A workers' compensation fraud scheme that spanned two states and netted the perpetrators $1.5 million has been busted.

The massive fraud triggered two separate indictments by the New Jersey Attorney General's office. The accusations include lying on insurance applications, failing to remit the collected premiums to the insurance carriers, racketeering, and money laundering. Named in the January indictment are New Jersey residents Paul Brown, 43; Michael Magee, 34; James Maconaghy, 41; Justin Sciarra, 59; and William Griffith, 53 of Reading, Pa. Brown, Maconaghy, and Griffith are all currently licensed insurance brokers.

Four corporations are also named: Bay Enterprises, Inc., Q-Town, Inc., TJAX Investment Corp., and 3D Assurance Brokerage, LLC. Q-Town and TJAX, in Audubon, N.J., were owned by Sciarra and operated by Brown. Sciarra, Magee, and Maconaghy were the owners and operators of Bay Enterprises, located in Marlton, N.J. Maconaghy operated 3D Assurance in Audubon. All the defendants except Griffith either owned or were involved in the operation of professional employer organizations (PEOs).

The indictment alleges that the defendants committed insurance fraud by avoiding payment of $304,244 in workers' compensation insurance premiums. The defendants also are charged with misappropriating as much as $745,207 from clients of the PEOs by failing to remit the money to the insurance companies, leaving many employees without workers' compensation insurance.

The New Jersey prosecutor's office says that the scheme went on for several years, from around June 2003 through September 2007. The defendants, along with others not charged in the above indictment, had been on the attorney general's radar for some time. A second grand jury indictment, recently unsealed, had been returned on June 20, 2007, but kept under wraps until now. In the second indictment, Sciarra, Brown, and Paul Hopkins, 58, of Marlton, N.J., are charged with conspiracy to commit racketeering, racketeering, conspiracy, theft by failure to make required disposition of property received, theft of services, misconduct by a corporate official, and financial facilitation of criminal activity.

That indictment charges Sciarra and Brown with workers' compensation insurance fraud; Sciarra alone was charged with failure to carry workers' compensation insurance. Hopkins's wife, Adrienne Hopkins, 48, of Marlton, N.J., was charged with conspiracy to commit racketeering, racketeering, conspiracy, misconduct by a corporate official, and financial facilitation of criminal activity.

Eight corporations are named in the second indictment. Six were located in Audubon, N.J.: AJAX Enterprises, a.k.a. AJAX Leasing, Inc., AJEX Enterprises, Inc., UJEX Enterprises, Inc., Q-Town, Inc., Sciarra Insurance Agency, and Homestead Assurance Brokerage. Also indicted are America's PEO, Inc., a.k.a. America's PEO Holdings, Inc., a.k.a. Staff America, formerly of Cherry Hill, N.J., and PTD Financial, Ltd., formerly of Mt. Laurel, N.J.

Sciarra, along with his PEO, AJEX, is charged with failure to provide workers' compensation insurance for the employees of the PEO's clients, who were allegedly sent falsified certificates of insurance. Auditors who performed routine inspections also were presented with falsified documentation. When valid insurance coverage was in place, the defendants allegedly submitted workers' compensation claims with false or misleading information in an effort to get insurance carriers to pay benefits. The defendants allegedly engaged in money-laundering schemes to conceal as much as $500,000 of the ill-gotten proceeds from the various activities.

Workers' compensation fraud is a fourth-degree crime; the other charges -- conspiracy, racketeering, insurance fraud, theft by failure to make required disposition of property received -- are second-degree crimes. In New Jersey, second-degree crimes carry a maximum sentence of 10 years in state prison and a criminal fine of $150,000; fourth-degree crimes carry a maximum sentence of 18 months in state prison and a criminal fine of $10,000.

New Jersey has had an Office of Insurance Fraud Prosecutor for more than a decade. However, of the approximately 1,200 fraud investigations launched by the office in 2007 (the latest data available), only a few dozen involved workers' compensation, according to Greta Gooden Brown, the state's insurance fraud prosecutor. Records show that some 50 people have been charged with workers' compensation fraud in the past decade. That total has now taken a giant leap with these indictments.

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