The FBI launched the investigation in Lakewood that led the the recent arrests of 26 people. (Jon Naso | Star-Ledger file photo)

Editor's note, Part 3: In a nine-day series of stories, NJ Advance Media is taking a closer look at Lakewood, one of New Jersey's fastest-growing and most complex towns. Lakewood is home to a huge Orthodox Jewish community and the rapid growth has engulfed the town, igniting tensions between the religious and secular societies on many levels. Each day, we will explore some of the major issues in the community, including the welfare fraud investigation, housing problems and the strains on the education system.

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By Ted Sherman | NJ Advance Media for NJ.com

LAKEWOOD — It was described as a wide-ranging probe of benefits fraud.

Over a period of days, 26 members of the Orthodox community in Lakewood were charged with stealing millions from Medicaid and other government assistance programs, in what authorities called a multi-agency investigation. Those arrested included a rabbi and his brother, businessmen, scholars, students and housewives.

But the alleged involvement of several individuals linked by family or business ties suggests the case might not be just about the abuse of the Medicaid program.

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Rabbi Zalmen Sorotzkin via a video feed in the courtroom of Judge Steven Nemeth after the arrests in Lakewood. (Michael Mancuso | For NJ.com)

An earlier case draws a warning

Prosecutors said the arrests came on the heels of an earlier fraud indictment in 2015, and followed warnings to the Lakewood community which were intended to provide "clear guidance and notice" about financial abuse in taxpayer-funding benefits programs.

However, the current fraud case that has focused so much attention on the Ocean County religious enclave in recent weeks was not handled by the U.S. Attorney's Health Care Fraud unit, but rather its criminal division in Trenton, and was initiated by the FBI.

To some, that suggests the Lakewood arrests grew not out of a targeted audit of Medicaid costs, but rather the result of someone with deep knowledge of the alleged scheme who decided to cut a deal.

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The federal complaint in the case.

Is someone cooperating?

"The breadth of information that prosecutors appear to have developed in this sweep suggests the assistance of a cooperating witness, someone on the inside who may have guided law enforcement as to where to focus their investigation," said Robert Mintz, former deputy chief of the Organized Crime Strike Force of the U.S. Attorney's Office in New Jersey who is now a criminal defense attorney at McCarter & English in Newark.

Mintz said while it is still unclear exactly how prosecutors built this case, the target of health care fraud investigations typically involves doctors, pharmacists or other providers who engage in systematic and large-scale Medicaid fraud--not those receiving benefits.

"What makes this case unusual is the number of individuals arrested and that the charges are against Medicaid recipients," Mintz said.

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"Financial assistance programs are designed to alleviate family hardships for those truly in need," said Ocean County Prosecutor Joseph Coronato. "My office gave clear guidance and notice to the Lakewood community in 2015 of what is considered financial abuse of these programs..." (Ed Murray | NJ Advance Media for NJ.com/file photo)

What the investigators are saying

According to Philip Degnan, the State Comptroller, the Lakewood investigation "highlighted the success of federal, state and county cooperation" in efforts to combat government benefits fraud.

"My office will continue to ensure that only individuals and families truly in need of benefits receive them, and that those who choose to steal from New Jersey taxpayers are referred for prosecution," he said in a statement.

Ocean County Prosecutor Joseph Coronato, noting the warnings he issued to the Lakewood community two years ago about abuse in Medicaid and other benefits programs, said, "those who choose to ignore those warnings by seeking to illegally profit on the backs of taxpayers will pay the punitive price of their actions."

The U.S. Attorney's office, which is prosecuting the federal charges in the case, declined comment on what led them to Lakewood, or whether there was a cooperating witness.

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How Medicaid fraud is typically uncovered

Former assistant U.S. Attorney Danielle Corcione, who worked in the Health Care and Government Fraud Unit, said that office has long been aggressive in prosecuting health care fraud.

"There's a ton of collaboration between prosecutors and the insurance carriers. They meet regularly," said Corcione, now an attorney for Day Pitney in Parsippany

Indeed, Medicare and Medicaid spending is often electronically monitored, and flags automatically raised when irregularities are discovered.

The federal government and states share the cost of Medicaid.

The Lakewood probe drew in a number of state and federal agencies. While it was begun by the FBI’s Red Bank Office and the U.S. Attorney’s office is prosecuting four of the 26 people charged, the investigation soon included the Office of the State Comptroller which handles state Medicaid fraud cases, as well as the Social Security Administration, the Ocean County Prosecutor’s Office and other state agencies.

