Seven current and former executives of NICA Inc. (Braintree, MA) were arrested May 3, 2006, on charges of defrauding California’s workers’ compensation insurance fund, according to Ernie Marugg, a San Diego County deputy district attorney. The group, including President Tom McGrath, was charged with 50 counts of conspiracy, fraudulent purchase of workers’ compensation insurance and filing of false benefits claims, Marugg said. The executives are free on bond pending an arraignment in San Diego County Superior Court later this month.

NICA allegedly filed about $600,000 in fraudulent claims against California’s State Compensation Insurance Fund on behalf of injured couriers, Marugg said. The claims, ranging from a few hundred dollars to more than $100,000, involved payments for medical care and temporary and permanent disability benefits.

According to a report in the Los Angeles Times, prosecutors allege that the claims violated California’s insurance laws because the couriers didn’t work directly for NICA. The San Diego County district attorney’s office said that if convicted on all counts, the NICA executives could face up to 59 years in prison and fines as high as $1.2 million.

NICA Director of Operations Terrence Patterson explained that although these arrests were made, NICA was not ordered to “cease and desist” its usual business and that no ICDT Declaration of Trust funds or other funds or equipment were impounded, detained, levied or otherwise encumbered in any way.

“We know it can be easy to lose faith and confidence when something like this occurs, but this is not the first time that we have had a difference of opinion with state regulators, nor will it be the last,” Patterson said in a letter to NICA clients. “We have fought and continue to fight for what we believe is the correct utilization of the Independent Contractor status.”

The California Department of Insurance and the California Employment Development Department have been investigating NICA as part of a crackdown on courier companies that avoid paying workers’ compensation and unemployment insurance premiums by reclassifying their drivers as independent contractors. The investigation, which began in early 2003, has assessed more than $37 million in back taxes to date, with penalties assessed against 153 courier services. Among the companies targeted are UPS, along with smaller firms with as few as 24 drivers.

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