February 18, 2021 • 22 mins
Part 1 – By January 2021 the California State Auditor had identified at least 11.4 billion dollars had been taken from the California unemployment insurance program, but many experts are now estimating the fraud could be as high as 31 billion dollars. An unbelievable amount of taxpayer money that was stolen and more importantly did not get to the citizens of California who were unemployed due to the pandemic shutdowns. Newt’s guest is McGregor Scott, United States Attorney for the Eastern District of California.
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Episode Transcript
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Speaker 1 (00:03):
On this episode of News World. I've been looking very
closely at the issue of unemployment fraud during the pandemic,
both in Washington State, where it's about a six hundred
million dollar problem involving apparently largely Nigerian cyber criminals who
have filed one hundred and twenty two thousand applications using
(00:28):
stolen identities, and they've gotten about six hundred million, which
I thought was a big number until I turned to
our largest state, California, and it turned out that the
Cares Act, which President Trump signed into law on March
twenty seventh of twenty twenty, provided a lot of extra
federal funding the states to help people who are employed
(00:50):
during the lockdowns. By May fourteenth, the US Secret Service
is shud and alert entitled quote massive fraud against state
unemployment insurance programs. By January twenty twenty one, the California
State Auditor had identified that at least eleven point four
billion dollars had been taken from the California unemployment insurance program,
(01:14):
but the yes much an hour or even higher. In fact,
many experts estimate the fraud could be as high as
thirty one billion dollars an unbelievable amount of taxpayer money
that was stolen and more importantly, did not get to
the people who needed it most. The citizens of Californias
were unemployed due to the pandemic. So I really wanted
(01:36):
to have a better sense of how fraud of this
scale could have happened. And I'm really pleased to introduce
my guests. McGregor Scott currently serves as the United States
Attorney for the Eastern District of California. McGregor, thank you
(01:58):
for joining me when we start at the beginning of
all this. How did a fraud of this magnitude take
place in California, Well, it's my pleasure to join you.
Thank you. Now I should point out that in California
we refer to this as EEDED because that's the state
agency which handles unemployment insurance by shorthand I will refer
(02:18):
to this as EDD fraud at least with respecting the
state of California. The next point I would make is
that it's not as though EDD fraud just happened as
a result of the pandemic. This office has been prosecuting
EDD fraud for the last several years, so it's nothing new.
The second point is that the California system has simply
(02:43):
not kept up, And a great analogy is that the
state unemployment system in California, you can analogize it to
an antiquated bridge that had not kept up with population technology.
All these things, and over the course of years, the
engineers would report that the bridge is no longer sufficient,
(03:05):
but senior leadership in the state chose to ignore that
and did not take simple measures to update the system
to prevent fraud of this scale. One example would be that,
unlike thirty five other states in the United States, California
prior to the present time did not cross reference unemployment
(03:27):
insurance applications against the prisoner database, so that was an
open door going into this. There was a system that
was put into place a few years ago, funded by
the federal government, that accelerated the ability of the state
to check the legitimacy of applications. The system itself was
(03:49):
paid by the fence, but after a short period of time,
the state decided they didn't have enough money to maintain
the operational expenses an ongoing basis, so they shut it down.
So this is just a couple of examples of the
kinds of things that the state of California has manifested
failed to do. And crooks are crooks. They're smart, they're sophisticated.
(04:11):
They see a soft underbelly and they go. And it
did not take very long in the spring this year
for the word to get out. And perhaps the way
that manifested it most directly was in the state prison system,
where we have example after example of inmates who figured
this out and applying for unemployment insurance and getting it.
(04:33):
So that's at one level. The next level is obviously
the international crime rings, the Nigerian fraud schemes that you
mentioned earlier. This is like Robin Fort Knox and there's
no guards and they manifested took advantage of it. And
the other thing was I think there was a state
of mind at the state despite the warnings that came
You referenced the water from the Secret Service. There were
(04:54):
also multiple warnings put out by the Federal Department of
Labor about the fraud that was owing and the danger
of fraud be at the state adopted this position that
we're just simply going to push the money out and
we'll worry about it later. So it was a confluence
of events which led us to this. There is incompetence
at an almost biblical scale in terms of the historical
(05:15):
operations of dB here in California. And then we had
this confluence of the global pandemic and this federal money
coming out. And the final point I would make, and
I think it's an important one to making you can
appreciate this in the positions you held in your life.
