San Jose Man Accused of Hiding Payroll From Workers' Comp Insurer

A San Jose man stands accused of defrauding California's State Compensation Insurance Fund by not reporting more than $600,000 in payroll. The workers' compensation fraud charges could bring a sentence of five years in prison and a $50,000 fine.

Alameda County Sheriff's Deputies arrested Daniel Ethan Nelson, at the Oakland International Airport on April 14, according to an announcement from the California Department of Insurance. Bail was set at $50,000.

"Every company doing business in California is required to carry workers' compensation insurance for all employees," Insurance Commissioner Steve Poizner said in a statement.

Nelson is alleged to be the principal individual responsible for Blue Wave Holdings and its subsidiary companies, including Worldwide Attractions and Monster Magic LLC, entertainment companies specializing in Halloween-related attractions. An investigation by insurance department investigators and the Santa Clara County District Attorney's Office determined the subsidiaries committed workers' compensation fraud by not reporting employees on payroll reports submitted to SCIF, their workers' compensation insurer. Officials also allege SCIF insured other Blue Wave subsidiaries that failed to disclose other entities and operations in which they were involved, as required on application forms.

An initial investigation concluded Worldwide Attractions/Monster Magic LLC intentionally under-reported payroll by as much as $77,164 between January and December of 2006. Evidence seized from company bank accounts allegedly revealed an additional $507,178 in under-reported payroll. The alleged loss to SCIF is approximately $57,328.

Attempts to reach Blue Wave Holdings and Worldwide Attractions/Monster Magic for comment were unsuccessful.

In another recent case, a California broker pleaded guilty to a wide range of offenses after being charged with taking $4.6 million in premiums while issuing false insurance certificates to companies. Mitchell B. Zogob, is set to spend 10 years in state prison for collecting fraudulent workers' compensation insurance premiums (BestWire, April 8, 2010).

The top five writers of workers' compensation in California in 2008, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database, were: State Compensation Insurance Fund of California, with 22.6% market share; American International Group Inc., with 7.6%; Liberty Mutual Insurance Cos., with 6.7%; Travelers Group, with 6.3%; and Berkshire Hathaway Insurance Group, with 5.7%.