Tracking And Arresting Unemployment Scammers Who Target Taxpayers, Jobless

By Dorothy Tucker and Carol Thompson

CHICAGO (CBS) -- A total of $63 billion --between March 2020 and January 2021. That's how much the U.S. Department of Labor estimates states overpaid in unemployment benefits. The  department says a lot of it went into fraudsters' pockets. There have been two spikes. One in late spring/early summer and a second that began in October and continued through January.

HOW BIG IS THE FRAUD PROBLEM IN ILLINOIS?

In December and January, the Illinois Attorney General's office received 476 written complaints from victims of unemployment fraud. The number of fraud reports has been steady since November, the AG's office told the CBS 2 Investigators.

In early 2021, local police departments in the Chicago area also said they are seeing some of their highest numbers of fraud reports since the COVID-19 pandemic began.

• In Naperville, a western suburb with a population of 147,000, the police department is getting 30 to 50 unemployment fraud reports a day as of late January.

• In Lake in the Hills, a northwest suburb with a population of 28,000, police received 13 identity theft reports related to fraudulent unemployment claims over just two days, Jan. 25 and 26.

• In Lisle, another western suburb, population of 23,000, law enforcement gets about three to five reports a day. Among the newest victims is the village's Deputy Chief of Police.

The Illinois Department of Employment Security (IDES) reports stopping 962,000 fraudulent claims since March. A total of 674,875 of those in the regular system and the remaining 287,280 in the Pandemic Unemployment Assistance (PUA) system. All initial PUA claimants must apply for regular benefits first and be denied. That requirement could explain the higher fraud numbers in that system. IDES reported to the U.S. Department of Labor at least $5 million in overpaid benefits unrelated to identity theft were marked fraudulent as of Dec. 31. We keep asking, but IDES will not say how much of the nearly one million total fraud cases has been paid out to scammers.

"They just need a small percentage of these scams to pay out in order to make a relatively significant amount of money," said Crane Hassold who is the Senior Director of Threat Research at Agari, a business email security firm.

WHO IS COMMITTING THE FRAUD?

Hassold, a former FBI cyber analyst, and his Agari team helped uncover information pointing law enforcement to a cybercrime group called Scattered Canary as some of the bad actors involved in a lot of the early unemployment fraud and other fraud related to the CARES Act. Hassold linked scammers to attacks on several states including Florida, Massachusetts, North Carolina, Oklahoma, Rhode Island, Washington and Wyoming.

"What we found is a vast majority of them are coming from West Africa, places like Nigeria. That's not the only place where these cybercriminals are located, but that's where a lot of them are," said Hassold. His team built up trust with some members of that group, a process taking more than a year. It helped reveal tactics thieves use to file fake claims.

"We communicate with these scammers both covertly and through the fact that they know who they're talking to on a pretty regular basis," said Hassold. Through his network of sources, he discovered recently the scammers were setting their sights on a few different states they consider easier targets, including Illinois.

"The biggest challenge with these types of scammers is that there are so many of them. The number of individuals that are doing scams like this is in the thousands, if not tens of thousands or hundreds of thousands," said Hassold.

FINDING THE FRAUDSTERS

Local, state, federal and international agencies are starting to find the fraudsters and arrest them. A few arrests over the summer have now turned into more of a steady stream more recently.

California:

By the end of January, the state's Labor Secretary Julie Su shared in a recent conference call at least 10% of the $114 billion paid out in unemployment benefits were fraudulent claims. That's at least $11.4 billion sent to scammers. "There is no sugarcoating the reality. California did not have sufficient security measures in place to prevent this level of fraud, and criminals took advantage of the situation," said Su.
Agencies there are starting to make arrests.

• October 2020: A grand jury indicted Fontrell Antonio Baines, aka Nuke Bizzle, on six counts including aggravated identity theft, mail fraud and interstate transportation of solen property. The indictment states:

1) Baines and his co-schemers filed false PUA claims, claiming to be self-employed barbers who could not work because of COVID-19.
2) The Bank of America debit cards triggered by those fake claims were sent to addresses those involved in the fraud had access to.
3) Baines and others used those cards at ATMs to withdraw funds and used those cards to buy things.
4) A total 92 fraudulent claims were filed between July and September worth about $1.2 million. Actual losses totaled at least $704,760.

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• January 2021: Orange County's District Attorney announced charges against two business owners who they say opened up a storefront to file about 1,000 fraudulent unemployment claims worth $500,000. Among the claims filed was on behalf of a 99-year-old woman they claimed had lost her housekeeping job because of the pandemic.

