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Ex-Workers Comp Commissioner accuses state of allowing Ponzi scheme

One of the businesses being billed for thousands by the NY Worker's Compensation Board.

A former Commissioner of the New York Workers Compensation Board is accusing the state of allowing a "Ponzi scheme" that is forcing hundreds of small business owners to shell out thousands of dollars to the Workers Comp Fund.

In 2005, 431 auto repair shops across the state took advantage of a program allowing them to band together to cover their employees workers compensation through low cost not for profit trusts in a type of self insurance. The Workers Comp trusts would be run by managers licensed and approved by the state Workers Comp Board. But some of those trusts were mismanaged.

The Auto Repair trust ran up a debt of $3.8 million. Now the Workers Comp Board is billing the repair shops to pay up. In a statement to CNY Central on October 8, the board said it's billing the members to "resolve their liabilities and not shift them to other employers." as it sues the managers of the trust.

Dave Campbell, who owns DAVCO Performance Automotive in Syracuse got a bill for $1,134 which is far less than the tens of thousands some other repair shops are being billed. Campbell says he's never had a claim for workers comp. "There hasn't been any oversight of this whole process. Nothing that would give us a good sense of where the money is going to and whether or not it's being paid out properly." Campbell said.

Our original story caught the attention of Michael T. Berns, who served as a Commissioner on the State Workers Comp Board from '96 to 2008. Berns now runs a website critical of the way the Board operates. Be blames the Board for allowing these self insured trusts to be mismanaged by companies approved by the state. "So these management companies came in and started collecting their thousand dollar premiums , when in reality they were skimming the money. The State of New York allowed what I would call a Ponzi scheme to take place and therefore the State of New York should take the responsibility of making these people whole." Berns told CNY Central by phone.

Berns says the state needs to conduct an audit to find out how many workers comp claims to these self insured trusts were fraudulent. Berns feels such an audit would significantly cut down on the $3.8 million deficit the auto repair shops are now forced to bail out.

In response to Berns' criticism, the Workers Compensation Board issued the following statement to CNY Central.

â??During the Pataki Administration (which coincided with most of Mr. Bernâ??s tenure) group trusts grew in number and membership. Since then, certain group trust, such as the members of the Auto Trust, abandoned their injured workersâ?? claims, so the Board had to assume the administration of all their claims and verify the claimsâ?? legitimacy. The Board has been acting aggressively on behalf of both the injured workers and the affected employers to mitigate the impact.

First, upon assumption of these trusts, the Board worked to ensure the affected claimants were provided timely benefits, despite their former group trustâ??s lack of funds. Second, the Board initiated forensic reviews of the defunct groups to determine the circumstances that led to their demise. These forensic reports identified significant areas of improper actions on behalf of the Group Administrators, Third Party Administrators, accountants, actuaries, and in some instances even the Trustees. Based upon these forensic reports the Board has commenced over a dozen damages actions against these parties, on behalf of the former group trust members, to recover the cumulative deficits of these trusts.

Additionally, in an attempt to mitigate the impact on the small businesses, in December 2013 the state of New York successfully issued bonds that allow group trust employers to manageably fulfill their obligations to their injured workers, over long repayment periods, at low cost. The Auto Trust took advantage of this innovative vehicle, which provides a way for employers to achieve finality in their financial obligations to their former trust.

Since 2008, when the majority of these group trust issues were identified, the Board has moved aggressively against many trustsâ?? malfeasance. Since Mr. Bernâ??s left prior to the majority of these actions, it is likely that Mr. Berns is not aware of the extensive lengths the Board has taken to ensure the timely benefits for these affected workers and aggressive management of the trust to mitigate the costs to their employers."

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