As Covid-19 benefits fraud hits astronomical heights, in part due to crooked government employees, a former prosecutor warns there’s never been a program “that could be so easily fleeced around the globe.”
Some of the fraudsters who’ve made off with an estimated $80 billion stolen from the U.S. government’s $870 billion Covid-19 unemployment support program have had crucial help — from crooked government workers.
In one such case, Forbes has learned that federal investigators are on the trail of an insider at a California agency who allegedly helped inmates at a state prison siphon $250,000 in taxpayer funds. While that number may not be eye-popping, it would appear to be the first public case taken up by prosecutors of Covid unemployment funds diverted to criminals incarcerated in a state prison with the help of a government employee.
Matthew Schneider, a former U.S. Attorney and now a white-collar crime specialist at law firm Honigman LLP, says the heart of the problem has been the government’s willingness to get Covid funds out to as many people as possible without implementing the proper controls. That meant that “millions, if not billions,” had gone to prisoners, says Schneider, who prosecuted numerous Covid fraudsters for the U.S. government.
At the center of the probe is a 12-year employee of the San Diego office of the California Employment Development Department, or EDD, which carries out checks on applicants for the federal Covid unemployment program. The employee was responsible for checking out any applications that had been flagged by EDD computers as appearing suspicious. In essence, she had the power to approve or deny any claim coming through her office. (As no charges have been filed and the case is under seal, Forbes has chosen to keep her identity anonymous.) According to a search warrant for her computer, unearthed by Forbes, she’s suspected of approving applications coming from prisoners at Centinela State Prison in Southern California. Prisoners were not allowed to claim Covid unemployment benefits, which were only for those who couldn’t work because of the pandemic.
Fraudsters across the world have taken advantage of government insiders and lax security protections of the Covid-19 benefits program.
Her alleged participation in the scheme came to light when a phone was seized from a Centinela inmate in September 2020, according to the search warrant. Investigators for the U.S. Department of Labor Office of Inspector General claimed the phone search showed she was exchanging texts with a prisoner, with one particularly telling conversation in which the EDD employee first asked for $700 payment and then gave advice on how to avoid getting caught by anti-fraud systems when using debit cards given out by the EDD from which claimants withdraw money.
“Best way to handle these cards is to just withdraw $1,000/day in 1-2 transactions,” the suspect wrote in a message sent in August 2020, according to the search warrant. “Slow and steady. Don’t do too much cuz anything more will lock it up and potentially cause issue. So stay under radar with less. Otherwise the card will be useless. She may be able to make online and over the phone transactions and purchases but won’t be able to pull cash from ATM.”
According to investigators, in another text that month, the EDD insider said she’d cleared an “identity issue and removed a lot of flags preventing payments” for one claimant and that he would now “receive $15,000 on debit card within 24-48hrs.” In one more exchange, she appeared to be charging as much as $2,000 per illegal claimant, investigators wrote.
Allegedly illegal claims processed by the suspect totaled $250,000, according to EDD records. Forbes attempted to contact the suspect, but the person didn’t immediately respond.
A spokesperson with the EDD said that because the investigation was “currently active” it could not provide any more detail until the case was closed.
Other government insiders have helped fraudsters profit from the Covid unemployment-assistance program. In Detroit, Brandi Hawkins, a 40-year-old contract employee for the State of Michigan Unemployment Insurance Agency, was sentenced to nearly five years in prison for taking bribes to use her insider access to fraudulently release payments on over 700 claims for $3.8 million in Covid benefits.
In another case, Gabriela Llerenas, a former EDD employee, was sentenced to 63 months in federal prison for helping file nearly 200 fraudulent Covid-related unemployment relief claims in other people’s names, resulting in nearly $4.3 million in fraudulent profit for her and her illicit customers.
Such cases highlight how fraudsters are able to take advantage of current and former government employees, and how they’re making serious profits thanks to ineffective anti-fraud systems that are supposed to protect America’s Covid support program.
Schneider, the former prosecutor, warned that a sizable amount of the Covid funds was also being stolen by people living outside the country. “I can’t think of any other time in American history where the government sped up a program that could be so easily fleeced around the globe,” he says. Previous cases have uncovered Covid fraud emanating from Nigeria, and reports have claimed, with limited evidence, that Russian and Chinese hackers have profited from illegal claims.
The Biden administration has also pointed to foreign exploitation of the government’s benefits program. When the White House announced the DOJ would be appointing a chief prosecutor to focus on pandemic fraud last month, it said, “The dramatic outpouring of pandemic relief in 2020 saw an expansion of foreign and domestic criminal syndicates defrauding unemployment insurance and other benefits programs to rob American taxpayers of billions of dollars that should have gone to support deserving small businesses and workers who had lost their jobs.”
But there’s another problem caused by America’s prosecutors at both state and federal levels, according to Schneider: Because some of the frauds are relatively small, they’ll never be investigated and therefore never be punished. “It’s like death by a thousand cuts,” he said. “Thousands upon thousands of frauds amounting to a few thousand dollars each. The government is never going to go after those.”