California’s payments to unemployment fraudsters reach $20 billion

October 26, 2021

By JOSH FRIEDMAN

The state of California has given at least $20 billion in unemployment funds to criminals since the start of the coronavirus pandemic, state officials said on Monday. [LA Times]

In January, then-California Labor Secretary Julie Su acknowledged the state paid out at least $11 billion in unemployment funds, and possibly as much as $31 billion, to fraudsters over the course of the coronavirus pandemic. The state now says the total has risen to at least $20 billion. More than 11 percent of the unemployment benefits paid out by the state went to fraudsters.

As part of the $20 billion given to fraudsters, state officials approved at least $810 million in benefits in the names of prison inmates, including dozens of infamous killers on death row. California officials also sent $21,000 in benefits to an address in Roseville under the name and Social Security number of Sen. Dianne Feinstein, which accounts for a small portion of the $2 million in fraudulent payments sent to that same address.

State officials blame almost all of the fraud on a hastily approved expansion of unemployment benefits by Congress, which allowed self-employed workers to receive weekly checks from the government with few safeguards preventing individuals who were not eligible from receiving them.

On Monday, Employment Development Department (EDD) Director Rita Saenz said the state has implemented new identity verification software that, coupled with other preventative measures, has stopped an estimated $120 billion worth of fraud attempts. During an oversight hearing, Saenz told lawmakers that 2020 was an anomaly in which there was a criminal assault on the unemployment insurance program nationwide, and California has since closed the door to that type of fraud.

Since the beginning of the pandemic, California has paid out more than $178 billion in unemployment benefits based on 25.5 million total claims. That totals four times the combined amount of the worst two years of the Great Recession a decade ago.

Fraud rings use various schemes to steal a victim’s identity and open a fraudulent claim under the person’s name. Then, they arrange to have payments mailed to a house in California where the claimant purportedly lives, officials have said.

Often crime rings seek to have a Bank of America debit card issued for unemployment payments, which is mailed to an empty house, perhaps one that is up for sale. The fraudsters use a “mule” to pick up the debit card for a cut of the stolen money and mail the bulk of the funds to the crime rings.

Criminals have also shared open-source code software on the dark web for hackers to use, which may have caused the crime wave to expand.

The EDD is working on a new system that will deposit unemployment benefits directly in recipients’ bank accounts, rather than sending them a check or debit card in the mail. The new system will take a few years to implement, Saenz said.