People need to understand that this money, the federal government
provides the money to the states, but it's the responsibility
(05:37):
of the states to accept applications, process for approval and
actually provide the money. This is defence funded the states operated,
and we need to keep site on that as we
look at this manifest fraud has taken place in California.
When you look at all this, how does word spread?
You know, so many figures out Ah, I can break through,
(05:58):
but then the word must have spread believably fast. Well,
it did, specifically in the prison system where you've got
a highly dense, highly concentrated population of people who are
in prison for a reason. To start with that premise,
and they figured out and worn spreads and by way
of example, one case that we have indicted out of
(06:18):
this office from the principal women's prison here in the
state of California in the Central Valley. Two women who
were serving time together. One of them was paroles, So
she's out on the outside and the one who still
in custody is acquiring name, social scarity numbers and dates
of birth of other inmates, and then she passes those
to the woman who's on the outside by email and
(06:39):
bone calls, and the woman on the outside submits all
the applications, gets the money and off their run. So
that's just one example of how this manifested itself in
the state prison system. Is it legal in California for
prisoners in prison to get unemployment compensation? Absolutely not certain,
no way, shape or form. That's a knowable group. Why
(07:01):
didn't the employment office simply match up the computer files
and identify the prisoners, because unlike thirty five other states
in the country, California did not do that. There was
a stated policy position that the state prison system could
not share social security numbers with EDD for reasons which
(07:24):
are not readily imparent, but that was the policy that
was adopted. That policy has, upon the advice of the
state Attorney General, has since been rescinded and now here.
In recent weeks and months, the state prison system is
now in fact sharing social security numbers with DDS prevent
exactly what we're talking about right now. But the door
was wide open because of a self imposed restriction put
(07:48):
in place by the state for reasons which are not obvious.
So somebody else said that there was one case where
some seventeen hundred checks went to the same address. That
is correct, yes, well, and there was no internal control
that said, you know, I mean maybe the first three
or four or five, but it's a seventeen hundred. You
(08:11):
would have thought somebody would have noticed, one, would hope.
And the lack of any sort of quality control going
into this is mind bodling. And I will give you
another example. We are prosecuting a case involving the originators
were Nigerian fraudsters. They submitted an application to the state
of California for unemployment insurance in the name of Diane Feinstein.
(08:35):
Perhaps you've heard that name. This would Hurst. That application
was one of over one hundred that were sent to
the residents of a woman here in a suburb of Sacramento,
and the state approved that payment. So unemployment insurance was
issued by the state of California in the name of
Diane Feinstein, and it was all automatic or was there
(08:57):
actually a human being in the loop. I don't know
the answer to that. I'm not pretty to the inside
baseball and how that all works. Common sense tells me
it's got to be automated. With certain hope there is
a human being saying, oh, I advised Jack, But I
don't know the answer to that. In Washington State, the
(09:28):
Nigerians seem to be the primary actors, and apparently it
was an entire cyber crime network in Nigeria that makes
an amazing amount of money out of ripping off the
rest of the world. To what extent where Nigerians playing
in California. They were definitely a significant part of it,
But there were only one piece of it. Because we've
(09:49):
got all the different blocks, We've got the prisons and
the jails, we've got the international crimaries, and it's not
just the Nigerians and the Eastern European ones, Russian ones
as well. And then there's a third bucket that I
refer to as the grifters. And these are people who
have long standing criminal records for all the various forms
of fraud that you could think of who figured this
(10:12):
one out as well. So those are the three broad
buckets that I would put it into. If something like
thirty one billion dollars has been paid out illegally, how
practical is to try to get that money back. It's
a great question, and that is something that we are
struggling with in all candor, because in large measure the
money's gone. I can tell you by way of example,
(10:35):
earlier in January, we serve search warrants at a residence
here in Sacramento, at a location where hundreds of thousands
of dollars in unemployment insurance debit cards were sent. And
in that search warrant we recovered seven thousand dollars in
a laundry basket. So of all that hundreds of thousands,
(10:55):
we were able to recover seven. So it's not going
to be much, I'm afraid at the end of the day.