• January 2021: Orange County DA also charged eight people, including six inmates, two of whom are convicted murderers, with filing phony claims worth tens of thousands of dollars.

Washington:

Washington has reported more than 122,000 fraudulent claims. At least $600 million was stolen by scammers. The state Employment Security Department (ESD) will hire a new fraud chief to replace former ESD Commissioner Suzi LaVine.

• November 2020: A 70-year-old woman was indicted by a federal grand jury in Mississippi, accused of 17 counts involving unemployment fraud. The indictment states:

1) Between April and June Middleton and others filed fake claims using other people's names and personal information to obtain benefits.
2) Middleton was the money mule – the intermediary between the state and the scammer.
3) Middleton received eight direct deposits worth $48,000 in May 2020 and then withdrew the money in several ways: via ATMs, cashier's checks, buying gift cards from Walmart and Kroger.
4) Middleton received another six deposits in May worth $31,000 and sent about half to another account through a wire transfer. The rest she withdrew as cash and mailed to a man in Colorado.

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Hassold told CBS 2 to expect more people like Middleton to be arrested for their roles in the fraud schemes. Some may not even realize they're doing anything wrong.

"These are generally going to be unwitting individuals who may be romance scam victims, work from home scam victims. They think they're receiving money for some other purpose," he said. "For someone like a romance scam victim, this is going to be an individual who has been essentially cultivated for a number of months, if not years, where trust has been built between the victim and the scammer."

Pennsylvania:

The full extent of the fraud in Pennsylvania is unknown right now. However, the state's Attorney General has announced 29 people charged with submitting fraudulent claims worth about $2.3 million. A total of 24 are inmates and the other six are their accomplices. The most recent arrests coming in January 2021. The AG described how the inmate/accomplice scheme worked in once case. An inmate files for benefits. The accomplice receives the money on a debit card and then pays the inmate through their prison account or MoneyGram.

Massachusetts:

The Massachusetts Department of Unemployment Assistance (DUA) reported in December, 171,000 claims had been found to be fraudulent. The DUA also announced recovering $242 million dollars in fraudulent payments. The state's Attorney General is working with the FBI to investigate thousands of other claims.

• June 2020: The U.S. Department of Justice announces the arrests of two Nigerian nationals accused of using a series of romance, PUA and other online scams to defraud taxpayers. The two entered a guilty plea in November. They used fake foreign passports to open bank accounts and once the fraudulently obtained funds were deposited – they would withdraw the money from multiple banks and ATMs.
• January 2021: A former state DUA employee indicted on wire fraud charges involving filing false unemployment claims. Her husband, who had been in prison in Texas until September 2020, was also charged in the scheme. Authorities confiscated various ID theft tools, including an ID laminator, blank ID cards, 68 hologram overlays, 159 card lamination sheets and 649 sheets of blank checks. Law enforcement also recovered $17,000 in cash and a notebook containing personal information of other people.

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WHAT'S BEING DONE IN ILLINOIS?

Crane Hassold told CBS 2 that we don't see more arrests, because it's very hard to track scammers down who use various means of laundering the money.

"At the end of the day, it's really a numbers game where there are a lot of scammers and only a finite amount of resources that are able to defend against them," he said.

The scammers know that and take advantage.

"They think that if it was so important to prevent this type of fraud from happening then more work would be done on our side in order to prevent those losses," said Hassold.

And that may explain why Illinois is a more recent, favorite target.

There have been no major announcements of big arrests like those in California, Washington, Pennsylvania and Massachusetts. IDES has reported that there have been no fraudulent claims linked to the state's prison system because that is one of the identity verification checks the system runs automatically. There has also been renewed effort to find fraudsters.

On Jan. 8, Attorney General Kwame Raoul announced his office and the FBI are partnering up to battle unemployment benefit fraud. The task force includes the Illinois State Police, the U.S. Labor Department Office of the Inspector General, the Illinois Department of Revenue, the IRS, the Illinois Association of Chiefs of Police and the Illinois State's Attorneys Association. In the press event, the FBI Special Agent in Charge, Emerson Buie Jr. said the task force's mission is to "…ensure that those who would steal resources from our most vulnerable are brought to swift justice."

Illinois' Attorney General's office declined to confirm any ongoing criminal investigations involving any fraudsters in the state. And, also did not answer questions about how much money has been paid to fraudsters. The AG's office did tell us it is looking into that.