Massive disability fraud scheme unravels under congressional magnifying glass

As the government shutdown rages on, Republicans and Democrats traded compliments in a bizarre scene that unfolded Monday in the Senate Committee on Homeland Security and Governmental Affairs.

Lawmakers patted themselves on the back for their hard work in uncovering a scheme between a retired judge and a lawyer to improperly award disability benefits to hundreds of unqualified applicants. Attorney Eric C. Conn of Stanville, Ky., invoked his Fifth Amendment right against self-incrimination during Monday’s hearing, and former Social Security Judge David B. Daugherty didn’t appear, despite a subpoena.

But a two-year investigation produced enough detailed, specific evidence, corroborated by other witness testimony, to piece together a soap opera of lies, stalking, tears, stupidity, and the potential waste of millions in taxpayer dollars.

Monday’s hearing and accompanying report were part of a series of investigations into problems with the Social Security Administration’s (SSA) disability programs, which could face a funding shortfall in less than two years. Daugherty’s massive caseload stood out as earlier committee reports discovered a nationwide problem: Pressure to reduce a years-long backup of applicants placed numbers above thorough evaluation. That atmosphere created a perfect storm in Huntington, W.Va., the congressional magnifying glass revealed. According to SSA employee and whistleblower Sarah Carver, a climate of “overt favoritism” continued for years.

Daugherty often approved 99 percent of his cases. In some years, Conn brought 40 percent of those claims to Daugherty’s court, the report states. Carver and others clearly noted the connection to supervisors as Conn racked up at least $4.5 million in taxpayer-funded attorney fees. But Chief Judge Paul Andrus, head of the Huntington disability office, admittedly did little more than add all-caps phrases to emails—warning those beneath him that “NO ONE” should interfere with case assignments.

Conn also surrounded himself with easy targets to help him make his cases, two employees testified Monday. His firm selected from a stash of prefilled medical forms and had doctors with license or legal problems sign them. One doctor invoked his Fifth Amendment rights Monday, and two others painted themselves as almost unbelievably trusting of Conn—and painfully ignorant of SSA law and procedure.

The Wall Street Journal first raised questions about Daugherty’s longstanding relationship with Conn in 2011, helping tip off Congress, which delved much deeper into the problems. After the Journal published its story, former Conn employees testified that the lawyer ordered them to shred of millions of documents, smash computer hard drives with hammers, and burn the remains.

Andrus even admitted to helping Conn hire a private investigator to stalk Carver at home in an attempt to get her fired, persecution the whistleblower tearfully detailed Monday.

Despite the soap opera, though, it’s just one example that can’t be generalized, and Conn could have had truly deserving clients. Committee members made sure to acknowledge that. Investigators uncovered many bogus decisions, but they don’t know how many of the thousands were truly disabled, despite the fraudulent process.

Nearly 11 million disabled workers, spouses, and children get Social Security disability benefits. That's a 45 percent increase from a decade ago. The average monthly benefit for a disabled worker is $1,130, and if its trust fund runs out in 2015 as many fear, payroll taxes will only cover 80 percent of benefits many hold as a lifeline.

In order to qualify, applicants are supposed to have disabilities that prevent them from working and are expected to last at least a year or result in death. Administrative law judges only get cases after they’ve been denied twice already. Daugherty approved 99 percent of his cases, often citing Conn’s doctors’ contradictory evidence as his only basis.

Despite the details that emerged during the five-hour hearing, the investigation is by no means over. Once the government shutdown ends, another hearing will give SSA officials the opportunity to speak, and could include testimony from Daugherty.

In admonishing Conn and others involved in the scandal, committee Chairman Tom Carper, D-Del., quoted Winston Churchill, noting this was only “the end of the beginning.” And with criminal charges likely, “That’s not going to be good news for some of you,” he said.

The Associated Press contributed to this report.