That's what strikes me is that the amount anyone activity
is so small, and it's so hard to track down
all the data to put to other witnesses. You know,
I mean a criminal justice system which is designed to
protect the innocent. Also sometimes it's an upflow the crooks
(11:16):
get out. Is there any sense of overhauling the EDD
and a pretty dramatic way. Well, I think that's probably
a question best directed to the Governor's office. But I
think they have undertaken obviously a number of changes because
of the outrage within the state or how could this
happen and the sharing confidence. I think they have undertaken
(11:37):
a number of changes. Whether those are the magic bullet,
I don't know. I know that one of the changes
they have made is a system called id ME, which
helps to cut down on their number of fraudulent applications.
But we're already getting reports that the fraudsters are figuring
out how to go around id ME and continue to
submit applications. We get the money. It's not a battle.
(12:00):
You know, the other side does something, we react. So
do you have an idea what a typical payment would
have been? The general numbers that we seem to see
on an individual payout or in the twenty to thirty
thousand dollars range, because it would be multiple months and
they paid retroactively from the time of submission at approval.
I mean that's actually where it's stealing. Oh yeah, for sure,
(12:23):
this isn't chump change. Yeah, absolutely, especially when you have
no attention to paying taxes that money and it's cash
and you can do whatever you want with it. And
somebody said that one of the differences because in Washington State,
the money literally was leaving the country, but in California,
a very high percentage of it is going to criminals
who are using it to buy illegal guns, to buy drugs,
(12:46):
and to participate in human trafficking. I mean, do you
get that sense when you're interviewing people and looking at
how these cases are evolving, that it really does involve
a level of criminality that in effect, the taxpayers are
subsidizing the tunnels, no question about it. We have had
a number of wire taps on narcotics investigations where we're
(13:09):
picking up descriptions of exactly what you just described, that
the eded money is being used to facilitate the purchase
of firearms and the transport and sale of narcotics and
humans rafting. It's absolutely a piece of thist. So literally,
if you look at the dramatic rise in crime rates
and murders and what have you, I mean, you have
(13:30):
the system which is almost just spinning out of control.
It is a perfect storm in California right now. We
have undertaken a massive social experiment in revisions to our
penal system over the last several years. There are a
whole lot more people out on the street right now
we should be in prison or a county jail, which
than are, So that's a piece of it. We have COVID,
(13:54):
which has resulted in mass numbers of people being released
from the state prison and the county jails. For a
long time, there are zero bail provisions in place across
the state of the county jail level. And then we
have people with way too much time on their hands
and nothing to do. And now we have a means
(14:15):
of funding criminal operations through this EDD money, and all
of that has culminated in a dramatic historic increase in
their violent crime rate in the state of California across
the state isolated LA, not isolated to the bar across
the state in terms of pomicides and shootings. There are
(14:38):
consequences to policies, and those consequences are right now playing
out in the streets of California. Apparently, EEDED identified twenty
(15:04):
six thousand addresses that it said we're linked to suspicious claims,
but it only stopped payment to claims associated like ten
thousand of them, so the other fifteen thousand are suspicious
that they get the money. Anyway, I don't have the
particulars around what EDD did with respect to that. What
I can tell you is that the financial institution which
(15:27):
actually operates this for EEDD is the Bank of American.
When people are approved for unemployment insurance, they essentially get
a debit card that is usable at a Bank of
American where they can go get cash. So Bank of
America is right in the middle of all of this,
and one of the things that happened this is a
(15:48):
few months ago now. The Bank of America on its
own sort of figured out something's going on here, and
they put together what we call a suspicious Activity report,
which is a requirement and a federal law for banks
to report suspicious banking activities. They called it a super
Suspicious Activity Report. And what they looked at in terms
(16:08):
of what they turned over to the FBI, which we
coordinated through this office, only instances where five or more
applications came from a single residence outside the state of California.
