106 defendants indicted in Social Security disability fraud costing federal taxpayers hundreds of millions

NEW YORK – Following an extensive investigation by federal, state and local law enforcement agencies – including U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) – the Manhattan District Attorney’s Office indicted 106 defendants for massive fraud against the federal Social Security Disability Insurance Benefits (SDDI) program that resulted in the loss of hundreds of millions of dollars from federal taxpayers.

The four principal defendants, Raymond Lavallee, 83, Thomas Hale, 89, Joseph Esposito, 64, and John Minerva, 61, allegedly directed hundreds of SDDI applicants, including many retirees of the New York Police and Fire Departments to lie about their psychiatric conditions in order to obtain benefits to which they were not entitled. They are charged with grand larceny in the first and second degrees and attempted grand larceny in the second degree. The remaining 102 defendants, all SSDI recipients, are charged with grand larceny in the second degree and attempted grand larceny in the second degree.

"For years, federal taxpayers have unwittingly financed the lifestyles of the defendants charged today," said Manhattan District Attorney Cyrus Vance. "The Social Security Disability safety net exists to help those who are unable to help themselves. Many participants cynically manufactured claims of mental illness as a result of 9/11, dishonoring the first responders who did serve their City at the expense of their own health and safety. This alleged scam further depleted the already limited resources available for battling the real and complex conditions of post-traumatic stress syndrome and depression. I commend the excellent work of the federal agents from the Social Security Inspector General’s office, who worked with Assistant District Attorneys and detective investigators in my office, as well as seasoned detectives from the New York Police Department’s Internal Affairs Bureau, to crack this decades-long scam."

"The crimes alleged in this indictment outline a highly organized, far-reaching criminal enterprise that targeted the SSDI program," said Edward J. Ryan, special agent in charge of the Social Security Administration’s Office of Inspector General. "These individuals allegedly relied on lies, deceit and under the table payments while they bilked the Social Security trust funds of tens of millions of dollars and, in many instances, exploited the tragic events of 9/11, for their own gain. This exploitation, combined with the fact that many of those indicted formerly held positions of public trust, make these crimes all the more egregious, and the Office of the Inspector General is gratified to see them brought to justice. If you have information relating to this investigation or other similar schemes, I encourage you to contact us at a special hotline that has been set up at (877) 471-6012 or you can e-mail us at oig.ssa.gov/report."

"Many of the individuals arrested today are alleged to have crafted an insidious scheme to profit off the tragedy of the worst terrorist attack in our nation’s history, one that affected all New Yorkers so very personally," said James T. Hayes Jr., special agent in charge HSI New York. "I’m proud that through the work of my office’s El Dorado Task Force, one of the largest and most successful financial investigations task forces in the world, we will chase down every penny that these dishonorable thieves fraudulently pilfered so that the truly heroic firefighters, police officers, medics, and civilians who actually risked their lives on 9/11, and are now suffering because of it, can get the care that they critically need."

Under the United States Social Security law, individuals are qualified as "disabled" and entitled to SSDI payments if they suffer from a disability that prevents them from assuming any job available to them in the national economy. The payment amount varies per recipient, but the average annual payment is approximately $30,000 to $50,000 per recipient.

According to the indictment and documents filed in court, from approximately January 1988 to December 2013, the four principal defendants in this case operated together to direct and assist hundreds of applicants to falsely claim disabilities in order to order to collect SSDI payments, in addition to their public pensions. The applicants claimed they suffered a psychiatric condition that prevented them from working, such as post-traumatic stress disorder, anxiety or depression. Many of the defendants used their association with the events of 9/11 as the cause of their psychiatric condition. Seventy-two of the defendants also collect pensions as retirees of the New York Police Department, eight collect pensions from the New York City Fire Department, five collect pensions from the New York Department of Correction and one collects a pension from the Nassau County Police Department.

As detailed in court papers, Esposito, a retired member of the New York Police Department, or Minerva, a disability consultant for the union that represents New York Police Department detectives, recruited applicants into the scheme. They would then refer applicants to Lavallee, an attorney who previously served as an assistant district attorney and chief of the Rackets Bureau in the Nassau County District Attorney’s Office, and Hale, a key manager of the scheme under Lavallee, to submit the SSDI applications.

Although many of the applicants had limited physical disabilities that legitimately entitled them to state disability pensions, these physical conditions did not entitle them to SSDI, which requires a complete inability to work. For that reason, according to the charges, to overcome the SSDI threshold, the applicants, with the help and direction of Esposito, Hale, Minerva and Lavallee, created false psychiatric conditions like depression, anxiety and post-traumatic stress disorder.

Hale and Esposito allegedly coached applicants to falsely describe symptoms of depression and anxiety to doctors they had recruited, in order to build a record of psychiatric treatment over the course of approximately one year. Specifically, they instructed applicants on how to fail memory tests with plausibility, how to dress and how to act. Almost every application included identical descriptions of the applicants’ activities of daily living, such as:

• "I nap on and off during the day."
• "I have the TV on to keep me company."
• "I was a healthy, active, productive person."
• "I’m up and down all night long."
• "My [family member] is always after me about my grooming."
• "I’m unable to perform any type of work activity in or out of the house."

According to the charges, before filing their SSDI applications, none of the defendants had a history of a psychiatric condition to qualify them for SSDI benefits. While collecting their cash benefits, many of the applicants lived lifestyles that starkly contradicted the representations made on their applications.

For example, defendants often claimed they rarely left their homes, did not travel and had almost no social interactions with family and friends. But, according to court documents, applicants were in fact driving, traveling by air, engaging in recreational sports and lifting heavy objects. Several of the defendants also were gainfully employed at energy and investment companies, private security and private eye firms, construction and landscaping businesses, and even bakeries.

In particularly striking examples, one defendant piloted a helicopter, another played blackjack in Las Vegas, another worked at a cannoli stand at the San Gennaro Festival in Manhattan, another rode a jet ski, and one defendant taught and performed mixed martial arts. And, notwithstanding that most defendants claimed they could not use a computer, many had Facebook pages, Twitter handles and YouTube channels.

Applicants were typically awarded SSDI benefits between three and 12 months after submitting their applications. Initial awards were paid to the applicants in the form of lump sum payments. This included a retroactive award extending 12 months prior to the application filing date. The retroactive portions could be as high as $100,000. The recipients then continued to receive monthly payments.

According to the indictment, after the retroactive awards were deposited into the applicants’ accounts, Esposito and Minerva instructed the applicants to withdraw cash from the bank in increments under $10,000, so the withdrawals would not raise suspicion or require the filing of currency reports with the federal government. Applicants then made cash payments to Esposito or Minerva, who in turn transferred the money to Hale and Lavallee. These one-time cash payments were based on the applicants’ monthly awards and ranged from $20,000 to $50,000.

In addition to a portion of the secret kickbacks, Lavallee also received $6,000 directly from the government as an attorney fee for each applicant. Applicants then continued to collect their monthly fraudulent disability payments, which ranged from $2,000 to $5,000 per month, depending on the number of dependents within the beneficiary’s household.

Among the indicted applicants, some SSDI awards dated as far back as 1988, and in some instances, the total amount fraudulently obtained was close to $500,000 per applicant. To date, the average SSDI payment for charged defendants, including retroactive lump sum payments, is approximately $210,000.