their employees’ workers’
compensation insurance coverage. These legitimate businesses are less
competitive against crooked companies who are able to under-bid their
competitors due to lower business costs resulting from insurance fraud. This
also endangers injured employees who may be denied workers’ compensation
benefits intended to meet their physical, psychological, and financial needs for
a work-related injury.

 

CIRCUMSTANCES OF PREMIUM INSURANCE FRAUD
CASE

At the time of the
crime, Petronella was a roofing and general building contractor.
Petronella
and Kile owned three businesses
including Petronella Corporation, Western Cleanoff, Inc., and The Reroofing
Specialists, Inc. (also known as Petronella Roofing). The businesses were
located in Costa Mesa and Cathedral City, Riverside County, and had clients
primarily in Southern California which included the Ocean Institute in Dana
Point, the Pacific Amphitheater in Costa Mesa, and other commercial
properties.

 

In March 2006, an employee of Petronella fell from a roof and
sustained injuries. A payroll stub was submitted to SCIF, listing his employer
as Western Cleanoff, Inc., which SCIF did not insure. SCIF is a
quasi-governmental non-profit insurance company established by the California
State Legislature.  SCIF reported the
suspected fraudulent claim to the OCDA and Department of Insurance (DOI).

 

Following a 2-year investigation by the OCDA, with assistance from
several agencies (listed below), Petronella and Kile were arrested April 29,
2009, at their Laguna Hills home. A search of six locations including two
residences, two businesses, a storage unit and a Certified Public Accountant’s
office turned up more than $500,000 in jewelry, $51,000 cash, and an application
from Kile to be featured on the Bravo series Real Housewives of Orange County. A
Receiver was appointed by the Court to oversee the seized property and determine
which items and properties should be held as collateral or sold at auction as
payment for back due taxes.

 

CIRCUMSTANCES OF THE FRAUD

Beginning in 2000, Petronella and Kile obtained Workers’
Compensation Insurance for their three companies through SCIF. Between 2000 and
2008, Petronella fraudulently submitted 42 claims for uninsured injured workers
and underreported $29 million in payroll to SCIF in order to avoid paying his
Workers’ Compensation Insurance premiums. The couple engaged in a scheme that
resulted in SCIF incurring more than $253,000 in uncovered injured worker claims
and insurance premium losses in the millions. Petronella and Kile reported $3
million in payroll to SCIF, while having an actual payroll of $32 million, ten
times more than reported.

 

Beginning in 2000, SCIF performed annual audits of Petronella and
Kile’s companies, during which they provided false employee and payroll records.
Between 2000 and 2008, Petronella and Kile fraudulently reported a $2.9 million
payroll to SCIF for The Reroofing Specialists, Inc., while reporting $16.6
million in payroll to EDD for the same company during the same time period.
Beginning in 2003, Petronella and Kile fraudulently reported no payroll to SCIF
for Western Cleanoff, Inc., while reporting in excess of $13.9 million in
payroll to EDD for the same company between 2000 and 2008. Between 2007 and
2008, they paid unreported payroll in excess of $200,000 in cash to day
laborers.

 

In order to avoid paying Workers’ Compensation Insurance for all
of his employees, Petronella and Kile underreported the number of workers
employed at each business, including claiming none for Western Cleanoff, Inc.
Petronella fraudulently filed 42 claims for employees injured while working for
The Reroofing Specialists, Inc. to obtain insurance coverage for the injured
employee without paying for the insurance. The injured employees have since been
identified as Western Cleanoff, Inc. and Petronella, Inc. employees.

 

The couple, who lived in Laguna Hills at the time of their arrest,
owned five properties in California and Texas and multiple luxury vehicles
including a Bentley, two Ferraris, and a Range Rover. Between 2005 and 2007,
Petronella and Kile spent more than $2.1 million on their American Express
credit card for personal items. They spent thousands of dollars on jewelry,
shoes, clothes, and other personal items at stores including Balenciaga,
Bloomingdale’s, Chanel, Christian Louboutin, Gucci, Kitson, Neiman-Marcus,
Nordstrom, Yves Saint Laurent, and others.

 

This case was investigated by the OCDA and the Orange County
Premium Fraud Task Force, a collaboration of investigators from OCDA, DOI, EDD,
FTB, and Contractors State License Board. 

 

Deputy District Attorney Debbie Jackson of the Workers’
Compensation Insurance Fraud Unit prosecuted this case.