Couple Required to Pay $2 Million in Restitution, Serve Jail Time for Comp Fraud

June 8, 2005
A San Jose, Calif., husband and wife pled guilty to charges of workers' compensation premium fraud and are required to pay $2 million in restitution and serve jail time following a multi-agency investigation into the crimes.

The owners of San Jose-based Senter Foods, Henry Ly, 53, and his wife, Hung Kien Voung, 57, on May 13 pled guilty to multiple felony violations, including payroll and income tax evasion. They reached a plea agreement with the Santa Clara district attorney's office that calls for them to pay $2 million in restitution and serve jail sentences.

According to the agreement, Voung was released from the Santa Clara County jail in late May after serving 14 months since her arrest on March 29, 2004. She has been placed on 3 years' probation.

Ly, who has been serving 14 months in jail, will continue serving a 3-year sentence. If Ly provides an additional $500,000 in restitution by Aug. 12, his 3-year sentence will be reduced by 1 year, according to the agreement with the Santa Clara district attorney's office.

Both Voung and Ly had been in jail since their arrest in 2004 because they refused to cooperate with authorities, according to a spokesperson with the California Department of Insurance.

The multi-agency investigation that led to their arrest revealed that an "overwhelming" number of Senter Foods employees were secretly paid in cash, "under the table," over many years, according to the California Department of Insurance.

The cash pay was not reported to insurance carriers, the California Employee Development Department or the state Franchise Tax Board. By secretly paying employees cash and grossly underreporting their payrolls, the defendants evaded taxes and their legal obligations to make contributions for employees' benefits such as employment and disability insurance, according to the agency.

Senter Foods also engaged in unfair competition by illegally evading workers' compensation insurance premiums and taxes, authorities say.

The investigation revealed that Ly and Voung committed income tax evasion by failing to report $4.4 million in income generated from Senter Foods stores in the years 2000 and 2001. The defendants systematically failed to report cash register proceeds from their stores' daily earnings.

Investigators estimated that Ly and Voung owed the state of California and various workers' compensation insurance carriers more than $2 million in back taxes and workers' compensation insurance premiums, and approximately $2 million in interest and penalties.

As a result of this fraudulent activity, Cal Comp, Grocers Insurance and the State Compensation Insurance Fund were defrauded of approximately $414,792 in workers' compensation insurance premiums from January 1997 through 2001.

The California Department of Insurance will receive approximately $400,000 in restitution to be allocated to victim insurance carriers, and the Franchise Tax Board will receive approximately $600,000 in restitution. The exact amount of restitution that will be provided to the California Employment Development Department is still to be determined.

Ly and his wife were arrested following a 2-year multi-agency investigation by the CDI Fraud Division, the Santa Clara County district attorney's office, the Employment Development Department and the Franchise Tax Board. Twelve felony counts were filed by the Santa Clara County district attorney's office in the case.

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