COVID-19 unemployment scam could hit $2 billion, bank tells California lawmakers

In late November, a group of California district attorneys made the stunning disclosure that the state had disbursed as much as $1 billion in fraudulent pandemic unemployment assistance to state prisoners and their accomplices.

Now the bank that handed out the COVID-19 money says the amount of fraudulent aid distributed by California since the pandemic hit could be twice as much.

In a letter to state legislators, Bank of America said Monday that it has uncovered fraudulent activity covering more than 345,000 different accounts.

“Our assessment is that there is activity consistent with fraud in those accounts on the order of approximately $2 billion,” the bank’s director of California government relations, Brian Putler, told the lawmakers.

The BofA letter sheds dramatic new light on the extent of a massive fraud ring — mainly based in the state prison system — that has embarrassed Gov. Gavin Newsom and the state Employment Development Department. Sacramento County District Attorney Anne Marie Schubert, leader of the prosecutors’ task force, called it the biggest fraud case in California history and lambasted EDD for being slow to respond to red flags.

EDD was responsible for administering the federal aid after the coronavirus pandemic shut down much of the economy in March.

The department couldn’t confirm the bank’s estimates Monday. The bank has been freezing some legitimate claims along with those that are fraudulent, and the EDD has been focused on paying the legitimate claims, said Crystal Page, a spokeswoman for the Labor & Workforce Development Agency.

“The governor has made it clear we must weed out all abuse of our unemployment system,” Page said in an email. “That is why the governor launched a strike team this summer to identify and solve issues across the board and more recently, assembled a task force made up of law enforcement to investigate fraud and hold people accountable.”

The district attorneys said prisoners used contraband cell phones to have girlfriends, wives and other outside accomplices apply for unemployment benefits on behalf of thousands of inmates.

BofA’s letter doesn’t mention the prisoners’ scheme but said California’s unemployment system was vulnerable to fraud in multiple forms. While other states have been hit with pandemic fraud, the bank said “the scale of program fraud in California is unique.”

“Most of the complications appear to result from stolen cards, identity theft, or other types of fraud,” Putler wrote. “We have provided significant detail to EDD, California law enforcement, and other state offices and agencies as to how criminals are using stolen identities to apply for unemployment benefits, intercepting cards in the mail, requesting replacement cards posing as legitimate benefit recipients, and engaging in ‘card cracking’ by filing false claims of unauthorized use.”

In total, he said the bank distributed $105.1 billion worth of pandemic assistance — in the form of 8.2 million prepaid debit cards — as of Nov. 21.

At EDD’s direction, the bank froze 345,000 accounts in September, Putler wrote, but received almost no pushback from holders of those cards.

“Based in part on the relatively low volume of complaints to our call centers, as shared with EDD, we assess that a very small percentage of those total accounts may be legitimate,” Putler wrote.

What’s more, the bank froze an additional 62,000 accounts because they “triggered various fraud alert indicators,” he wrote.

His letter suggests that criminals acted brazenly. The bank discovered that it had sent 76,000 debit cards to recipients in states that don’t even border California. In some cases, hundreds of cards were sent to the same address, and there were “benefits issued to infants or children as well as centenarians,” Putler wrote.

What’s more, some of the perpetrators not only stole money, but filed additional claims with the banks, saying their accounts had been defrauded. In these cases, they received “temporary” credit from the bank “in the hundreds of millions of dollars ... essentially attempting to double-dip the fraudulent removal of funds,” the bank official wrote.

The letter stoked new outrage among the state’s watchdogs — and warnings that things are going to get uglier.

“I only think the number is going to go north,” said Michael Hestrin, Riverside County district attorney.

Greg Totten, Ventura County DA, noted that only two weeks ago, prosecutors estimated the fraud’s toll appeared to be about $400 million with potential to go to $1 billion.

The new numbers, he said, are “incredible. It’s a reflection of the artfulness of some criminal enterprises.”

He and others were again critical of EDD.

“I don’t know who was at the wheel. It appears there was no system set up to check,” Hestrin said.

He said not only were debit cards going out of state, but it appears they were going to recipients overseas.

EDD came under new fire from Sacramento lawmakers.

“It’s egregious that my constituents make a single typo that holds up their EDD benefits for months, while an inmate on death row can use a fake name and still get benefits paid out,” said Assemblyman David Chiu, D-San Francisco, a frequent EDD critic.

“Our offices have to jump through hoops to get our constituents the benefits they need and yet, EDD is sending debit cards to state prisons without question,” he said. “That doesn’t add up.”

This story was originally published December 7, 2020 at 1:17 PM with the headline "COVID-19 unemployment scam could hit $2 billion, bank tells California lawmakers."