The operator of a California professional employer organization was sentenced to three years and five months in prison for mail fraud in connection with the misappropriation of millions of dollars in workers’ compensation funds, the US Department of Justice reported.

Gregory Chmielewski pleaded guilty in January 2016 and faced a maximum statutory penalty of 20 years in prison.

According to the US Attorney’s Office, Chmielewski defrauded his clients and their employees between September 2003 and September 2007 in a workers’ compensation coverage scheme. During this time period, Chmielewski set up Independent Management Resources — a PEO that later operating under the name Management Resources Group (MRG) — which he operated from Healdsburg, Calif., until relocating to Roseville, Calif., in 2006.

He solicited an Indian tribe to partner with him to provide employee insurance coverage and other employee services at a reduced cost. Chmielewski marketed the insurance coverage to California employers as a low-cost alternative to workers’ compensation coverage, and claimed that it was modeled after the California workers’ compensation statutes except that claims were made and adjudicated under the tribe’s sovereign system, according to the Department of Justice.

Chmielewski diverted and misappropriated millions of dollars from Management Resources Group accounts for his personal use and caused more than $7.3 million to be paid out of Management Resources Group’s accounts to other unrelated companies that he controlled, according to the Department of Justice. The company eventually experienced serious cash flow problems and ceased operations, leaving approximately 117 injured workers with approximately $1.8 million in unpaid claims.

“Many of the victims harmed in this scheme were companies in California’s construction industry, whose employees worked as roofers, general laborers, and other jobs where injuries can occur,” said Acting US Attorney Phillip Talbert. “The defendant’s actions left many injured workers without the benefits they expected and deserved. Our office is committed to prosecuting large-scale schemes such as this that hurt employers and workers alike.”

This case was investigated by the United States Postal Inspection Service; the Internal Revenue Service, Criminal Investigation; and the California Department of Insurance. Assistant US Attorneys Heiko Coppola and André Espinosa prosecuted the case.