FOLLOW THE MONEY: Inside California’s COVID and EDD Fraud Scandal

— and the Warnings That Went Ignored

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By Adam Housley

It Started With Tips That Didn’t Make Sense

The first calls and messages coming in during the late summer of 2020 didn’t sound like isolated mistakes; it all sounded coordinated.

“They turned off the alarms and opened the vault.” One longtime law enforcement source with direct knowledge of the fraud investigation told me early on.

Friends, sources, and law enforcement contacts began flagging something strange and asking me to look into it, since I was now an independent journalist, and always one they could trust. Unemployment benefits were showing up where they shouldn’t. Debit cards issued to people who never applied. Payments going to inmates. Multiple claims tied to the same address. People using the same photograph more than 100 times for claims; some even used Nancy Pelosi and Dianne Feinstein multiple times to successfully get COVID relief money. All got paid with your money.

At first, it felt like the kind of bureaucratic breakdown you’d expect in a crisis. But it didn’t take long to realize this wasn’t just mismanagement; it was a gold rush of fraud and corruption, and California leaders were letting it happen because they were more worried about image than about ensuring that EDD money and other relief efforts went to the people who actually needed it.

A System Rushed — and Exposed

When COVID shut down large parts of the economy, California—like much of the country—moved fast. Billions of dollars were disbursed through the Employment Development Department (EDD) and in other ways to keep people and businesses afloat. The government was shutting us down, but also propping us up at the same time.

And to be clear: speed mattered. People needed help.

“Gavin gave away at least 60 billion to fraud, and we will never know the extent. Nationwide… It’s gonna be over 1 trillion in fraud. But again…we’ll never know it all,” said one investigator.

According to multiple sources I spoke with at the time—and continue to hear from to this day, basic fraud prevention tools, which were already weak, were either purposely paused, weakened, or simply overwhelmed. Then, when federal investigators began looking into the fraud, EDD and California state leaders deliberately hindered the investigation because they didn’t want the bad press, forcing them to issue subpoenas rather than trying to help identify the massive theft of public money.

Organized Crime Didn’t Miss The Opportunity

Identity verification protocols weren’t keeping up. Cross-checking systems lagged behind. And in some cases, warnings were raised internally but were purposely not acted on. Meanwhile, criminals weren’t waiting, and California officials knew it was happening the entire time and failed to stop the flow.

This wasn’t random fraud; it was organized, calculated, and fast-moving. I was told it began on day one but quickly spread. The open door widened further when a couple of news reports emerged showing families in Southern California who did not receive the necessary funds to help during COVID and were at risk of eviction, which didn’t paint a good picture for California state leadership. Governor Newsom and other leaders were worried about bad press, a common theme throughout the COVID debacle.

As one source told me, “That’s when Governor Newsom went to California EDD and told them…Approve Everything! I don’t care.”

Of course, the reason for the somewhat panicked order was due to bad press. “Nobody wants to see a family in LA without the money they need to survive.” But for every legitimate family that slipped through the cracks, there were thousand whom purposely stole money and stole big.

My sources continue to point to international fraud rings, domestic criminal networks, and opportunists, all of which tapped into the same vulnerabilities. Initially, it was criminals using stolen identities—many pulled from previous data breaches—but they quickly learned that completely fabricated identities slipped through without a hitch. Basically, as the governor demanded, everything got approved.

Also, investigators tell me many of these overseas organized crime syndicates use American citizens as money mules to cash out the UI bank cards at US banks, then either wire the money via Bitcoin to overseas wallets or use the informal, trust-based money transfer system, Hawala, throughout the Middle East and Africa. They moved funds without physical cash movement or traditional bank involvement to send or wire it overseas.

One source described it bluntly: “They were filing faster than the state could even understand what was happening.”

And what about all the money that was racing out of California faster than water runoff from a Sierra downpour? The mass majority didn’t stay in California, or even in the country. As I have repeatedly reported, a significant portion of fraudulent funds flowed out of state—and out of the country—almost immediately after issuance. Much of it went to criminal syndicates around the globe.

The biggest offender…APT41 (also known as Double Dragon) is a sophisticated Chinese state-sponsored advanced persistent threat group that carries out government-directed espionage while simultaneously pursuing financially motivated cybercrime, often for personal gain by the operators. As much as investigators have been able to find, or allowed to find, APT41 seems to have grabbed the most money in the high hundreds of millions. Southeast Asian organized crime was also a big player, but so were criminal groups in Nigeria, Latin America, and Russian criminals were also heavily involved.

