Such a sad story. I take it that the stepfather doesn't want them anymore? (Well, maybe his new lover doesn't and she's getting her way?)
Without having actual custody of the kids, I don't think that the stepfather will get the kids anyhow, after swindling the social security money.
Are there any grandparents in the picture? Aunts or uncles?
Please call social services and talk to them about the situation. The stepdad can get his deceased wife's social security (I don't remember if there is a time frame of which they had to be married in order for him get it) but without legal custody of the kids, he isn't supposed to have the social security money.
The only ones who can get the social security out of his hands is social services. They will appoint a legal guardian over the kids and then find them a place to live. If you or someone else who cares about these kids go to the judge and petition the court to take care of them, the legal guardian will take the money and give you an allowance to help take care of them. Then the stepfather will only get the wife's social security. Once the kids turn 18, there is no more social security money.
There's no getting around involving social services. You should do it now while there's a chance that people will rally around them and possibly take them in. You have to be proactive with the courts.
So very sorry.
Dawn