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A made-in-Florida construction industry rip-off

By Nicholas Nehamas
nnehamas@MiamiHerald.com

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  • Schemers

    Here are some of the people who set up shell companies for Hugo Rodriguez or illegally cashed checks to aid the scheme.

    Hugo Rodriguez

    Ringleader. Charged with seven counts of insurance fraud and eight counts of money laundering. Pleaded guilty to six counts of insurance fraud. Sentenced to 17 months and ordered to pay $125,391.15 in restitution.

    Luis Manuel Figueroa

    Set up LMF Construction. Figueroa, one of several aliases, is charged with two counts of insurance fraud and two counts of money laundering. Never apprehended.

    Norman Villalvir

    Set up NAV Construction. Charged with two counts of insurance fraud and two counts of money laundering. Never apprehended. Villalvir is one of several aliases.

    Henry Giron

    Set up Licold Construction. Charged with three counts of insurance fraud and two of money laundering. Sentenced to eight months’ time served and ordered to pay $40,414.39 in restitution.

    Aida Giron

    Set up Everalx Construction. Charged with two counts of insurance fraud and one of money laundering. Sentenced to eight months’ time served and ordered to pay $40,414.39 in restitution.

    Luis Alfonso de Jesus Santiago

    Set up LAS Construction. Charged with two counts of insurance fraud and one of money laundering. Never apprehended. Santiago is one of several aliases.

    Carlos Pagan

    Set up Pagan Construction. Charged with two counts of insurance fraud and two of money laundering. Never apprehended. Pagan might be an alias.

    Kanti Patel

    Co-owner of K’s Liquor. Allowed subcontractors to cash checks made out to Rodriguez’s shell companies. Charged with one count of making a false financial report, a third-degree felony. Pleaded no contest. Sentenced to five years of probation. Ordered to pay $145,013.47 in restitution.

    Nilbala Patel

    Same as Kanti Patel.



NAPLES, Fla. The wire shouldn’t have been “hot.”

But someone forgot to turn off the electrical boxes at the strip mall Joseph Barrs had been hired to help remodel. When the sheet of thin metal mesh that Barrs was holding touched an uncapped electrical wire, the blast of current knocked him backward off a seven-foot scaffold onto the concrete below.

“When my head hit the concrete, I just saw a ball of fire and that’s all I remember,” Barrs said in a recent interview. A Naples police officer who responded to the scene wrote that she found Barrs “lying on the ground, shaking, and drifting in and out of consciousness.” He woke up in a hospital bed at the Lee Memorial Hospital in Fort Myers three hours later, having been taken there by air ambulance.

His ordeal was just beginning.

Workers’ compensation insurance — a state-regulated system — is supposed to cover medical costs and lost wages for workers like Barrs who are hurt on the job. But Barrs, 51, ultimately went 15 months without a paycheck or a doctor’s visit.

“I just took aspirin for the pain,” Barrs said.

That’s because a company he became tangled up with was engaged in a complicated and illegal scheme to avoid paying workers’ comp premiums. The fraud, which is sometimes called “the Florida Plan,” is endemic to the state’s construction industry, according to law enforcement and union sources.

“This is a widespread, highly organized form of fraud,” said Maj. Geoffrey Branch, who ran the state’s Bureau of Workers’ Compensation Fraud between 2009 and 2013.

Florida’s chief financial officer, Jeff Atwater, has estimated that workers’ comp fraud diverts “nearly $1 billion from Florida’s economy annually and is putting honest small businesses and employees at risk.”

Here’s how this particular scheme works: In Florida, contractors are required to purchase a workers’ compensation insurance policy for their employees. Contractors can’t get hired on construction sites without showing their “certificate of insurance” to a project’s general contractor. But workers’ comp premiums are expensive.

To get around the premiums, a new kind of criminal has emerged. This person is known as a “facilitator.” The facilitator sets up a shell company with a vague name. The shell company doesn’t perform any construction work or hire employees, but it does do one thing: purchase a cheap workers’ comp policy. The facilitator then “rents” the shell company’s name and insurance to subcontractors without insurance. The uninsured subcontractors present the shell company’s insurance to general contractors as proof of coverage, while keeping the majority of their employees off the books and potentially unprotected by workers’ comp.

