Federal "Strike Team" Heading to California to Investigate Pandemic Unemployment Fraud

California's Employment Development Department is about to face serious federal scrutiny over what could amount to one of the largest unemployment fraud scandals in American history.

The U.S. Department of Labor is preparing to dispatch a specialized strike team to California to investigate widespread theft and abuse within the state's unemployment insurance program, according to reports. The move mirrors a similar federal crackdown already underway in Minnesota, where investigators have been untangling a complex web of pandemic-era fraud.

Labor Secretary Lori Chavez-DeRemer made clear the administration isn't pulling any punches. "Financial issues and potential fraud in California's unemployment insurance program will be fully examined," she said, adding that the Biden administration had looked the other way on failing labor programs — something she says is now over.

The Minnesota investigation offers a preview of what California may be facing. Federal prosecutors there uncovered the massive "Feeding Our Future" scandal, in which approximately $250 million in federal child nutrition funds was allegedly stolen through fraudulent claims and shell companies. All told, prosecutors believe as much as $9 billion may have been taken in Minnesota, with nearly 100 people charged.

But California's situation could be on an entirely different scale.

The federal government funneled nearly $290 billion in pandemic relief funds into California, with the EDD serving as one of the primary distributors of expanded unemployment benefits. A 2023 state audit found the agency badly fumbled its fraud prevention responsibilities, with potentially tens of billions of dollars in questionable payouts going out the door.

Some of the fraud wasn't hard to trace. A former EDD employee, Regina Brice, was sentenced last March to 66 months in federal prison after using her insider access to file nearly $860,000 in fake unemployment claims. The following month, four siblings in Kern County received prison sentences for inventing fictitious businesses to collect over $1.1 million in benefits they weren't entitled to.

The EDD declined to comment on the forthcoming investigation.

Beyond the fraud itself, California is also facing a self-inflicted financial crisis tied to its pandemic-era unemployment system. The state still hasn't repaid a $20 billion federal loan it took out to cover unemployment claims — and that burden is falling squarely on California businesses. Employers are currently paying roughly $42 per employee in additional payroll taxes to chip away at the debt, with that figure set to climb each year until the loan is cleared.

Chavez-DeRemer framed the strike team deployment as part of a broader mission to restore accountability. "Immediately, we are engaging a specialized strike team to uncover any potential fraud or abuse and quickly moving to protect the American worker and taxpayers," she said. "I look forward to restoring the California UI program's integrity and financial health."

The announcement comes on the heels of a separate Labor Department watchdog report revealing that more than $900 million in COVID-era unemployment benefits remains at risk — with roughly $720 million sitting dormant on prepaid debit cards and another $192 million transferred to state unclaimed property offices.