Two clothing manufacturing executives were arraigned Friday in a workers’ compensation fraud case where losses are estimated to be nearly $12.5 million, the Los Angeles County District Attorney’s Office announced.

Sung Hyun Kim, 57, and Caroline Sung Choi, 59, made their initial court appearance in Department 30 of the Foltz Criminal Justice Center. Co-defendant Jae Young Kim, 72, pleaded not guilty last Thursday to nine counts of workers’ compensation fraud.

Sung Hyun Kim also is charged with nine counts of workers’ compensation fraud. Sung Hyun Kim and Choi, who are sisters, each face nine counts of failure to pay state payroll taxes.

Sung Hyun Kim and Choi are corporate officers for Meriko, Inc., and its successor, SF Apparel, both garment manufacturing companies that make high-end brand jeans such as True Religion.

Deputy district attorney Theresa Mitchell of the Healthcare Fraud Division is prosecuting the case.

Beginning as early as 2006, Sung Hyun Kim and Jae Young Kim, an accountant, are accused of underreporting $78 million in payroll to more than a half-dozen insurance carriers, prosecutors said.

By not reporting accurate figures, which can also be accomplished by paying employees in cash, companies avoid paying mandatory employer contributions for unemployment and disability. Companies pay significantly reduced workers’ compensation premiums when they underreport the number of employees and the amounts actually paid, prosecutors added.

In this case, the estimated losses are roughly $11.7 million. Losses to the state’s Employment Development Department for unpaid employer contributions are estimated at more than $700,000.

If convicted as charged, Sung Hyun Kim faces up to 28 years in state prison; Jae Young Kim faces a potential 22-year prison term; and Choi could spend 15 years, four months behind bars.