Anatomy of a shadowy national staffing conglomerate

Three days of testimony in the tax evasion trial of Greensboro businessman Greg Harrison have sketched a picture of a shadowy national staffing network operating at the height of what passed for a boom in the last decade. (Previous reporting: 1 and 2)

Involved in brokering the labor of people who often earned no more than minimum wage, Harrison’s staffing agencies provided a degree of removal for client companies seeking to minimize their commitment to their workforce. Through almost continual restructuring, the companies presented a kaleidoscopic front that threw off revenue officers with the Internal Revenue Service for years, while also lowering the business’ public profile to near invisibility while employing thousands of workers.

“In a grand business sense, you think of [temporary employees] as inventory,” testified Robert Patterson, who was formerly employed as a controller for Harrison.

The labor of temporary employees financed opulent lifestyles by those in control of the staffing companies, who — at least from the outside — appeared to have performed little work of their own.

At the top of the pyramid was Greg Harrison, who, former employees testified, was often not involved in day-to-day operations even while maintaining responsibility for payroll and controlling the movement of funds. Robert Patterson and Toni Johnson, who served as controllers for Harrison’s staffing network in the period of late 2004 through 2006, testified that McDaniel and Griffin ran the companies on a day-to-day basis. At the company headquarters in Greensboro, salaried permanent employees handled back-office functions and raked in profits from client companies.

Harrison's staffing enterprises were far from iconic, and branding was not part of his strategy. If anything, it was the opposite. From the late 1990s when Harrison took the small staffing company inherited from his mother and went on a national buying binge, the empire operated under two corporations, but did business under a completely different trade name, USA Staffing.

In 2004, the conglomerate restructured without interrupting operations. US Staff Holding Corp. was one of the new companies. Under its umbrella, state subsidiaries were incorporated in at least eight states. The names morphed again in 2005 and 2006, when ownership changed hands, and yet again in 2008 when Harrison bought back the assets. Despite having once employed thousands of employees across the country and billed clients millions of dollars, even acquaintances sometimes have difficulty naming the staffing companies. The dizzying proliferation and evolution of corporate names seems to promote confusion.

Ray McDaniel, who served as chief operating officer for Harrison’s staffing companies, testified on Monday that when staffing companies bill their clients, they typically mark up total wages paid to temporary workers by 28 to 38 percent.

“The markup is the profit and the payroll tax burden associated with it,” McDaniel said.

In the case of Harrison’s companies, the government alleges, the payroll taxes were often not paid and instead the proceeds were diverted into personal uses such as luxury homes, a yacht and movie production.

As early as December 2004, Harrison’s staffing companies provided workers to a Fresh Del Monte Produce packing plant in Portland, Ore., according to a weekly revenue report introduced into evidence by the government on Monday. The account was significant enough to receive its own line item under a list of branch offices. Fresh Del Monte Produce accounted for such a significant portion of the staffing company’s Portland business that it maintained an office on the premises of the packing plant. In the course of acquiring the assets of Harrison’s staffing businesses, McDaniel and Griffin would take over the Del Monte contract in 2006.

“In the case of Del Monte, we singled those out because they had such large volume,” McDaniel testified on Monday.

McDaniel and Griffin formed StaffCo Management Group in 2005. By November 2006, they had acquired the assets of Harrison’s staffing businesses. Harrison has confirmed to YES! Weekly that he served as a creditor to the company and as a member of its board.

“Mr. Harrison didn’t want to be in the staffing business anymore, didn’t want to have anything to do with it,” public defender Tom Cochran argued in his opening statement. “He wanted to be a lender.”

(Background on Harrison’s investments in nightclubs and movies)

Documents introduced into evidence on Tuesday establish that Harrison loaned McDaniel and Griffin $1.5 million over a six-month period that coincided with the launch of StaffCo. McDaniel testified that the two also obtained a $7.5 million loan from a New York company called BHC, adding that $3.7 million was handed over to Harrison to pay for the asset purchase of the staffing business.

