EDD Sent Up To $1 Billion Of Unemployment Funds To Prison And Jail Inmates, Prosecutors Say

Updated 8:18 p.m.

In a year in which California's unemployment department saw massive failures in its system while inundated with claims from those impacted by the COVID-19 pandemic, it's now facing more backlash after sending money to people incarcerated for rape, murder and other crimes.

Prosecutors say prison and jail inmates requested and received hundreds of millions of dollars in unemployment funds from the California Employment Development Department (EDD), in what could be the biggest taxpayer fraud scheme in state history.

“There was money sent actually to prisons,” said Sacramento County District Attorney Anne Marie Schubert. “Paid and sent to inmates in prison. There’s evidence that true names of inmates and true social security numbers have been used,” as well as fake names, including John Doe and Poopy Britches, she said.

Schubert said the fraud encompasses every state prison and “every type of inmate,” including people sentenced to life without parole as well as 133 death row inmates. Convicted murderers Scott Peterson, who killed his wife and unborn child in 2004, and Cary Stayner, who murdered four women near Yosemite National Park, were among those who received payments. 

The fraud scheme is “rampant” in county jails, too, prosecutors said.

District Attorneys from nine California counties say the problem could have been avoided if the EDD crossmatched its list of claimants with state and county inmate rolls, a system 35 other states use. 

The agency is working to do that now, EDD spokeswoman Loree Levy said in an emailed statement. 

“We’re also pursuing how to integrate such cross-matches moving forward as part of enhanced prevention efforts during this unprecedented time of pandemic-related unemployment fraud across the country.,” Levy wrote. “In addition, EDD is working collaboratively with state cyber-security experts.”

In a prepared statement, Gov. Gavin Newsom called the fraud "absolutely unacceptable.”

“When we saw evidence of fraud in correctional facilities, I directed the Employment Development Department to review its practices and to take immediate actions to prevent fraud and to hold people accountable,” he said.

“While we have made improvements, we need to do more,” Newsom said. “Everything the state does will be done in partnership with the local district attorneys and I thank them for their commitment to resolving this issue as quickly as possible.”

Prosecutors compared a list of every inmate in the California Department of Corrections and Rehabilitation (CDCR) system with a list of EDD claims filed from March through August and found more than 20,000 claims paid prison inmates, totaling more than $140 million. 

The prosecutors praised CDCR officials for their cooperation to track down fraudulent payments, but said there was “slow, if nonexistent” efforts from EDD officials to assist in investigations.

Vern Pierson, El Dorado County District Attorney and president of the California District Attorneys Association, said the statewide DA’s association was told about five years ago by a previous EDD director that a cross check tool existed to prevent this type of fraud, but that check is not happening currently. 

“This is a very, very simple way of fraud to perpetuate,” Pierson said. “But nothing could have told us the magnitude of this fraud.”

In San Mateo County, District Attorney Stephen Wagstaffe said his investigators uncovered more than 22 jail inmates participating in the scheme, receiving up to $500,000 in taxpayer unemployment benefits.

“If this level of fraud can go on in a small county jail like San Mateo County Jail, you know that it’s massive in other spots,” he said. 

Wagstaffe described an inmate who learned of the scheme in the San Mateo County Jail and began “spreading the news” when he was transferred to a state prison. “Like any pandemic, it spread all over our incarceration facilities.” 

Wagstaffe said when he brought his investigation to EDD officials, he was told that they could not stop the payments until fraud charges were filed. The prosecutors say while several people have been indicted, many of the investigations are still ongoing. 

The allegations represent another black eye for the EDD, which has been plagued by problems including fraud and payment backlogs since the pandemic began. Since September, the backlog has shrunk from 1.6 million claims to fewer than 600,000.

Gov. Newsom set up a “strike team” over the summer to address claim backlogs and other user issues. While the team did not focus on fraud, their report warned the agency that organized fraud posed a “serious risk.”  

The California District Attorneys Association wrote a letter to Newsom requesting he intervene personally to halt the fraudulent payments. 

“By immediately addressing these systemic issues, those rightfully entitled to and desperately in need of unemployment benefits will obtain the assistance needed,” the letter reads.

Clarification: This story now clarifies that of the 35,000 claims made by prison inmates, 20,000 were paid.