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Who typically is the target of a Medicaid fraud investigation?

However, most cases brought for prosecution do not involve abuse by Medicaid recipients, as is alleged in Lakewood.

Nationwide, Medicaid fraud units reported 1,564 convictions, 998 civil settlements and judgments, and almost $1.9 billion in criminal and civil recoveries in the past fiscal year, according to the U.S. Department of Health & Human Services Office of Inspector General. Nearly three out of four of those convictions involved fraud, and almost half of those involved unlicensed providers.

A spokesman for the inspector general’s office said they did not collect data on Medicaid fraud perpetrated by recipients, but noted that decisions on where to allocate enforcement resources are generally based on where they will get the most return, and that typically means physicians, pharmacists and other health care providers.

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Enforcement in New Jersey

In terms of the number of criminal investigations opened last year nationally, New Jersey was far from the top. The state launched 379 fraud cases last year. Indiana, at the top, opened 1,264 criminal fraud cases, according to the inspector general.

The state Office of the Comptroller said their Medicaid Fraud Division does not have information on the annual number of recipient fraud cases.

The U.S. Attorney's office said it also did not keep statistics on Medicaid fraud criminal cases against those receiving benefits.

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A community on Medicaid

New Jersey Medicaid enrollment data, provided through a public records request to the state Division of Medical Assistance and Health Services, shows Lakewood ranks among the top five municipalities in New Jersey in total recipients.

There are more than 65,000 people in Lakewood receiving Medicaid assistance, according to the state data. That represents more than half the population, although the large number of children in Lakewood may account for much of that.

While the percentage of those on Medicaid on a per capita basis is higher in Trenton and Camden, Lakewood has a larger number of Medicaid recipients than most of the state's poor urban areas.

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Yosaf Laskin and his wife Gila Neger (Courtesy of the Ocean County Prosecutor's Office)

The case that sparked a warning

The last time the Ocean County Prosecutor's Office charged anyone in a benefits fraud case was in 2015, according to spokesman Al Della Fave. Yosaf Laskin and his wife Gila Neger of Lakewood allegedly reported their income as less than they actually earned so that they could qualify for Medicaid insurance coverage and food assistance, known as the Supplemental Nutrition Assistance Program.

The couple was accused of improperly receiving Medicaid health benefits in excess of $145,000. Neger was also charged with failing to provide accurate income information on her food stamp application, receiving benefits in excess of $5,500.

Laskin and Neger’s case has yet to be heard. According to the proseuctor’s office, they are scheduled to go to trial in March.

In a similar case the same year, Peter Cerruto and his wife Lisa of Barnegat were indicted on charges that the they bilked the state out of hundreds of thousands of dollars in public assistance by underreporting their income.

Peter Cerruto later pleaded guilty to a 3rd degree count of theft by deception and was sentenced in January to five years probation. He was also ordered to pay restitution totaling $104,077.71, according to the Ocean County Prosecutor's Office. All charges were dismissed against Lisa Cerruto, prosecutors said.

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Part of the Nussbaum federal complaint

$2.2 million in alleged fraud

The complaints in the case offer little insight about the case. In charges filed both in federal court and by the state, 26 people were accused of wrongfully collecting more than $2.2 million in public assistance by under-reporting incomes. Most of the charges have been filed in state court, though some federal charges have been filed as well.

Most of the Medicaid losses did not involve direct payments to those charged, but rather were medical costs that prosecutors said were improperly paid on behalf of the defendants.

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A summons filed in Lakewood Municipal Court charging Yisroel Merkin.

Details of the Lakewood charges

The federal complaints offer most of what is known in the case, detailing how one of the couples charged allegedly filed an application to the Ocean County Board of Social Services through NJ Family Care for health insurance, while understating their income by tens of thousands of dollars. Over a period of two years, medical expenses of $96,000 was picked up by the government, say prosecutors, including $22,000 associated with the birth of a child.

A second couple allegedly failed to declare annual income as high as $1.8 million, generated through a variety of companies they controlled, but run in the name of relatives. According to the complaint, they opened various bank accounts in the names of the companies and used the accounts to cover personal expenses. Prosecutors said they received $178,000 in public assistance payments, including health coverage, housing and food benefits, for themselves and their children, from 2011 through 2014.