So let me say that again, only five applications from
a residence outside the state of California, so anything inside
(16:32):
the state, anything involving for or fewer outside the state,
and that bucket alone was five billion dollars. Why doesn't
the Bank of America have any responsibility? He do, and
at the end of the day, there will be some
real issues with this. One of the problems that was
identified was that edd would get an application with a
(16:54):
specific residence, approve it, and then whoever had submitted the
application that was approved could then go to the Bank
of America and change the address to which the debit
card would be sent. So again another failing of the
system that was set up to handle all There's just
(17:15):
a lot of pieces of this. The Bank of America,
They've got their own issues out of this whole thing,
and there will have to be some accountability on that
end as well. Part of what makes it so relevant
is that both in Washington State with Susie Levine and
in California with Julie Sue, the person who is in
charge of six hundred million and thirty one billion in fraud,
(17:40):
both have been nominated by Biden to major jobs in
the Labor Department. How can that make any sense? It
makes no sense, and its promotion for incompetence, and we've
had enough of that. We've had enough of that here
in California, and we've had enough of it at the
federal government. Miss Sue, she in large measure owns this thing.
(18:01):
There were policy directions given directly from her, and a
large measure allowed a lot of this to happen. And
it is simply incomprehensible to me that she could now
be essentially handled a great, big promotion. So I don't
get it. I don't either, and I'm trying to get
the appropriate members of the Senate to take a serious
(18:21):
look at both of these people. This is corruption on
such a grand scales, I think you said earlier California
maybe the largest theft of taxpayer money in history by
a big margin. And yet the person who was standing
there handing out the money to the crooks is now
getting a promotion to go to Washington. It defies common sense.
(18:44):
It may explain a lot of the energy and drive
behind the recall petition that people have to all just
get tired of this many bizarre things. Now I understanding
of a bridge analogy for all of this, Yes, sir,
The analogy I would you use is that the Edd
system in California is analogous to an antiquated bridge that
(19:04):
is no longer sufficient to handle the volume of traffic
or the size of the vehicles crossing over, but it
limps along, and over the years, the structural engineers have
looked at it and reported to the appropriate authorities that
the bridge needs to be updated or at least perhaps
even replaced, but the people in charge have chosen to
(19:25):
ignore those recommendations. So then when all of a sudden
there is a surge in traffic, the bridge fails because
it has not been updated, it has not been maintained,
it has not been replaced. And that really is exactly
what happened here in California. The problems with the EDD
system have been called out systematically over the years, through audits,
(19:50):
through prosecutions, through any number of ways, and the state
has simply chosen not to keep the bridge up to date.
And what that resulted in at the end of the
day was the front door to the vault at Fort
Knox was wide open and criminals walked right in and
(20:11):
walked right out with the taxpayers money. I understand you're
ending your turn at the end of this moneth. What
do you challenge your successor to do. Here's an analogy
I would use. I held this same position in the
Bush forty three administration, and probably the last two years
of my time there, it was all mortgage fraud all
the time. It was just a manifest thing that we
(20:33):
were dealing with. And my successor in the Obama administration
continued the great work that was being done in prosecuting
those who stole money at that time. You know, this
EDD fraud prosecution work is going to last long after
I leave as US Attorney, and I am hopeful and
confident that my successor in this chair will continue to
(20:53):
great work. We've got a well oiled machine that is
hitting on all cylinders right now, and it is going
to just con tinue to march forward in trying to
bring accountability to these people who just simply stole from
the taxpayers. Remarkable, it's an amazing story. I really want
to thank you for your public service and your willingness
to tackle projects on this scale. As a historian, I'm
(21:18):
pretty sure this will be the largest theft of public
funds in American history, and if it wasn't for people
like you, we still would not know about it. Well,
I appreciate that very much, and the credit really goes
to the agents and the officers and the books that
will work in these cases. The investigations and my prosecutors
are everything we can and have ganimal continuity to do.
(21:39):
So thank you to my guests McGregor Scott. You can
read more about the thirty one billion dollars California EDD
fraud on our show page at newsworld dot com. News
World is produced by English Sweet sixty and Ihearted Media.
