Minnesota couple charged with insurance fraud in connection with construction business

(FOX 9) - An Annandale, Minnesota couple has been charged with insurance fraud in connection to their drywall company, Merit Drywall.

According to the Hennepin County Attorney's Office, Leroy and Joyce Mehr are facing two counts of insurance fraud and one count of theft by swindle in a scheme they used to avoid paying for workers compensation insurance required to protect injured workers.

“This kind of scheme, unfortunately, we see far too often,” Hennepin County Attorney Mike Freeman said in a press conference Tuesday. “That is, people who are employees for which a corporation is required purchase workers compensation coverage to the insurance companies are instead mischaracterizing and fraudulently suggested they work as independent contractors.”

According to the criminal complaint, from April 2016 to April 2017, the Mehrs defrauded workers’ compensation insurance providers for hundreds of thousands of dollars by intentionally mispresenting the number of workers Merit Drywall employed.

The attorney's office reported that on Feb. 5, 2016, the couple submitted a worker’s compensation application to their insurance provider, Federated Insurance. Four months later, Federated Insurance audited Merit Drywall to review their workers’ compensation policy. According to the complaint, Joyce Mehr provided Federated with records which falsely claimed that their business had 11 employees while dozens of workers were independent subcontractors.

The Commerce Fraud Bureau started investigating Merit Drywall and used two confidential informants. The first informant reported that he did not need to provide identification or personal information prior to starting work with Merit Drywall and was always paid in cash. The second informant reported that Joyce Mehr set him up with a company email address and created a business for him by registering a company name with the Minnesota Secretary of State, the complaint says.

According to the Secretary of State, the Commerce Fraud Bureau found three companies that Joyce Mehr had paid for online in her name, including the second informant’s. On Aug. 1, 2017, the Commerce Fraud Bureau executed a search warrant at Merit Drywall’s headquarters. According to the complaint, agents were unable to find contracts between Merit Drywall and many of the purported independent contractors. However, what was found were invoices from employees who Merit Drywall classified as independent contractors.

Analysis of Merit Drywall’s payroll showed that subcontractors were not independent contractors as many of those were actually full-time employees paid hourly or on a piece-work basis. A regional underwriter for Federated Insurance determined that Merit Drywall’s premium should be $310,000 more, a sum Leroy and Joyce Mehr circumvented paying by misclassifying workers, the complaint states.

The Mehrs were charged by summons and are scheduled to make their first appearance on March 18.