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Report: Billions Lost In Fraudulent EDD Payments; Overseas Crime Syndicates Cash In

SAN FRANCISCO (CBS SF/AP) -- While millions of Californians are battling each day to put food on the table amid the idled COVID-19 economy, payments from the state earmarked to help them have been ripped off to the tune of nearly $10 billion, according to a security firm hired to investigate the fraud.

KPIX 5 has been among the leaders in investigating the EDD payment crisis. Check out our EDD Fraud special section for the latest stories

Blake Hall, founder and CEO of told the Los Angeles Times, that California may have paid out nearly $10 billion in phony coronavirus unemployment claims — more than double the previous estimate. Some of that money has gone to organized crime in Russia, China and other countries.

At least 10% of claims submitted to the state Employment Development Department before controls were installed in October may have been fraudulent.

The Times on Friday said that would work out to $9.8 billion of the benefits paid from March through September.

The money went to people who lost their jobs when the state began locking down businesses in an effort to curb the COVID-19 pandemic that currently is overwhelming hospitals and causing hundreds of deaths a day.

California, the nation's most populous state, has processed more than 16 million unemployment benefits claims since March and paid out $113 billion. The Employment Development Department has struggled to keep up with the demand, facing intense pressure to work through a backlog that at one time numbered more than 1.6 million people.

The payout includes $43 billion from a federal expedited assistance program for independent contractors, gig workers and the self-employed that is less secure, the Times said.

The state has acknowledged that the department was bilked out of hundreds of millions of dollars in COVID-19 unemployment funds that went to fraudsters, including some in the name of U.S. Sen. Dianne Feinstein. Others were sent to inmates in jails and prisons, including Scott Peterson and others on California's death row.

Hall's company was hired by the Employment Development Department and since October his firm had blocked nearly 470,000 phony claims.

Typically, 10% of unemployment claims nationwide are fraudulent, Hall told the Times.

Much of the COVID-19 fraud in California and other states was perpetrated by criminals in some 20 countries, he said.

Hall said criminal rings submit claims using stolen identity information and then send "money mules" out to pick up debit cards issued by the Employment Development Department, often to vacant houses.

"When the Russians and the Nigerians and the Chinese are the players on the field, they are going to put up some points," Hall said. "This is a very sophisticated cyberattack that's being run at scale."

The U.S. Department of Labor's inspector general's office warned in November that as much as $36 billion of the $360 billion in federal COVID-19 support payments could be improper or fraudulent.

Rita Saenz, who became the Employment Development Department's new director this month, called it an unprecedented criminal assault on the benefits system.

Saenz told the Times that she couldn't comment on the possibility of there being $9.8 billion in fraud because the department is still trying to determine how much fraud was committed.

"My intention is to do everything we can, working with our law enforcement partners, to catch whoever is doing it and bring them to justice," she said.

Last month, the Employment Development Department suspended payment on 1.4 million claims until they could be verified.

© Copyright 2021 CBS Broadcasting Inc. All Rights Reserved. The Associated Press contributed to this report.

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