EDD says $11B in jobless claims are fraudulent

Labor secretary: Extent of fraud may be more widespread — $30B in all

At least $11 billion in unemployment claims made in California during the pandemic were fraudulent, state officials revealed Monday in a conference call about the reeling jobless benefits system designed to help millions of out-of-work residents.

And the extent of the fraud — already more than twice as large as earlier estimates — could be even more damaging, encompassing perhaps more than a quarter of the $114 billion paid out since government-ordered business shutdowns began in March, sparking an avalanche of job losses.

“Roughly 10% of the $114 billion in claims are confirmed fraudulent, another 17% are potentially fraudulent,” California Labor Secretary Julie Su said during a question-and-answer session regarding the Employment Development Department’s efforts to combat unemployment insurance fraud. If 27% of the claims are determined to be fraudulent, that would amount to more than $30 billion.

Crime rings operating out of Nigeria, China and Russia have unleashed a wave of fraud that has focused on California’s unemployment ben-

efits as their most tempting target.

The state has already acknowledged that it has paid about $400 million in the names of prison inmates, and last month, federal prosecutors charged a former state labor agency worker, a prison inmate and a parolee in a scheme to defraud California’s scandalscarred unemployment insurance system.

State officials conceded California wasn’t ready to combat the fraudulent attempts. In a prepared release issued after Su’s comments, the EDD said the precise count of confirmed fraudulent claims so far is 9.7%.

“There is no sugarcoating this,” Su said. “California did not have sufficient security measures in place to prevent this level of fraud. Criminals took advantage of the situation.”

As fraud concerns increased, the EDD suspended unemployment payments to 1.4 million California workers — and has made only modest progress in unfreezing those red-flagged accounts. Last month, Gov. Gavin Newsom appointed a new director of the troubled agency, its second since February.

Just over 300,000 workers have taken steps to validate their accounts, said Loree Levy, a spokesperson for the EDD. That indicates that another 1.1 million workers continue to face suspended payments while their accounts are verified by the EDD.

“We so appreciate the patience of individuals,” Levy said.

The fraud rings are using various schemes to steal the identity of a victim and open a bogus claim in the victim’s name. Then they arrange to have payments mailed to a house in the state where the purported claimant lives. Typically the crime rings seek to have a Bank of America debit card used for unemployment payments mailed to an empty house, perhaps one that is up for sale.

After that, the fraudsters find 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, officials said Monday. The crooks are also sharing open-source code software on the dark web for hackers to use, which could be causing the crime wave to widen.

Su estimated that anticrime efforts have been able to block as much as $60 billion in fraudulent payments.

In October, the EDD launched a new identity verification technology called ID.me that the state government hopes will help turn the corner against fraudulent payments. Blake Hall, chief executive officer with ID.me, believes progress has been made.

“California was able to stop the bleeding and put a tourniquet on the fraud,” Hall said.

It’s not surprising that the crime rings picked California, whose economy is one of the world’s largest, as a target to exploit unemployment insurance payments.

“In California, it’s easier to hide in the crowd,” Hall said. “Organized crime is approaching this as a business process.”

The EDD also is hoping that it will be able to cope with the mammoth backlog of unpaid claims that the state agency is reporting on its official dashboards.

As of Jan. 20, the total backlog of unpaid unemployment claims was 941,020, a sharp increase of 130,270 from the week before, according to the official EDD backlog.

“We know that too many Californians are waiting on their payments,” EDD Director Rita Saenz said during the conference call to discuss the fraud situation and payment problems at the EDD.