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California Struggles to Find Benefit Scammers

With a high influx of COVID-related jobless claims, hackers found it easy to scam state unemployment benefit systems. But tracking down the illegitimate payments is a slow and frustrating process.

(TNS) — It was a three-person operation based out of a compact, single-story home on Windsong Lane in Escondido — just one small piece of the massive fraud that scammed at least $20 billion in unemployment benefits intended for California workers who lost jobs because of the coronavirus pandemic.

But the yearlong scheme conducted by the trio of Ryan Kubista, his wife, Maereichelle Marquez, and Kubista’s mother, Stacy Wright, offers a glimpse into both how easy it was to hijack the funds, and the difficulties investigators face as they continue to pursue swindlers across the state through a network of local, state and federal task forces.

For most of 2020 through February 2021, the three filed at least 64 separate applications for pandemic unemployment benefits with the state. The money came largely from the federal government’s coronavirus relief rescue packages that pumped trillions into the economy.

They used the names of inmates at local prisons and jails and people on parole or probation on the bogus applications, and had the cash — loaded onto debit cards and mailed out by the state Employment Development Department (EDD) — sent first to the address on Windsong and then to rented mailboxes in Vista and Carlsbad.

In all, the three netted $1,176,235 in bogus unemployment claims.

Kubista, Marquez and Wright were finally arrested and charged in March 2021. All three have since pleaded guilty to unemployment benefits fraud, perjury and other charges. Kubista was sentenced to six years in prison, Marquez to four years. Wright was sentenced to two years’ probation.

Court records show that $996,119.51 of the money the three claimed went to cash withdrawals, another $65,000 to purchases. A spreadsheet itemizing the activity of each debit card shows the amounts swindled ranged from a low of $900 to multiple cards that rang up $30,000 in fraudulent payments over the months.

The records also show how easy it apparently was to get money from EDD, which was inundated with applications in 2020 at a pace it had not seen before and was unprepared for the deluge. In an interview with a probation officer after she pleaded guilty, Wright recounted the process after she filed an application.

“She was called on the phone, an interview was done, and they gave her unemployment,” the officer wrote. “The card came to her.”

The EDD gave out the funds hastily, with little oversight and largely without verifying the identities of applicants.

It’s not known how many people have been charged by local District Attorney offices or federal prosecutors, nor how much money has been recovered so far. The EDD said it did not have that information.

A report by the state auditor last year found that the agency paid out $10.4 billion in claims to applicants without verifying identities. Another $810 million went to prison inmates, the audit found.

The audit said it stopped the work it normally did to check if a claimant was eligible to get benefits, largely in an effort to push money out much faster. The agency also suspended for two months its normal requirement that people receiving payment periodically certify they are still eligible.

Scam artists took note and piled in.

In San Diego, where DA Summer Stephan estimated the fraud amounted to at least $5 million, 21 people have been charged in nine separate cases. Court records show more than half were prison inmates.

While investigations are ongoing, they are hampered by the requirement to get and verify information from a variety of sources — the EDD, Bank of America which distributed funds, postal records, even the state prison system.

Deputy District Attorney Damon Mosler, who heads the economic crimes section of the district attorney’s office, said each case relies on getting records from EDD that show the benefits paid out, who applied, the address used and so forth.

Slowing that process down is the dearth of investigators in EDD to assist in the case investigations, Mosler said. There is one investigator assigned to all of Southern California, and fewer than two dozen around the state, he said.

“The investigative flow makes us have to go through the agency that was defrauded,” Mosler said. “It’s up to them to help us make these cases move forward.”

Loree Levee, a spokeswoman for EDD, disputed that there was only a sole investigator for Southern California and said she believed there were more than 20 in the state but could not say how many. She did acknowledge that the agency has been trying to recruit more investigators with limited success.

“It has been hard to get investigators who want to come to state government,” she said. “We’ve had openings and been trying to get them filled. But it has been very hard for us to bring on investigators. It has not been an easy year.”

Many of the cases brought so far, according to a list provided by EDD and news reports from around the state over the past year, involve jail or prison inmates. That’s because those cases are easier to prove: inmates are ineligible to receive benefits. The EDD did not initially cross-check inmates’ names, Social Security numbers and other identifying information with applicants. It was not until November 2020, months into the distribution of the benefits and just after the extent of the fraud was becoming apparent, that the information was shared with state and local prosecutors, according to a letter Stephan and other prosecutors sent to Newsom in December 2020.

The California Department of Corrections and Rehabilitation (CDCR) estimated at that time that as many as 36,000 prison inmates could have been involved in the scam — either by getting benefits directly, or selling their personal identifying information to others who then used it to apply, investigators have said.

Penalties for people found guilty of fraud have varied. Court records in San Diego show that inmates had additional time tacked on to their sentences, usually a few years. Defendants are also on the hook for restitution to the state — but that is unlikely, especially for inmates serving years in prison, Mosler said.

“The money is gone,” he said flatly.

Levee could not say exactly how much total money has been recovered so far statewide. “We have collected several million in restitution,” she said.

Meanwhile, late last year EDD began to send letters to some 1.4 million residents who received unemployment benefits, asking them to provide documentation proving that they were eligible. Levee said this is a federal requirement.

The letters target workers who in the past usually did not qualify for unemployment because they were self-employed, freelancers or small-business owners. It’s possible if someone can’t provide the proof, they may be on the hook for repaying the benefits — which many legitimate recipients waited months to receive — though Levee said the EDD could waive the repayment requirement in some instances.

The state auditor had issued 21 recommendations that EDD should implement to address both the lax oversight that allowed fraud to occur and administrative inefficiencies that created a massive backlog of claims applications. So far, five have been fully implemented and others are in various stages of completion, according to the EDD website.

Full implementation will have to be overseen by a new director, the third for the agency in two years. Rita Saenz, appointed a year ago when the fraud and backlog problems put the agency under withering scrutiny, resigned in late January. The agency’s deputy director, Nancy Farias, will replace her.

©2022 The San Diego Union-Tribune. Distributed by Tribune Content Agency, LLC.
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