Our executive producer is d Myers, our producer is Garnsey Slow,
(22:03):
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(22:25):
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I'm new Gingwig. This is new Tworld
On this episode of News World. I've been looking very
closely at the issue of unemployment fraud during the pandemic,
both in Washington State, where it's about a six hundred
million dollar problem involving apparently largely Nigerian cyber criminals who
have filed one hundred and twenty two thousand applications using
(00:28):
stolen identities, and they've gotten about six hundred million, which
I thought was a big number until I turned to
our largest state, California, and it turned out that the
Cares Act, which President Trump signed into law on March
twenty seventh of twenty twenty, provided a lot of extra
federal funding the states to help people who are employed
(00:50):
during the lockdowns. By May fourteenth, the US Secret Service
is shud and alert entitled quote massive fraud against state
unemployment insurance programs. By January twenty twenty one, the California
State Auditor had identified that at least eleven point four
billion dollars had been taken from the California unemployment insurance program,
(01:14):
but the yes much an hour or even higher. In fact,
many experts estimate the fraud could be as high as
thirty one billion dollars an unbelievable amount of taxpayer money
that was stolen and more importantly, did not get to
the people who needed it most. The citizens of Californias
were unemployed due to the pandemic. So I really wanted
(01:36):
to have a better sense of how fraud of this
scale could have happened. And I'm really pleased to introduce
my guests. McGregor Scott currently serves as the United States
Attorney for the Eastern District of California. McGregor, thank you
(01:58):
for joining me when we start at the beginning of
all this. How did a fraud of this magnitude take
place in California, Well, it's my pleasure to join you.
Thank you. Now I should point out that in California
we refer to this as EEDED because that's the state
agency which handles unemployment insurance by shorthand I will refer
(02:18):
to this as EDD fraud at least with respecting the
state of California. The next point I would make is
that it's not as though EDD fraud just happened as
a result of the pandemic. This office has been prosecuting
EDD fraud for the last several years, so it's nothing new.
The second point is that the California system has simply
(02:43):
not kept up, And a great analogy is that the
state unemployment system in California, you can analogize it to
an antiquated bridge that had not kept up with population technology.
All these things, and over the course of years, the
engineers would report that the bridge is no longer sufficient,
(03:05):
but senior leadership in the state chose to ignore that
and did not take simple measures to update the system
to prevent fraud of this scale. One example would be that,
unlike thirty five other states in the United States, California
prior to the present time did not cross reference unemployment
(03:27):
insurance applications against the prisoner database, so that was an
open door going into this. There was a system that
was put into place a few years ago, funded by
the federal government, that accelerated the ability of the state
to check the legitimacy of applications. The system itself was
(03:49):
paid by the fence, but after a short period of time,
the state decided they didn't have enough money to maintain
the operational expenses an ongoing basis, so they shut it down.
So this is just a couple of examples of the
kinds of things that the state of California has manifested
failed to do. And crooks are crooks. They're smart, they're sophisticated.
(04:11):
They see a soft underbelly and they go. And it
did not take very long in the spring this year
for the word to get out. And perhaps the way
that manifested it most directly was in the state prison system,
where we have example after example of inmates who figured
this out and applying for unemployment insurance and getting it.
(04:33):
So that's at one level. The next level is obviously
the international crime rings, the Nigerian fraud schemes that you
mentioned earlier. This is like Robin Fort Knox and there's
no guards and they manifested took advantage of it. And
the other thing was I think there was a state
of mind at the state despite the warnings that came
You referenced the water from the Secret Service. There were
(04:54):
also multiple warnings put out by the Federal Department of
Labor about the fraud that was owing and the danger
of fraud be at the state adopted this position that
we're just simply going to push the money out and
we'll worry about it later. So it was a confluence
of events which led us to this. There is incompetence
at an almost biblical scale in terms of the historical
(05:15):
operations of dB here in California. And then we had
this confluence of the global pandemic and this federal money
coming out. And the final point I would make, and
I think it's an important one to making you can
appreciate this in the positions you held in your life.
People need to understand that this money, the federal government
provides the money to the states, but it's the responsibility
(05:37):
of the states to accept applications, process for approval and
actually provide the money. This is defence funded the states operated,
and we need to keep site on that as we
look at this manifest fraud has taken place in California.
