San Jose Chain Store Owners Plead Guilty in Workers’ Comp Scam

A San Jose, California husband and wife have pled guilty to charges of workers’ compensation premium fraud and will serve 14-month jail sentences and pay $2 million in restitution following a multi agency investigation into the crimes.

The owners of San-Jose based Senter Foods, owner Henry Ly, 53, and his wife, Hung Kien Voung, 57, pled guilty May 13 to multiple felony violations, including payroll and income tax evasion. They reached a plea agreement with the Santa Clara District Attorney’s office that will call for them to pay $2 million in restitution and serve a total of 14 months each in jail.

According to the agreement, Voung will be released from the Santa Clara County jail after serving 14 months since her arrest on March 29, 2004, and will then be placed on three years probation. Ly, who has also been serving 14 months in jail and will also continue serving a three-year sentence. His sentence is contingent on his agreement to provide the Santa Clara County District Attorney’s Office with an additional $500,000 in restitution on or before Aug. 12, 2005. If Ly provides the additional $500,000 in restitution by Aug. 12, 2005 his three-year sentence will be reduced by one year.

The California Department of Insurance (CDI) will receive approximately $400,000 in restitution to be allocated to victim insurance carriers, and the Franchise Tax Board (FTB) will receive approximately $600,000 in restitution. The exact amount of restitution which will be provided to the California Employment Development Department (EDD) is still to be determined.

Ly and his wife were arrested following a two-year multi-agency investigation by the CDI Fraud Division, the Santa Clara County District Attorney’s Office, EDD, and FTB. Twelve felony counts were filed by the Santa Clara County District Attorney’s Office in the case.

The investigation reportedly revealed that an overwhelming number of Senter Foods employees were secretly paid in cash, “under the table,” over many years. The cash pay was not reported to insurance carriers, the EDD or FTB.

By secretly paying employee’s cash and grossly underreporting their payrolls, the defendants evaded taxes and their legal obligations to make contributions for employees’ benefits such as employment and disability insurance. Senter Foods also reportedly engaged in unfair competition by illegally evading workers’ comp insurance premiums and taxes. Their scheme gave Senter Foods an unfair advantage over businesses which accurately report payroll to the state.

The investigation also reportedly revealed that Ly and Voung committed income tax evasion by failing to report $4.4 million in income generated from Senter Foods stores in the years 2000 and 2001. The defendants systematically failed to report cash register proceeds from their stores’ daily earnings.

As a result of their fraudulent actions, investigators estimate that Ly and Voung owe the State of California and various workers’ comp insurance carriers more than $2 million in back taxes and workers’ comp insurance premiums, and another approximately $2 million in interest and penalties.

As a result of this fraudulent activity, Cal Comp, Grocers Insurance and the State Compensation Insurance Fund were defrauded of approximately $414,792 in workers’ comp insurance premiums from January 1997 through 2001.