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CornerStone Staffing Solutions Inc. filed a lawsuit in federal court citing the Racketeer Influenced and Corrupt Organizations (RICO) Act against former manager Larry Thaxter James and others. James is also the nephew of CornerStone's owner.
The lawsuit claims breach of fiduciary duty, fraud, misappropriation of trade secrets, intentional interference with contractual relations and other allegations.
“Larry James initially worked hard to establish our band and our reputation for excellent service,” said Mary Anderson, owner of Cornerstone. “However, in January of the year, we discovered that he used his position at Cornerstone to implement several schemed designed to siphon off Cornerstone’s business for himself.”
The lawsuit says James used parasite shell companies, created fake clients and engaged in insurance premium manipulation.
James allegedly formed the parasite shell companies in his own name at a CornerStone branch, according to the lawsuit. The shell companies had the same address as the CornerStone branch with CornerStone paying rent. Over time, CornerStone’s customers were transferred over to the shell company.
“Then James would contact CornerStone’s ownership to advise that he needed to close the branch office because it was no longer profitable or otherwise had lost its client base,” the lawsuit said. “In fact, James closed the branch office because his parasite shell company had killed CornerStone’s branch office by taking all of its customers and James was collecting profits for himself.”
The defendant also allegedly assigned CornerStone contingent workers to fake clients, who in turn sent the workers to the defendant’s own clients, according to the suit. CornerStone paid insurance and overhead as well as fronted the wages. The defendant’s actual clients then received reduced rates with short payment terms of seven to 30 days. CornerStone’s payment terms with fake clients were at least 90 days. The defendant used the disparity in costs and delayed payment terms to profit at CornerStone’s expense, the lawsuit claims.
The suit also alleges that James artificially inflated CornerStone’s workers’ compensation premiums to reduce the company’s competitiveness and allow his shell companies to take CornerStone’s clients.
CornerStone reported it found the schemes in January of this year.