End of the railroad for the $1bn old boys' club

For years, no one could understand why such a huge proportion – 97 per cent – of Long Island Railroad workers retired on disability benefit. Now the brazen secret is out, and the perpetrators are facing jail. David Usborne on a spectacular scam

As any regular rider on the Long Island Rail Road, the largest commuter rail network in the United States, will attest, the journey to and from Manhattan every day can get pretty gruelling.

Failed signals and faulty points are among the excuses for frequent delays. At least everyone working the trains is doing their best, putting the passenger first.

That should be how it is. America honours public service, whether you are teacher, a soldier or a conductor on a mass transit train. But the arrest of several retired workers on pension fraud charges this week has exposed something astonishingly rotten at the heart of the LIRR. It's not just that the alleged scams were so brazenly pursued but also that the problem at the railroad appears to be absolutely endemic. Everyone is at it, or so it seems.

The scandal got predictable treatment on the front of the New York Post yesterday. "Gravy Train", it blasted. Righteous indignation seems reasonable when you are talking about retired drivers, signal operators and dispatchers pocketing tens of thousands of dollars in benefits for purported disabilities including spinal injuries then, when they think no one is watching, scarpering to aerobics classes or to rounds of golf (on a luxury course that waives fees for anyone on disability benefits) as if miraculously cured of whatever it is they are meant to be afflicted with.

To be fair, the LIRR appears to have work and retirement rules, all fervently protected by the unions, that invite abuse. It is the only rail system in the country that allows workers to retire at 50 on full pension benefits if they have some ailment that prevents them working longer.

Then comes another layer of temptation. If they can then provide evidence from a doctor of their alleged impairments they can apply to a federal body, the Railroad Retirement Board, for the additional and often generous disability benefits. The Board almost never says no.

Federal prosecutors zeroed in on the LIRR when The New York Times three years ago published a series of reports suggesting that virtually everyone working at the railroad was filing for disability payments at retirement. Working the tracks can be perilous and there are surely some bona fide claims being made. But how could it be that nearly everyone, including white-collar managers, could claim to have suffered injuries bad enough to stop them working?

On Thursday, we saw the first fruit of the investigation. Charged with fraud and held in the early hours of the morning were six LIRR retirees, including a former union president, as well as a one-time manager of the Retirement Board, a Long Island doctor and a doctor's surgery manager. It was expected agents would arrest a second doctor later. All are accused either of benefiting from or helping to facilitate the scams whereby retirees were faking disabilities and going on to pocket the benefits.

What is clear from the 75-page criminal complaint is that the 11 taken into custody were targeted because prosecutors suspected them as having committed the most egregious examples of fraud. If you add up all of the allegedly phoney claims made by retired LIRR workers and calculate what they will add up to over the years to come, the total cost will come to a staggering $1bn.

The former union president is Joseph Rutigliano, who, according to the complaint, worked as a conductor before retiring in 1999 after 27 years on the job. In his last year of work, he put in some 500 hours of overtime and took no sick leave at all, helping to boost earnings and therefore his pension level. Yet, he was later to claim that in 1988 he suffered a spinal fracture bad enough to prevent him from working towards normal retirement age.

Mr Rutigliano, now 64, was one of those who caught the attention of The New York Times in 2008 because of his fondness for playing golf, his back troubles notwithstanding. His lawyer, Joseph Ryan, on Thursday dismissed the criminal complaint against his client and the other defendants calling it "a masterpiece of creative writing".

Also cuffed was Gregory Noone, a retired engineering manager, who collects $105,000 in annual benefits that include his pension and disability cheques on account of his suffering severe pain when he grips anything such as a hand tool as well as pains in his shoulders, knees and back when crouching. Investigators, however, observed Mr Noone enjoying not just golf but also tennis. " No one regularly plays tennis several times per week, and in a nine-month period in 2008, Noone signed in to play golf at a particular course on 140 days," the court charges state.

A private gym video camera caught Sharon Falloon, a retired personnel manager with the railroad, enjoying a two-hour work-out at her local gym, including a 45-minute step aerobics routine. Investigators clearly had difficulty squaring her zealous attachment to physical fitness with the disability cheques she was receiving for the serious pains she said made it hard for her to walk, stand or climb stairs.

Steven Gagliano, another of the defendants, allegedly helped fatten his post-career income by filing disability claims stemming from acute pain of the back, shoulders and legs. Given that degree of suffering, it was a wonder to investigators that he managed to join a 400-mile bike tour of upstate New York. If found guilty of the fraud charges, all these defendants could face up to 20 years behind bars.

The seriousness of the charges was underlined by Preet Bharara, the Manhattan prosecutor on the case. "Employees, in many cases, after claiming to be too disabled to stand, sit, walk or climb steps, retired to regular golf, tennis, biking and aerobics," he said, adding that the disability benefits programme was "designed to be a safety net for the truly disabled, not a feeding-trough for the truly dishonest".

The authorities also sent a clear warning to the potentially thousands of other former LIRR workers who may be feeling lucky to have escaped the FBI dragnet. Anyone who knows anything about others committing fraud of the kind outlined in the charge sheets should be coming forward, warned Diego Rodriguez, the special agent in charge of the criminal division of the FBI's New York office. "If you have this kind of firsthand information, we would like to hear from you. For those who choose not to contact us, there is a good chance we will be contacting you."

The alleged role of the two doctors named as defendants is no small side-show. The complaint states that Peter Ajemian, an orthopedist, and Peter Lesniewski, also an orthopedist, helped recommend 956 retiring LIRR employees for disability assistance in just 10 years from 1998 and 2008, prosecutors said. With a third doctor, they accounted for 86 per cent of all LIRR disability applications over that time, prosecutors said.

What the doctors had going, the charges allege, was a "disability mill". Purportedly, they would charge each of them $800 to $1,200 to concoct a narrative of some disabling ailment to satisfy the Retirement Board, then earn thousands more in payments by insurance companies for treatments that were not necessary and rarely administered. Prosecutors say Dr Ajemian alone received $2.5m in direct payments and insurance billings from 453 LIRR patients between September 2004 and 2008. His assistance is said to have rendered more than $90m in disability payments for his "patients". It took The New York Times yesterday to ask the most pressing question. How is it possible that an entire workforce came to believe that cheating for cash on this scale was fine as if, in fact, they were entitled?

"What took so long for the scheme to emerge?" the paper asked in an editorial. "The largest commuter railroad in the United States, and not one employee who knew how to blow a whistle?"

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