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Insurance fraud nets year in jail, $2M in restitution
February 20, 2013, 05:00 AM By Michelle Durand Daily Journal Staff

The owner of a San Mateo pest and janitorial services company who prosecutors say under-reported more than $10 million of payroll to avoid paying more than $2 million in workers' compensation insurance was sentenced yesterday to a year in jail and ordered to repay the money.

Teresa Reif, 34, faced up to 17 years in prison after pleading no contest in April to eight various counts of fraud without any sentencing promises. On Tuesday, Judge Craig Parson instead handed down the year jail followed by five years supervised probation. She must also repay $1,651,148 to the State Compensation Insurance Fund and $451,310 to Berkshire Hathaway.

Defense attorney Chuck Smith said he was "disappointed" in the sentence, calling the case a "sad, unfortunate situation" in which his client didn't profit a nickel but insurance companies will now receive an extra $2 million. Prison was never a realistic concern, he said, but five years incarceration rather than the financial penalty would affect the life of her husband and three children much less significantly.

"She was given financial penalties akin to an inside trader," Smith said. "This is unfair and far beyond the conduct that she committed."

Smith had requested house arrest for Reif and said the Probation Department recommended the same.

The prosecution was pleased with the outcome, said District Attorney Steve Wagstaffe.

Reif has operated the business with her brother since 2003 as the fourth-generation offshoot of the family business, according to the company's website. The site also notes it has "grown by providing superior service, at a reasonable price, with honesty and reliability for over 80 years."

Between 2004 and 2009, Reif purchased workers compensation insurance through Redwood Fire & Casualty Insurance Company and the State Compensation Insurance Fund for her business, Genesis Building Services.

In 2008, the insurance company said it received conflicting data from Genesis staff about the number of employees and began suspecting it was under-reporting its payroll by approximately $544,440. Further investigation by the California Department of Insurance placed the under-reported amount at $10,657,776.69 which resulted in Reif avoiding paying $2,957,089.20 in insurance premiums.

The CDI claims Reif misrepresented both the number of employees and its payroll when applying for insurance, while insured and during annual audits conducted by the carriers. Genesis allegedly employed more than 140 employees but Reif reported less than half the staff and gave auditors fraudulent paperwork to support the false monthly reports.

During a search of the business, investigators actually found the fraudulent books, according to prosecutors.

After Reif surrendered to authorities in April 2011, Insurance Commissioner Dave Jones used the case as an example of what happens to those who commit fraud.

"Business owners should be on notice, egregiously under-reporting wages to avoid premium payments will not go unpunished," Jones said in a prepared statement. "These violations will be fully investigated by my department."

Reif was originally arrested on a $1 million warrant citing suspicion of 44 counts of fraud but was later released on her own recognizance.

michelle@smdailyjournal.com

(650) 344-5200 ext. 102.


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