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Speaker 1: On this episode of News World. I've been looking very

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Speaker 1: closely at the issue of unemployment fraud during the pandemic,

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Speaker 1: both in Washington State, where it's about a six hundred

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Speaker 1: million dollar problem involving apparently largely Nigerian cyber criminals who

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Speaker 1: have filed one hundred and twenty two thousand applications using

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Speaker 1: stolen identities, and they've gotten about six hundred million, which

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Speaker 1: I thought was a big number until I turned to

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Speaker 1: our largest state, California, and it turned out that the

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Speaker 1: Cares Act, which President Trump signed into law on March

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Speaker 1: twenty seventh of twenty twenty, provided a lot of extra

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Speaker 1: federal funding the states to help people who are employed

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Speaker 1: during the lockdowns. By May fourteenth, the US Secret Service

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Speaker 1: is shud and alert entitled quote massive fraud against state

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Speaker 1: unemployment insurance programs. By January twenty twenty one, the California

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Speaker 1: State Auditor had identified that at least eleven point four

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Speaker 1: billion dollars had been taken from the California unemployment insurance program,

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Speaker 1: but the yes much an hour or even higher. In fact,

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Speaker 1: many experts estimate the fraud could be as high as

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Speaker 1: thirty one billion dollars an unbelievable amount of taxpayer money

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Speaker 1: that was stolen and more importantly, did not get to

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Speaker 1: the people who needed it most. The citizens of Californias

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Speaker 1: were unemployed due to the pandemic. So I really wanted

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Speaker 1: to have a better sense of how fraud of this

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Speaker 1: scale could have happened. And I'm really pleased to introduce

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Speaker 1: my guests. McGregor Scott currently serves as the United States

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Speaker 1: Attorney for the Eastern District of California. McGregor, thank you

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Speaker 1: for joining me when we start at the beginning of

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Speaker 1: all this. How did a fraud of this magnitude take

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Speaker 1: place in California, Well, it's my pleasure to join you.

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Speaker 1: Thank you. Now I should point out that in California

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Speaker 1: we refer to this as EEDED because that's the state

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Speaker 1: agency which handles unemployment insurance by shorthand I will refer

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Speaker 1: to this as EDD fraud at least with respecting the

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Speaker 1: state of California. The next point I would make is

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Speaker 1: that it's not as though EDD fraud just happened as

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Speaker 1: a result of the pandemic. This office has been prosecuting

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Speaker 1: EDD fraud for the last several years, so it's nothing new.

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Speaker 1: The second point is that the California system has simply

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Speaker 1: not kept up, And a great analogy is that the

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Speaker 1: state unemployment system in California, you can analogize it to

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Speaker 1: an antiquated bridge that had not kept up with population technology.

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Speaker 1: All these things, and over the course of years, the

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Speaker 1: engineers would report that the bridge is no longer sufficient,

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Speaker 1: but senior leadership in the state chose to ignore that

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Speaker 1: and did not take simple measures to update the system

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Speaker 1: to prevent fraud of this scale. One example would be that,

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Speaker 1: unlike thirty five other states in the United States, California

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Speaker 1: prior to the present time did not cross reference unemployment

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Speaker 1: insurance applications against the prisoner database, so that was an

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Speaker 1: open door going into this. There was a system that

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Speaker 1: was put into place a few years ago, funded by

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Speaker 1: the federal government, that accelerated the ability of the state

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Speaker 1: to check the legitimacy of applications. The system itself was

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Speaker 1: paid by the fence, but after a short period of time,

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Speaker 1: the state decided they didn't have enough money to maintain

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Speaker 1: the operational expenses an ongoing basis, so they shut it down.

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Speaker 1: So this is just a couple of examples of the

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Speaker 1: kinds of things that the state of California has manifested

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Speaker 1: failed to do. And crooks are crooks. They're smart, they're sophisticated.

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Speaker 1: They see a soft underbelly and they go. And it

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Speaker 1: did not take very long in the spring this year

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Speaker 1: for the word to get out. And perhaps the way

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Speaker 1: that manifested it most directly was in the state prison system,

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Speaker 1: where we have example after example of inmates who figured

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Speaker 1: this out and applying for unemployment insurance and getting it.

