COBRA & the INS/SSA

We recently received a letter from the SSA that we had several employees whose SSN's and name do not match for year 2001 W-2 reporting. We have contacted active employees and required that they go to the SSA and get it straight and report back to us. One employee called me to say he was "illegal" (even though he filled out the I-9 at hire and said he was a citizen and gave authentic ID). Now that he has admitted lying on the I-9 and that he is illegal I have to release him from employment. Even though his admission does not qualify as "gross misconduct" for COBRA purposes, do I still have to offer him COBRA coverage since he has admitted his illegal status?
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