A boss exploited Key West workers for millions, a jury ruled. He was just sentenced

In tourism-dependent Key West, workers have become hard to find.

For starters, blame an ever-worsening housing crisis — where just a room rents for $1,400 a month — on a small island, packed with hotels, restaurants and bars. Key West is also a remote spot, 120 miles from the mainland.

Mykhaylo Chugay and his partners took advantage of that employee shortage in the hospitality and service industry and raked in tens of millions of dollars between August 2007 and July 2021, by running a collection of crooked staffing companies, according to the U.S. Attorney’s Office.

The group swindled the IRS out of more than $25 million in income and Social Security and Medicare taxes that would have been collected and paid in connection with the wages.

Chugay, who was convicted by a federal jury in Key West, will spend more than 24 years in prison for tax, immigration and money-laundering crimes.

“By issuing paychecks to these workers that did not withhold any taxes and by failing to report the wages to the IRS, Chugay concealed the employment of these workers and enabled a system of fraud on the island,” wrote Jessica Kraft, a trial attorney for the U.S. Department of Justice Tax Division.

Prosecutors asked a judge to make an example of Chugay, 37, who earned a master’s degree in his native Ukraine before coming to America in 2007.

Although Chugay has no prior criminal history, he chose a “career of fraud” in Florida that lasted for 13 years, Kraft wrote.

The jury convicted Chugay of three counts: money laundering conspiracy, conspiracy to defraud the United States and conspiracy to harbor aliens and induce them to remain.

On Aug. 26 in Key West federal court, U.S. District Court Judge Jose E. Martinez gave Chugay more than 24 years, or 292 months — the increment of time used in federal court. The judge added three years of supervised release when Chugay finishes his time.

Martinez sentenced Chugay on the lowest end of the sentencing guidelines, 292 to 365 months. He shaved a bit off the request from prosecutors, who wanted 28 years, saying a stiff sentence would warn others tempted to make a quick profit by following in Chugay’s footsteps.

Twenty of the 24 years are for the money laundering conviction alone.

Chugay and others owned and ran labor-staffing companies in South Florida for 13 years, including General Labor Solutions, Liberty Specialty Service, Paradise Choice, Paradise Choice Cleaning, Tropical City Services, and Tropical City Group.

Through the companies. Chugay provided employees who were not authorized to work in the U.S. to hotels, bars and restaurants in Key West and other places. The companies paid the hotel and bar workers an hourly wage. Chugay’s companies charged the hotels, bars and restaurants a fee — typically $1 to $1.50 for each hour worked. But at times it went as high as $3 or $3.50.

By issuing paychecks to these workers that did not withhold any taxes and by failing to report the wages to the IRS, Chugay concealed the employment of these workers and enabled a system of fraud on the island.

Too harsh

The range of prison time prosecutors recommended — about 24 to 30 years — was harsh, according to Chugay’s defense attorney, Philip L. Reizenstein, of Miami. He said the average sentence for tax loss cases is nine years.

A prison term substantially lower than the sentencing guidelines would serve to punish and deter, plus allow for rehabilitation, Reizenstein told the court.

“This is a tax evasion case, and while serious, a [24-year sentence] is greater than ... the guideline sentence for a murder case with a criminal history,” Reizenstein wrote in a sentencing memorandum.

At trial, it was pointed out that Chugay did not lead a “lavish lifestyle,” the defense attorney added. And neither did the workers Chugay put to work in Key West.

In one conversation about the pay rate for housekeepers at a Key West hotel, Chugay suggested that $11 an hour “take home is OK,” according to a trial exhibit.

“That means we pay you $12, sorry just can’t do that,” the person replied. “Even legal employees make $11 and pay taxes.”

A jury convicted Chugay in June with the help from one government witness who made a deal with prosecutors.

After Chugay’s trial, Volodymyr Ogorodnychuk was sentenced to four years in prison for his part in the scheme that he helped run from 2016 to 2020.

Ogorodnychuk pleaded guilty to one count of conspiracy to defraud the United States, saying he and his partners defrauded the IRS out of more than $3.5 million.

On Monday, Chugay was one of the 1,054 inmates at the Miami Federal Detention Center.