Sisters who run two apparel subcontractors were arrested along with their accountant in a scheme that authorities said Thursday involved underreporting the number of people they employed and $78.5 million in payroll to insurers and California agencies.
Sung Hyun Kim, 57, and her sister, Caroline Choi, 59, were arrested on suspicion of workers' compensation insurance fraud, according to Insurance Commissioner Dave Jones. Also accused was Jae Kim, 71, a certified public accountant employed by the women. All three were arrested Wednesday.
The sisters are CEOs of the sewing companies Meriko Inc. and SF Apparel Inc. The firms are subcontracted by California-based True Religion Brand Jeans, which is not suspected of any wrongdoing.
Investigators said the women conspired with their accountant to hide payroll to avoid paying workers' compensation insurance premiums. The conspiracy led to multimillion-dollar premium losses for several workers' compensation insurers including State Compensation Insurance Fund, officials said.
"The underground economy is not a victimless crime," Jones said. "By underreporting payroll, paying employees under the table and committing workers' compensation insurance fraud, these employers cheat the system and leave their employees at risk."
The fraud was committed by fabricating payroll records, officials said. A probe was launched when insurance officials discovered reports submitted to them by the companies showed significantly less payroll than similar reports given to the California Employment Development Department.
Evidence also revealed many employees were paid under the table through a bank account that was never disclosed to the state agency or insurance carriers, authorities said.
The Associated Press was unable to reach the companies or representatives of the suspects for comment. Phone numbers listed for both companies have been disconnected. A number for the accountant could not be found.
Sung Hyun Kim was held Thursday on $700,000 bail and Caroline Choi was held on $430,000 bail, according to Los Angeles County inmate records. Jae Kim was held on $520,000 bail. Arraignment for all three was set for Friday.
The Los Angeles County district attorney's office is prosecuting the case.