Bank of Mingo under scrutiny in workers' comp scheme probe
CHARLESTON, W.Va. -- Federal authorities have been investigating whether officials at the Bank of Mingo helped a group of coal-mining contract firms use dozens of illegal cash withdrawals to finance a multimillion-dollar scheme aimed at lowering workers' compensation insurance premiums, according to newly unsealed court records.
Earlier this year, FBI agents seized computer hard drives and documents related to Aracoma Contracting from the bank's Williamson branch as part of a probe that has resulted in jail sentences for a former BrickStreet Insurance auditor and four coal contract company officials, according to the court filings.
Investigators alleged that they have "probable cause" to believe that the bank and at least one bank manager "conspired with, or otherwise aided and abetted" Aracoma Contracting in structuring cash withdrawals to help cover up the scheme, FBI Special Agent James Lafferty said in a sworn statement filed as part of the government's application for a search warrant for potential evidence from the bank.
Bank officials could not be reached for comment Monday, but have previously said that they were cooperating with investigators and had done nothing wrong. Neither the bank nor any of its employees has been charged.
Agents carried out the search warrant, approved by then-U.S. Magistrate Judge Mary E. Stanley, in late February. Documents about it were originally filed under seal in federal court in Charleston.
Lafferty's affidavit, along with the search warrant and a list of potential evidence obtained by agents, was unsealed Friday, the same day that former BrickStreet auditor Arville Sargent was sentenced by U.S. District Judge John T. Copenhaver.
Sargent was sentenced to 6 years in prison after he reached a deal with prosecutors and admitted to tax evasion and mail fraud, in a scheme in which he accepted an estimated $1 million in bribes in exchange for helping Aracoma Contracting officials avoid higher workers' insurance premiums from BrickStreet. Four officials from Aracoma Contracting and related firms have also been sentenced to prison sentences ranging from 15 months to 30 months.
The investigation, led by Assistant U.S. Attorney Thomas Ryan, has not received nearly as much attention as ongoing criminal probes of the Upper Big Branch Mine Disaster and of political corruption in Mingo County. But statements by prosecutors and recently filed court records show the coal-contractor probe has led federal investigators to additional information about public corruption in the region, to a potentially large gambling ring, and to more cases where coal companies were defrauding their workers' compensation insurers.
In the case, prosecutors alleged that Sargent worked with Aracoma Contracting and three other contracting firms to defraud BrickStreet, West Virginia's largest workers' compensation provider.
The four companies were "employee leasing" services that supplied miners for coal companies, including Alpha Natural Resources and Patriot Coal, under agreements common in West Virginia's coal industry.
Officials from the four contracting firms paid their employees in cash, allowing them to avoid employment taxes and to hide their true payroll, a move that greatly reduced their workers' compensation premiums, records in the case show.
In charges filed against Aracoma Contracting in August, prosecutors said the company generated the cash to bribe Sargent and to pay employees by "structuring" withdrawals at the Bank of Mingo. This kind of "structuring" is when cash transactions are broken down to amounts of less than $10,000 to avoid having banks report the withdrawals to the Internal Revenue Service.
When court documents in the case first mentioned the role of the Bank of Mingo, the bank's chairman of the board, Harry Keith White, said bank officials had done nothing wrong.
"We have been aware of this [investigation] for a period of time and we are fully cooperating with the U.S. Attorney's Office with the investigation," White -- who is majority leader of the state House of Delegates -- said in August. "We do not feel that an individual was involved in any kind of scheme. They were doing best practices and doing what they thought was correct. I think it's probably an interpretation of the procedure."
In his affidavit, though, the FBI's Lafferty alleged that bank officials appeared to be part of the scheme. Lafferty specifically named Darrin McCormick, manager of the bank's Williamson branch -- and the mayor of Williamson -- saying he had probable cause to believe McCormick had aided Aracoma Contracting in the scheme.
McCormick could not be reached for comment Monday. His voicemail greeting says that, "I'll be taking some time off from the bank," and refers any bank business to other bank officials.
Lafferty says, for example, that authorities previously obtained copies of a series of faxes sent to McCormick by Aracoma Contracting in advance of large cash withdrawals, identifying the individuals from the company who would be at the bank to pick up the cash.
"Several of these credit advance requests and denomination sheets were sent as part of one facsimile transmission, clearly demonstrating to the recipient that the entire withdrawal, although spread across several people, was just one transaction for Aracoma," Lafferty said in his affidavit.
Also, Lafferty recounted statements from an Aracoma official who told investigators that McCormick had suggested the company request cash in an amount greater than $10,000 once in a while so that bank examiners would not suspect they were structuring their withdrawals.
Lafferty's affidavit also recounted a statement from longtime Bank of Mingo official Michael Brewer, who told investigators about a meeting bank officials held regarding the federal probe.
According to the affidavit, this meeting took place after a federal grand jury subpoena was issued in March 2012 for bank records pertaining to an account held by someone Lafferty referred to only as "Individual #1." Brewer told investigators that McCormick; White, the bank board chairman; and bank President Randy Brumfield attended the meeting.
"Brewer learned from McCormick and White that Individual #1 knew a federal grand jury subpoena had been given to the [bank] for Individual #1's bank records," Lafferty said in his affidavit. "McCormick and White informed Brewer that the FBI would not find anything on Individual #1."Reach Ken Ward Jr. at email@example.com or 304-348-1702.