Mass. Couple Convicted of Largest Cash Wage Scheme in State History

A North Dartmouth, Mass. couple was convicted in federal court of paying out more than $40 million in cash wages through their temporary employment agency in order to evade millions of dollars in tax payments and workers compensation insurance premiums, officials reported.

After a two- and-a-half week trial, a federal jury sitting in Boston convicted Daniel and Aimee McElroy, of North Dartmouth, Mass., of one count of conspiring to defraud the IRS and their workers compensation insurers, three counts of mail fraud, and 14 counts of procuring false payroll tax returns, according to U.S. Attorney Michael J. Sullivan, District of Massachusetts.

From the early-1990’s to June 2001, officials said the couple operated a temporary employment agency based in Taunton and later in Easton, Mass., that did business under the names the Dan Agency, the Daily Agency, Daily A. King Labor, Inc., Pro Temp. Company, PTC and Precission (sic) Temp. Corp.

To avoid paying employment taxes, such as Social Security and Medicare, and to fraudulently reduce the businesses’ insurance premiums for workers compensation insurance, the defendants arranged to pay a large share of the businesses’ payroll in cash. In excess of $43 million in unreported cash was paid out to employees as a result of the scheme, according to prosectuors. This represents the largest under-the-table payroll scheme ever prosecuted in Massachusetts, they said.

Officials said the hidden payroll resulted in a loss of approximately $10 million to the IRS and approximately $7 million to workers compensation insurance companies.

The agencies provided hundreds of laborers to factories and food processing business throughout Eastern Massachusetts, especially in fish processing plants on the New Bedford waterfront, where roughly a third of their employees worked. Like every other employer, the defendants were required to pay payroll (or FICA) taxes on their payroll, and to obtain workers compensation insurance. The amounts a business pays in payroll taxes and workers compensation insurance premiums are based largely on the size of its payroll.

The defendants were subject to a court order issued by Judge Rya Zobel in 1994 that forbade them and their agency from paying cash to their employees, according to officials. The judgment was a result of a civil action brought by the United States Department of Labor.

Sullivan’s office said that Judge Zobel’s order prompted the defendants to take additional measures to conceal their payroll. Most of all, officials said the couple established a straw corporation called ProTemp Co. through which they funneled most of their cash payroll. Later, they opened another straw corporation called Precission (sic) Temp, Co. for the same purpose, according to the charges.

Although nominally separate, Daily A. King, ProTemp and Precission Temp were run as a single business. To disguise their ownership and control of the ProTemp and Precission Temp, prosecutors said the defendants installed two of their employees, Dich Trieu and Xieu Van Son, as the nominal presidents of the two companies.

Trieu and Van Son testified that they exercised no control over the companies. The defendants were also accused of veiling their control of the two companies by directing their in-house accountant, Charles Wallace, to file false tax returns in the names of the three businesses that omitted the company’s cash payroll. To mislead their insurance auditors, Wallace, at the defendant’s direction, fabricated payroll records that reflected a smaller payroll than reported in the false tax returns filed, according to officials.

Sentencing is scheduled for May 21, 2008. The McElroys face maximum penalties that together exceed one hundred months in prison, and restitution to the IRS and the insurance companies they defrauded.

The case was investigated by the U.S. Internal Revenue Service, Criminal Investigation -Boston Field Office and the Federal Bureau of Investigation, New England Field Division, with assistance from the Insurance Fraud Bureau of Massachusetts. It was tried by Assistant U.S. Attorneys Jonathan F. Mitchell and Sarah E. Walters of Sullivan’s Economic Crimes Unit.

Source: United States Attorney Michael J. Sullivan, District of Massachusetts, Dept of Justice. www.usdoj.gov/usao/ma.