2 sentenced for $48M medical reimbursement account fraud scheme

Louisiana residents Denis and Donna Joachim were sentenced March 17 for creating, marketing and operating a $48 million fraudulent medical reimbursement program, according to a Justice Department news release.

The U.S. District Court for the Eastern District of Louisiana sentenced Mr. Joachim to 97 months in prison followed by three years of supervised release. Ms. Joachim is sentenced to 12 months and one day in prison followed by three years of supervised release. The two also agreed to forfeit previously seized assets worth $6.3 million and are barred from serving as consultants or advisers for any labor organization or employee benefit plan for 13 years after their imprisonment.

Mr. and Ms. Joachim's company, the Total Financial Group, is sentenced to one year probation.

Founded in 2005, the Total Financial Group created and marketed a medical reimbursement account program called Classic 105. Classic 105 claimed to be a multiple-employer welfare arrangement that employers could use as a supplemental benefits plan to reimburse employees for medical expenses such as copays and deductibles. Enrolled employees were also required to have primary health coverage unrelated to Classic 105.

Classic 105 claimed to be comprised of four parts:

  • A monthly tax-exempt contribution between $1,000 to $1,600 from employees, reducing their taxable income
  • A loan from a lender to the employee for the contribution
  • A health plan payable to the lender upon the employee's death for loan repayment
  • Fees paid by employees and employers directly to the Total Financial Group

The Total Financial Group told potential employer-clients that they would never need to make out-of-pocket payments for loans and that most would receive an increase in net pay because of tax savings. The Total Financial Group would then arrange for the contribution, loan and health plan to appear as paper transactions that reduced employees' taxable income and employers' Federal Insurance Contributions Act payments improperly without their knowledge.

The Total Financial Group never obtained any loans or insurance policies for the Classic 105 program, and participants never made any actual contributions. 

Classic 105 had over 350 employer-clients and 4,400 employee-participants nationwide at its peak. Revenues were at least $25.5 million in fees collected from the employer-clients and employee-participants. 

The Total Financial Group is responsible for the underpayment of at least $23.3 million in federal taxes and the underreporting and underpayment of personal federal income taxes, federal unemployment taxes and state unemployment taxes. Employer-clients and employee-participants may be individually responsible for those payments, according to the news release.

"The defendants targeted unsuspecting employers, luring them into this fraudulent scheme that caused severe tax issues for both employers and their employees," said U.S. Attorney Duane A. Evans for the Eastern District of Louisiana. "Schemes such as these have a profound effect on their victims, not only by the monies lost in the scheme, and the time and effort to repair the adverse effects of the fraudulent plot, but also by stoking public distrust."

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