An administrative judge involved in one of the biggest Social Security frauds in history pleaded guilty Friday, admitting that he helped scam the federal government out of potentially more than half a billion dollars in bogus disability payments.
David B. Daugherty, a former administrative law judge, approved at least 3,149 disability cases filed by a single lawyer in eastern Kentucky. More than 1,700 of those have been deemed fraudulent by government investigators, obligating the government to pay out more than $550 million in lifetime benefits.
Daugherty pleaded guilty to two counts of receiving illegal gratuities. The charge is similar to bribery, though the payoff is made after the fact, not before.
“This admission that a judge in a position of trust took over a half-million dollars in cash from a crooked lawyer is outrageous,” said Rep. Sam Johnson, chairman of the House Ways and Means subcommittee that oversees the program. “This case proves once again that more needs to be done to stop disability fraud across America. I’m committed to working with my colleagues to help protect taxpayer dollars and prevent disability fraud.”
Disability fraud appears to be growing, with some of the biggest scams being detected in recent years. But the one Daugherty was involved in was staggering in its brazenness.
Daugherty would make a point of assigning himself cases filed by Eric C. Conn, a lawyer who dubbed himself “Mr. Social Security” and whose ads promising to win disability benefits for the downtrodden were legendary in eastern Kentucky.
Daugherty instructed Conn on how to write up bogus applications so he could approve them without ever needing to have the applicants appear for an in-person hearing, according to court documents, speeding the process along.
Conn, who pleaded guilty earlier this year, admitted he submitted false IQ tests and had the doctors rubber stamp bogus medical diagnoses for many of his clients.
Federal prosecutors said rejections of bad applications, if they ever happened, were rare.
Conn collected more than $7 million in payments for filing bogus applications while the scam was operating from 2004 to 2011, and paid Daugherty $609,000 during that time.
They would meet in the parking lot of a restaurant or gas station so Conn could hand over the cash, which was carefully structured to keep just under the level that might draw attention from financial regulators, according to court documents.
At a rate of nearly $100,000, Daugherty was adding a tremendous supplement to his annual pay as an administrative law judge. In 2004 they averaged $137,000 a year, rising to $155,000 in 2011, according to FederalPay.org.
Conn, in his case, had said Daugherty was the orchestrator, with the administrative law judge first approaching the lawyer and making clear he had an extraordinary amount of power over Conn’s cases.
Conn’s plea agreement said Daugherty suggested an initial $5,000 payment, which he said was to help a relative in rehab. The two men later worked out an arrangement to pay for each approved application.
Social Security officials testified to Mr. Johnson’s subcommittee last month that they can’t give even a ballpark estimate for how much fraud exists in the $150 billion-a-year disability program.
The program told The Washington Times that it has gone back and disapproved more than half of the applications filed — but officials would not say whether they’ve stopped the payments, nor whether they have been able to claw any of the mis-paied money back.
Sean Brune, assistant deputy commissioner at the Social Security Administration’s budget office, also said during last month’s hearing that his agency doesn’t have the power to strip Daugherty of his government pension.
“We do not have under current statute authority to revoke his pension,” he said.
Still, Mr. Brune said that the former judge is convicted the court can order restitution, meaning his pension could be garnished to cover those costs.
Rep. Tom Rice, a South Carolina Republican who said the former judge is now living in his district in Myrtle Beach, asked if Congress should pass a law to cancel pensions of Social Security employees who abet fraud.
“We’d be happy to talk to you about that,” Mr. Brune said.
Daugherty will be sentenced Aug. 25.