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Speaker 1: So that's at one level. The next level is obviously

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Speaker 1: the international crime rings, the Nigerian fraud schemes that you

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Speaker 1: mentioned earlier. This is like Robin Fort Knox and there's

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Speaker 1: no guards and they manifested took advantage of it. And

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Speaker 1: the other thing was I think there was a state

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Speaker 1: of mind at the state despite the warnings that came

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Speaker 1: You referenced the water from the Secret Service. There were

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Speaker 1: also multiple warnings put out by the Federal Department of

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Speaker 1: Labor about the fraud that was owing and the danger

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Speaker 1: of fraud be at the state adopted this position that

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Speaker 1: we're just simply going to push the money out and

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Speaker 1: we'll worry about it later. So it was a confluence

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Speaker 1: of events which led us to this. There is incompetence

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Speaker 1: at an almost biblical scale in terms of the historical

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Speaker 1: operations of dB here in California. And then we had

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Speaker 1: this confluence of the global pandemic and this federal money

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Speaker 1: coming out. And the final point I would make, and

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Speaker 1: I think it's an important one to making you can

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Speaker 1: appreciate this in the positions you held in your life.

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Speaker 1: People need to understand that this money, the federal government

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Speaker 1: provides the money to the states, but it's the responsibility

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Speaker 1: of the states to accept applications, process for approval and

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Speaker 1: actually provide the money. This is defence funded the states operated,

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Speaker 1: and we need to keep site on that as we

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Speaker 1: look at this manifest fraud has taken place in California.

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Speaker 1: When you look at all this, how does word spread?

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Speaker 1: You know, so many figures out Ah, I can break through,

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Speaker 1: but then the word must have spread believably fast. Well,

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Speaker 1: it did, specifically in the prison system where you've got

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Speaker 1: a highly dense, highly concentrated population of people who are

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Speaker 1: in prison for a reason. To start with that premise,

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Speaker 1: and they figured out and worn spreads and by way

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Speaker 1: of example, one case that we have indicted out of

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Speaker 1: this office from the principal women's prison here in the

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Speaker 1: state of California in the Central Valley. Two women who

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Speaker 1: were serving time together. One of them was paroles, So

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Speaker 1: she's out on the outside and the one who still

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Speaker 1: in custody is acquiring name, social scarity numbers and dates

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Speaker 1: of birth of other inmates, and then she passes those

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Speaker 1: to the woman who's on the outside by email and

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Speaker 1: bone calls, and the woman on the outside submits all

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Speaker 1: the applications, gets the money and off their run. So

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Speaker 1: that's just one example of how this manifested itself in

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Speaker 1: the state prison system. Is it legal in California for

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Speaker 1: prisoners in prison to get unemployment compensation? Absolutely not certain,

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Speaker 1: no way, shape or form. That's a knowable group. Why

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Speaker 1: didn't the employment office simply match up the computer files

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Speaker 1: and identify the prisoners, because unlike thirty five other states

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Speaker 1: in the country, California did not do that. There was

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Speaker 1: a stated policy position that the state prison system could

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Speaker 1: not share social security numbers with EDD for reasons which

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Speaker 1: are not readily imparent, but that was the policy that

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Speaker 1: was adopted. That policy has, upon the advice of the

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Speaker 1: state Attorney General, has since been rescinded and now here.

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Speaker 1: In recent weeks and months, the state prison system is

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Speaker 1: now in fact sharing social security numbers with DDS prevent

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Speaker 1: exactly what we're talking about right now. But the door

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Speaker 1: was wide open because of a self imposed restriction put

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Speaker 1: in place by the state for reasons which are not obvious.

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Speaker 1: So somebody else said that there was one case where

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Speaker 1: some seventeen hundred checks went to the same address. That

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Speaker 1: is correct, yes, well, and there was no internal control

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Speaker 1: that said, you know, I mean maybe the first three

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Speaker 1: or four or five, but it's a seventeen hundred. You

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Speaker 1: would have thought somebody would have noticed, one, would hope.

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Speaker 1: And the lack of any sort of quality control going

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Speaker 1: into this is mind bodling. And I will give you

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Speaker 1: another example. We are prosecuting a case involving the originators

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Speaker 1: were Nigerian fraudsters. They submitted an application to the state

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Speaker 1: of California for unemployment insurance in the name of Diane Feinstein.