In many other states, construction companies don’t have to buy workers’ comp for independent contractors. In those states, unethical company owners can simply misclassify their workers as independent contractors instead of regular employees to avoid paying premiums. But in Florida, companies are generally required to have coverage for both employees and independent contractors. The “Florida Plan” is one way crooked firms get around the requirement.

Hugo Otoniel Rodriguez, a 39-year-old Honduran native, knew how to game Florida’s workers’ comp system — so well that Rodriguez and his wife were able to afford four cars, including luxury models like a BMW and a Lexus, though he didn’t have a job.

According to a criminal case filed in Broward County in 2012, Rodriguez set up a network of 10 different shell companies over the prior eight years. Before it was busted, Rodriguez’s criminal network allowed uninsured subcontractors to work on more than 1,600 projects and collect more than $73 million in contracts. Rodriguez’s companies, which he paid associates to set up, each operated for only a year or so each. After that, he would “burn” the old company and set up a new one so investigators couldn’t trace him.

On April 22, 2009, a man who called himself Luis Manuel Figueroa — one of several aliases — registered a new company in Deerfield Beach: LMF Construction. The company obtained a minimal workers’ comp policy through Guarantee Insurance, saying it had a small payroll of about $50,000. The policy cost just $4,000 a year.

In a sworn statement to investigators, Rodriguez admitted paying Figueroa $2,000 a month. In return, Figueroa allowed Rodriguez to rent out LMF’s insurance to subcontractors on 254 jobs — including the strip mall on Route 41 where Barrs was hurt.

Lying in his hospital bed in November of 2009, Barrs found himself caught in the middle of a scam.

He spent three days in the hospital while doctors confirmed he hadn’t suffered major nerve damage. Then he went home and waited for his body to heal. Mostly, he just lay in a dark room. “[My head] was so sore, I couldn’t shampoo,” Barrs said.

For the first few weeks of his recovery, Barrs received a check from the insurance company of the firm he believed employed him, Mudslingers of SW Florida. The insurer also arranged for him to see a doctor and covered most of his initial medical bills, which he estimated at $30,000. But Barrs didn’t like the doctor, who had been chosen not by him but by the insurer, as per Florida workers’ comp law. Barrs was afraid the doctor cared more about keeping the insurance company’s costs down than treating his injuries. And he wasn’t sure Mudslingers was paying him all the money required by law.

Two months after his injury, he hired an attorney to file a claim against Mudslingers in a special court for workers’ comp.

That’s when things got strange: Mudslingers said he had never been the company’s employee. Instead, Mudslingers told him, he had been working for LMF Construction.

“I had never heard of LMF Construction in my life,” Barrs said.

LMF’s name was made intentionally vague so that subcontractors with different specialties (roofing, drywalling, etc.) could use it without raising suspicions. In just 17 months, the company was paid nearly $4.5 million in checks from general contractors. Most of that money went back to the uninsured subcontractors, who were able to cash their checks illegally: Rodriguez had set up a deal with several money service businesses that would allow subcontractors to cash checks made out not to the bearers, but to the shell companies. Check cashing stores play a key role in the scheme, for which they are paid a premium under the table.

Using the money from the redeemed checks, subcontractors pay their workers in cash and pocket the profits without leaving a paper trail for investigators to follow.

Kanti and Nilbala Patel, the owners of K’s Liquor store near Lake Worth, Florida, confessed to investigators that they had illegally cashed $1.7 million in checks for LMF Construction. In addition to their normal fee, the Patels kept an extra one percent, approximately. Rodriguez took between 4 and 5 percent as his cut.

Foiling the crooks

In 2013, legislators approved the creation of a real-time database that will track check-cashing throughout the state. Investigators will be able to see companies cashing lots of business-to-business checks — a sign of potential fraud — instead of depositing them in a corporate bank account. They will also be able to use the database to check the company’s incorporation records, reported payroll and proof of insurance.