A 2007 Triad Business Journal article by Michelle Cater Rash quotes staffing firm consultant Bruce Steinberg as saying that StaffCo was expected to be one of the largest privately held staffing companies in the country.

StaffCo operated under the trade name American Staffing Resources, which was the name of a Pennsylvania-based staffing company it had acquired.

Immigration and Customs Enforcement raided Fresh Del Monte Produce and American Staffing Resources in Portland, Ore. in June 2007. An affidavit filed by ICE Special Agent Maximillian L. Trimm citing an interview with Jose Ortega-Milian, a former maintenance manager and supervisor, sheds some light on labor conditions at Del Monte at the time the staffing companies controlled first by Harrison and then by McDaniel and Griffin handled payroll and hiring.

Ortega stated that there were between 25-30 juveniles employed at FDMP, and that anyone with common sense could tell they were minors. He also stated that the FDMP managers knew that they were minors by their appearance.

Ortega stated that during his time at FDMP, he heard various complaints from the other workers that were not being paid for the hours they worked. He stated that FDMP avoided paying overtime, and wouldn’t allow anyone to be paid for more than 40 hours in a work week, although they were required to work well over 40 hours in a given week. He further stated that they were reluctant to complain, because of their illegal immigration status.

Ortega stated that [there] were several factors that contributed to unsafe conditions at FDMP that included: forklift operators were not certified or trained properly; the electrical components were unsafe and exposed; unqualified people were running various dangerous machinery with no training and little instruction. Ortega also stated that during the course of a typical work shift, there was constant yelling by the supervisors to the production staff that included threats of being fired if they did not work as hard as expected….

Ortega stated that he estimated that between 80%-90% of the production workers were undocumented illegal aliens from countries other than the United States.

Ortega estimated that the staff was split between 50% Mexican nationals and 50% Guatemalan nationals, and of those workers, approximately 75% were female.

During several conversations with Zarazua, Freddy LNU and Sanchez during Ortega’s period of employment at FDMP, when the hypothetical scenario of immigration agents showing up at FDMP to execute an immigration raid was posed, everyone agreed that American Staffing Resources would “take the hit” due to the fact that they did the actual hiring, and that FDMP managers could just claim ignorance of their knowledge of the production workers’ illegal status. Ortega stated that he was present during these conversations and that they were sporadic and occurred several times while he was working at the FDMP facility. Ortega stated that all of the managers were aware that almost none of the employees spoke, and were reluctant to report pay discrepancy issues to management, because it was visually obvious, and often talked about.

Upwards of 100 of StaffCo’s employees were detained. Fresh Del Monte Produce withdrew its business, accounting for $30 million in annual revenue to the staffing company. National news about the raid had an adverse impact on the company’s reputation, McDaniel testified.

“That was the beginning of the end of StaffCo,” McDaniel testified. “We never recovered.”

Two of StaffCo’s lenders declared default, McDaniel said. Harrison ended up buying back 70 percent of the company’s assets. McDaniel and Griffin broke up the remaining 30 percent among themselves, creating smaller staffing companies in Tennessee and Georgia.

Harrison incorporated Compensation Management Inc. and Compensation Management Inc. of Iowa, and later, IHT of SC to operate the staffing businesses acquired in the wake of StaffCo’s dissolution. Julie Akers, who was promoted to controller at StaffCo in the fall of 2006, followed the transfer of assets, helping wind down StaffCo’s business and then working for Harrison at Compensation Management Inc. and the other companies.

Akers testified that IHT of SC was formed in the spring of 2009 because two prospective clients were considering bringing new accounts with significant volume to the staffing companies, but wanted to avoid association with American Staffing Resources and its successor because of the negative publicity surrounding the 2007 immigration raid in Oregon.

