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California’s prison system unemployment fraud now estimated to be a staggering $400 million scam

California state investigators have identified a staggering $400 million paid on some 21,000 unemployment benefit claims improperly filed in the names of California prison inmates, officials stated Monday. State lawmakers called for legislative hearings over the massive fraud. The scope of the scam is hard to comprehend.

In a letter to district attorneys on Tuesday, Governor Gavin Newsom stated that he has been “deeply alarmed” since receiving reports of fraud involving prisoners. The reports emerged at the San Mateo County Jail in August. He noted that a task force he announced last week comprised of nine district attorneys began meeting Monday to coordinate a statewide investigation.

The investigation has resulted in debit cards from the state Employment Development Department being frozen. Those cards contain millions in benefits. An additional $80 million in payments have also been blocked when some 10,000 additional claims were not approved.

This total is nearly three times the $140 million in bogus claims paid out that were estimated last week by investigators across California and a federal prosecutor. There were shocked faces all around when the amounts were revealed.

Claims were filed with the EDD on behalf of prisoners, including San Quentin State Prison inmate Scott Peterson, who was convicted of killing his wife and unborn son, as well as Cary Stayner, who was convicted of murdering two women and two girls near Yosemite in 1999. Some of the inmates who allegedly filed had their identities stolen it is reported.

On Monday, lawmakers called for legislative hearings to determine how the fraud that included claims filed in the names of 133 inmates on death row occurred.

As this plays out, hundreds of thousands of unemployed Californians are still waiting for payments from EDD on legitimate claims.

“Now we find out that this enormous amount of money has been sent out to felons,” Sen. Jim Nielsen (R-Gerber) said. “That is an absolute outrage. There should be more accountability and an oversight hearing on this.”

Assemblyman David Chiu (D-San Francisco) also supports legislative hearings on this.

“It’s egregious that my constituents make a single typo that holds up their EDD benefits for months,” while claims are being paid to death row inmates, Chiu said in a statement.

The task force, led by district attorneys from San Diego to Fresno Counties, have asked for “significant resources” to combat “what appears to be the most significant fraud on taxpayer funds in California history,” and stated that claims had been paid under the names of tens of thousands of incarcerated Californians.

In most cases, payments were sent in the form of prepaid debit cards to addresses designated on the applications, with the proceeds later deposited to inmate accounts in jail and prisons, but in some, the benefits were sent directly to the institutions.

“It’s behemoth,” said the Sacramento County district attorney, Anne Marie Schubert, who is chairing the task force.

“The volume of fraud as well as the types of inmates involved is staggering,” the task force wrote to Newsom, adding that many of the claims filed under the names of inmates were being paid to recipients in other states and, in some cases, other countries.

“This needs to be halted,” Schubert said. “We are paying hundreds of millions of dollars in the name of serial killers, rapists, and child molesters. We need to turn the spigot off.”

In a development that will shock no one, the majority of fraudulent claims in the prisons involve the new federal Pandemic Unemployment Assistance program, which was approved by Congress and allowed self-certification of eligibility to expedite benefits.

“While this helped many individuals in need during the pandemic, bad actors took advantage of the crisis to abuse the system,” Newsom said.

Investigators working with the state task force are still trying to determine how many of the claims identified were filed from prison, how many were filed on behalf of inmates by people who aren’t incarcerated, and how many were filed by fraudsters using the identities of inmates without their permission, state officials said Monday during a briefing on the probe.

Officials also want to know if the scammers had any help from employees of the EDD or the California Department of Corrections and Rehabilitation.

The fraud surfaced in mid-August when prosecutors in San Mateo County filed charges alleging 21 people were part of a fraud ring that stole $250,000 by submitting bogus claims on behalf of inmates at the county jail, officials said.

“At that point in time we started looking at internally what was our exposure,” said one administration official.

The state also took radical action to prevent new fraudulent claims.

On Sept. 20, the EDD announced it was putting a pause on accepting new claims for two weeks while it installed a new system that requires claimants to verify their identity with a live picture of themselves and provide documentation such as utility bills. That new system should prevent claims from being approved for prison inmates, officials said.

So far, no one has been arrested on suspicion of fraud involving state prison inmates, state officials reported.

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