Workers' comp fraud scheme linked to Mingo County bank
CHARLESTON, W.Va. -- A coal mining contractor used dozens of illegal cash withdrawals from a Mingo County bank to help finance a multimillion dollar scheme aimed at lowering workers' compensation premiums for firms that provide workers to some of West Virginia's largest coal producers, federal prosecutors alleged in a court filing this week.
Aracoma Contracting LLC generated the cash to bribe a BrickStreet Mutual Insurance auditor and pay employees cash wages by "structuring" withdrawals at the Bank of Mingo, according to a charging document filed in U.S. District Court in Charleston.
In a one-count "information," Assistant U.S. Attorney Thomas C. Ryan charged Aracoma Contracting with "conspiracy to structure currency transactions." The company faces a fine of up to $250,000 and a forfeiture of up to $405,000, officials said.
This kind of "structuring" is when cash transactions are broken down into amounts of less than $10,000 to avoid having banks report the withdrawals to the Internal Revenue Service. Typically, a defendant who is charged through an "information," rather than through a grand jury indictment, is cooperating with prosecutors and likely will reach a plea agreement.
The new allegations against Aracoma Contracting come six months after BrickStreet auditor Arville Sargent and four mining contractor officials were charged in the plot.
Court documents filed Wednesday also, for the first time, mention the role the Bank of Mingo, where House Majority Leader Harry Keith White, D-Mingo, is chairman of the board of directors and a former bank president.
"We have been aware of this [investigation] for a period of time and we are fully cooperating with the U.S. Attorney's Office with the investigation," White said Thursday afternoon.
Charges were not brought against the bank or any of its employees, but prosecutors said in a court filing that the "Bank of Mingo would and did fail to file a Currency Transaction Report in violation of its obligations under . . . [federal law], allowing defendant Aracoma's pattern of structuring activity to not be reported to the Internal Revenue Service, as required by law."
U.S. Attorney Booth Goodwin said in a statement that Aracoma Contracting "formed a longstanding relationship" with the bank, "particularly, one of its employees at the bank's Williamson branch."
The employee was not named, and a spokesman for Goodwin would say only that "it is an ongoing investigation."
White said bank officials are confident they and their employees have done nothing wrong.
"We do not feel that an individual was involved in any kind of scheme," White said. "They were doing best practices and doing what they thought was correct. I think it's probably an interpretation of the procedure."
In the case, BrickStreet's Sargent, 52, of Chapmanville, pleaded guilty in March to "honest services" mail fraud, which means he deprived BrickStreet of its intangible right to his honest services, and to tax evasion. In court filings, prosecutors said Sargent, in 2009, reported annual income of just less than $50,000 when he knew his income was "substantially in excess" of that amount because of "unreported cash bribes."
Also in March, Aracoma's principals, Jerome Edward Russell, 50, of Williamson, and Frelin R. Workman, 58, of Belfry, Ky., pleaded guilty to their involvement in the scheme to defraud Brickstreet.
Prosecutors allege that Sargent worked with Aracoma and three other contracting firms -- Christian Contracting, T&W Services LLC and Newhall Contracting -- to defraud Bricksteet, West Virginia's largest workers' compensation provider.
The four companies are "employee leasing" services that supply miners for coal companies, including Alpha Natural Resources and Patriot Coal, under agreements common in the state's coal industry.
Two officials from Newhall Contracting -- Allen H. Workman and Melvin Parsley, both of Williamson -- have pleaded guilty in federal court in Virginia as part of a scheme to withdraw $10 million in cash from financial institutions and pay kickbacks to mine supply purchasers. Allen Workman and Frelin Workman are brothers, and Randy Workman is Frelin Workman's son, officials said.
Prosecutors say the insurance scheme dates back to January 2006, when BrickStreet first took control of West Virginia's previously publicly operated workers' compensation system, and continued through February 2011.
Before the system went private, the issue of workers' compensation payments for coal contractors was highly controversial, with major producers allegedly creating a web of contract firms to avoid insurance premiums. A decade ago, several state lawsuits backed by organized labor, forced the industry to pay back millions in workers' comp debts.
In the new case, prosecutors allege that Sargent allowed the four contract firms, all BrickStreet policyholders, to underreport their payroll during annual field audits conducted to confirm those policyholders were paying accurate insurance premiums.
"This type of corruption has long plagued the coal industry in [S]outhern West Virginia and must be stopped," Goodwin said in a statement issued in February, when the charges by his office initially were filed.
The new court documents explain that, acting on behalf of Aracoma Contracting, Russell and Frelin Workman structured at least $2.2 million out of the Bank of Mingo between 2009 and 2012. In court documents, prosecutors listed more than 50 of those transactions, often with multiple withdrawals on the same day up to amounts of just less than $10,000 -- $9,988.25, $9,738 and $9,965.25, for example.
"To facilitate the structured cash withdrawals, defendant Aracoma would and did, either by telephone or facsimile, contact individuals employed by Bank of Mingo in advance of the cash withdrawals and advise said employees of the desired denominations of the cash withdrawals and identify the individuals who would be coming to the Williamson branch of Bank of Mingo later that same day to withdraw the cash," prosecutors allege in court filings. "Bank of Mingo employees would and did prepare a cashier's check for the individuals identified by defendant Aracoma and would and did prepare the cash in the desired denominations.
"Upon arrival, said individuals would and did appear at a teller window, often together if the desired cash withdrawal exceeded $10,000, and endorse the cashier's checks," prosecutors said. "Bank of Mingo employees would and did immediately provide the individuals cash in denominations consistent with the previously provided instructions, sometimes totaling more than $10,000."
Reach Ken Ward Jr. at firstname.lastname@example.org or 304-348-1702.