Posh Bagel Founder, CEO, Accountant Charged in Workers’ Comp Fraud Scheme

The California Department of Insurance announced the arrests of Posh Bagel founder, Posh Bakery CEO and accountant for multiple counts of suspected workers’ compensation insurance premium fraud, failing to report employee injuries and unemployment insurance fraud. Cheryl Ann Lee and her husband, Jeffrey Michael Ottoveggio were arrested at their residence in Redwood City. Bruce William Campbell was arrested at his residence in Palo Alto. All three suspects were booked into Santa Clara County Jail. Bail was set at $500,000 for each.

Jeffrey Ooveggio is founder of Posh Bagel in Los Altos. He also founded wholesale bakery, The Posh Bagel Inc., in Santa Clara and several additional Posh Bagel shops in the San Francisco Bay Area. In 2005, attorney Cheryl Lee, as CEO, incorporated business entity The Posh Bakery Operating Co. Inc. (POSH) located at 445 Nelo Street, Santa Clara, Calif., dba Posh Bagel Inc., Whole Grains Bon Croissant Bakery, CLO Foods Inc., The Posh Bakery Inc. Bruce Campbell is listed on insurance carrier policy documents, EDD and Paychex registration documents as the company accountant/controller.

From Jan. 1, 2006 through Sept. 29, 2006, The Posh Bakery Operating Co. Inc. dba The Posh Bagel, Whole Grains Bon Croissant Bakery, CLO Foods Inc. maintained a workers’ compensation insurance policy with California Insurance Co., under parent company Applied Underwriters. The company was required to report payroll on a bi-weekly basis to Applied Underwriters. In June 2006, Applied Underwriters received an internal spreadsheet from Posh Bakery Operating Co. Inc., allegedly tracking two sets of payroll records, one for Applied Underwriters, and another for a payroll company named Paychex, with the lesser payroll being reported to Applied Underwriters.

Based on this internal spreadsheet, it is alleged that POSH underreported the number of hours employees were working to affect how their premium for workers’ compensation insurance was determined. When Applied Underwriters contacted Lee to discuss the payroll discrepancy, she allegedly claimed the insurer was mistaken, and that 100 percent of The Posh Bakery Operating Co. Inc. payroll was processed through AU. Lee subsequently cancelled the policy with Applied Underwriters and purportedly failed to keep several audit appointments, CDI said.

CDI’s investigation and evidence seized from POSH bank accounts held by Lee, Campbell and Ottoveggio revealed the following from Jan. 1, 2006 through Sep. 29, 2006:

• POSH under-reported $1,622,391.27 in payroll to AU.
• The under-reported payroll resulted in a premium loss to AU of $295,890.07
• POSH did not report $852,036.29 in payroll to EDD, resulting in $151,002.99 owed to EDD
• POSH failed to report to AU two employees who sustained finger lacerations while cutting dough, which resulted in medical treatment including sutures, injections and prescription medications.
• From Oct. 1, 2006 through Oct. 1, 2009, Lee obtained a workers’ compensation insurance policy with First Comp/Endurance Reinsurance Corporation of America.

CDI’s investigation and evidence seized from POSH bank accounts held by Lee, Campbell and Ottoveggio revealed that the three allegedly attempted to avoid reporting all payroll associated with the business operations of The Posh Bakery Operating Co. Inc../The Posh Baker, Inc., by having employees establish business entities in Nevada as a subterfuge to claim payroll for employees conducting delivery and/or distribution as payments to independent contractors and vendors. Four POSH delivery drivers incorporated businesses in Nevada listing Campbell as a corporate officer, opened bank accounts listing Campbell as a co-signatory and utilized the same mailing address as POSH. Of the 32 individuals receiving a paycheck from these Nevada companies, 25 of them were also receiving pay from POSH for the same time period.

It is alleged that for the policy period of Oct. 1, 2006 through May 31, 2008:

• POSH under-reported $1,530,806.20 in payroll to First Comp/Endurance.
• The under-reported payroll resulted in a premium loss to First Comp of $137,622.24.
• POSH did not report $1,530,806.20 in payroll to EDD, resulting in $268,404.14 owed to EDD.

The case is being prosecuted by the Santa Clara County District Attorney’s Office. Additional assistance was provided by the Special Investigations Units (SIU) from Applied Underwriters and First Comp.

Source: CDI