“When I first assumed this role, I just broadly thought, ‘Gosh, we’re never gonna see that money again,’” he told The Sacramento Bee in an interview. Instead, “I can think right now off the top of my head of at least four federal cases where search warrants were executed and boxes of cash were found, each exceeding $500,000,” said Scott.
That’s money linked directly to the fraud. His job as special counsel has tentacles that could reach around the world. Along with local and state prosecutors, the Justice Department and others, the investigation is finding large organized crime efforts as well as people who simply try to deceive the government.
The search is on for the people behind the fraud centers on the now-ended federally funded Pandemic Unemployment Assistance program, created just after the COVID-19 pandemic triggered an economic collapse in March 2020. His surprise aside, Scott, former U. S. attorney for the Eastern District of California, figures most of that $20 billion in fake payments won’t be recovered. “At the end of the day, it’s all going to be pennies on the dollar,” he said, “because most of it is long gone.”
Scott broke down the areas of investigation into five “buckets,” as he called them:
- Transnational organized crime. Scott called this “probably the most significant” of the buckets. Actions are fueled by the dark web, he said, with Social Security numbers readily available for purchase.
- Domestic organized crime. “There’s a lot of evidence that our traditional street gangs have figured this out, and are getting the money, or have gotten the money, and using it to facilitate their nefarious enterprises,” he said.
- Grifters. People who spend their lives trying to figure out how to steal from the government and various insurance programs.
- Miscellaneous.
- The incarcerated population.
The U.S. attorney’s office in September detailed a case involving women who had been incarcerated at the Central California Women’s Facility in Chowchilla. An inmate sent her own and several other inmates’ personal identifying information to submit the unemployment insurance claims in their names. The applications said the inmates had been working various self-employment jobs, which turned out to be false since they were in prison and therefore ineligible for benefits. A woman was sentenced to five years in prison for conspiracy and aggravated identity theft. The estimated loss to the government was more than $250,000.
Scott described the fraud as spiraling out of control across the country soon after the pandemic began in March 2020. Congress and President Donald Trump quickly created the PUA program, permitting benefits for those who had traditionally not been eligible for unemployment benefits but without the same kind of checks and balances in the regular state programs provided by employer-reported wage data.
Suddenly, independent contractors, small business owners and others could qualify, and at the same time, EDD was deluged with applications.
“The floodgates were wide open,” said Scott. “The agency had made a policy decision that we’re going to push the money out as fast as we can because there were people in need. So the traditional safeguards were kind of be damned here for a short period of time.” He found that prisoners and their allies quickly sensed what was happening. An inmate applied for benefits as “Poopy Britches” and was approved.
“So overnight, the word just went out and it just took off at that moment in time, because they knew frankly no one was looking with too much scrutiny at what information was being applied for,” Scott said.
In the early days, he said, it was fairly simple to get benefits.
“Go online — say I was a hairdresser or I was a rapper ... It’s amazing how many hairdressers in California we came across during this process. You just say, ‘I was a hairdresser and I got laid off or had to close my shop because nobody was coming. Here’s my name and Social Security number,’ boom, here’s a check,” Scott said.
EDD in recent weeks has contacted an estimated 1 million people who got federal benefits requiring them to prove they were employed or self-employed, or planned to be employed or self-employed before receiving payments. Documents validating that connection to the labor force was not required by the federal government initially unless claimants wanted more than the $167 minimum weekly benefit amount. If they cannot provide that proof now, they may have to repay benefits and could face financial penalties.
Scott, though, does not see that effort putting much of a dent in the $20 billion lost to fraud. What could be more fruitful is the massive investigation by several government agencies that began last year and is likely to go on for years. Scott praised the law enforcement response, noting particularly that local district attorneys were quick to investigate last year.
In Sacramento, the FBI field office hosts a task force with several federal agencies involved. Nationally, a Justice Department task force does the same. Scott, a partner at the King and Spalding law firm, has five attorneys on his team. Each has a different task. They meet regularly with senior leadership at EDD. On the state level, Gov. Gavin Newsom’s office set up a task force in November to help coordinate investigations. Scott’s office has biweekly calls with district attorneys, the state Attorney General’s Office, federal officials and relevant state agencies.
Since the pandemic began, California has paid $177 billion in benefits, so the suspect payments total about about 11 percent.
“2020 was an anomaly for fraud — not only for California but for every state in the country,” said EDD spokeswoman Loree Levy. “The new PUA program did not have the guardrails and protections that existed in the traditional unemployment insurance program.” She said the state has since implemented several anti-fraud measures that have now blocked at least $125 billion in fraud attempts.
“Today the level of fraud is lower than it’s ever been — even before the pandemic,” Levy said. “That doesn’t mean fraudsters have stopped trying. They haven’t.”
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