Former Owners of Stoughton Temporary Employment Agency Convicted of Running Massive Payroll Fraud Scheme

BOSTON—Two former owners of a Stoughton temporary employment agency were convicted late yesterday of paying more than $25 million in unreported cash to their employees as part of a conspiracy to avoid paying $7 million in taxes and hundreds of thousands dollars in workers compensation insurance premiums.

After a jury trial before United States District Court Judge Nathaniel M. Gorton, MICHAEL POWERS, of Westport, and JOHN MAHAN, of Stoughton, were convicted of one count of conspiracy to defraud the Internal Revenue Service and their workers compensation insurers, one count of mail fraud, and two counts of false tax returns.

Between 2000 and 2004, POWERS and MAHAN owned and operated Commonwealth Temporary Services, Inc. To avoid paying employment taxes, such as Social Security and Medicare, and to fraudulently reduce the businesses’ insurance premiums, POWERS and MAHAN arranged to pay more than $25 million of their payroll in cash, under the table.

Commonwealth Temporary Services supplied hundreds of temporary laborers to businesses throughout Eastern Massachusetts. Like every other employer, the defendants were required to pay payroll (FICA) taxes and to obtain workers compensation insurance. The amount an employer pays in payroll taxes and workers compensation insurance premiums is largely dependent on the size of their payroll. POWERS and MAHAN lied to both the IRS and their insurers about the size of their payroll, and paid the majority of their employees in cash to make their fraud more difficult to detect.

Judge Gorton scheduled POWERS’s sentencing for October 26 and MAHAN’s sentencing for November 3.

POWERS and MAHAN each face up to 20 years in prison to be followed by three years’ supervised release and a $250,000 fine on the mail fraud charge; a maximum of five years in prison to be followed by three years’ supervised release and a $250,000 fine on the conspiracy charge; and up to three years in prison to be followed by one year supervised release and a $250,000 fine on the tax fraud charges.

U.S. Attorney Carmen M. Ortiz; William P. Offord, Special Agent in Charge of the Internal Revenue Service’s Criminal Investigation in Boston; Richard DesLauriers, Special Agent in Charge of the Federal Bureau of Investigation - Boston Field Office; and Anthony DiPaolo, Chief of Investigations for the Insurance Fraud Bureau of Massachusetts made the announcement today. The case is being prosecuted by Assistant U.S. Attorneys Sarah E. Walters and Vassili Thomadakis of Ortiz’s Economic Crimes Unit.