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Speaker 1: Perhaps you've heard that name. This would Hurst. That application

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Speaker 1: was one of over one hundred that were sent to

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Speaker 1: the residents of a woman here in a suburb of Sacramento,

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Speaker 1: and the state approved that payment. So unemployment insurance was

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Speaker 1: issued by the state of California in the name of

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Speaker 1: Diane Feinstein, and it was all automatic or was there

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Speaker 1: actually a human being in the loop. I don't know

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Speaker 1: the answer to that. I'm not pretty to the inside

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Speaker 1: baseball and how that all works. Common sense tells me

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Speaker 1: it's got to be automated. With certain hope there is

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Speaker 1: a human being saying, oh, I advised Jack, But I

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Speaker 1: don't know the answer to that. In Washington State, the

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Speaker 1: Nigerians seem to be the primary actors, and apparently it

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Speaker 1: was an entire cyber crime network in Nigeria that makes

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Speaker 1: an amazing amount of money out of ripping off the

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Speaker 1: rest of the world. To what extent where Nigerians playing

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Speaker 1: in California. They were definitely a significant part of it,

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Speaker 1: But there were only one piece of it. Because we've

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Speaker 1: got all the different blocks, We've got the prisons and

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Speaker 1: the jails, we've got the international crimaries, and it's not

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Speaker 1: just the Nigerians and the Eastern European ones, Russian ones

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Speaker 1: as well. And then there's a third bucket that I

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Speaker 1: refer to as the grifters. And these are people who

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Speaker 1: have long standing criminal records for all the various forms

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Speaker 1: of fraud that you could think of who figured this

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Speaker 1: one out as well. So those are the three broad

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Speaker 1: buckets that I would put it into. If something like

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Speaker 1: thirty one billion dollars has been paid out illegally, how

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Speaker 1: practical is to try to get that money back. It's

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Speaker 1: a great question, and that is something that we are

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Speaker 1: struggling with in all candor, because in large measure the

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Speaker 1: money's gone. I can tell you by way of example,

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Speaker 1: earlier in January, we serve search warrants at a residence

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Speaker 1: here in Sacramento, at a location where hundreds of thousands

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Speaker 1: of dollars in unemployment insurance debit cards were sent. And

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Speaker 1: in that search warrant we recovered seven thousand dollars in

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Speaker 1: a laundry basket. So of all that hundreds of thousands,

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Speaker 1: we were able to recover seven. So it's not going

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Speaker 1: to be much, I'm afraid at the end of the day.

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Speaker 1: That's what strikes me is that the amount anyone activity

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Speaker 1: is so small, and it's so hard to track down

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Speaker 1: all the data to put to other witnesses. You know,

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Speaker 1: I mean a criminal justice system which is designed to

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Speaker 1: protect the innocent. Also sometimes it's an upflow the crooks

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Speaker 1: get out. Is there any sense of overhauling the EDD

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Speaker 1: and a pretty dramatic way. Well, I think that's probably

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Speaker 1: a question best directed to the Governor's office. But I

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Speaker 1: think they have undertaken obviously a number of changes because

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Speaker 1: of the outrage within the state or how could this

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Speaker 1: happen and the sharing confidence. I think they have undertaken

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Speaker 1: a number of changes. Whether those are the magic bullet,

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Speaker 1: I don't know. I know that one of the changes

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Speaker 1: they have made is a system called id ME, which

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Speaker 1: helps to cut down on their number of fraudulent applications.

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Speaker 1: But we're already getting reports that the fraudsters are figuring

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Speaker 1: out how to go around id ME and continue to

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Speaker 1: submit applications. We get the money. It's not a battle.

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Speaker 1: You know, the other side does something, we react. So

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Speaker 1: do you have an idea what a typical payment would

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Speaker 1: have been? The general numbers that we seem to see

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Speaker 1: on an individual payout or in the twenty to thirty

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Speaker 1: thousand dollars range, because it would be multiple months and

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Speaker 1: they paid retroactively from the time of submission at approval.

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Speaker 1: I mean that's actually where it's stealing. Oh yeah, for sure,

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Speaker 1: this isn't chump change. Yeah, absolutely, especially when you have

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Speaker 1: no attention to paying taxes that money and it's cash

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Speaker 1: and you can do whatever you want with it. And

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Speaker 1: somebody said that one of the differences because in Washington State,

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Speaker 1: the money literally was leaving the country, but in California,

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Speaker 1: a very high percentage of it is going to criminals

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Speaker 1: who are using it to buy illegal guns, to buy drugs,

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Speaker 1: and to participate in human trafficking. I mean, do you

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Speaker 1: get that sense when you're interviewing people and looking at

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Speaker 1: how these cases are evolving, that it really does involve

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Speaker 1: a level of criminality that in effect, the taxpayers are

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Speaker 1: subsidizing the tunnels, no question about it. We have had

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Speaker 1: a number of wire taps on narcotics investigations where we're

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Speaker 1: picking up descriptions of exactly what you just described, that

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Speaker 1: the eded money is being used to facilitate the purchase

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Speaker 1: of firearms and the transport and sale of narcotics and

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Speaker 1: humans rafting. It's absolutely a piece of thist. So literally,

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Speaker 1: if you look at the dramatic rise in crime rates

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Speaker 1: and murders and what have you, I mean, you have

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Speaker 1: the system which is almost just spinning out of control.