When you look at all this, how does word spread?
You know, so many figures out Ah, I can break through,
(05:58):
but then the word must have spread believably fast. Well,
it did, specifically in the prison system where you've got
a highly dense, highly concentrated population of people who are
in prison for a reason. To start with that premise,
and they figured out and worn spreads and by way
of example, one case that we have indicted out of
(06:18):
this office from the principal women's prison here in the
state of California in the Central Valley. Two women who
were serving time together. One of them was paroles, So
she's out on the outside and the one who still
in custody is acquiring name, social scarity numbers and dates
of birth of other inmates, and then she passes those
to the woman who's on the outside by email and
(06:39):
bone calls, and the woman on the outside submits all
the applications, gets the money and off their run. So
that's just one example of how this manifested itself in
the state prison system. Is it legal in California for
prisoners in prison to get unemployment compensation? Absolutely not certain,
no way, shape or form. That's a knowable group. Why
(07:01):
didn't the employment office simply match up the computer files
and identify the prisoners, because unlike thirty five other states
in the country, California did not do that. There was
a stated policy position that the state prison system could
not share social security numbers with EDD for reasons which
(07:24):
are not readily imparent, but that was the policy that
was adopted. That policy has, upon the advice of the
state Attorney General, has since been rescinded and now here.
In recent weeks and months, the state prison system is
now in fact sharing social security numbers with DDS prevent
exactly what we're talking about right now. But the door
was wide open because of a self imposed restriction put
(07:48):
in place by the state for reasons which are not obvious.
So somebody else said that there was one case where
some seventeen hundred checks went to the same address. That
is correct, yes, well, and there was no internal control
that said, you know, I mean maybe the first three
or four or five, but it's a seventeen hundred. You
(08:11):
would have thought somebody would have noticed, one, would hope.
And the lack of any sort of quality control going
into this is mind bodling. And I will give you
another example. We are prosecuting a case involving the originators
were Nigerian fraudsters. They submitted an application to the state
of California for unemployment insurance in the name of Diane Feinstein.
(08:35):
Perhaps you've heard that name. This would Hurst. That application
was one of over one hundred that were sent to
the residents of a woman here in a suburb of Sacramento,
and the state approved that payment. So unemployment insurance was
issued by the state of California in the name of
Diane Feinstein, and it was all automatic or was there
(08:57):
actually a human being in the loop. I don't know
the answer to that. I'm not pretty to the inside
baseball and how that all works. Common sense tells me
it's got to be automated. With certain hope there is
a human being saying, oh, I advised Jack, But I
don't know the answer to that. In Washington State, the
(09:28):
Nigerians seem to be the primary actors, and apparently it
was an entire cyber crime network in Nigeria that makes
an amazing amount of money out of ripping off the
rest of the world. To what extent where Nigerians playing
in California. They were definitely a significant part of it,
But there were only one piece of it. Because we've
(09:49):
got all the different blocks, We've got the prisons and
the jails, we've got the international crimaries, and it's not
just the Nigerians and the Eastern European ones, Russian ones
as well. And then there's a third bucket that I
refer to as the grifters. And these are people who
have long standing criminal records for all the various forms
of fraud that you could think of who figured this
(10:12):
one out as well. So those are the three broad
buckets that I would put it into. If something like
thirty one billion dollars has been paid out illegally, how
practical is to try to get that money back. It's
a great question, and that is something that we are
struggling with in all candor, because in large measure the
money's gone. I can tell you by way of example,
(10:35):
earlier in January, we serve search warrants at a residence
here in Sacramento, at a location where hundreds of thousands
of dollars in unemployment insurance debit cards were sent. And
in that search warrant we recovered seven thousand dollars in
a laundry basket. So of all that hundreds of thousands,
(10:55):
we were able to recover seven. So it's not going
to be much, I'm afraid at the end of the day.
