Debit cards, illegal cell phones: How inmates pulled off giant California unemployment scam

It was a scam built on state-issued debit cards, contraband cell phones, a jaunt to Las Vegas and a homemade phone book hidden under a jailhouse mattress.

In August, San Mateo County law enforcement officials charged 21 people — 13 prisoners and eight accomplices — with masterminding a fraudulent COVID-19 unemployment-benefits scheme that netted $250,000.

The case, described as a “big spider web” by one prosecutor, represents the earliest whiff of an audacious statewide enterprise that officials now say could approach $1 billion in illegal benefits paid to inmates and their associates. Prosecutors said at least 35,000 unemployment claims were made on behalf of prison inmates, including serial killer Cary Stayner and convicted murderer Scott Peterson.

“The fraud is honestly staggering,” Sacramento County District Attorney Anne Marie Schubert, chairwoman of a recently-formed task force on California unemployment fraud, announced Tuesday. “The inmates are mocking us.”

On Tuesday, Schubert and other prosecutors on her fraud task force said investigators have uncovered at least $140 million worth of improper payments made to inmates and their outside accomplices, and the figure is sure to climb as the probe continues. They said the fraud, all tied to Pandemic Unemployment Assistance, included inmates housed at every prison operated by the California Department of Corrections and Rehabilitation.

The case represents another black eye for the California Employment Development Department, which has come under fire after being overwhelmed with claims after the pandemic struck and millions of Californians lost their jobs. EDD said in early September that it was aware of fraudulent claims for pandemic benefits and was cooperating with investigators.

Yet law enforcement officials complained that EDD has been slow to take steps to halt fraudulent behavior that’s been uncovered. Schubert said the enormity of the crimes became apparent after officials cross-matched unemployment claims with prison rolls. But she complained that while 35 other states routinely cross-match unemployment claims against state prison rolls, California does not.

“That’s how this happens,” she said.

San Mateo District Attorney Stephen Wagstaffe, speaking at Tuesday’s press conference, said EDD wouldn’t stop benefit payments until criminal charges were filed. “They could not cut these people off,” Wagstaffe said. “The fraud was ongoing as we were investigating.”

Gov. Gavin Newsom said he was forming a task force to investigate.

Kern County District Attorney Cynthia Zimmer said investigators noticed a surge in the volume of money orders being sent by friends and family members to inmates at one of Kern’s state prisons. Investigators determined that the money orders represented proceeds after the fraudulently obtained debit cards were cashed out.

In Kern County alone, 2,382 inmates received over $16 million in benefits, Zimmer said. She said one conspirator outside the prison collected benefits in the names of 16 different people.

Pandemic fraud rampant at Bay Area jail

The scheme that allegedly operated out of San Mateo’s jail — formally known as the Maguire Correctional Center, in Redwood City — provides the most vivid picture yet of how the scheme was pulled together.

Court records show a handful of inmates contacted friends and relatives on the outside, supplied them with Social Security numbers and other information, and persuaded them to file for pandemic relief on behalf of 30 different inmates. The outsiders had the unemployment payments — in the form of Bank of America debit cards issued by EDD — mailed to them.

“The cards came pre-loaded with upwards of $20,000,” said Sean Riordan, deputy district attorney in San Mateo.

Riordan said the outside accomplices then went to ATM machines and withdrew their pre-arranged cut — usually $3,000 or $4,000 — and arranged for friends or family to deliver the cards to the inmates at the jail. In one case, an outsider was found to have used an ATM in Las Vegas to collect his cut.

“It was thousands of dollars,” Riordan said.

Accomplices arranged for the remaining funds to be delivered to the inmates’ jail accounts, which could be used to buy extra toiletries or other items.

‘It’s kind of a big spider web.’

The scheme wasn’t limited to the Redwood City facility.

Court records show that one of the alleged ringleaders in the San Mateo jail, identified as Luis Javier Mariscal, was using a “contraband cell phone” to contact Lionel McCoy, an inmate at Corcoran State Prison serving 50 years to life for murder. Eventually, claims for unemployment were filed for McCoy and his brother, according to court records.

“It’s kind of a big spider web,” Riordan said.

Investigators found a homemade phone book under Mariscal’s bed, crammed with phone numbers used to perpetuate the scheme.

Mariscal and McCoy have been charged in the scheme, along with Shamesha Reese of East Palo Alto, who was identified in court papers as the mother of Mariscal’s children.

Riordan said the inmates in San Mateo also made connections with inmates at the San Francisco County Jail and California State Prison, Sacramento, which is located next to Folsom State Prison.

Among those charged was a Rancho Cordova woman named Ronnelle Joy Narvaez. She was accused of working with her brother, San Mateo inmate Rommell Narvaez, to apply for fraudulent benefits for another inmate named Edgar Vasquez. The two inmates have been charged as well.

All told, the San Mateo fraud generated $250,000 in improper benefits payments, officials said. By executing search warrants at the homes of the accomplices, officials were able to retrieve $150,000 in cash from the scheme, according to the San Mateo County Sheriff’s Office.

The Bee’s Wes Venteicher and David Lightman of McClatchy’s Washington, D.C., bureau contributed to this report.