Auditor, coal company contractors plead guilty to fraud - WVVA TV Bluefield Beckley WV News, Weather and Sports

Auditor, coal company contractors plead guilty to fraud

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CHARLESTON, W.Va. (AP) -- A workers' compensation auditor and four coal company contractors have pleaded guilty to federal charges in a multimillion-dollar fraud scheme.

Federal prosecutors said Thursday that 52-year-old Brickstreet Insurance auditor Arville Sargent pleaded guilty to mail fraud and tax evasion.

Prosecutors say Sargent admitted allowing labor contractors for southern West Virginia coal operators to underreport their payroll in exchange for hundreds of thousands of dollars in cash bribes and other items, including an all-terrain vehicle.

The companies involved in the scheme were Aracoma Contracting LLC, Christian Contracting, Newhall Contracting and T&W Services.

Four others in West Virginia and Kentucky pleaded guilty to charges stemming from paying workers in cash or through a shell company to evade payroll taxes.

Following is the full press release from the U.S. Attorney's Office:

CHARLESTON, W.Va. –A former workers' compensation insurance premium field auditor employed by BrickStreet Mutual Insurance Company ("BrickStreet") admitted to federal charges in connection with his role in orchestrating a multimillion-dollar fraud against the state's leading workers' comp provider.  Arville W. Sargent, 52, of Chapmanville, Logan County, W.Va., pleaded guilty to honest services mail fraud and tax evasion on March 27, 2013. 

Two other co-defendants involved in the scheme to defraud BrickStreet were the principals of "employee leasing" companies Aracoma Contracting, LLC ("Aracoma"), Jerome Eddie Russell, 50, of Williamson, W.Va., and Frelin Workman, 58, of Belfrey, KY.  Russell and Workman each pleaded guilty to honest services mail fraud and tax evasion.  Russell and Workman admitted to paying a significant number of their employees in cash as part of a tax evasion scheme to avoid the associated payroll taxes owed to BrickStreet.  Both defendants admitted that they paid Sargent approximately $1 million in cash bribes to falsify the audits performed for the Workers' Comp Commission and then BrickStreet.  Russell and Workman estimated that the Workers' Comp Commission and BrickStreet were defrauded approximately $4 million in lost premiums over the course of the fraud scheme. 

Additionally, Randy Workman, 36, of Belfrey, KY, pleaded guilty on March 26, 2013 to aiding and abetting honest mail fraud and tax evasion.  Workman admitted that he utilized a similar cash payroll scheme to evade payroll taxes.  Workman further admitted that from October 1, 2007 through June 30, 2009, he structured approximately $800,000 in cash out of Community Trust Bank and used the funds to pay employees in cash.  Workman also admitted that he underpaid approximately $280,000 in premiums owed to BrickStreet.   

A fifth co-defendant, Arthur J. White, Jr., 60, of Lenore, W. Va., pleaded guilty today to tax evasion and structuring in connection with a scheme to defraud BrickStreet.  White admitted that he paid a portion of the payroll for T&W Services, LLC through a shell company, thereby evading taxes. According to his plea agreement, White estimated that he skimmed approximately fifteen percent of the premium actually owed to BrickStreet over a four-year period, resulting in a loss of approximately $154,527 to BrickStreet.  

Sargent admitted that from its inception in January 2006 until at least February 1, 2011, he led a scheme to defraud BrickStreet by allowing certain policyholders operating in the coal mining industry to drastically underreport their payroll during annual field audits he conducted on behalf of BrickStreet for the intended purpose of confirming those policyholders were paying accurate workers' compensation insurance premiums.  Sargent further admitted that he purposely allowed four "employee leasing" companies, Aracoma, Christian Contracting, Newhall Contracting and T&W Services, LLC, all of whom provided labor on a contract basis to coal companies in southern West Virginia, to falsify documents drastically understating their actual payroll.  In exchange for saving those policyholders millions of dollars in insurance premiums rightfully owed to BrickStreeet, Sargent accepted hundreds of thousands of dollars in cash bribes and other things of value, including a Yamaha Rhino all-terrain vehicle. 

Sargent faces up to 25 years in prison and a $500,000 fine when he is sentenced on July 8, 2013 by United States District Judge John T. Copenhaver, Jr.   

Russell, Frelin Workman and Randy Workman each face up to 25 years in prison and a $500,000 fine when they are sentenced on July 2, 2013.   

White faces up to ten years in prison and a $500,000 fine when he is sentenced on July 11, 2013.  

The FBI, the IRS, the West Virginia State Police and the West Virginia Insurance Commission conducted the investigations.  This investigation was also handled in coordination with the United States Attorney's Office for the Western District of Virginia and the IRS's local Abingdon, Virginia Resident Agency. Assistant United States Attorney Thomas Ryan is in charge of the prosecutions. 

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