When Laguna Hills roofing contractor Michael Vincent Petronella and his wife Devon Lynn Kile
were arrested in one of the largest known Workers' Compensation
Insurance fraud cases in state history, they owned five properties in California and Texas and multiple luxury
vehicles including a Bentley, two Ferraris, and a Range Rover. They spent more than $2.1 million on
their American Express credit card over a two-year period for jewelry, shoes, clothes and other personal
items from Balenciaga, Bloomingdale's, Chanel, Christian
Louboutin, Gucci, Kitson, Neiman-Marcus, Nordstrom, Yves Saint Laurent
and other high-end stores. Investigators turned up Kile's
application to join the cast of The Real Housewives of Orange County.
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“Cheaters who defraud the system will be trading in their Pradas for prison garb,” District Attorney Tony Rackauckas said upon the couple's conviction in February.
We now know how long Petronella will be wearing his prison jumpsuit.
November 4, 2010
ROOFING CONTRACTOR SENTENCED TO 10 YEARS IN PRISON IN CALIFORNIA'S LARGEST PREMIUM INSURANCE FRAUD SCAM
*Defendant's wife is charged as a co-defendant in this case
SANTA ANA – A roofing contractor was sentenced today to 10 years in
state prison for committing premium insurance fraud with his wife in one
of the largest known Workers' Compensation Insurance fraud cases in
California's history. Michael Vincent Petronella, also known as Michael
Constantine, 51, 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 the State Compensation Insurance
Fund (SCIF).
Petronella's wife Devon Lynn Kile, 44, both of Laguna Hills, is also
charged in this case. Kile is in-custody on $250,000 bail and is
scheduled for a pre-trial mental health competency hearing Nov. 10,
2010, at 9:00 a.m. in Department C-55, Central Justice Center, Santa
Ana.
“This case is an outrageous example of a person who lavishly spent
illegal profits on luxury goods by cheating the Workers' Compensation
Insurance system and legitimate businesses that play by the rules,” said
Orange County District Attorney Tony Rackauckas. “Cheaters who defraud
the system will be trading in their Pradas for prison garb.”
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
Petronella is a roofing and general building contractor. At the time of
their arrest, 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 the State Compensation
Insurance Fund (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 Orange County District
Attorney's Office (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.
THE PEOPLE ARGUED DURING TRIAL:
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,
Franchise Tax Board, and Contractors State License Board.
Deputy District Attorney Shaddi Kamiabipour of the Workers' Compensation Insurance Fraud Unit is prosecuted this case.
OC Weekly Editor-in-Chief Matt Coker has been engaging, enraging and entertaining readers of newspapers, magazines and websites for decades. He spent the first 13 years of his career in journalism at daily newspapers before “graduating” to OC Weekly in 1995 as the alternative newsweekly’s first calendar editor.