Months after district attorneys unveiled a prison fraud ring that conned the California Employment Development Department out of an estimated $2 billion or more, the head of an identity-security firm working for the state says global cyber-criminals are bombarding EDD with fraudulent unemployment claims at a stunning clip.
Blake Hall, chief executive of ID.me, said in an interview this week that systems deployed by his company are flagging $750 million worth of bogus claims each week.
Although all 50 states have been distributing unemployment benefits since the pandemic generated mass layoffs last spring, Hall said California has emerged as the criminals' most tempting target. Fraud rings as far away as Moscow are feeding stolen identities into the EDD system in an effort to siphon unemployment dollars from the state, he said. "As we've uncovered a ton of fraud, we're all reacting in real time to how organized crime is attacking the state," Hall said.
Hall said the sheer size of California — which has handed out more than $100 billion in pandemic unemployment benefits — makes it an obvious target for fraud. He added that California appears to have been more lax than some other states when it comes to claims that were backdated — an approach that would enable criminals to tack on additional weeks of benefits to their haul.
An EDD spokeswoman had no immediate comment on the backdating issue.
"California is an incredibly rich state," Hall said. "Because it appears to be more generous to take care of eligible claimants, it is also, therefore, a more attractive target for fraud rings to take a compromised identity and target it in California." At the same time, he said practically every state has been unprepared for the amount of attempted fraud that's accompanied the pandemic.
A member of the district attorneys' coalition that blew the whistle on the prison fraud said he isn't surprised to hear that criminals are still going after California benefits in earnest. Vern Pierson, El Dorado County's DA, said fraud was "so widespread and so rampant" in the early months of the pandemic that criminals are eager for more.
"It was so easy for them before, they're coming back again and again," said Pierson, president of the California District Attorneys Association.
Pierson is particularly frustrated that EDD five years ago discontinued a fraud detection system developed by Folsom software company Pondera. "It could have been in place and it should have been in place," Pierson said.
As it happens, the state has resumed doing business with Pondera, now owned by Thomson Reuters. Last week, the state Office of Emergency Services, which is coordinating the response to the pandemic fraud, announced it had halted payment on 1.4 million claims Dec. 26. That followed an earlier move to disqualify an additional 1.9 million claims. The more than 3 million claims were flagged by a fraud-detection system operated by Thomson Reuters/Pondera, the state said.
The DAs' coalition revealed that scores of prison inmates had pulled off a low-tech scheme, mostly using contraband cell phones, to illegally acquire unemployment benefits for themselves and outside accomplices. More than two dozen people have been charged so far, including two former EDD employees, in cases brought by federal prosecutors and officials in San Mateo County.
Pandemic Fraud Rampant Nationwide
The district attorneys' coalition faulted Gov. Gavin Newsom's administration for not slamming the door on fraud earlier. In particular, the DAs — citing data from the National Association of State Workforce Agencies — complained that California was one of only 15 states that didn't routinely cross-check prisoners' identities with unemployment applicants, a move that could have eliminated much of the fraudulent activity.Prison authorities said they believed they couldn't legally share inmates' Social Security numbers with agencies outside of law enforcement, such as EDD. It wasn't until federal investigators served the Department of Corrections and Rehabilitation with a subpoena that the department surrendered the inmates' data, enabling the cross-checking to proceed.
Others, though, say California isn't completely to blame. Hall, the ID.me CEO, said pandemic fraud has been rampant throughout the country as state workforce agencies — saddled with aging computer systems and under pressure to get benefits out the door quickly — were quickly overwhelmed with claims.
The U.S. Labor Department's inspector general said pandemic fraud nationwide could hit $36 billion, representing 10 percent of all the unemployment aid dispensed by Congress as of early November.
"The federal government opened up the spigots on billions of dollars of aid that made workforce agencies targets for organized crime," Hall said. "We haven't seen any state that is really prepared to take on the magnitude of this crisis."
Based in Virginia, ID.me has been screening unemployment claims for EDD since early October under a $3.5 million state contract. "I wish it was for a percentage of the fraud," Hall said with a laugh.
ID.me's system works on multiple fronts to verify claimants' identities. For instance, it can match their telephone numbers with telecom carriers' records.
The company says its identity-verification programs have halted 463,724 claims since Oct. 1 — claims that would cost the state billions of dollars.
ID.me is assisting 13 other states with pandemic claims but California, because of its huge population, accounts for about 60 percent of the claims the company processes.
Yet California accounts for at least 75 percent of the fraudulent applications screened by ID.me, Hall said, a sign of how California is viewed in the criminal community.
Hall said cyber-fraud rings operating around the globe have been stealing identities and using them to apply for benefits at workforce agencies around the country, particularly the California EDD.
"They're taking these stolen identities wherever they can get them and then they're targeting them at California."
He said ID.me itself has become a target of cyber-criminals in the past few months. In particular, ID.me has been hit with "denial of service" attacks, in which its computers are flooded with information from outsiders trying to crash its system.
The first day that ID.me went live with its system at EDD, Hall said the company's servers were hit with a denial of service attack from servers in Moscow. The company was hit with a similar attack from Nigeria after it began working for Arizona's unemployment agency in December. It also was targeted by cyber-criminals in Hong Kong. The company was able to fend off the attacks, he said.
The attacks are "indicative that we're effective," Hall said. "We're blocking them from these revenue streams that they're extracting ... especially from California."
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