Central California Union Consultants Charged with Fraud

In California, selling workers compensation insurance requires a license. The business practices of Marcus Asay and Antonio Gastelum would seem to justify such a requirement. On September 24, Asay, founder of a Fresno-area firm, American Labor Alliance, and Gastelum, a former principal officer of the alliance, were charged in U.S. District Court for the Eastern District of California in a 19-count superseding indictment on fraud and money laundering charges related to their financial products. In 2018 the California Department of Insurance had penalized the company and certain affiliates by more than $4.3 million. The latest action follows in the wake of an amended civil suit filed by a Fresno employer. The defendants deny all wrongdoing. The charges follow a probe by the FBI, the IRS, the Social Security Administration and the Department of Labor.

American Labor Alliance (ALA), launched in 2007, doesn’t actually look like a union. But that’s what it calls itself. Its entry on Yelp.com reads: “We are a labor union. We provide grievance resolution, workplace safety training, healthcare and more comprehensive member benefits to ensure the health and stability of American working people.” In practice, ALA operates as a third-party benefits consultant to the United Farm Workers (UFW), a union whose dwindling membership from the start has consisted overwhelmingly of Hispanic agricultural workers in Central California. Founder Marcus Asay had made something of a name for himself back in the 1980s, negotiating contracts on behalf of pro basketball players. The experience won him an invitation to speak at the union’s Cesar Chavez National Monument compound in the Tehachapi Mountains. Since then, reads the Yelp blurb, “Marcus has worked tirelessly to revise and reflect on ways to improve the lives of American workers by creating ways for workers to achieve basic building blocks for success like workforce training, affordable healthcare coverage, assurance of workers compensation benefits, retirement savings plans, and burial benefits.”

American Labor Alliance is, or was, a subsidiary of Agricultural Contracting Services Association, Inc., a defunct nonprofit corporation chartered in Nevada and headquartered in the city of Clovis, near Fresno. Why it went defunct has a lot to do with the business practices of its intricate web of affiliates and subsidiaries. In addition to ALA, the Agricultural Contracting Services Association “family” includes CompOne USA, ALA Trust, California Analytics, Farmworkers Enterprise Foundation, Recruiters of America, CompassPilot, ALTA, and Life Abundantly. ALA launched its worker’s compensation insurance operation around late 2015. Business soon surged. By February 2017, more than 400 employers, many of them farm labor contractors, participated. That covered about 30,000 workers.

Complications would arise. In October 2016, the California Department of Insurance issued a Cease and Desist Order against ALA and CompOne USA for marketing and selling worker’s compensation and liability insurance without a license. The companies appealed, but to no avail. California Insurance Commissioner Dave Jones subsequently issued a Decision and Order in November 2017 and then another one in December 2018 imposing a penalty of $4,345,000. That sum represented $5,000 for each of the 869 days that ALA and CompOne sold insurance without a license.

If operating without a license were all there was to the story, one might sympathize with the defendants on libertarian grounds. Unfortunately, there is a very high likelihood that ALA and related groups had engaged in fraud. The FBI, Labor Department and other federal agencies had conducted a joint investigation. And they concluded that the companies willfully had misled employers and employees, especially in relation to issuance of Certificates of Liability to employers and Employee Retirement Income Security Act (ERISA) statutes pertaining to pension assets held in trust. On January 10, 2019, acting on a 13-count grand jury indictment, federal prosecutors charged ALA, Marcus Asay and Antonio Gastelum with various criminal offenses, including conspiracy to commit mail fraud. The mail fraud conspiracy charges, which comprised 12 of the 13 counts, read in part:

Beginning on a date unknown to the Grand Jury but no later than in or about January 2011, and continuing until in or about January 2019, in the State and Eastern District of California, and elsewhere, defendants ALA, Asay, and Gastelum, and others known and unknown to the grand jury, conspired to commit mail fraud by devising a scheme and artifice to defraud ALA clients and others, and to obtain money and property from ALA clients and others by means of materially false and fraudulent pretenses, representations, and promises, and to cause the United States mail to be used in execution of the scheme to defraud, in violation of Title 18, United States Code, Section 1341.

The alleged worker’s compensation scheme operated from roughly March 2016 through March 2017; the alleged pension scheme lasted roughly from January 2011 through January 2019. Count 13 charged Marcus Asay with laundering more than $23,000 in cash. All told, prosecutors sought the forfeiture of nearly $2.9 million in defendant assets.

The superseding indictment of September 24, 2020 adds five wire fraud counts and a laundering count to the original indictment. Each count cites Asay, though not Gastelum. The wire fraud charges relate to the alleged sale of fake Affordable Care Act compliance certificates. Prosecutors say that sometime between the latter part of 2014 and April 2016, Asay and American Labor Alliance devised a plan to sell “hardship exemptions” to individuals to enable them to avoid the tax penalty for noncompliance with the Act’s individual health plan mandate. The alleged scam included making “false and fraudulent statements indicating that a government entity granted ALA an organization-wide hardship exemption and that ALA had the authority to sell hardship exemptions to taxpayers.” Additionally, reads the indictment, Asay and other company representatives falsely claimed to tax preparers that taxpayers could purchase an exemption for $250 and thus avoid the shared responsibility payment. To facilitate the scam, ALA, through a shell organization known as Omega Community Labor Association, allegedly created a fake form for tax preparers and taxpayers to fill out.

If all this weren’t enough, Asay, American Labor Alliance and related organizations now face an amended lawsuit filed in state court this past summer by a Fresno-area employer, Fajita Fiesta Mexican Restaurant. The new suit alleges that the defendants in July 2016 sold fake workers’ compensation coverage. The original complaint, filed two years ago, cited breach of contract, breach of fiduciary duty, insurance bad faith, fraud, and negligent misrepresentation. The new complaint is seeking at least $1.5 million in damages, interest and fees. It alleges that Asay and Gastelum failed to notify restaurant management that it did not have the ability to provide State of California worker’s compensation insurance. Fajita Fiesta said it had tried to persuade ALA to refrain from this activity, but was rebuffed. ALA had responded that it was operating legally and was being targeted by an anti-union campaign. The apparent lack of candor on ALA’s part cost the restaurant dearly. The California Department of Industrial Relations fined the restaurant $187,887.38 for its “failure” to provide valid worker’s compensation coverage.

California may be the most overregulated state in the U.S. That said, the case against American Labor Alliance and its associated firms looks sound. The fact that ALA was part of a network of organizations housed under a now-defunct Nevada-chartered nonprofit alone should raise a giant red flag. The original and superseding indictments point to systematic misrepresentation. Perhaps the biggest mystery of all is why ALA continues to call itself a labor union when even its main client, the United Farm Workers, barely qualifies as one.