This Real Identity Theft Stories blog series is dedicated to sharing real-world stories of identity fraud and theft — and just how devastating these crimes can be on organizations, individuals, and families. This post focuses on how fraudsters have been filing unemployment claims during the COVID-19 jobs recession using stolen tax identities. One such case, involving a rapper who immodestly boasted in a music video about committing unemployment fraud, is now being adjudicated in Los Angeles.
In October 2020, Fontrell Baines (AKA Nuke Bizell), 31, a rapper from Tennessee, was arrested on three felony counts of access device fraud, aggravated identity theft, and interstate transportation of stolen property. According to the AP report, prosecutors allege that Baines and his co-conspirators illegally obtained at least 92 debit cards pre-loaded with more than $1.2 million. If convicted, Baines faces up to 22 years in federal prison, the US Attorney’s Office said, for fraudulently obtaining unemployment insurance benefits under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The affidavit filed in US District Court alleges that Baines and his crew of fraudsters filed phony unemployment claims in the names of people whose identities had been stolen. Although the ruse was fairly straightforward, the perpetrators evidently could not keep their success quiet. By directing the California Employment Development Department (EDD) to mail debit cards to addresses to which Baines had access in Beverly Hills and Los Angeles, the ring allegedly accessed more than $704,000 in cash withdrawals used to buy merchandise and services across several states. Later, in a music video titled “EDD” posted on YouTube and in postings to his Instagram account, Baines holds up a pile of government-issued envelopes and boasts about getting rich by “go[ing] to the bank with a stack of these.”
At least 11 states have been seeing a sharp uptick in unemployment insurance fraud activity. In particular, Arizona, Colorado, Maryland, New York, Ohio, Texas, and Washington combined are reporting billions of dollars in fraud, according to a Bloomberg Government review of unemployment actions around the country.
As the US economic recovery continues to struggle, these growing reports of fraud could indicate the tip of an unemployment-scam iceberg. In November, the Internal Revenue Service released its Criminal Investigation Division annual report, identifying more than $10 billion in tax fraud and other financial crimes committed in 2020. The IRS has initiated more than 1,600 investigations that uncovered $2.3 billion in tax fraud schemes.
The Department of Labor and the FBI have each issued alerts to unemployed taxpayers, who likely will receive less economic relief as government agencies take greater precautions. Also affected are businesses, who likely will see higher unemployment insurance premiums based on benefit claims, and state and local governments, which will experience less revenue growth.
To cite another example of this spike in illicit activity, a woman in Holyoke, Massachusetts — in an unrelated case to the LA rapper — was recently a victim of a credit card hack, quickly followed by an allegedly fraudulent unemployment claim in Pennsylvania. The woman told authorities she hasn’t worked in decades and hasn’t been in Pennsylvania since she was 10. “The last thing I need is to get something at tax season that says, ‘Oh, you owe an unemployment tax from the state of Pennsylvania,’” she told a local TV news reporter.
As in almost all successful large-value identity theft scams, the criminals gained access to Social Security numbers (SSNs), the Holy Grail for identity thieves. These stolen SSNs are used to file fraudulent benefits claims, falsify IRS filings to obtain tax refunds, open new credit lines, and other types of identity fraud.
How unemployment imposter scams work
The imposter scam, using stolen personal information to apply for unemployment payments, is on the rise for two reasons. The first is the sheer volume of legitimate claims flooding the unemployment system, which created pressure on state governments, including the California EDD, to distribute benefits as quickly as possible. Higher volumes during an economic crisis increase the chance that a false claim will get through.
The second contributing factor is the wide availability of Personally Identifiable Information (also known as PII) for sale on the dark web. This PII is likely obtained through data breaches that have occurred over the years. Criminals using the dark web to buy PII can also find “how-tos” on defrauding the states using these stolen identifiers to file false unemployment claims.
To protect yourself from this growing risk, be sure to read our recent blog post, “Are You at Risk for Unemployment Identity Theft?” If you’re worried about a scammer having access to your SSN after a data leak, breach, or other identity compromises, consider essential services such as Dark Web Monitoring and Smart SSN Tracker (both included our IdentityForce product,) which can help detect signs of potential fraud involving your Social Security number.
Final thought: The sooner you file your 2020 taxes, the better
Another reason unemployment benefits fraud was so successful in 2020 is that the IRS extended the tax filing deadline from April 15 to July 15 in response to the COVID-19 pandemic, giving cybercriminals more time and space to operate. Because the IRS processes tax returns mostly on a “first-come-first-serve” basis, filing early will not only take this advantage of time delays away from criminals but will result in more timely and accurate filings — a necessity for many given extra steps created by Economic Impact Payments (EIP) that were mailed to all taxpayers in 2020.
If you have been victimized by unemployment-related identity theft, visit this FTC webpage to learn about further actions you can take. And to understand why free identity protection may not be sufficient to protect what matters most, be sure to read our article, “Is Free Identity Theft Protection Enough?”
Are you an employer whose employees have been victimized by unemployment fraud?
Note for employers: You may be receiving unemployment claims for individuals who are still employed and who did not file a claim for unemployment insurance. Although the state unemployment insurance agencies have safety nets in place, the current volume of fraudulent activity is putting significant strain on the system.
Constant vigilance is needed. Follow this helpful guide for tips on handling unemployment fraud in your workplace or what to do if unemployment benefits were improperly paid to a third-party imposter. Of course, you should always consider purchasing identity theft protection as an employee benefit, so your employees are protected against the risk of identity theft and fraud, with support from Certified Protection Experts if the worst were to happen and they do become a victim of an identity crime.