$133 Millon PEO Fraud Results in Prison for Three Texans

Six officials of organizations that were supposed to provide employment services for small businesses appeared for sentencing Friday for perpetuating what authorities described as the largest fraud case ever filed here -- a tax and insurance swindle with losses of more than $133 million.

Feb. 25, 2014

Six officials of organizations that were supposed to provide employment services for small businesses appeared for sentencing Friday for perpetuating what authorities described as the largest fraud case ever filed in San Antonio — a tax and insurance swindle with losses of more than $133 million.

Because of varying circumstances and their roles, three of the men were sent to prison, while Chief U.S. District Judge Fred Biery sentenced another to probation. Sentencing for the two alleged ringleaders was postponed.

Assistant U.S. Attorney Tom McHugh told the judge that the scam left mom-and-pop businesses devastated because they believed they had hired honorable professional employer organizations (PEOs), similar to employment agencies. Instead, what they got was an “institution of greed” that resulted in $120 million in payroll fraud and $13 million in insurance fraud by the PEOs. The scheme included creating new firms and walking away from the tax liability, unbeknownst to the small businesses that hired them.

“The defendants were absolutely out of control in terms of managing their clients' money,” McHugh said, noting about 5,000 people were affected.

Rather than use the money the defendants were paid by the small businesses to submit payroll taxes and provide workers compensation insurance, they squandered it on vacations, girlfriends, gambling trips to Las Vegas, a private jet, real estate (including a 551-acre horse-training ranch in Medina County called Paradise Farms) and other personal expenses, McHugh said.

“It was a layered scam,” said Mike Lemoine, spokesman for the IRS' Criminal Investigation division in San Antonio.

“This is without a doubt the largest employment tax-fraud case that the Western District of Texas has ever seen,” Lemoine said. At the top of the heap, the IRS and FBI contended, was Charles Pircher, 61, who had already served federal prison time for tax fraud. He was given a second chance upon his release in 1996 by John D. Walker II, who ran a PEO but later became one of the defendants.

Eventually, Pircher was in control of the PEO in question, which changed names akin to a chameleon. The second ringleader, investigators said, was disbarred lawyer Larry W. Kimes, 62, who also worked for Walker and later joined Pircher in perpetuating the fraud.

Others also in decision-making positions with the PEOs in question were John Bean, whom Biery sentenced to six years in prison; Patrick Mire, who got three years; and Michael Solis, who got two years. The judge gave Walker, 71, five years of probation, citing his minimal role, his age and the deteriorating health of his spouse.

The four also were ordered to pay varying amounts of restitution. Pircher remains in custody without bond as he awaits his sentencing. The judge also revoked Kimes' bond and ordered him to jail to await sentencing.

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