The pattern that emerges in California is that of a vast system that almost seems to invite fraud.
California is a cash machine.
The state collects some of the country’s highest income, business, and fuel taxes, and now spends more than $300 billion per year.
And yet, everywhere you look, California seems to be falling apart.
(…) We conducted interviews with public officials, fraud experts, and political figures, and reviewed hundreds of pages of government reports, state audits, criminal indictments, and other public records on California fraud.
Seemingly every state program has been compromised by criminals.
The best estimates suggest that, on the governor’s watch, fraudsters, scammers, and organized crime rings have stolen at least $180 billion from taxpayers.
Welcome to Gavin Newsom’s empire of fraud.
Fourteen months after Newsom began his first term as governor, the COVID-19 pandemic swept the world. The state’s leaders imposed some of the country’s most restrictive public-health measures. In response to the crisis, Newsom sought to dump pallets of cash across the state — as quickly as possible.
One way to inject money was through California’s massive unemployment insurance program (UI). Unemployment insurance is administered by the state’s Employment Development Department (EDD), which can process billions of dollars in payments monthly. Before the state turned on the cash machine, however, experts had warned that the system was ripe for fraud.
Haywood Talcove, one of America’s leading fraud specialists and CEO of LexisNexis Risk Solutions for Government, said: “I was begging [federal officials] not to let the money go out like that, because it was going to be the biggest fraud in the history of our country. Obviously, I wasn’t successful.”
For many reasons, California was particularly susceptible to the large-scale fraud schemes that Talcove foresaw.
“They literally suspended all of the rules for the [unemployment insurance] program,” Talcove said. “[That made] it possible for anyone to get that benefit even if they weren’t entitled to it. It was very intentional. They knew what they were doing. But it caught up to them because it just got so out of control.”
The scams began almost immediately, with criminals from around the world reportedly siphoning cash from the program. In one case, a Romanian-led fraud ring orchestrated a $5 million unemployment-insurance scheme. Many of the fraudsters wired the stolen funds to Romania.
Around September 2020, Fontrell Antonio Baines, a rapper from Memphis known as Nuke Bizzle, released a music video on YouTube entitled “EDD.” In the song, Baines bragged about ripping off California’s UI program. “Go to the bank with a stack of these,” Baines rapped, holding up EDD envelopes. Another rapper can be heard saying: “You gotta sell cocaine, I just file a claim.” All told, Baines obtained more than $700,000 in stolen funds using preloaded EDD debit cards. He pleaded guilty to federal charges.
California’s prison population apparently got in on the action, too: The EDD allegedly paid out hundreds of millions of dollars in fraudulent claims in prisoners’ names, including those of at least 133 inmates on death row.
Remarkably, EDD not only failed regularly to cross-reference its unemployment payouts with a list of state prisoners, but it also had just two bureaucrats assigned manually to inspect reports of suspected fraud.
State officials eventually admitted to having paid out approximately $20 billion in fraudulent claims during the pandemic, and to making an estimated $55 billion in improper payments. Talcove claims those figures don’t even tell the full story: “In California, at one point, you had more people applying for unemployment insurance benefits than you had people over the age of 18.”
While Newsom has conceded that “bad actors” took advantage of the UI program, he has also defended his government’s record, saying they took swift action as soon as the alleged prison scheme surfaced. The EDD, for its part, has a webpage documenting its anti-fraud efforts. But any suggestion that California has fraud under wraps is contradicted by findings from its nonpartisan state auditor.