That's what strikes me is that the amount anyone activity
is so small, and it's so hard to track down
all the data to put to other witnesses. You know,
I mean a criminal justice system which is designed to
protect the innocent. Also sometimes it's an upflow the crooks
(11:16):
get out. Is there any sense of overhauling the EDD
and a pretty dramatic way. Well, I think that's probably
a question best directed to the Governor's office. But I
think they have undertaken obviously a number of changes because
of the outrage within the state or how could this
happen and the sharing confidence. I think they have undertaken
(11:37):
a number of changes. Whether those are the magic bullet,
I don't know. I know that one of the changes
they have made is a system called id ME, which
helps to cut down on their number of fraudulent applications.
But we're already getting reports that the fraudsters are figuring
out how to go around id ME and continue to
submit applications. We get the money. It's not a battle.
(12:00):
You know, the other side does something, we react. So
do you have an idea what a typical payment would
have been? The general numbers that we seem to see
on an individual payout or in the twenty to thirty
thousand dollars range, because it would be multiple months and
they paid retroactively from the time of submission at approval.
I mean that's actually where it's stealing. Oh yeah, for sure,
(12:23):
this isn't chump change. Yeah, absolutely, especially when you have
no attention to paying taxes that money and it's cash
and you can do whatever you want with it. And
somebody said that one of the differences because in Washington State,
the money literally was leaving the country, but in California,
a very high percentage of it is going to criminals
who are using it to buy illegal guns, to buy drugs,
(12:46):
and to participate in human trafficking. I mean, do you
get that sense when you're interviewing people and looking at
how these cases are evolving, that it really does involve
a level of criminality that in effect, the taxpayers are
subsidizing the tunnels, no question about it. We have had
a number of wire taps on narcotics investigations where we're
(13:09):
picking up descriptions of exactly what you just described, that
the eded money is being used to facilitate the purchase
of firearms and the transport and sale of narcotics and
humans rafting. It's absolutely a piece of thist. So literally,
if you look at the dramatic rise in crime rates
and murders and what have you, I mean, you have
(13:30):
the system which is almost just spinning out of control.
It is a perfect storm in California right now. We
have undertaken a massive social experiment in revisions to our
penal system over the last several years. There are a
whole lot more people out on the street right now
we should be in prison or a county jail, which
than are, So that's a piece of it. We have COVID,
(13:54):
which has resulted in mass numbers of people being released
from the state prison and the county jails. For a
long time, there are zero bail provisions in place across
the state of the county jail level. And then we
have people with way too much time on their hands
and nothing to do. And now we have a means
(14:15):
of funding criminal operations through this EDD money, and all
of that has culminated in a dramatic historic increase in
their violent crime rate in the state of California across
the state isolated LA, not isolated to the bar across
the state in terms of pomicides and shootings. There are
(14:38):
consequences to policies, and those consequences are right now playing
out in the streets of California. Apparently, EEDED identified twenty
(15:04):
six thousand addresses that it said we're linked to suspicious claims,
but it only stopped payment to claims associated like ten
thousand of them, so the other fifteen thousand are suspicious
that they get the money. Anyway, I don't have the
particulars around what EDD did with respect to that. What
I can tell you is that the financial institution which
(15:27):
actually operates this for EEDD is the Bank of American.
When people are approved for unemployment insurance, they essentially get
a debit card that is usable at a Bank of
American where they can go get cash. So Bank of
America is right in the middle of all of this,
and one of the things that happened this is a
(15:48):
few months ago now. The Bank of America on its
own sort of figured out something's going on here, and
they put together what we call a suspicious Activity report,
which is a requirement and a federal law for banks
to report suspicious banking activities. They called it a super
Suspicious Activity Report. And what they looked at in terms
(16:08):
of what they turned over to the FBI, which we
coordinated through this office, only instances where five or more
applications came from a single residence outside the state of California.
