California inmates received up to $1B in fraudulent unemployment aid, prosecutors say
Sophisticated crime rings involving inmates in California’s jails and prisons may have stolen upwards of $1 billion in pandemic unemployment aid in sophisticated schemes, four district attorneys and a federal prosecutor announced Tuesday.
The news: A multi-agency investigation found that 35,000 unemployment claims were filed in the name of California state prison inmates between March and August, including that of convicted murderer Scott Peterson, and that at least 20,000 had been paid out, said Sacramento County District Attorney Anne Marie Schubert.
Schubert called the scale of the scheme “honestly staggering” and “one of the biggest fraud of taxpayer dollars in Calfornia history.” She and her law enforcement colleagues called on state officials — including Gov. Gavin Newsom — to ensure that the identities of claimants are routinely cross-checked against those who are incarcerated and halt those payments.
“It’s not just about the money that’s been stolen,” Schubert said. “It’s about the fact that we need to turn off the spigot, which means that we should not continue to pay these convicted felons who are in prison. … We have asked and implored the governor to get involved himself to turn the spigot off.”
The investigation involved district attorneys from Sacramento, El Dorado, Kern and San Mateo counties as well as McGregor Scott, the U.S. Attorney for the Eastern District of California, who noted the federal government had a number of open cases involving unemployment fraud. The prosecutors did not provide a total number of suspects charged in connection with the EDD fraud schemes to date.
Some of the stolen money is flowing out of the state and even the country, they said. “The practical reality,” said El Dorado County District Attorney Vern Pierson, “is the vast majority of this money will never be repaid.”
Newsom responds: In a statement Tuesday, the governor emphasized the steps he had taken to assist in fraud prevention, but acknowledged “we need to do more.”
“When we saw evidence of fraud in correctional facilities,” he wrote, “I directed the Employment Development Department to review its practices and to take immediate actions to prevent fraud and to hold people accountable when fraud is not prevented.”
Newsom also said he had directed his Office of Emergency Services to stand up a task force to support the investigations happening up and down the state.
Context: Tuesday’s announcement is only the latest twist in the fraud saga plaguing California’s unemployment programs, a challenge facing states nationwide. For months, fraudsters have exploited programs designed to swiftly distribute federal pandemic aid to self-employed and contract workers through a self-certification process.
Federal officials warned state workforce agencies this fall that cybercriminals in the U.S. and abroad — using troves of personal information mined from massive data breaches — may have pocketed $8 billion in pandemic aid. Police from Beverly Hills testified in Sacramento that they launched an investigation after reports of out-of-state suspects attempting to buy luxury goods from Rodeo Drive shops using cash or multiple Employment Development Department debit cards.
And last month a rapper living in the Hollywood Hills with the stage name of Nuke Bizzle was arrested on federal fraud charges after posting a music video entitled “EDD” that appeared to boast about defrauding the department. He is accused of applying for more than $1.2 million in benefits using stolen identities.
California’s unemployment system has recently adopted a more sophisticated identity verification system and has taken other measures, such as halting the automatic backdating of claims.
But lawmakers and other advocates for low-wage workers are also concerned that an emphasis on fraud prevention has needlessly added legitimate claimants — sometimes with small discrepancies in their applications — to the state’s lengthy backlog of unpaid claims, which reached 1.6 million earlier this fall.
A “strike team” appointed by Newsom this year found that nearly all of the claimants flagged for further verification were legitimate, while fraudsters sailed through the automated system. EDD Director Sharon Hilliard, facing intensifying criticism from state lawmakers over the agency’s troubles, is retiring at year’s end.