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National Insurance Crime Bureau

Two Men Plead Guilty To Fraudulent Scheme To Evade Payroll Taxes And Workers’ Compensation Requirements In Construction Industry

Jacksonville, Florida – Gregorio Jose Fuentes-Zelaya (27, Orlando) and Dennis Alexander Barahona (38, Chelsea, MA) have pleaded guilty to conspiracy to commit wire fraud and conspiracy to commit tax fraud. Fuentes-Zelaya has pleaded guilty to five counts of wire fraud and two counts of tax fraud. Barahona has pleaded guilty to one count of wire fraud and one count of tax fraud. Each wire fraud count carries a maximum penalty of 20 years in prison and each tax fraud count carries a maximum penalty of 5 years in prison. The United States also will seek forfeiture of $1,367,625, the approximate amount of proceeds obtained as a result of the wire fraud offenses, as well as funds seized from two bank accounts utilized during the scheme, with balances totaling $230,764. Fuentes-Zelaya and Barahona also owe a total of approximately $5,766,286 in restitution for the tax fraud offenses.

Fuentes-Zelaya is scheduled to be sentenced on May 10, 2021. A sentencing date for Barahona has not yet been scheduled.

According to court documents, Fuentes-Zelaya and Barahona established shell companies that purported to be involved in the construction industry. They obtained workers’ compensation insurance policies in the name of the shell companies to cover a minimal payroll for a few purported employees. They then “rented” the workers’ compensation insurance to work crews who had obtained subcontracts with construction contractors on projects in various Florida counties. Fuentes-Zelaya and Barahona sent the contractors a certificate as “proof” that the work crews had workers’ compensation insurance, as required by Florida law. By sending the certificate, the defendants falsely represented that the work crews worked for their companies. Over the course of the scheme, the Fuentes-Zelaya and Barahona “rented” the certificates to hundreds of work crews.

The contractors issued payroll checks for the workers’ wages to the shell companies and the conspirators cashed these checks, then distributed the cash to the work crews after deducting their fee, which was typically about 6% of the payroll. During the period of the scheme, the conspirators cashed payroll checks totaling approximately $22,793,748, with their fees totaling approximately $1,367,625. Neither the shell companies nor the contractors reported to government authorities the wages that were paid to the workers, nor did they pay either the employees’ or the employers’ portion of payroll taxes – including Social Security, Medicare, and Federal Income tax. According to the IRS, the estimated amount of payroll taxes due on wages totaling $22,793,748 is $5,766,286.

The scheme also facilitated the avoidance of the higher cost of obtaining adequate workers’ compensation insurance for the hundreds of workers on the work crews to whom Fuentes-Zelaya and Barahona “rented” the workers’ compensation insurance. Had workers’ compensation insurance policies been purchased for a payroll totaling $22,793,748, the policy premiums would have totaled about $3,600,000. The policies that Fuentes-Zelaya and Barahona purchased, and then “rented” out, were for estimated payrolls of $80,800 to $100,800. The insurance company issued those policies for premiums ranging from $15,206 to $31,268.
 

This case was investigated by Homeland Security Investigations and the Internal Revenue Service – Criminal Investigation. It is being prosecuted by Assistant United States Attorney Arnold B. Corsmeier.

News article: https://www.justice.gov/usao-mdfl/pr/two-men-plead-guilty-fraudulent-scheme-evade-payroll-taxes-and-workers-compensation