Federal prosecutors yesterday outlined a massive decadelong scheme to collect on hundreds of phony Long Island Rail Road disability claims worth as much as $1 billion and lodged criminal charges against two Long Island doctors and seven former transit workers.
Although only seven former LIRR employees were charged, the FBI said the investigation was continuing and warned the disability payments of hundreds of others would be under scrutiny.
Eleven people altogether, including 10 Long Islanders, were named in a complaint accusing the two doctors of running "disability mills" since 1998 that OK'd hundreds of bogus claims to the federal Railroad Retirement Board, the agency that administers the benefits, on behalf of able people who golfed weekly, took long bike tours, shoveled snow and worked as landscapers.
U.S. Attorney Preet Bharara said his office would explore civil cases to recover money, as well as new criminal cases, and FBI Criminal Division of New York special agent Diego Rodriguez urged people who had been part of the fraud to come forward -- but declined to promise leniency.
"Who has better information about this scheme . . . than those who perpetrated it?" he said. "We look forward to hearing from you. For those who choose not to contact us, there's a good chance we'll be contacting you."
The 74-page criminal complaint in federal court in Manhattan painted a picture of wholesale abuse. LIRR workers collected disability benefits at a rate 12 times higher than Metro-North workers, it said, and all 869 of the workers between 50 and 55 who retired during a five-year period ending in 2008 got disability awards.
Bharara, however, acknowledged that the entire complaint focused on events that occurred before 2008, when a New York Times investigation revealed widespread problems, and said he believed that the system has tightened up since then.
The complaint said defendant orthopedists Peter Ajemian, 62, of Syosset, and Peter Lesniewski, 60, of Rockville Centre, along with an unidentified third doctor who is deceased, accounted for 86 percent of disability claims filed from 1998 to 2011. It said the doctors received "millions of dollars" to approve more than 90 percent of the LIRR workers they saw.
The second layer of the alleged fraud involved "facilitators" -- including former LIRR union president Joseph Rutigliano, 64, of Holtsville, and Marie Baran, 64, of East Meadow, who ran the retirement board office in Westbury. They were accused of aiding the scheme by coaching applicants on how to make phony claims and which doctors to see.
The former workers who were charged, prosecutors said, were guilty of the most "egregious" violations that turned up in the investigation.
They included Gregory Noone, 62, of East Islip, a retired LIRR engineering manager, who gets $105,000 annually in pension and disability benefits but has allegedly continued to play tennis and golfed regularly -- signing up to play 140 days in nine months on one course without paying a fee because of his disability. But after the fraud investigation was reported, Noone didn't sign up for another game, the complaint says. Another, Regina Walsh of New Hyde Park, collects $108,000 annually but "has been surveilled shoveling heavy snow for approximately one-and-a-half hours," the complaint said.
A third defendant, Steven Gagliano, 55, of North Babylon, allegedly has completed a 400-mile bike tour since retiring on disability because he wasn't able to work as a signal operator. Other defendants allegedly engaged in regular gym workouts, landscaping work, and heavy lifting.
All of those accused face a maximum of 20 years in prison for conspiracy to commit health care fraud and mail fraud.
Nine of the defendants were taken into custody in raids across Long Island Thursday that left stunned neighbors shaking their heads. A tenth defendant surrendered in North Carolina, and prosecutors said Lesniewski is expected to surrender Friday. Eight of those appearing in federal court in Manhattan were released on bonds, and one -- Maria Rusin, of Farmingdale -- was hospitalized after becoming ill in court.
The defendants did not enter pleas, and the only lawyer to comment was Joseph Ryan, who represents former union boss Rutigliano. "I consider the complaint a masterpiece of creative writing," Ryan said.
The complaint attributed the scheme in part to an unusual benefit available to LIRR workers, who are allowed to retire on a partial pension after 20 years at age 50, instead of having to wait for 65 to get a full pension like other workers covered by the federal railroad retirement system.
That provision, the complaint said, acts as an incentive for LIRR workers to work heavy overtime before they reach 50 to maximize the pension, and then retire early and try to make up the gap between a partial and full pension with a prearranged disability claim.
Officials said the case was based on undercover tapes, video surveillance and statistical analysis that showed that claimants worked extra overtime and took little sick time leading up to their retirement, and then claimed disabilities timed to coincide with their retirement date.
The $1 billion was a projection of the cost over the full 13-year period of the alleged conspiracy that was based on a sampling of claims approved by the doctors between 2004 and 2008.
During that period, Ajemian allegedly collected $2.2 million in fees from 453 LIRR disability patients. Those 453 have collected $90 million and are in line to collect $210 million. Lesniewski got $750,000 in fees from 134 patients who have received $31 million and are in line to get $64 million.
Officials ranging from Gov. Andrew M. Cuomo to LIRR president Helena Williams joined in condemning the fraud on the railroad fund, which is financed by a combination of payroll taxes and employer taxes.
Williams said she hoped the operation would send a "strong message." At the LIRR's parent agency, MTA Inspector General Barry Kluger said that while the defendants faced loss of their phony disability payments, he wasn't sure whether contracts would allow the agency to take away their pensions.
Inspector General Martin Dickman of the federal retirement board, which has been criticized for lax procedures and rules tilted toward granting claims, said the agency will "continue to root out" fraud.