The complaints by the Ocean County Prosecutor’s Office only spell out the charges.

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Who was charged?

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Zalmen and Tzipporah Sorotzkin (Ocean County Prosecutor's Office)

Zalmen and Tzipporah Sorotzkin

The rabbi of Congregation Lutzk was charged with his wife of second-degree theft by deception, in connection with the collection of $338,642 in Medicaid, food stamp, Housing and Urban Development and Supplementary Security Income benefits between January 2009 and April 2014.

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Mordechai and Rachel Sorotzkin (Cristina Rojas | NJ Advance Media for NJ.com)

Mordechai and Rachel Sorotzkin

Mordechai Sorotzkin, the brother of defendant Zalmen Sorotzkin, faces federal charges of conspiring to steal government funds.

The couple allegedly collected approximately $96,000 in Medicaid and other benefits by underreporting at least $1.5 million in income from a limited-liability corporation.

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Eliezer and Elkie Sorotzkin

The Lakewood couple was charged with collecting approximately $74,960 in Medicaid benefits they were not entitled to receive.

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Mordechai and Jocheved Breskin (Ocean County Prosecutor's Office)

Mordechai and Jocheved Breskin

The Breskins were charged by the state with second-degree theft by deception, in connection with wrongfully collecting approximately $585,662 in Medicaid, food stamp, HUD and SSI benefits between January 2009 thru December 2014.

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Samuel and Esther Serhofer

The Serhofers allegedly obtained $72,685 in Medicaid benefits between January 2009 and December 2013.

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Yisroel and Rachel Merkin

State officials charged the Merkins with illegally collected approximately $70,557 in Medicaid, SNAP and HEAP benefits between January 2011 and December 2014.

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Shimon Nussbaum leaves federal court in Trentonwith his wife, Yocheved, and her attorney, Jacob Laufer. (Cristina Rojas | NJ Advance Media for NJ.com)

Yocheved and Shimon Nussbaum

Yocheved and Shimon Nussbaum were charged in federal court with conspiring to steal government funds, including $178,000 in Medicaid and other benefits by underreporting more than $2 million in income.

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Jerome Menchel and Mottel Friedman

Jerome Menchel and Mottel Friedman are accused of collecting $63,839 in Medicaid and SNAP benefits between January 2011 and July 2014.

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Tzvi and Estee Braun

The Brauns were charged with collecting $62,746 in illegal benefits from Medicaid, HEAP and Catastrophic Illness in Children Relief Fund (CICRF) between January 2009 and December 2013.

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Yitzchok and Sora Kanarek (Ocean County Prosecutor's Office)

Yitzchok and Sora Kanarek

The Kanareks were arrested on state charges of second-degree theft by deception, and involving approximately $339,002 in Medicaid, food stamp, housing and SSI benefits between January 2009 and July 2014.

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Moshe and Nechama Hirschmann

Authorities charged the Hirschmanns were wrongfully collecting $53,418 in Medicaid and SNAP benefits from January 2011 and December 2015.

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Chaim and Liatt Ehrman (Ocean County Prosecutor's Office)

Chaim and Liatt Ehrman

The Ehrmans face charges of second-degree theft by deception, accused of collecting approximately $185,692.22 in benefits that prosecutors said included Hurricane Sandy relief payments.

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William and Faigy Friedman (Ocean County Prosecutor's Office)

William and Faigy Friedman

The prosecutor’s office said the Friedmans collected approximately $149,842 in benefits they weren’t entitled to receive, including payments from the state’s Home Energy Assistance Program.

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What's next in the case?

Since the charges were filed, prosecutors have made no other filings in the case. No hearings have been scheduled.

Jacob Laufer, an attorney for Yocheved Nussbaum in the federal case, said he has yet to receive any information from the U.S. Attorney’s office beyond the criminal complaint.

"The events will unfold. My client professes her innocence," he said. "We're investigating and awaiting discovery."

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Read more about Lakewood

Don't condemn our community, say religious leaders

Lakewood BOE rehires attorney who repeatedly sued the board

Lakewood asks state for $10 million in school funding

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Ted Sherman may be reached at tsherman@njadvancemedia.com. Follow him on Twitter @TedShermanSL. Facebook: @TedSherman.reporter. Find NJ.com on Facebook.