Exhibit 10 — In re Bank of America California Unemployment Benefits Litigation (Dkt. 350-11, S.D. Cal. No. 3:21-md-02992)

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U.S. District Court for the Southern District of California · No. 3:21-md-02992-GPC-MSB · Doc. 350-11 · 2024-10-24 · Docket on CourtListener

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EXHIBIT 10 
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CALIFORNIA
California unemployment fraud could top $9 billion, double
previous estimate, expert warns
Unemployment fraud in California could be more than double the previous estimate of $4 billion. (Associated Press)
By Patrick McGreevy
Jan. 15, 2021 2:29 PM PT
SACRAMENTO —  As an army of investigators tries to pin down the scope of
unemployment benefit fraud in California, the head of a security firm working for the
state is warning that payments of fraudulent claims could more than double the $4
billion previously estimated, and that a flood of those claims involve overseas crime
rings.
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At least 10% of unemployment claims may have been fraudulent before controls were
installed in October, according to Blake Hall, founder and chief executive of the
company ID.me., which has been hired by the state Employment Development
Department to weed out fraud. A 10% fraud rate could total $9.8 billion of the benefits
paid from March through September.
Much of the fraud in California and other states is coming from organized criminal
gangs operating in some 20 foreign countries, including Russia, China, Nigeria, Ghana,
Turkey and Bulgaria, Hall said.
“When the Russians and the Nigerians and the Chinese are the players on the field, they
are going to put up some points,” Hall told The Times. “This is a very sophisticated
cyberattack that’s being run at scale.”
Hall’s firm was hired by the EDD to begin checking unemployment claims in October,
and since then 30% of the claims it screened turned out to be fraudulent. Between Oct. 1
and Jan. 11, Hall said his firm blocked 463,724 fraudulent claims, which he said would
represent more than $9 billion if the EDD had paid $20,000 on each claim.
The EDD has so far paid out $113 billion in unemployment benefits during the 10
months of the COVID-19 pandemic, including $43 billion as part of an expedited — and
less secure — Pandemic Unemployment Assistance program for independent
contractors, gig workers and the self-employed.
CALIFORNIA
Millions in California coronavirus jobless benefits sent to out-of-state prisoners
Jan. 5, 2021
State officials were recently warned by Bank of America, which is under contract with
the EDD to issue debit cards to distribute benefits, that there is evidence that fraud
could total more than $4 billion in California. A task force of county, state and federal
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law enforcement officers and prosecutors is continuing an investigation to identify all of
the fraud, which has also involved claims in the names of prison inmates.
Hall said that typically 10% of unemployment claims nationwide are fraudulent.
A similar warning was issued nationwide in November by the Office of Inspector
General for the U.S. Department of Labor.
“Conservatively, assuming improper payments continue at 10%, at least $36 billion of
the $360 billion expended under the CARES Act as of November 7, 2020, could be paid
improperly, with a significant portion attributable to fraud,” the office said in a report.
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Hall, whose company provides security for 14 states’ unemployment agencies, estimated
that about 40% of claims in the Pandemic Unemployment Assistance program may be
fraudulent.
“That would be consistent with what we are seeing across the country,” Hall said.
California paid out $35.7 billion in PUA benefits through Oct. 3; 40% of that would total
$14 billion.
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EDD director Rita Saenz, who took over the agency on Jan. 1, said she is concerned
about the level of fraud she is hearing about from ID.Me and others.
“This type of criminal assault on the benefits system is unprecedented,” Saenz said in an
interview. “My intention is to do everything we can, working with our law enforcement
partners, to catch whoever is doing it and bring them to justice.”
Saenz said she could not comment on the possibility of fraud reaching $9.8 billion or
more.
CALIFORNIA
California suspends payment on 1.4 million unemployment claims while searching
for fraud
Jan. 7, 2021
“We are still ferreting through the amount of fraud that has been committed, so I can’t
give you a firm number. We are still looking,” she said.
