2 Kentucky men plead guilty to multimillion-dollar workers' comp fraud

Two Pike County men who employed contract coal miners have admitted to taking part in a multimillion-dollar scheme to defraud a workers' compensation provider.

Frelin Workman, 58, and Randy Lee Workman, 36, both of Belfry, pleaded guilty this week in federal court in West Virginia, according to a news release from Booth Goodwin, U.S. Attorney for the southern part of that state.

Frelin Workman and a partner, Jerome Edward Russell, 50, of Williamson, W. Va., operated a company called Aracoma Contracting LLC, which provided miners to coal companies in West Virginia on a contract basis. Randy Lee Workman operated a similar employee-leasing company called Christian Contracting.

Both of the contracting companies were responsible for carrying workers' comp coverage on the miners, according to court documents. The two companies bought coverage through BrickStreet Mutual Insurance, the largest comp provider in West Virginia, according to the news release. The cost of comp insurance is based in part on the number of employees covered at a company.

Both Frelin and Randy Lee Workman admitted to paying a significant number of employees in cash to avoid the costs of employment taxes, workers' comp and unemployment insurance, court documents show.

Frelin Workman and Russell also said they paid Arville W. Sargent, a field auditor for BrickStreet, about $1 million in cash bribes to falsify audits so he would report that the two companies had far fewer employees than they really did, according to court documents and a news release from Goodwin.

Frelin Workman and Russell, who pleaded guilty to mail fraud and tax evasion, estimated that the scheme defrauded BrickStreet and the West Virginia Workers' Comp Commission of about $4 million between January 2006 and December 2012, Goodwin said.

Randy Lee Workman admitted that he underpaid BrickStreet by about $280,000 in the same period. He pleaded guilty to tax evasion and abetting mail fraud.

Sargent, 52, of Chapmanville, W. Va., pleaded guilty to mail fraud and tax evasion. Sargent admitted to letting Aracoma, Christian Contracting and two other companies submit false documents "drastically understating" how many employees they had, according to the news release.

The federal government plans to confiscate $415,000 plus a 2012 Dodge Ram pickup truck, a Harley-Davidson motorcycle and an all-terrain vehicle from Sargent.

A fifth man involved in the scheme, Arthur J. White Jr., 60, of Lenore, W. Va., pleaded guilty to tax evasion and structuring financial transactions to avoid reporting requirements.

Frelin and Randy Lee Workman, Sargent and Russell face up to 25 years in prison. They are to be sentenced in July. White faces up to 10 years.