A ringleader in one of the biggest Social Security disability fraud cases in U.S. history has pleaded guilty to filing more than 1,700 bogus applications, bilking the government out of potentially a half-billion dollars.
But the administration is struggling to figure out how to handle the applicants, many of whom say that even though their applications were falsified, their cases are real and they shouldn’t be punished for having been ensnared by the massive fraud.
Eric C. Conn, a prominent lawyer in eastern Kentucky, signed a guilty plea late last month acknowledging the scam, in which he recruited and filed at least 1,748 fraudulent applications, complete with fake IQ tests or medical exams. He had a team of doctors and psychologists sign off on them, then had a Social Security judge rubber-stamp them.
All told, his scam left the government on the hook for more than $550 million in lifetime benefits, with more than $46 million doled out as of October, Conn admitted in his plea deal.
Cases are pending against Administrative Law Judge David Black Daugherty, who rubber-stamped the applications, and against Alfred Bradley Adkins, a psychologist who made up mental health evaluations to support hundreds of the bogus applications.
But the criminal cases have ensnared Conn’s clients, most of whom say they have valid claims of disability even if the fraud ring cheated on their applications.
Social Security officials said they have sent 1,456 of the cases through another Social Security judge and about 55 percent of them have been deemed undeserving. Another 45 percent have been upheld either in full or in part.
Social Security wouldn’t say whether any of those rejected cases have been cut off nor whether it has been able to claw back any of the tens of millions of dollars paid out to people whom the agency has deemed unworthy of benefits.
“Fraud is taking away benefits for legitimately disabled,” said former Sen. Tom Coburn, an Oklahoma Republican who led an exhaustive Senate investigation in 2013 that helped expose the unprecedented scope of the scam.
After the fraud was first confirmed, Social Security moved quickly to send out 900 notices to people whose applications were handled by Conn. The notices said their benefits would expire in 10 days.
Fear ran through the West Virginia and Kentucky communities Conn had preyed upon. Ned Pillersdorf, a Kentucky lawyer, said at least three suicides are directly linked to Social Security’s suspension of benefits and as many as six could be linked.
After the first couple of suicides, Rep. Harold Rogers, a Republican who represents eastern Kentucky, stepped in. At the time, Mr. Rogers was the powerful chairman of the House Appropriations Committee, and he persuaded Social Security to continue paying the benefits.
Mr. Rogers said Conn’s plea agreement shows that the justice system is working. He said the real victims in the case were honest disabled residents whose cases got snared in the scheme.
“Conn purposefully took advantage of the most vulnerable among us and stole millions of taxpayer dollars,” the congressman said. He said now that Conn has admitted to the scheme, Social Security should speed up the review process to make sure those who qualify for disability benefits get their checks without disruption.
The situation has been devastating for Floyd County, where Conn had his law offices, and for surrounding counties that rank among the poorest in the country.
“This is the worst two years of my life,” Mr. Pillersdorf said. “It’s such a dark cloud over this county. You’ve got 800 local people who’ve lost their benefits walking around here.”
He recruited lawyers from across the country to defend the beneficiaries and said the response was overwhelming.
Mr. Pillersdorf said part of the problem is that the government has sealed the case files, meaning those who think they have valid disability cases can’t even get access to their own information.
At least one federal judge, Amul R. Thapar, has agreed with them.
In a vigorous opinion, Judge Thapar said al Qaeda terrorist suspects are at least allowed to challenge the government’s decisions. But in the case of the Social Security applicants, the government violated their due process by deciding that all of the applications submitted by Conn were bogus.
Mr. Pillersdorf said the people Conn defrauded weren’t intending to be part of his scam.
“There’s been zero — and I mean zero — evidence that any Conn client was involved,” he said.
The details of the scheme are stunning and expose the extent of the effort to run the operation. They also could give investigators leads on how to spot other fraud schemes.
Conn dubbed himself “Mr. Social Security,” was known for flamboyant commercials and even had a crew of “Conn Hotties” — young women he dispatched to community events in skin-tight T-shirts that advertised his law firm and its phone number, 1-800-232-HURT.
Filing disability cases can be lucrative. Lawyers are able to collect 25 percent of back pay on benefits already due, up to a maximum of $6,000. Conn earned $5.8 million from his bogus cases.
In the plea deal, Conn pinned blame for orchestrating the scheme on the Social Security judge, Mr. Daugherty.
Conn said the judge first approached him to shake him down for $5,000 in cash to cover addiction rehabilitation treatments for the judge’s niece. The judge pointedly told Conn that he had a lot of power over disability cases that came through the local office.
After a second shakedown a month later, to cover yet another rehabilitation treatment, Conn said he figured it was going to become a monthly problem, so they worked out an arrangement under which Mr. Daugherty would be paid $400 for every application he approved from Conn.
Conn said Mr. Daugherty even began grabbing cases that were supposed to go to other judges, approving the applications without even holding a hearing.
Mr. Daugherty made as much as $14,000 a month from the operation, paid in smaller installments after Mr. Daugherty warned Mr. Conn about Treasury Department rules that tracked payments larger than $10,000.
Since Mr. Daugherty wasn’t even holding hearings, Conn had to bolster the case record, so he created a stable of doctors and psychologists to fabricate IQ tests and medical evaluations that were so extreme that they qualified for disability on their face.
The Wall Street Journal exposed the fraud in a 2011 article that noted Mr. Daugherty had a big workload and an astonishingly high approval rate for the cases he took. One of the employees in the Social Security office had blown the whistle.
Conn said Mr. Daugherty begged for them to “keep our mouths shut.”
“Don’t get scared and run off to the feds,” Mr. Daugherty said, according to court documents.
Conn began to search out and destroy records of the fraud and even had one of his law firm employees falsify a video to try to get the whistleblower fired by discrediting her accusations against the scam.
Conn pleaded guilty last month to fraud and bribery charges. Last week, Judge Thapar ruled that Conn owes $12 million in damages and $19 million in penalties. He also owes the government $5.8 million to cover the fees he earned for submitting the more than 1,700 bogus cases.
Some of the penalty money would go to two former Social Security employees who blew the whistle on the fraud.