Federal Authorities Initiate Probe into Unemployment Fraud in California

The federal government is set to intensify its scrutiny of California officials who may have overlooked vast unemployment fraud during the pandemic, with losses potentially reaching tens of billions of dollars. The U.S. Department of Labor plans to notify California’s Employment Development Department of the imminent arrival of a “strike team” dedicated to uncovering instances of theft and misuse, a move similar to current investigations in Minnesota.

Labor Secretary Lori Chavez-DeRemer confirmed the upcoming probe in a statement to The California Post, emphasizing that financial irregularities and potential fraud within California’s unemployment insurance program will be thoroughly investigated. She also criticized the previous administration, led by President Joe Biden, for neglecting failing labor programs, stating, “This ends now.”

In Minnesota, federal investigators have been diligently examining financial records linked to pandemic-related fraud schemes. This includes the notorious “Feeding Our Future” case, where fraudulent claims and shell companies allegedly diverted around $250 million from federal child-nutrition funds. Prosecutors believe that a total of $9 billion might have been illicitly obtained in Minnesota, with nearly 100 individuals facing charges as of the latest reports.

The California investigation will mirror these efforts, aiming to expose and address similar fraudulent activities that may have occurred under the state’s unemployment insurance program during the pandemic.

Federal investigators have been combing through financial records tied to Minnesota fraud schemes after prosecutors uncovered what they describe as a sprawling web of pandemic-era theft, including the massive “Feeding Our Future” case that allegedly siphoned roughly $250 million in federal child-nutrition funds through fake claims and shell companies. 

In total, a staggering $9 billion may have been stolen in Minnesota, according to federal prosecutors. Nearly 100 people had been charged with crimes as of last month.

The breadth of fraud in California, however, could leave Minnesota’s thievery looking like chump change.

The feds provided California nearly $290 billion in relief funds during the pandemic, and EDD was among the largest recipients as it was tasked with rapidly implementing expanded unemployment benefits.

In 2023, state auditors issued a report that found EDD made huge missteps in preventing fraud, allowing billions of dollars in unemployment payouts that may have been fraudulent. The total tab was estimated to be as high as tens of billions.

Investigators have not always had to look too far to find the culprits.

Download The California Post App, follow us on social, and subscribe to our newsletters

Last March, Regina Brice, a former EDD employee, was sentenced to 66 months in prison for using her position to file $858,339 in fraudulent unemployment claims. A month later, four siblings in Kern County were sentenced to prison for creating nonexistent businesses to claim more than $1.1 million in unemployment benefits.

EDD officials declined a request for comment on the pending investigation.

The new probe in California — drawing federal investigators from both the national and regional offices — appears to be partly motivated by the state’s deadbeat track record.

California lawmakers still haven’t paid off a $20 billion federal loan for unemployment insurance claims during the pandemic — and struggling businesses are now being forced to pick up the ballooning tab.

Employers are on the hook for roughly $42 in payroll taxes per employee to pay down the massive debt — and that tab will rise every year until the debt is cleared.

“Immediately, we are engaging a specialized strike team to uncover any potential fraud or abuse and quickly moving to protect the American worker and taxpayers,” Chavez-DeRemer said. “I look forward to restoring the California [Unemployment Insurance] program’s integrity and financial health.”

Earlier this week, the Labor Department’s official watchdog announced that more than $900 million in COVID-19-era unemployment benefits was being misused or put at risk of being stolen.

Roughly $720 million in unemployment insurance benefits is sitting on prepaid debit cards, officials said, while another $192 million was moved to state unclaimed property offices.