So let me say that again, only five applications from
a residence outside the state of California, so anything inside
(16:32):
the state, anything involving for or fewer outside the state,
and that bucket alone was five billion dollars. Why doesn't
the Bank of America have any responsibility? He do, and
at the end of the day, there will be some
real issues with this. One of the problems that was
identified was that edd would get an application with a
(16:54):
specific residence, approve it, and then whoever had submitted the
application that was approved could then go to the Bank
of America and change the address to which the debit
card would be sent. So again another failing of the
system that was set up to handle all There's just
(17:15):
a lot of pieces of this. The Bank of America,
They've got their own issues out of this whole thing,
and there will have to be some accountability on that
end as well. Part of what makes it so relevant
is that both in Washington State with Susie Levine and
in California with Julie Sue, the person who is in
charge of six hundred million and thirty one billion in fraud,
(17:40):
both have been nominated by Biden to major jobs in
the Labor Department. How can that make any sense? It
makes no sense, and its promotion for incompetence, and we've
had enough of that. We've had enough of that here
in California, and we've had enough of it at the
federal government. Miss Sue, she in large measure owns this thing.
(18:01):
There were policy directions given directly from her, and a
large measure allowed a lot of this to happen. And
it is simply incomprehensible to me that she could now
be essentially handled a great, big promotion. So I don't
get it. I don't either, and I'm trying to get
the appropriate members of the Senate to take a serious
(18:21):
look at both of these people. This is corruption on
such a grand scales, I think you said earlier California
maybe the largest theft of taxpayer money in history by
a big margin. And yet the person who was standing
there handing out the money to the crooks is now
getting a promotion to go to Washington. It defies common sense.
(18:44):
It may explain a lot of the energy and drive
behind the recall petition that people have to all just
get tired of this many bizarre things. Now I understanding
of a bridge analogy for all of this, Yes, sir,
The analogy I would you use is that the Edd
system in California is analogous to an antiquated bridge that
(19:04):
is no longer sufficient to handle the volume of traffic
or the size of the vehicles crossing over, but it
limps along, and over the years, the structural engineers have
looked at it and reported to the appropriate authorities that
the bridge needs to be updated or at least perhaps
even replaced, but the people in charge have chosen to
(19:25):
ignore those recommendations. So then when all of a sudden
there is a surge in traffic, the bridge fails because
it has not been updated, it has not been maintained,
it has not been replaced. And that really is exactly
what happened here in California. The problems with the EDD
system have been called out systematically over the years, through audits,
(19:50):
through prosecutions, through any number of ways, and the state
has simply chosen not to keep the bridge up to date.
And what that resulted in at the end of the
day was the front door to the vault at Fort
Knox was wide open and criminals walked right in and
(20:11):
walked right out with the taxpayers money. I understand you're
ending your turn at the end of this moneth. What
do you challenge your successor to do. Here's an analogy
I would use. I held this same position in the
Bush forty three administration, and probably the last two years
of my time there, it was all mortgage fraud all
the time. It was just a manifest thing that we
(20:33):
were dealing with. And my successor in the Obama administration
continued the great work that was being done in prosecuting
those who stole money at that time. You know, this
EDD fraud prosecution work is going to last long after
I leave as US Attorney, and I am hopeful and
confident that my successor in this chair will continue to
(20:53):
great work. We've got a well oiled machine that is
hitting on all cylinders right now, and it is going
to just con tinue to march forward in trying to
bring accountability to these people who just simply stole from
the taxpayers. Remarkable, it's an amazing story. I really want
to thank you for your public service and your willingness
to tackle projects on this scale. As a historian, I'm
(21:18):
pretty sure this will be the largest theft of public
funds in American history, and if it wasn't for people
like you, we still would not know about it. Well,
I appreciate that very much, and the credit really goes
to the agents and the officers and the books that
will work in these cases. The investigations and my prosecutors
are everything we can and have ganimal continuity to do.
(21:39):
So thank you to my guests McGregor Scott. You can
read more about the thirty one billion dollars California EDD
fraud on our show page at newsworld dot com. News
World is produced by English Sweet sixty and Ihearted Media.
Our executive producer is d Myers, our producer is Garnsey Slow,
(22:03):
and our researcher is Rachel Peterson. The artwork for the
show was created by Steve Pennelly. Special thanks to the
team at Gingwish three sixty. If you've been enjoying news World,
I hope you'll go to Apple Podcasts and both rate
us with five stars and give us a review so
others can learn what it's all about. Right now, listeners
(22:25):
of news World can sign up for my three free
weekly columns at Gingwish three sixty dot com slash newsletter.
I'm new Gingwig. This is new Tworld
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