The Defendants are the owners of M&M Cleaning of Malden
The Attorney General’s Office of Massachusetts announced this week that the owners of Malden-based cleaning company have been indicted and arraigned for insurance fraud scheme involving the misclassification of its employees.
Both of the Defendants, Marcello Pompa, age 40, and Marcelia Freitas, age 43, both of Saugus were indicted by a Statewide Grand Jury. Mr. Pompa was indicted on five (5) counts of Workers Compensation Insurance Fraud, and five counts (5) of Larceny Over $250. In turn, Ms. Freitas was indicted on two individual counts (2) of Workers Compensation Insurance Fraud.
The Attorney Generals’ Office alleges that during the years 2010 until 2016, both of the Defendants, who are owners of the M&M Cleaning, Inc. (M&M) engaged in a scheme in which they falsely claimed the use of three sub-contractors in order to reduce the premiums for their worker’s compensation insurance. In particular, investigators into the actions of M&M Cleaning allege that Mr. Pompa’s false claims of using sub-contractors for work resulted in the concealment of more than $2.8 million in M&M’s payroll. As a result, the cleaning company evaded paying upwards of $74,000 in worker’s compensation insurance premiums.
The Defendant’s intentional misclassification of workers also resulted in the company winning additional multiple contracts over its competitors “…including municipal contracts throughout Massachusetts, by offering a substantially lower price for their cleaning services than their competitors during the bidding process.”
After their indictments by the statewide grand jury, both Mr. Pompa and Ms. Freitas were arraigned in Middlesex Superior Court. They were both released on personal recognizance after pleading not guilty to the charges. They must return to court on December 13th for a scheduling conference.
Misclassification is an increasingly common form of workers’ compensation fraud
According to Attorney General Maura Healey’s office, misclassification of workers is an increasing form of insurance fraud in the Commonwealth.
Misclassification is an increasingly common way for employers to avoid their legal obligations to employees and to unfairly compete in the marketplace. Employers that misclassify their workers avoid paying their fair share of unemployment insurance and worker’s compensation contribution. Misclassification not only puts at risk a much-needed safety net for workers injured on the job, but also raises costs on other employers.
For those interested in learning more about what the difference is between an employee and an independent contractor may be interested in our 2010 article on the subject, entitled “Looking at the Massachusetts Independent Contractor Law.
Indictments for workers’ compensation fraud and grand larceny charge felonies
With regards to the charges brought against both Mr. Pompa and Ms. Freitas, the following is a quick summary of the statutes under which they were charged.
The workers’ compensation statute, M.G.L. c. 152, § 14(3) makes it a felony for anyone who:
knowingly makes any false or misleading statement, representation or submission …for the purpose of obtaining…coverage, or…who knowingly misclassifies employees or engages in deceptive employee leasing practices for the purpose of avoiding full payment of insurance premiums…
The violation of §14 carries a state prison sentence of up to five years or a jail sentence of “not less than six months nor more than two and one-half years” and a fine of up to ten thousand dollars. Additionally, the same statute provides that
A person found guilty of violating this section [§14(3)] shall, in all cases, upon conviction, in addition to any other punishment, be ordered to make restitution for any financial loss sustained to an aggrieved person as a result of the commission of the crime….
The grand larceny indictment also charges a felony that carries a possible state prison sentence for not more than five years and a fine of not more than twenty-five thousand dollars.
Attorney General’s Office and Insurance Fraud Bureau worked jointly
The above matter was handled by Assistant Attorney General Geoff Wood with assistance from Michelle Silva, both of AG Healey’s Insurance and Unemployment Fraud Unit and from investigators at the Insurance Fraud Bureau.
Attorney General Healey’s Insurance and Unemployment Fraud Unit has among its charges the responsibility of protecting the integrity of the Commonwealth’s insurance system by investigating and prosecuting crimes involving fraud against any insurer or insurance system, including the commonwealth’s unemployment insurance and workers’ compensation systems.
About the Insurance Fraud Bureau
The Insurance Fraud Bureau of Massachusetts is an investigative agency authorized by an Act of the Massachusetts Legislature signed into law in 1990. The Insurance Fraud Bureau conducts criminal investigations and refers appropriate cases for criminal prosecution.
The Insurance Fraud Bureau is funded by automobile and workers’ compensation insurers in Massachusetts. In addition to the investigative division, the Insurance Fraud Bureau has legal, analytic and administrative divisions. Insurance Fraud Bureau personnel receive referrals and follow up with insurance companies’ special investigation units and claims staffs; local, state and federal law enforcement and prosecution agencies in order to accomplish its mission to prevent, detect and deter suspected fraudulent insurance transactions in Massachusetts.