“This way, we can see the fraud unfold as it happens,” said Maj. Buddy Hand, the current chief of the Bureau of Workers’ Compensation Fraud. Hand said the database should be online within six months and would aid the work of “Operation Dirty Money,” an ongoing investigation by the state Division of Insurance Fraud and the sheriffs’ offices of Broward and Palm Beach counties, which apprehended Rodriguez and other members of his ring. Prosecutors secured 259 convictions for workers’ comp fraud in the most recent fiscal year, an increase of 25 percent from the year before, according to the Division of Insurance Fraud.

That’s little comfort for Barrs, who said he still gets headaches so severe they make him cry. “It’s like someone sticking an ice pick in the back of my spine up to my brain,” he said.

Once Barrs filed his workers’ comp claim, LMF decided it wasn’t responsible for him, either. Neither Mudslingers’ nor LMF’s insurance company wanted to pay the costs for his catastrophic accident, and both companies argued that he hadn’t actually been their employee. The checks stopped coming, and Barrs couldn’t find a doctor who would take him without insurance. He said he never received the MRI scan of his brain that his original doctor had ordered, and that he missed out on other important tests, too.

The Miami Herald identified 12 other workers who were injured on other jobs and had to go to workers’ comp court because their employers had signed on — unbeknownst to the workers — with Rodriguez’s crew. Those cases ranged from a man who sliced his finger on a cement-mixing machine and eventually received a $5,000 settlement to another who said he suffered a traumatic brain injury when the scaffold he was standing on collapsed. His case has dragged on for five years.

In documents from Barrs’ workers’ comp case, Juvenal Martinez was listed as the person in charge of the work crew supposedly affiliated with LMF at the strip mall. He told the Herald he worked with the company for only a few months, and denied playing a role in any fraud. “I don’t know nothing about the company,” he said.

Investigators searched a Florida Department of Revenue database and found that no employees had ever reported receiving wages from LMF.

Barrs said he wasn’t surprised when a reporter told him LMF had committed fraud. “You hear about companies in this industry doing whatever they can to get out of workers’ comp,” he explained. “The companies are making money, and it’s the working people who are suffering.”

After 15 months of wrangling, a workers’ comp judge ruled that Barrs had been Mudslingers’ employee all along and held it liable for his costs. Barrs settled his case for $75,000.

“I wish I hadn’t signed those papers,” Barrs said. “I didn’t know what I was signing. I just needed that money bad.” He’s back to work now, but says he is limited by chronic pain and stiffness in his shoulders and neck — and those debilitating headaches.

Reinaldo Ricardo, Mudslingers’ vice president at the time, said he always believed Barrs had staged his accident with the live wire. “Nobody was supposed to be on the work site that day,” Ricardo said. Barrs’ background includes a record of arrests, mostly for drug possession, with most, but not all, dating back 25 years.

Eric Freeman, who supervised work at the strip mall for the project’s main contractor, called Ricardo’s comments “ridiculous.” Freeman wasn’t on-site for Barrs’ accident — it was a Saturday — but said that other workers were there pulling overtime because construction was running behind schedule. “Nobody’s going to try and fake an electrocution,” Freeman said. “You might as well light yourself on fire.” The judge in Barrs’ case, Kathy Sturgis, wrote that it was “undisputed” that he had been zapped on the job.

Ricardo, who now runs a company called New Era Building in Naples, would not say how he had hired LMF or whether he knew Luis Figueroa, its figurehead president. Investigators have not alleged that Mudslingers or Juvenal Martinez broke any laws.

At the end of 2013, Hugo Rodriguez, who organized the criminal ring that took advantage of Barrs and other workers, pleaded guilty to six counts of workers’ compensation fraud, a first-degree felony, after cooperating with investigators. A judge agreed to let Rodriguez off with 17 months’ time served and five years of probation. He was also required to pay $125,391.15 in restitution.

Prosecutors charged his accomplice, Figueroa, with two counts of fraud and two of money laundering, but he had fled the country.

He remains a fugitive.

We want to know your thoughts and experiences with misclassification. Share your feedback directly with the reporter: nnehamas@miamiherald.com or 305-376-4960; or on Twitter @NickNehamas.
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