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CSLB Industry Bulletin - 03/05/2012

Contractors Who "Cheat to Compete" Face Stiff Penalties

New partnership targets offenders in the multi-billion dollar underground economy


SACRAMENTO - The Contractors State License Board (CSLB) already is seeing results from a new multi-agency partnership that targets individuals who are breaking the law and making it increasingly difficult for law-abiding licensed contractors to compete for business. CSLB estimates that on any given day, tens of thousands of licensed contractors and unlicensed operators are breaking the law and contributing to the state’s underground economy. These individuals and companies will be at the top of the Labor Enforcement Task Force (LETF) target list.

LETF, which was launched January 1, 2012, is comprised of investigators from CSLB, the Department of Industrial Relations, Employment Development Department, and Board of Equalization, in collaboration with the Insurance Commissioner and Attorney General’s Office. Partners have broadened information-sharing and the use of new enforcement technology to improve the way they target businesses in the underground economy.

"Contractors need to understand that they can’t cheat to compete," said CSLB Registrar Steve Sands. "By combining our resources and sharing information like never before, we will target and find the worst offenders, licensed or not."

Teams of investigators are already working side-by-side and have conducted 16 targeted enforcement operations throughout the state since January 2012 that have resulted in dozens of citations and thousands of dollars in fines. The operations are not limited to weekdays; at least one operation has taken place on a weekend and more are on the calendar.

A recent operation in Orange County resulted in administrative actions against a long-time illegal operator. Benito German Lopez Cruz, 47, of Orange, is believed to have underbid legitimate contractors on plastering jobs by hundreds of thousands of dollars during the past several years. A CSLB investigator cited Lopez for contracting without a license and failing to secure workers’ compensation insurance for three employees who were working with him. The citation comes with $4,500 in fines. The Department of Industrial Relations’ Division of Labor Standards Enforcement issued Lopez a stop order (that prohibits the use of employee labor until they are covered by workers’ compensation insurance) and citations for $7,750 in fines for failure to carry workers’ compensation and for paying employees in cash. Lopez also will be audited by the Employment Development Department.

A criminal case settled last week highlights the severe consequences of these types of business and contracting violations. On February 24, 2012, Michael Amzie Holley, 43, of Murrieta, was sentenced to one year in jail and ordered to pay $510,000 in restitution for failing to provide workers’ compensation insurance for an injured employee and failing to pay insurance premiums for unclaimed employees who were paid in cash. In 2009, CSLB revoked the contractor license of So Cal Roofing Company (#797707), owned by Holley. The criminal activity came to light after an incident in March 2003, when one of Holley’s employees fell off of a roof and was injured. When that employee filed a workers’ compensation insurance claim, Holley denied that the injured employee worked for him. He also had filed paperwork with CSLB certifying that he had no employees.

According to the Orange County District Attorney’s Office, in February 2010 Holley agreed to plead guilty to multiple felony counts associated with insurance and tax fraud. Holley purchased a minimum workers’ compensation policy from the State Compensation Insurance Fund (SCIF) and failed to state that he employed subcontractors, paid workers in cash to hide the fact that So Cal Roofing Company had workers, hired unlicensed employees, and leased employees from other companies. He received insurance based on his false declarations, allowing him to underpay his insurance premiums. In addition, to hide the fraud and to avoid paying state taxes, Holley failed to file an accurate tax return.

In addition to construction, LETF addresses illegal activity in the agricultural, automotive, garment, restaurant, and warehouse industries.