Lakewood welfare fraud: How did the scheme work?

LAKEWOOD - Public assistance scams in the township are both "widespread" and some of the "most sophisticated financial fraud" cases authorities have seen in recent years, one ranking law enforcement source said.

How could such an alleged scam work so well for so long?

Hidden income, fake applications and phony company owners were integral parts of a complex scheme several wealthy families used for years to fool the government into doling out nearly $2 million in aid reserved for the poorest citizens, federal and state investigators say.

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A child daycare center was also used to help hide one couple's true income, according to the charges.

Using public records, federal complaints and interviews with law enforcement officials, the Asbury Park Press examined the puzzle works of the government assistance fraud charges.

More than $1 million flowed through limited-liability companies – legitimate corporations set up to hide ownership – that enlisted relatives as straw owners and used corporate bank accounts to hide money, according to the charges.

At the center of most transactions was a local beeper store that helped transfer money across the globe, the charges state. As the 14 suspects were claiming poverty on government documents, they took in hundreds of thousands of dollars in undeclared income from the front companies.

The paper trail shows the relative ease the families had in allegedly defrauding the government. In one case, authorities say a woman was able to withdraw $1.5 million from a company and deposit the money into her personal bank account while still collecting public assistance.

Federal criminal complaints against Shimon and Yocheved Nussbaum, of Hadassah Lane, and Mordechai and Rachel Sorotzkin, of Albert Avenue, detail how one couple – the Nussbaums – is accused of moving money between companies they controlled and the other – the Sorotzkins – simply failed to report their full income.

These four arrests, as well as another 10 on state charges, have sent shock waves through the township.

Hundreds of residents have called local officials to ask about amnesty for public assistance fraud, and dozens have begun canceling their benefits through Ocean County Social Services, authorities said.

In a statement issued late Wednesday and signed by Rabbi Mose Zev Weisberg, the Lakewood Vaad said it was "saddened beyond words" by the arrests, but added "As firm believers in the principle of ‘innocent until proven guilty,’ we suspend judgment until the disposition of these charges, and are comforted knowing that our judicial system is an able arbiter of justice."

Still, the Vaad – the influential council of local Orthodox Jewish religious and business leaders – said it viewed the arrests as a "valuable teaching moment that cannot be wasted."

"There is no such a thing as 'justified' theft," the statement continued. "Federal and State social safety-net programs are meant for those in need, even those in need have rules and criteria that must be strictly followed. To deliberately bend a safety-net eligibility rule is stealing, no different than stealing from your friend or neighbor.

"We would all do well to redouble and triple our efforts in our communities, reminding each and every one of us that there is never any excuse for dishonesty in any form."

The Vaad ended its statement by vowing to "launch a set of intensive educational programs that can ensure that such does not happen again," and said the public would be invited to participate.

Between 2006 and 2011, relatives of the Nussbaums were registered as agents and sole members of a clothing company, daycare, real estate company and nonprofit corporation "with a listed purpose of providing therapeutic services to children with autism," according to a federal complaint against the Nussbaums.

The Nussbaums controlled the companies' bank accounts and finances, the complaint says.

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A relative of Yocheved Nussbaum registered a clothing company with the state on July 18, 2006, with the address of the company as the Nussbaums' home, according to a federal complaint.

Three days later, the Nussbaums were both named as signatories on a bank account for the company and bank documents showed that Shimon Nussbaum was the company's president and had control of its finances.

In November 2009, the Nussbaums opened a business checking account for a daycare company that named one of Shimon's relatives as agent and only member, according to the complaint. An "agent" for a company is a point of contact for state officials, but it does not always mean the agent has an ownership interest. In this case, only the Nussbaums signed paperwork to open the bank account.

On March 29, 2011, the New Jersey Division of Revenue received registration for a nonprofit corporation "with a listed purpose of providing therapeutic services to children with autism," according to a federal complaint against the Nussbaums.

Yocheved Nussbaum was named as a trustee, the corporation's office address was the Nussbaums' address and Yocheved Nussbaum opened two bank accounts in the nonprofit's name.

That same month, the same relative of Shimon Nussbaum named as an agent of the daycare company was named as agent for a real estate company, but later signed over power of operational and financial authority to the Nussbaums, according to the complaint. Shimon Nussbaum later opened a bank account for the company.

