California Bagel Company Owners Ordered to Pay Restitution

Posh Bagel owners Cheryl Lee, Jeffrey Ottoveggio, and Bruce Campbell, were sentenced in Santa Clara County Superior Court on unemployment insurance tax fraud and workers’ compensation insurance fraud counts, according to California State Insurance Commissioner Dave Jones.

According to authorities, their workers’ compensation carrier, Applied Underwriters, discovered the company was only reporting 20 percent of their payroll to their carrier, 80 percent to Paychex and any overtime was reported under a different company name, “CLO.”

An initial audit was conducted by the California Department of Insurance (CDI) which revealed that Posh Bagel reported $361,178.43 to their carrier, Applied Underwriters, but owed $295,890.07 in additional premium because they underreported their payroll by $1,622,391.27 during a ten month period in 2006. Of this amount $852.036.29 was not reported to the Employment Development Department (EDD).

During the audit, it was discovered that payroll was being reported under businesses which were incorporated in Nevada under the names of delivery truck drivers that were employed by Posh Bagel. These Nevada companies shared the same business address and had common employees as Posh Bagel in Santa Clara. This audit showed that Posh Bagel underreported their payroll to Endurance Insurance Company and to EDD in the amount of $1,530,806.20. It was determined that the total premium owed for all time periods was $433,512.31 with an additional $431,174.79 owed to EDD.

Based on information gained from the search warrant, CDI and EDD conducted a final audit and determined the restitution amount of $698,581.49. The restitution amount ordered was paid at the time of sentencing and in the amounts as follows: EDD received $339,722.24, Applied Underwriters received $248,420.75 and Endurance Insurance Company received $110,438.50.

Source: California Department of Insurance