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“Never seen fraud of this magnitude” Massive unemployment benefits scam may involve every jail and prison in California

Neil Esoy

SANTA BARBARA, Calif. - Some Santa Barbara County jail inmates appear to be part of a statewide fraud scheme bilking hundreds of millions of dollars in state unemployment benefit payments.

Santa Barbara County Assistant District Attorney Brian Cota joined more than 100 law enforcement officials from across the state on a Zoom call to discuss how jail and prison inmates were committing widespread fraud through the state's Employment Development Department, EDD. The agency oversees the distribution of unemployment insurance benefits to millions of out-of-work Californians. Many lost their jobs when the pandemic hit in March.

The fraud may include inmates at every county jail and state and federal prison in the state. Cota said his Zoom call boiled down to one question, "Where do we go from here?"

With only 18 EDD investigators, Cota believes most of the responsibility to investigate and prosecute will fall on local jurisdictions. He said EDD has identified at least 143 inmates at the Santa Barbara County Jail who allegedly received unemployment benefits while incarcerated. NewsChannel 3 learned that number could go much higher.

We also discovered through other sources that EDD officials started seeing a pattern and contacted authorities in counties throughout the state to cross-reference the names of people receiving benefits with inmates behind bars for committing other crimes. Cota confirmed the investigation at this point includes fraud and other forms of identity theft.

The question many people may ask is, how does an inmate get access to a computer to commit this sort of fraud? Authorities are looking at inmates' relatives or contacts on the outside who are part of the scheme to steal from legitimately unemployed Californians. Those accomplices would have been enticed by a cut of the stolen money.

Cota said no charges have been filed against anyone in Santa Barbara County yet, and declined to comment further because it's an ongoing investigation. The key questions are, who's involved and how much money is being stolen?

When NewsChannel 3 interviewed Assemblyman Jim Patterson from Fresno in September about the extent of the fraud he said, "We think it could be in the tens of millions and very well be in the 100's of millions and I think the scary part about this is that the EDD, as we speak right now, doesn't even know."

District Attorneys from San Mateo, Sacramento, El Dorado and Kern Counties, plus the U.S. Attorney for the Eastern District of California held a press conference Tuesday morning to talk about the investigation at this stage. They called it "the largest taxpayer fraud in California history," and urged Gov. Gavin Newsom to get personally involved to stop fraud that may surpass one billion dollars.

Sacramento County District Attorney Anne Marie Schubert estimates at least $140 million dollars in fraudulent claims have been paid to prison inmates. "I've never seen fraud of this magnitude," she said.

Death row inmates have received $421,000 from the EDD, Schubert said. The LA Times reports one of those inmates is Scott Peterson, who murdered his pregnant wife Lacy just before Christmas in 2002. The Petersons graduated from Cal Poly and owned a burger-and-beer establishment catering to college students in San Luis Obispo.

Authorities said the majority of the stolen money is from the federal government, however they do not know exactly how much. They said the complexity of this investigation is difficult to describe at this point.

California / Crime / NewsChannel 3 Investigates / San Luis Obispo County / Santa Barbara - South County / Santa Maria - Lompoc - North County / Ventura County
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C.J. Ward

C.J. Ward is the evening anchor for KEYT NewsChannel 3 and the station’s lead investigative reporter. To learn more about C.J., click here

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