Exclusive | Feds launch probe into California’s ‘blind eye’ on unemployment fraud

California officials who turned a blind eye to unemployment scams — potentially worth tens of billions of dollars during the pandemic — will now be put directly under the microscope of the federal government.

The US Department of Labor is set to send a letter to the state’s Employment Development Department announcing a “strike team” will soon be touching down in the Golden State to root out theft and abuse, The California Post has learned. The investigation will be similar to efforts currently underway in Minnesota.

“Financial issues and potential fraud in California’s unemployment insurance program will be fully examined,” Labor Secretary Lori Chavez-DeRemer told The Post in a statement, while also taking a shot at former President Joe Biden.

“The previous administration turned a blind eye toward failing Labor programs: This ends now.” 

Federal investigators have been combing through financial records tied to Minnesota fraud schemes after prosecutors uncovered what they describe as a sprawling web of pandemic-era theft, including the massive “Feeding Our Future” case that allegedly siphoned roughly $250 million in federal child-nutrition funds through fake claims and shell companies. 

In total, a staggering $9 billion may have been stolen in Minnesota, according to federal prosecutors. Nearly 100 people had been charged with crimes as of last month.

The breadth of fraud in California, however, could leave Minnesota’s thievery looking like chump change.

The feds provided California nearly $290 billion in relief funds during the pandemic, and EDD was among the largest recipients as it was tasked with rapidly implementing expanded unemployment benefits.

In 2023, state auditors issued a report that found EDD made huge missteps in preventing fraud, allowing billions of dollars in unemployment payouts that may have been fraudulent. The total tab was estimated to be as high as tens of billions.

Investigators have not always had to look too far to find the culprits.

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Last March, Regina Brice, a former EDD employee, was sentenced to 66 months in prison for using her position to file $858,339 in fraudulent unemployment claims. A month later, four siblings in Kern County were sentenced to prison for creating nonexistent businesses to claim more than $1.1 million in unemployment benefits.

The new probe in California — drawing federal investigators from both the national and regional offices — appears to be partly motivated by the state’s deadbeat track record.

California lawmakers still haven’t paid off a $20 billion federal loan for unemployment insurance claims during the pandemic — and struggling businesses are now being forced to pick up the ballooning tab.

Employers are on the hook for roughly $42 in payroll taxes per employee to pay down the massive debt — and that tab will rise every year until the debt is cleared.

“Immediately, we are engaging a specialized strike team to uncover any potential fraud or abuse and quickly moving to protect the American worker and taxpayers,” Chavez-DeRemer said. “I look forward to restoring the California [Unemployment Insurance] program’s integrity and financial health.”

Earlier this week, the Labor Department’s official watchdog announced that more than $900 million in COVID-19-era unemployment benefits was being misused or put at risk of being stolen.

Roughly $720 million in unemployment insurance benefits is sitting on prepaid debit cards, officials said, while another $192 million was moved to state unclaimed property offices.