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Railroad Retirement Board lax on collecting restitution from fraud

The front page of Newsday on Oct. 28,

The front page of Newsday on Oct. 28, 2011. Credit: Newsday

The federal agency at the center of the LIRR disability scandal that surfaced 10 years ago has made little attempt to recover tens of millions of dollars it was owed from the conviction of dozens of defendants on fraud charges, according to the U.S. Railroad Retirement Board’s internal watchdog.

Martin Dickman, inspector general for the U.S. Railroad Retirement Board, or USRRB, said that of nearly $155 million in court-ordered restitution related to dozens of convictions — five years ago on fraud charges stemming from the scam — the board has only collected about $1.6 million.

The board also has not made an attempt to recover money from hundreds of Long Island Rail Road retirees who temporarily lost their disability benefits, which averaged $33,000 a year, because they were examined by doctors convicted of fraud, the board confirmed.

“It all goes with the culture here. [The retirement board] is very aggressive with paying out to everybody, but they’re very passive as far as collecting money. It’s pathetic. They just don’t care,” said Dickman, who noted the unrecovered money would go toward building the same trust funds that benefit railroaders. “Why wouldn’t they want to collect the money to protect their people?”

The FBI launched an investigation into the fraud scheme after news stories in 2008 documented the high rate of LIRR employees applying for and receiving occupational disability benefits upon retirement. Prosecutors alleged they were taking advantage of a loophole in their contract that created a financial incentive for them to retire at age 50 and subsequently claim a disability — allowing them to collect both an LIRR pension and federal disability benefits.

Ultimately, 33 defendants pleaded guilty or were convicted on fraud charges, including 29 former LIRR employees.

In a statement, USRRB spokesman Michael P. Freeman said the agency has worked with the U.S. Department of Justice Financial Litigation Unit and the courts “with respect to receiving restitution payments made by the annuitant defendants in this matter,” as it is bound to do.

The agency said it is in the process of collecting payments but would not address how much it had collected or how much was left to collect. Freeman also acknowledged the board had not yet begun collecting debts from some convicted defendants, including two doctors whose appeals were still playing out in the courts until earlier this year.

Meanwhile, the board has said it has no plans to recover funds from 700 LIRR retirees whose disability benefits were terminated because they were based on the evaluations of physicians later convicted of fraud for falsifying medical evidence. In a December report, the board said “there is no evidence which would support the [US]RRB taking such action.”

“While the fraud conviction of the physicians was deemed sufficient to call the applications into question, the convictions on their own are not sufficient evidence to establish that the original applications were awarded based upon false or misleading information,” the board wrote.

The majority of LIRR retirees who had their disability benefits terminated later won them back after being examined by different doctors, according to USRRB documents. Regardless, Dickman said, because their original disability claims were the product of fraud, the board should look to recoup payment.

“These people scammed the trust funds to begin with — taking hundreds of thousands, or millions, of dollars out. And then they’re not going to go after them to at least put in a portion of the amount that they’re owed?” Dickman said of the RRB. “I mean, it’s disgusting.”

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