California-Unemployment Fraud

Former U.S. Attorney McGregor Scott

(The Center Square) – California has hired former federal prosecutor McGregor Scott as special counsel to investigate the largest employment fraud in the state's history.

During the state’s shutdown last year mandated by Gov. Gavin Newsom, the California Employment Development Department paid out more than $11 billion worth of fraudulent unemployment benefits and now reports that an additional $19 billion in suspicious claims remain under investigation.

Widespread unemployment fraud and the state's lockdowns were among the reasons why Californians said they signed the petition to recall Newsom. While millions of previously employed Californians were forced out of work due to the lockdown and waited months to receive benefits, the state processed fraudulent claims by prison inmates, some on death row, incensing eligible filers.

The state also processed claims filed by international criminal organizations, whose recipients received the additional weekly $600 federal payments on top of state benefits, several reports found.

Last November, Scott, a former U.S. attorney for the Eastern District of California, launched an investigation with nine county prosecutors into California unemployment fraud. They expressed alarm by the number of prison inmates who received payments who were ineligible to receive them because they had not been employed. The prosecutors estimated at the time that fraudulent claims involving 21,000 prison inmates alone cost taxpayers roughly $400 million.

“State unemployment systems last year were under attack by sophisticated international and domestic organized fraud schemes,” Scott said in a statement.

The former EDD director retired with full benefits and former employees were implicated in the fraudulent schemes. In December, it was uncovered that a former state worker scammed more than $200,000 in fraudulent claims using other peoples’ names, including U.S. Sen. Dianne Feinstein, D-Calif.

In the wake of the scandal, Newsom appointed a new director of the agency, Rita Saenz. She directed staff to match personal claimant information with a list of prison inmates, and directed more taxpayer money to hire a contractor to verify the identities of those applying for benefits.

Newsom created a task force in April comprised of state and local law enforcement agencies to investigate the fraud, overseen by the state Office of Emergency Services. They have so far made 68 arrests and opened 1,641 inquiries.

“California took broad action last year to identify and stop criminal unemployment fraud from continuing — and with McGregor Scott’s aid we are taking another major step toward empowering prosecutors to crack down on those who engaged in this criminal activity,” Saenz said in a statement.

Scott served as a U.S. attorney for a district covering 34 counties under Republican presidents. He was appointed by President Donald Trump in 2018 and served until early this year. He previously served in the same position from 2003 to 2009 under President George W. Bush. He was also elected twice as Shasta County district attorney.

His role to uncover employment fraud includes supporting state, federal and local efforts to prosecute suspected criminal activity, making sure criminal cases are referred to the appropriate law enforcement agencies, and helping recover fraudulently paid benefits.