The larger media did catch on…kinda. While I reported about inmates—thousands of them—inside Californias prisons who were able to successfully file fraudulent unemployment claims, the reports and outrage began to sink in. People already incarcerated were receiving benefits intended for workers who had lost jobs during the pandemic. The press was all over it, but failed to dig deeper.

According to sources and subsequent confirmations, inmate identities were used on a massive scale. In some cases, inmates themselves orchestrated the fraud. In others, outside networks used prison records as a ready-made database.

A law enforcement contact told me, “It was one of the easiest entry points. The data was there. The system wasn’t catching it.”

Then there were organizations like large, big-city teachers’ unions. In one case, while the entire staff in that county was paid their normal salaries, and some even got raises during COVID, nearly 80% applied for COVID funds from the State of California and received them. But even that was pennies as compared to the massive fraud rings and operations from criminals outside the country.

And again, the question that kept coming up: How was this not stopped immediately?

California Leaders Gradually Admit, but Still Hinder

As the months went on, the numbers kept climbing. I was told right away that the fraud exceeded 20 billion. That’s when the investigation into fraud being conducted by federal agents was just beginning. At first, California officials acknowledged fraudulent payments but downplayed their number and extent admitting to a few billion.

Then the numbers I kept being told grew. $30 billion. $45 billion. $60 billion. Eventually, the State of California confirmed at least $20 billion in fraud tied to EDD payments, but I was already guaranteed it was 3 times that, and, once it was all added up, likely more than $ 100 billion, just in California alone.

So based on my sources and reporting, source estimates, and broader pandemic fraud tracking, the real number was clearly far higher. Multiple sources I’ve spoken with over the years continue to put the likely total far above official figures—potentially exceeding $100 billion when accounting for known gaps, and even more when including related fraud tied to other California and even federal programs.

One financial crimes investigator told me, “We’ll never know the full number. There was too much volume, too little control, and too much that got out before anyone could track it, and the State of California has not made the investigation easy. They are cooperating very little.”

Warnings Were There

The most frustrating part of the story is that the red flags weren’t subtle; they were obvious.

Massive early spikes in claims. Massive duplicate filings. Significant out-of-state activity and filings. Payments tied to known inmates. Sources say concerns were raised internally and externally—sometimes repeatedly. But the response was ignored at California’s highest levels.

To be fair, officials were dealing with an unprecedented crisis. The pressure to deliver aid quickly was immense.

Still, as one source with firsthand knowledge of the fraud investigation told me,“Speed doesn’t mean you ignore basic safeguards. You don’t just hope for the best with taxpayer money.”

Once the scale of the fraud became undeniable, efforts ramped up. The blame was put on small businesses in California for “misusing PPP Loans”. Immediately, I got a call once that narrative hit the press. It was made very clear that it was being sold by the Newsom Administration and EDD, but it was nowhere near the truth. It was explained that, yes, while a few businesses took advantage, the majority, by far, did the right thing and passed along the PPP money to employees and landlords, as intended.

California officials later stated they blocked tens of billions of dollars in fraudulent attempts after strengthening controls, but by then, much of the damage was already done. They also would not cooperate with the men and women investigating the fraud “unless we used grand jury subpoenas.”

I also continue to get requests about recovery efforts. Sure, a million here and a million there, and a persecution or two makes some feel better, but true recovery? Limited at best. A significant portion of the stolen funds is likely gone for good—moved through accounts, converted, or transferred overseas beyond easy reach. Never, ever to be recovered. Even as federal investigators were being roadblocked by EDD and others in Sacramento, they were warning that the flow would continue, and very little was done to stop it. California lost likely 100 billion and will get very little, if any, back.

The Bigger Picture

This wasn’t just a California problem. Across the United States, pandemic relief programs were hit by fraud at historic levels. Federal watchdogs have since warned that hundreds of billions of dollars may have been lost nationwide. I am told that the number actually exceeds 1 trillion in nationwide fraud losses. California remains the most striking example—because of the scale, the early warning signs, and the systemic breakdown that followed.

There are still so many questions to be answered. Because this isn’t just about what happened. It’s about what happens next.

And the bottom line is that the pandemic demanded urgency. No question. But urgency without accountability created opportunity—on a massive scale. And criminals took it.

As one source told me not long ago: “This wasn’t just fraud. This was preventable.”

That may end up being the hardest truth of all.