California is a cash machine. The state collects some of the country’s highest income, business, and fuel taxes, and now spends more than $300 billion per year. And yet, everywhere you look, California seems to be falling apart.

The roads are crumbling. Mismanaged wildfires have turned neighborhoods into ash. Drug addiction and homelessness have metastasized, turning parts of Los Angeles and San Francisco into no-go zones. And the cost-of-living crisis is pricing middle-class taxpayers out of basic necessities like groceries and gas, even as the state spends billions on welfare programs that never seem to lift anyone out of poverty.

Californians are beginning to ask: Where is all this money going? On paper, it funds hospitals, universities, schools, prisons, infrastructure, and other public services. But beneath the surface, something else is happening that California Governor Gavin Newsom does not want you to see: massive, systematic, brazen fraud.

We conducted interviews with public officials, fraud experts, and political figures, and reviewed hundreds of pages of government reports, state audits, criminal indictments, and other public records on California fraud. From unemployment insurance and Medicaid to failed homeless initiatives and welfare programs, seemingly every state program has been compromised by criminals. The best estimates suggest that, on the governor’s watch, fraudsters, scammers, and organized crime rings have stolen at least $180 billion from taxpayers.

Welcome to Gavin Newsom’s empire of fraud.

Fourteen months after Newsom began his first term as governor of California, the Covid-19 pandemic swept the world. Roughly 2.7 million Californians eventually lost their jobs. The state’s economy went into freefall as its leaders imposed some of the country’s most restrictive public-health measures. In response to the crisis, Newsom sought to dump pallets of cash across the state—as quickly as possible.

One way to inject money was through California’s massive unemployment insurance program (UI). Unemployment insurance is administered by the state’s Employment Development Department (EDD), which can process billions of dollars in payments monthly. Before the state turned on the cash machine, however, experts had warned that the system was ripe for fraud.

Haywood Talcove, one of America’s leading fraud specialists and CEO of LexisNexis Risk Solutions for Government, was one such expert. “I was begging [federal officials] not to let the money go out like that, because it was going to be the biggest fraud in the history of our country,” he said. “Obviously, I wasn’t successful.”

For many reasons, California was particularly susceptible to the large-scale fraud schemes Haywood Talcove saw on the horizon. Not only did the state have some of the most generous welfare programs in the country; its bureaucrats had also failed to implement some basic fraud controls during Newsom’s tenure.

“They literally suspended all of the rules for the [unemployment insurance] program,” Talcove said. “[That made] it possible for anyone to get that benefit even if they weren’t entitled to it. It was very intentional. They knew what they were doing. But it caught up to them because it just got so out of control.”

The scams began almost immediately, with criminals from around the world reportedly siphoning cash from the program. In one case, a Romanian-led fraud ring orchestrated a $5 million unemployment-insurance scheme. Members allegedly “recruited potential [EDD-benefit] applicants through Facebook” and met them at “parks throughout Southern California to complete the application process,” according to the U.S. Attorney’s Office for the Southern District of California. “Applicants paid . . . a partial fee up front for assisting with fraudulent applications and another fee after applicants received EDD payments,” the office said. Many of the fraudsters wired the stolen funds to Romania.

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https://www.city-journal.org/article/gavin-newsom-california-fraud