EDD fraud could total $1 billion in losses
Scam involves inmates at every jail in the state, including El Dorado County
District attorneys from across the state, including El Dorado County District Attorney Vern Pierson, last week announced they have been investigating a scam run out of local, state and federal prisons that could involve the theft of up to $1 billion.
California Department of Corrections and Rehabilitation officials said between March and August over 35,000 unemployment claims were filed in the names of inmates, with 20,000 of those claims paid. Sixteen claims were filed for one inmate alone.
The scam was a joint effort between inmates and their confederates outside prisons filing phony unemployment claims with the Employment Development Department of California using real or false names, addresses and Social Security numbers. The fraud went undiscovered until recently because EDD does not use software that compares the list of prison inmates against those filing for benefits.
Sacramento County District Attorney Anne Marie Schubert said so far they have uncovered tens of thousands of inmates involved statewide with the losses totaling hundreds of millions of dollars and as much as $1 billion. “The fraud is staggering,” she said in a press conference Nov. 24, adding it “will be one of the biggest frauds of taxpayer dollars in California history.”
Schubert said the losses in local jails alone could be $10 million, adding there is concern a similar scam could be taking place in state hospitals or other detention facilities.
Schubert said the stolen money went to every kind of inmate including notorious serial killers, rapists, traffickers, child molesters and other violent prisoners. Those filing included 133 death row inmates. Through August, the total amount stolen for those on death row in her county alone amounted to $420,000 with the highest claim being $20,000.
Payments went to inmates and their confederates in California, other states and even other countries. Both Schubert and Pierson pointed out California does not have a system like 35 other states that checks the names of inmates against those applying for benefits.
Pierson noted that five years ago the DA’s Association was told that such a program existed but wasn’t being used in California. “But nothing could have told us the magnitude of this fraud,” he said.
The scam was discovered almost by accident, according to San Mateo County District Attorney Steve Wagstaff. An investigator was listening in on an inmate’s conversation as he described the con. Later it was learned it was going on in a prison in Lassen County as well as the word got around of what a simple scam it was.
“It was due to the CARES Act,” noted Pierson, who said that all someone had to do was supply simple information. The inducement was the additional $600 a week in unemployment benefits that the federal government provided. Pierson said by back filing, inmates could easily apply for $10,000 to $20,000 that was mailed out in the form of a debit card that didn’t require identification to use.
The money then went to friends, family or even criminal gangs who would cash the cards in and send a portion of the money in the form of money orders back to the inmate.
Pierson said a task force was formed once the scam became widely known. Laying the blame on EDD, who he called dysfunctional, Pierson noted that while some of EDD’s line staff had been helpful there was a lack of responsibility up the chain of command as people resigned or retired once it became known what had happened. DAs have since asked for Gov. Gavin Newsom’s help in stopping the flow of money and seeking restitution.
U.S. Attorney for the U.S. District Court for the Eastern District of California McGregor Scott also spoke, saying the fraud was driven by the onset of COVID-19 and the supplemental unemployment money paid to those laid off. Scott said while the stolen money was a mix of state and federal funds, most of it came from the federal government.
Scott said he has been authorized to hire an attorney to investigate the fraud, likening it in size and scope to the mortgage fraud in the 2000s, which he was involved in investigating.
As far as a response from EDD regarding the scam, Schubert and Pierson both noted it was slow or nonexistent from top management.
“As a taxpayer all of us should be angry about this,” commented Pierson, saying inmates were able to con the system while people who lost their jobs due to the pandemic went without benefits because they didn’t know how to work the system. Pierson was also less than optimistic the majority of the money will ever be repaid.
Contacted by the Mountain Democrat after the press conference, Pierson said every jail and prison in the state was impacted at some level, including El Dorado County, but due to the ongoing investigation he couldn’t release any specifics on either the number of local inmates and confederates involved or the amount of money involved.
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