A former El Dorado Hills businessman has been arrested on charges of running a multimillion-dollar insurance fraud that victimized a California Indian tribe and a host of employers.

Gregory J. Chmielewski, 43, was arrested Oct. 24 in Arizona on fraud and money-laundering charges, federal prosecutors said. He was being held without bail following his arraignment Wednesday in U.S. District Court in Sacramento.

He pleaded not guilty at the arraignment, said his public defender, David Porter.

According to the indictment, Chmielewski set up a company in Roseville called Independent Management Resources to provide low-cost workers' compensation insurance to construction contractors, roofers "and other high-risk occupations."

Chmielewski partnered with an Indian tribe, the Fort Independence Indian Reservation of Inyo County, to establish a company called Independent Staffing Solutions, or ISS, according to Assistant U.S. Attorney Lee Bickley. The tribe owned ISS but Chmielewski's firm essentially ran it, the indictment said.

After getting clients, he then "began diverting and misappropriating millions of dollars … for his personal use," the U.S. attorney's office alleged.

Chmielewski's firm filed for bankruptcy protection in Nevada in 2008. Court records say his firm owed the tribal-owned company $7 million.

Prosecutors said the employers that bought coverage, as well as the Indian tribe, were victimized by Chmielewski.

"Preying on California employers while profiteering on the reputation of a tribal nation to commit insurance fraud is deplorable," said state Insurance Commissioner Dave Jones in a prepared statement.

Charles Pradt, the tribe's vice chairman, welcomed news of the arrest.

The $7 million "was a big loss, he left us with a lot of bills," Pradt said.

ISS was one of several tribal insurance companies that sprang up in California in 2003, when workers' comp costs were exploding. The companies said they could offer workers' comp and other services much more cheaply than traditional insurance.

The Department of Insurance cracked down on these new companies, saying they weren't licensed to provide coverage.

ISS tried to pass itself off to clients as a tribal-run company, according to the indictment. "ISS employees were instructed, in speaking to callers, to act as if they were located on the tribe's reservation," the indictment said.

If convicted, Chmielewski faces up to 30 years in prison, plus fines, according to federal prosecutors.

© Copyright The Sacramento Bee. All rights reserved.

• Read more articles by Dale Kasler

Order Reprint