CDI Cuts A Deal With Illegal MEWA

The California Department of Insurance and officials associated with the illegal multi-employer welfare arrangement (MEWA) that operated as American Labor Alliance have agreed to settle the government’s case to collect some part of the $4.3 million penalty and accumulated interest and costs. Court filings say the parties have agreed to settle the entire case, but state officials will only say the details are still being finalized and refuse to say how much of the penalty – if any – will actually be paid. Once finalized, it will become a public record.

The scheme was originally brought to light by Workers’ Comp Executive. See the investigations section for coverage through the years.

The organization was officially known as the Agricultural Contracting Services Association but operated under several other names, including CompOne USA, Omega Community Labor Union, and Compass Pilot. Founder Marcus Asay is also liable for the CDI penalty.

The scheme claimed to offer a workers’ comp program that was exempt from state regulation under federal ERISA rules. The state and the courts held differently.

Earlier this year, Asay, the American Labor Alliance, and the organization’s head of finance, Antonio Gastelum, were convicted after a 19-day jury trial in federal court. Asay was convicted on all 18 felony counts against him, while Gastelum was convicted on three felony counts tied to a fraudulent pension plan the group ran. The company was found guilty on each of the 16 counts it faced.

Sentencing has been pushed back to early next year. Counsel on both sides needed additional time, and the court consented. The sentencing had been set for later this month. Each count carries a maximum sentence of 20 years, and the total fines could go well into the millions of dollars.

Asay also faces a second jury trial on tax and social security benefit fraud charges next year.

Penalty Grows

The Department issued its penalty decision December 19, 2018, imposing a $4,345,000 penalty “based on the unlicensed, illegal, and fraudulent sale” of the purported alternative to workers’ comp insurance. The penalty was calculated at a rate of $5,000 per day for each day the scheme operated without a license, registration, or certificate of authority. The MEWA officials repeatedly ignored orders by the Department to cease and desist their illegal operations and attempted to circumvent the Department’s enforcement action by transferring operations to an alter ego.

The penalty has been accruing interest at a rate of $1,190 per day for over 2,000 days. By the end of September, the accrued interest of $2,514,148 pushed the total amount to $6,859,148. The Department is also owed its collection costs, including attorney fees, expert fees, costs of the lawsuit, and all other costs associated with the investigation, collection, and enforcement of the penalty.

It is unknown how much of this the Department will get under the settlement agreement. Officials say additional details will be forthcoming.