Workers’ Comp Referral Ring Busted: How You Can Keep Your Employees from Being Ensnared

Posted on: June 30th, 2017 by Leaders' Choice Staff No Comments

One of the hidden cost drivers in workers’ comp is fraud and while many employers feel that fraud by “injured workers” is the biggest problem, there are also vendors in the system that do their part to skim money from employers and insurers.

Most recently, law enforcement in California busted a fraud ring that required attorneys to pay a monthly referral fee to a company that brought the lawyers new clients and then used the same company for a number of services that were later billed to insurance companies.

Prosecutors estimate that the ring encompassed 33,000 injured workers and netted more than an estimated $300 million in insurance payouts since the scheme was started in 2005.


How the scam works

Prosecutors allege that at the center of the busted ring were two individuals – Carlos Arguello III and Edgar Gonzalez – and their company called Centro Legal Internacional, which allegedly entered into contracts with 20 to 30 attorneys to whom they would refer a minimum number of clients every month.

In 2005, Arguello formed Centro Legal Internacional as an advertising company, which is accused of setting up illegal contracts with 20 to 30 attorneys who focused on workers’ compensation and personal injury.

Under the arrangement, the company agreed to furnish a minimum number of referrals every month to the attorneys. The attorneys paid a set monthly fee to Centro Legal for the referrals and they were also required to use the services of other companies owned by Arguello and Gonzalez, including a copy service, and a document management and scheduling company.

Centro Legal focused mainly on Hispanic workers, and its employees (known as “cappers” in insurance fraud parlance) handed out fliers for free consultations and business cards in predominantly Hispanic neighborhoods, swap meets and in burgs along the U.S.-Mexico border.

Centro Legal also bought ads in Spanish-language publications and set up websites to attract would-be clients, offering them a “free consultation” online or through a toll-free number.


Once someone called and gave their information, the company sent an agent to the person’s home within 48 hours to get signatures on numerous documents as well as attorney retainer agreements, according to prosecutors. These forms and documents were then forwarded to the lawyers and medical providers that the ring preferred to use for injured workers.


The fallout

While it’s not illegal for attorneys to advertise their services for representing injured workers, it is illegal under state law to pay for referrals – known as “capping”.

Overall, 10 attorneys and six other individuals have been charged for their alleged parts in the busted scheme. Among the charges are felonies including conspiring to refer clients for compensation, referring patients with reckless disregard for the commission of fraud, and insurance fraud.

If convicted, Arguello faces up to 29 years in prison, Gonzalez up to 20 years, while the attorneys face sentences varying from seven to 26 years behind bars.


What you can do

This kind of fraud is the most difficult to detect if you are an employer, as it may involve employees who are legitimately injured but have been ensnared by a capping ring to extract the maximum amount of cash from your workers’ comp insurer.

The best way to deal with it is by educating your employees in how to not fall victim to cappers and other outside parties who try to disrupt a claim that is legitimate and for which the injured worker is being fairly compensated under the law.

Help employees understand how workers’ compensation works and that for the best treatment they should stick with the provider network that your insurer has arranged.

These physicians have the expertise to provide the appropriate care and treatment regimen for industrial injuries to help injured workers safely return to work and start earning a paycheck again.

Help them understand that if they are being pushed to sign a contract for attorney representation they may not even need, it should raise a red flag.

And if they are not meeting with the attorney but one of their representatives, that should also be a red flag.

Unfortunately in these types of fraud rings, injured workers are often unwitting participants and they fall for a pitch that they will receive a larger award than they are legally entitled to. And often they receive less as a result of the attorney taking their share.

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