In 2011 and 2012, Yocheved Nussbaum reported only $1,100 in monthly income from the daycare company when applying for public assistance, according to the complaint. In 2013 she reported income of $1,500 a month when applying for health care assistance and $1,358 when applying for nutrition assistance. Those numbers would put the income between $13,200 and $18,000 a year.

Government assistance – programs such as food stamps and housing vouchers – are calculated based partly on income level and the number of people in a household, according to the state Department of Human Services. The less money claimed by a household, the more benefits they may be entitled to. Also, the more children claimed by a household, the more benefits they may be entitled to.

A family of four in New Jersey would most likely qualify for food stamps if they’re making less than $44,964 per year, according to legal services of New Jersey. A family of eight would likely qualify for food stamps if they make less than $75,648 per year.

Authorities say that the defendants underreported their incomes to claim more benefits than they were entitled to have, in some cases by more than $100,000 per year.

But the Nussbaums used income from the three companies and the nonprofit to cover their personal expenses – attorney fees, school tuition for their children, life insurance policies and credit card bills, according to the complaint.

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In April 2014 the state Medicaid Fraud Division informed the Nussbaums that they had begun an investigation. That July, Shimon Nussbaum withdrew from Medicaid coverage through NJ FamilyCare, which offers free health care to children.

All told, the Nussbaums brought in $265,492 in 2011, $198,535 in 2012 and $1.8 million in 2013, well over the limits to qualify for the benefits they received, according to the complaint. They collected $178,762 in assistance they were not qualified to receive, the complaint states.

By comparison, the allegations against Rachel and Mordechai Sorotzkin involve fewer companies – just a single limited-liability corporation in which Rachel was one of two partners. But investigators say they received $96,000 in Medicaid benefits to which they were not entitled while bringing home more than $1 million a year.

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Rachel Sorotzkin applied for Medicaid on April 4, 2011– two days before Yocheved Nussbaum's application that year – and reported that she brought home $1,333 every two weeks from the LLC and that her husband had a $350 monthly scholarship, according to a federal complaint against them. The next year they reported $3,800 per month in income.

Not reported to the government was the $46,824 in company profits Rachel Sorotzkin received in 2012 or the two payments totaling $1.5 million she received in 2013, according to the complaint. The payments were from work in 2011 and 2012.

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The four defendants made initial appearances in federal court in Trenton Monday afternoon, each posting a $100,000 bond. Federal District Court Judge Douglas E. Arpert restricted their travel to the tristate area and ordered them to surrender their passports.

Attorneys for the Nussbaums and Mordechai Sorotzkin declined to comment Monday, but Rachel Sorotzkin's attorney Fred Zemel said the defendants "will be vindicated."

Ten other people face state charges on similar allegations, according to the Ocean County Prosecutor's Office. It is not yet clear how, specifically, the other defendants are believed to have misrepresented their income. The Press has requested copies of criminal complaints against them from the Ocean County Prosecutor's Office but has not received them.

Those 10 people are accused of taking more than $1.5 million in government benefits they weren't entitled to receive.

Authorities were able to determine that the families allegedly misrepresented their incomes partly by tracking illegal money transfers made at a Lakewood beeper store, according to the law enforcement source. The owner of Beepers Plus on Clifton Avenue pleaded guilty on Feb. 23 to transmitting millions of dollars without a license, an indictable offense in New Jersey.

By looking at some of those transfers, along with private school tuition records and withdrawals from a state fund that pays medical fees for sick children whose parents can’t afford their care, and other sources, investigators uncovered the alleged fraud, the source said.

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In 2015, the Ocean County Prosecutor's Office held meetings with Lakewood residents to try and get people to stop improperly claiming government assistance. See below for a flyer advertising one of those meetings that was posted in a Lakewood synagogue.

"My office gave clear guidance and notice to the Lakewood community in 2015 of what is considered financial abuse of these programs," Coronato said in a statement. "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."

Authorities said that more arrests are expected in the weeks to come. The investigation could end up exposing millions of dollars more in public assistance abuse, sources say.

Alex N. Gecan: 732-643-4043; agecan@gannettnj.com; Payton Guion: 732-643-4245; pguion@gannettnj.com