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Speaker 1: It is a perfect storm in California right now. We

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Speaker 1: have undertaken a massive social experiment in revisions to our

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Speaker 1: penal system over the last several years. There are a

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Speaker 1: whole lot more people out on the street right now

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Speaker 1: we should be in prison or a county jail, which

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Speaker 1: than are, So that's a piece of it. We have COVID,

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Speaker 1: which has resulted in mass numbers of people being released

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Speaker 1: from the state prison and the county jails. For a

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Speaker 1: long time, there are zero bail provisions in place across

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Speaker 1: the state of the county jail level. And then we

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Speaker 1: have people with way too much time on their hands

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Speaker 1: and nothing to do. And now we have a means

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Speaker 1: of funding criminal operations through this EDD money, and all

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Speaker 1: of that has culminated in a dramatic historic increase in

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Speaker 1: their violent crime rate in the state of California across

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Speaker 1: the state isolated LA, not isolated to the bar across

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Speaker 1: the state in terms of pomicides and shootings. There are

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Speaker 1: consequences to policies, and those consequences are right now playing

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Speaker 1: out in the streets of California. Apparently, EEDED identified twenty

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Speaker 1: six thousand addresses that it said we're linked to suspicious claims,

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Speaker 1: but it only stopped payment to claims associated like ten

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Speaker 1: thousand of them, so the other fifteen thousand are suspicious

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Speaker 1: that they get the money. Anyway, I don't have the

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Speaker 1: particulars around what EDD did with respect to that. What

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Speaker 1: I can tell you is that the financial institution which

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Speaker 1: actually operates this for EEDD is the Bank of American.

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Speaker 1: When people are approved for unemployment insurance, they essentially get

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Speaker 1: a debit card that is usable at a Bank of

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Speaker 1: American where they can go get cash. So Bank of

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Speaker 1: America is right in the middle of all of this,

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Speaker 1: and one of the things that happened this is a

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Speaker 1: few months ago now. The Bank of America on its

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Speaker 1: own sort of figured out something's going on here, and

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Speaker 1: they put together what we call a suspicious Activity report,

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Speaker 1: which is a requirement and a federal law for banks

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Speaker 1: to report suspicious banking activities. They called it a super

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Speaker 1: Suspicious Activity Report. And what they looked at in terms

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Speaker 1: of what they turned over to the FBI, which we

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Speaker 1: coordinated through this office, only instances where five or more

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Speaker 1: applications came from a single residence outside the state of California.

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Speaker 1: So let me say that again, only five applications from

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Speaker 1: a residence outside the state of California, so anything inside

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Speaker 1: the state, anything involving for or fewer outside the state,

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Speaker 1: and that bucket alone was five billion dollars. Why doesn't

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Speaker 1: the Bank of America have any responsibility? He do, and

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Speaker 1: at the end of the day, there will be some

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Speaker 1: real issues with this. One of the problems that was

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Speaker 1: identified was that edd would get an application with a

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Speaker 1: specific residence, approve it, and then whoever had submitted the

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Speaker 1: application that was approved could then go to the Bank

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Speaker 1: of America and change the address to which the debit

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Speaker 1: card would be sent. So again another failing of the

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Speaker 1: system that was set up to handle all There's just

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Speaker 1: a lot of pieces of this. The Bank of America,

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Speaker 1: They've got their own issues out of this whole thing,

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Speaker 1: and there will have to be some accountability on that

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Speaker 1: end as well. Part of what makes it so relevant

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Speaker 1: is that both in Washington State with Susie Levine and

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Speaker 1: in California with Julie Sue, the person who is in

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Speaker 1: charge of six hundred million and thirty one billion in fraud,

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Speaker 1: both have been nominated by Biden to major jobs in

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Speaker 1: the Labor Department. How can that make any sense? It

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Speaker 1: makes no sense, and its promotion for incompetence, and we've

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Speaker 1: had enough of that. We've had enough of that here

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Speaker 1: in California, and we've had enough of it at the

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Speaker 1: federal government. Miss Sue, she in large measure owns this thing.

