Jacksonville, Florida – U.S. District Judge Marcia Morales Howard today sentenced Gregorio Jose Fuentes-Zelaya (27, Orlando) to 33 months in federal prison for conspiracy to commit wire fraud and conspiracy to commit tax fraud. The court also ordered Fuentes-Zelaya to pay restitution to the IRS in the amount of $5,766,286 and to an insurance company in the amount of $68,073. In addition, the court ordered Fuentes-Zelaya to forfeit his interest in $230,764 that was seized from two bank accounts. The court also entered a money judgment in the amount of $1,367,625, representing the proceeds of the wire fraud.
Fuentes-Zelaya had pleaded guilty on September 11, 2020. His co-defendant, Dennis Alexander Barahona, had pleaded guilty on March 29, 2021. His sentencing hearing has been scheduled for July 6, 2021.
According to court documents, Fuentes-Zelaya established shell companies that purported to be involved in the construction industry. He or his co-conspirators obtained workers’ compensation insurance policies in the name of the shell companies to cover a minimal payroll for a few purported employees. The conspirators then “rented” the workers’ compensation insurance to work crews who had obtained subcontracts with construction contractors on projects in various Florida counties. Fuentes-Zelaya or his co-conspirators sent the contractors a certificate as “proof” that the work crews had workers’ compensation insurance, as required by Florida law. By sending the certificate, the conspirators falsely represented that the work crews worked for their companies. Over the course of the scheme, Fuentes-Zelaya and his co-conspirators “rented” the certificates to hundreds of work crews.
The contractors issued payroll checks for the workers’ wages to the shell companies and the conspirators cashed these checks, then distributed the cash to the work crews after deducting their fee, which was typically about 6% of the payroll. During the period of the scheme, the conspirators cashed payroll checks totaling approximately $22,793,748, with their fees totaling approximately $1,367,625. Neither the shell companies nor the contractors reported to government authorities the wages that were paid to the workers, nor did they pay either the employees’ or the employers’ portion of payroll taxes – including Social Security, Medicare, and federal income tax. According to the IRS, the amount of payroll taxes due on wages totaling $22,793,748 was $5,766,286.
The scheme also facilitated the avoidance of the higher cost of obtaining adequate workers’ compensation insurance for the hundreds of workers on the work crews to whom Fuentes-Zelaya and his co-conspirators “rented” the workers’ compensation insurance. Had workers’ compensation insurance policies been purchased for a payroll totaling $22,793,748, the policy premiums would have totaled about $3,684,057. The policies that Fuentes-Zelaya and his co-conspirators purchased, and then “rented” out, were for estimated payrolls of $80,800 to $100,800. The insurance company issued those policies for premiums ranging from $15,206 to $31,268.
“This criminal stealthily concealed his business transactions behind numerous illegitimate companies, facilitating over $22.7 million in unlawful payroll payments, all while defrauding the U.S. insurance industry,” said HSI Jacksonville Assistant Special Agent in Charge K. Jim Phillips. “Thanks to the diligent work of HSI special agents and our law enforcement partners, he will not be able to take advantage of the significant criminal proceeds derived from these crimes.”
“Today’s sentencing of Gregorio Jose Fuentes-Zelaya is a reminder that payment of both individual and business taxes is an obligation, not a choice,” said Special Agent in Charge Brian Payne of IRS Criminal Investigation. “We recognize the detrimental consequences of evasion of employment tax. It results in the loss of tax revenue to the United States government, the loss of future social security and Medicare benefits for the employees, and it creates an uneven playing field among competing businesses. As our system of taxation depends on everybody paying their fair share, employment tax fraud will remain a top priority for the Special Agents of IRS-CI.”