This article was published by The McAlvany Intelligence Advisor on Wednesday, April 12, 2017:
Mug shot of Charles Ponzi (March 3, 1882 – January 18, 1949).
The Social Security Administration’s Office of the Inspector General reported in 2015 that nearly half of the nine million people receiving SSI (Supplemental Security Insurance) benefits were being overpaid, running up $17 billion in excess disbursements over the previous 10 years.
Such overpayments were just the beginning of the story. On Monday, a former Kentucky attorney pleaded guilty to filing more than 1,700 false SSI disability claims in a scheme that netted him millions in fees that he lavishly dished out to his co-conspirators: a Social Security administrative law judge and a psychologist, among others. In his plea bargain, former attorney Eric Conn fingered Judge David Daugherty (whom he said birthed the scheme originally) and Dr. Alfred Adkins.
The fees that Conn collected ran into the millions, while Social Security dished out some $550 million in benefits to beneficiaries who willingly participated, some of them saying later that they didn’t really know what was happening but were happy to pay Conn $200 in cash under the table for his “advice” and assurance that their claims would be approved.
The setup was simple: Conn would advertise himself and his law firm as specialists in handling disability claims. When an applicant showed up, Conn would help him complete the SSDI (Social Security Disability Insurance) application for benefits. This would include drafting fictitious medical reports and a phony IQ test supporting the claim.
The fake documents would then be sent to Adkins, who, as one of several other doctors involved in the scam, would sign off on them. These documents would be returned to Conn, who would then file the SSDI application along with the faked medical records and phony IQ test with the Social Security Administration. Conn would then tell Daugherty to watch for it and the judge would pull the application and approve it.
The fraud was first exposed back in 2011 by the Wall Street Journal, but nothing came of it except for Conn advising his coterie to keep their heads down. The two whistleblowers who uncovered the scheme, Sarah Carver and Jennifer Griffith, complained that their charges were at first ignored by their supervisors in the Social Security office where they worked. As they persisted, those supervisors then engaged in a pattern of harassment, with one of them even hiring a private investigator to tail Carver and try to videotape her in incriminating acts.
Former Senator Tom Coburn (R-Okla.) had no better luck when he led an investigation into the conspiracy in 2013: “We sent all this evidence we had accumulated to the U.S. attorneys in West Virginia and in that part of Kentucky. It was a slam-dunk case. I mean, we had witnesses, we had bank records, we had the medical files, we had everything. But, for whatever reason, nobody wanted to move on it.”
If this were a single example – a one-off scam – it would hardly rate a headline. Unfortunately, SSI disability is so rampant and out of control that organizations have been formed just to keep track of them. Take, for example, Our Generation, a Virginia non-profit founded in 2009, which published “10 Outrageous Examples of Social Security Disability Fraud” in November 2013. They gave their award for the “worst person in the world” to James William Smith, who held himself out as suffering from early-onset dementia:
The Minneapolis StarTribune reported that Smith “beat the drum from Minnesota to Washington, D.C., raising money and awareness about the devastating toll that Alzheimer’s disease takes on some five million Americans and their loved ones.” He frequently lobbied the Minnesota legislature about Alzheimer’s related issues, spoke at conferences and candlelight vigils sponsored by the Alzheimer’s Association, and led a support group for individuals afflicted with the heartbreaking disease.
Smith’s devotion to the cause even led a local television station to name him one of its “Health Care Heroes.”
The term “hero” might be appropriate if Smith actually had dementia. But he doesn’t. He simply faked the illness for sympathy – and for the $6,773 a month he received in disability payments.
But Smith was a piker compared to Samuel Torres Crespo, who, along with 74 others, bilked Social Security out of an estimated $6 million:
A Social Security worker and a gaggle of doctors in Puerto Rico alleged to create such a large and sophisticated system for defrauding the federal government of Social Security disability benefits. From the size of the fraud, it almost seems like the entire island was in on the scam.
Samuel Torres Crespo, a Social Security employee, was the ringleader of the alleged scandal. He allegedly created fraudulent Social Security disability insurance applications for claimants so it would appear that the applicants were plagued with medical disabilities that left them unable to work. The false applications compelled the Social Security Administration to award the claimant retroactive and future disability benefit payments.
This gaggle of thieves took the scam to another level that neither Smith nor Conn dreamed of: creating new diseases so devastating in their impact on the lives of the applicants that they would qualify for the maximum benefits. They invented diagnoses to support the claims, naming them “disabling psychiatric conditions.”
The real fraud being perpetrated isn’t limited to these miscreants and their enablers inside Social Security; it’s the entire system itself that was fraudulent from the beginning. Created during progressive President Franklin Roosevelt’s administration in 1935, it even claimed it was “insurance,” borrowing that industry’s credibility (many banks failed during the Great Depression but relatively few insurance companies did) for its title: the Federal Insurance Contributions Act (FICA).
It was a Ponzi scheme, as Ida Fuller learned to her delight. As the very first “beneficiary,” Fuller had “contributed” just $44 into the system before retiring. By the time she died, she had received $20,993 in benefits, 477 times her original investment. Other beneficiaries who came later weren’t nearly so well rewarded. Michael Tanner, a senior fellow at the Cato Institute, provided the history behind the scam:
The original Ponzi scheme was the brainchild of Charles Ponzi. Starting in 1916, the poor but enterprising Italian immigrant convinced people to allow him to invest their money. However, Ponzi never actually made any investments. He simply took the money he was given by later investors and gave it to his early investors, providing those early investors with a handsome profit. He then used these satisfied early investors as advertisements to get more investors. Unfortunately, in order to keep paying previous investors, Ponzi had to continue finding more and more new investors. Eventually, he couldn’t expand the number of new investors fast enough, and the scheme collapsed. Ponzi was convicted of fraud and sent to prison.
But Ponzi’s scheme at least was voluntary and the people he suckered lost their own money. Not so with Social Security:
Social Security, on the other hand, forces people to invest in it through a mandatory payroll tax. A small portion of that money is used to buy special-issue Treasury bonds that the government will eventually have to repay, but the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits.
Once everyone in the population is forced to contribute, the only way to stave off the system’s collapse is to increase those “contributions.” Accordingly, since its inception Social Security taxes have been raised 40 times. And still the system is scheduled to run out of money in a few years, leaving behind unfunded liabilities approaching $200 trillion.
About the only good that can be gleaned from the frauds being perpetrated on the Social Security Disability system is that they are hastening the end of it.
Sources:
Our Generation: 10 Outrageous Examples of Social Security Disability Fraud
The Washington Times: Ringleader pleads guilty in huge Social Security fraud scheme; disability beneficiaries in limbo
The Motley Fool: Social Security Fraud: 3 Ways the Government Gets Bilked Out of Billions
Lexington Herald-Leader: Social Security lawyer Conn charged with fraud, money laundering
National Review: Yes, It Is a Ponzi Scheme
Background on Senator Tom Coburn
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