Legislators are concerned because efforts to fight fraud have harmed people with
legitimate unemployment claims. Last month, the EDD suspended payment on 1.4
million claims while they investigate potential fraud.
S
 G
, a database administrator from Carlsbad whose company had mass layoffs
in April, is one of those whose claims were suspended.
“I think it’s criminal,” said G
, 62, of the EDD’s actions. He said he called an EDD
phone line during business hours and only got a message saying he needed to call back
during business hours.
Bank of America has also frozen tens of thousands of benefit debit cards as it
investigates potential fraud, leaving jobless Californians unable to access their money.
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On Thursday, a federal lawsuit was filed by a San Francisco woman alleging the bank
failed to properly safeguard the accounts of EDD debit cardholders and later handle
fraud claims when made.
“My account was emptied by unauthorized transactions on my Bank of America EDD
debit card,” said the plaintiff, Jennifer Yick, who lost her real estate job. “When I tried to
report the fraud to the bank, I was repeatedly disconnected, told to call back later,
transferred to various departments to no end.”
A representative of the bank responded Friday by saying Bank of America has added
thousands of agents to answer phones and help customers with problems involving their
claims.
“As California’s unemployment program faces billions of dollars in fraud, Bank of
America is working every day with the state to prevent criminals from getting money
and ensuring legitimate recipients receive their benefits,” said Bill Halldin, a spokesman
for the bank.
California has been hit particularly hard by fraud because it has the largest population
and is paying out the most in benefits of any state, Hall said.
“It’s better to target a big state like California or New York because it’s not quite
apparent there is fraud like it would be if you were targeting a state with a more rural
population,” Hall said.
Among the factors that have contributed to fraud is that Congress has approved billions
of dollars in supplemental unemployment benefits and allowed claims to be filed
seeking benefits retroactive to February. As a result, many claims being paid are totaling
$20,000.
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“You have billions of dollars in federal aid and this backdating feature that makes these
flows the most valuable target that organized crime has ever focused on,” Hall said. “It’s
just classic supply and demand.”
Some of the fraud has been blocked after it was determined that the person in whose
name a claim was filed did not match the name of the owner of the cellphone used to file
the claim, and by a requirement that claimants appear live on camera with ID.me to
verify their identity.
Some fraudsters have been caught holding up paper or digital photos of the alleged
claimant during the live chats. In one case, a caregiver for a severely disabled man took
him into the restroom to put him on camera with ID.me, but that attempt was foiled
when the security screener asked the disabled man for Social Security information, Hall
said.
He said foreign fraud rings are using stolen identity information to file fraudulent
claims and then using “money mules” in the United States to pick up debit cards sent
out by the EDD, often to vacant houses.
Hall cited evidence of foreign involvement, including the tracing of phone numbers on
fraudulent claims to other countries and chatter on the dark web in which foreign
fraudsters talk about their schemes.
After ID.me started screening claims in some states, the Virginia-based company was
hit with cyberattacks originating in Hong Kong, Moscow and countries including
Nigeria that were aimed at knocking out its computer system, although the attacks were
foiled, Hall said.
He estimated that foreign crime rings have filed hundreds of thousands of fraudulent
unemployment claims in the United States.
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Saenz said she believes her agency is stopping the hemorrhaging of benefits to fraud
since it hired security firms including ID.me and Thomson Reuters.
“I think EDD is getting a handle on this,” Saenz said.
More to Read
State audit finds major backlog of wage theft claims in California
May 31, 2024
California in a jam after borrowing billions to pay unemployment
benefits
April 18, 2024
Thirteen arrested on suspicion of EBT card theft may be part of
Romanian syndicate, LAPD says
April 28, 2023
Patrick McGreevy
Patrick McGreevy covered the California Legislature out of the Sacramento bureau
until 2021. He joined the Los Angeles Times in 1998 and worked in the City Hall and
San Fernando Valley bureaus, writing about subjects including Valley secession,
LAPD reform and city government during the administrations of Mayors Richard
Riordan, James Hahn and Antonio Villaraigosa. He is a native of San Diego and a
graduate of San Jose State University.
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