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Speaker 1: There were policy directions given directly from her, and a

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Speaker 1: large measure allowed a lot of this to happen. And

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Speaker 1: it is simply incomprehensible to me that she could now

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Speaker 1: be essentially handled a great, big promotion. So I don't

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Speaker 1: get it. I don't either, and I'm trying to get

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Speaker 1: the appropriate members of the Senate to take a serious

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Speaker 1: look at both of these people. This is corruption on

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Speaker 1: such a grand scales, I think you said earlier California

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Speaker 1: maybe the largest theft of taxpayer money in history by

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Speaker 1: a big margin. And yet the person who was standing

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Speaker 1: there handing out the money to the crooks is now

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Speaker 1: getting a promotion to go to Washington. It defies common sense.

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Speaker 1: It may explain a lot of the energy and drive

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Speaker 1: behind the recall petition that people have to all just

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Speaker 1: get tired of this many bizarre things. Now I understanding

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Speaker 1: of a bridge analogy for all of this, Yes, sir,

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Speaker 1: The analogy I would you use is that the Edd

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Speaker 1: system in California is analogous to an antiquated bridge that

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Speaker 1: is no longer sufficient to handle the volume of traffic

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Speaker 1: or the size of the vehicles crossing over, but it

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Speaker 1: limps along, and over the years, the structural engineers have

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Speaker 1: looked at it and reported to the appropriate authorities that

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Speaker 1: the bridge needs to be updated or at least perhaps

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Speaker 1: even replaced, but the people in charge have chosen to

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Speaker 1: ignore those recommendations. So then when all of a sudden

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Speaker 1: there is a surge in traffic, the bridge fails because

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Speaker 1: it has not been updated, it has not been maintained,

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Speaker 1: it has not been replaced. And that really is exactly

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Speaker 1: what happened here in California. The problems with the EDD

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Speaker 1: system have been called out systematically over the years, through audits,

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Speaker 1: through prosecutions, through any number of ways, and the state

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Speaker 1: has simply chosen not to keep the bridge up to date.

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Speaker 1: And what that resulted in at the end of the

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Speaker 1: day was the front door to the vault at Fort

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Speaker 1: Knox was wide open and criminals walked right in and

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Speaker 1: walked right out with the taxpayers money. I understand you're

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Speaker 1: ending your turn at the end of this moneth. What

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Speaker 1: do you challenge your successor to do. Here's an analogy

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Speaker 1: I would use. I held this same position in the

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Speaker 1: Bush forty three administration, and probably the last two years

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Speaker 1: of my time there, it was all mortgage fraud all

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Speaker 1: the time. It was just a manifest thing that we

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Speaker 1: were dealing with. And my successor in the Obama administration

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Speaker 1: continued the great work that was being done in prosecuting

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Speaker 1: those who stole money at that time. You know, this

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Speaker 1: EDD fraud prosecution work is going to last long after

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Speaker 1: I leave as US Attorney, and I am hopeful and

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Speaker 1: confident that my successor in this chair will continue to

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Speaker 1: great work. We've got a well oiled machine that is

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Speaker 1: hitting on all cylinders right now, and it is going

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Speaker 1: to just con tinue to march forward in trying to

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Speaker 1: bring accountability to these people who just simply stole from

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Speaker 1: the taxpayers. Remarkable, it's an amazing story. I really want

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Speaker 1: to thank you for your public service and your willingness

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Speaker 1: to tackle projects on this scale. As a historian, I'm

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Speaker 1: pretty sure this will be the largest theft of public

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Speaker 1: funds in American history, and if it wasn't for people

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Speaker 1: like you, we still would not know about it. Well,

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Speaker 1: I appreciate that very much, and the credit really goes

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Speaker 1: to the agents and the officers and the books that

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Speaker 1: will work in these cases. The investigations and my prosecutors

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Speaker 1: are everything we can and have ganimal continuity to do.

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Speaker 1: So thank you to my guests McGregor Scott. You can

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Speaker 1: read more about the thirty one billion dollars California EDD

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Speaker 1: fraud on our show page at newsworld dot com. News

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Speaker 1: World is produced by English Sweet sixty and Ihearted Media.

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Speaker 1: Our executive producer is d Myers, our producer is Garnsey Slow,

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Speaker 1: and our researcher is Rachel Peterson. The artwork for the

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Speaker 1: show was created by Steve Pennelly. Special thanks to the

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Speaker 1: team at Gingwish three sixty. If you've been enjoying news World,

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Speaker 1: others can learn what it's all about. Right now, listeners

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Speaker 1: of news World can sign up for my three free

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Speaker 1: weekly columns at Gingwish three sixty dot com slash newsletter.

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Speaker 1: I'm new Gingwig. This is new Tworld