Prosecutor Frank Chut asked Akers about the similarity between the name IHT of SC and the company owned by Billie Baggett, Harrison’s mother. That company is called Innovative Hiring Technologies and is located in South Carolina.

“It was our understanding that eventually she was going to retire, and the two companies could be rolled together,” Akers testified.

Harrison is accused by the government of lying to an IRS revenue officer after being presented with a $756,988 tax bill by telling her that he had sold the business in August 2002 and had no payroll after that. Harrison allegedly provided Revenue Officer Crystal Peoples with the tax identification number for a company called IHT Inc.

The government’s trial brief details the alleged attempt to throw off the IRS:

RO Peoples examined electronic records for IHT Inc. and determined that it had filed payroll tax returns and paid taxes for the period at issue. After some further attempts to resolve the confused situation, the RO closed her case on defendant Harrison. In fact, the 57-1024567 tax identification number actually belonged to a staffing company called IHT Grand Strand operated in South Carolina by Billie Baggett, defendant Harrison’s mother.

Akers testified on Wednesday that Baggett had no involvement with Compensation Management Inc., Compensation Management Inc. of Iowa or IHT of SC, the three companies operated by Harrison in 2008 and 2009. Baggett is also expected to testify as a government witness.

Akers testified that the staffing companies after Harrison bought back the business operated first at an address on Muirs Chapel Road in Greensboro, then at an on South Swing Road, and finally at a third location in High Point. Akers said Harrison did not maintain an office at the High Point location and was not involved in the day-to-day operations of the business. Yet Harrison controlled funding to the companies, and Akers said she would have to call him to get him to release funds to make payroll.

Annual reports filed with the NC Secretary of State’s office for Compensation Management Inc. list Michael Brooks as the company’s president. Virginia Linke, who worked as payroll manager for StaffCo and then for Compensation Management Inc. testified on Wednesday that Brooks had no involvement with the company despite his title.

Describing Harrison’s role, Linke said, “He basically controlled the funds.”

The trial is expected to last two weeks. Among 34 potential witnesses the government has said it is considering calling to the stand is Joey Medaloni, a former Greensboro nightclub owner who has been convicted of loan fraud. Originally set for September, Medaloni’s sentence has been postponed to Feb. 12, 2012.

Another potential witness is Phil Smoot, a local filmmaker who served as unit production manager for National Lampoon’s Pucked, a 2006 movie financed in part by Harrison and that starred Jon Bon Jovi.

Harrison’s former business partner, Mark Griffin, might also testify, but US Attorney Ripley Rand has written in a letter that “Griffin suffers from stage four brain cancer and is undergoing debilitating treatment.”

Harrison has given notice that he might take the stand himself. Throughout the trial, the defendant has dressed impeccably, maintained good posture, taking notes, conferring frequently with his lawyer and listening closely to testimony. On Wednesday, after he passed through the gate from the gallery to the court, he clasped the two panels between his forefinger and thumb, taking care to align them perfectly, in contrast to prosecutors and other court personnel who left them ajar.

A motion filed by Rand attempting to limit the scope of the defendant’s questions to government witnesses provides a different picture of Greg Harrison:

During the Rule 15 deposition ordered by the court, the defendant conducted extensive improper cross-examination of the witness about irrelevant personal matters. Over the government’s repeated objections, the defendant tried to make the witness admit to supposedly improper relationships with various women, and questioned him at length about photographs of himself and others taken at nightclubs featuring nude female dancing.

By his determinedly salacious line of questioning, the defendant forced a witness, whose direct testimony dealt with his business dealings with the defendant, to confront irrelevant sexual innuendo in the form of cross-examination. Among other things, the defendant presented the witness with purported exhibits of e-mails between himself and various women and questioned the witness on the nature of his relationships with them. The defendant also presented the witness with photographs of the witness and others with “showgirls,” and demanded detail of the evenings the witness spent at various nightclubs. When pressed to justify such lines of questioning, the defendant claimed purpose of “impeachment.”

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