Gavin Newsom’s Empire of Fraud

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.

Around September 2020, Fontrell Antonio Baines, a rapper from Memphis known as Nuke Bizzle, released a music video on YouTube entitled “EDD.” In the song, Baines bragged about ripping off California’s UI program. “Go to the bank with a stack of these,” Baines rapped, holding up EDD envelopes. Another rapper can be heard saying: “You gotta sell cocaine, I just file a claim.” All told, Baines obtained more than $700,000 in stolen funds using preloaded EDD debit cards. He pleaded guilty to federal charges.

Nor were these isolated incidents. A member of the SFV Peckerwoods, a California-based neo-Nazi gang, allegedly ran an unemployment scam during the pandemic. So did Michael Thompson, a one-time leader of the Aryan Brotherhood, who was eventually convicted. California’s prison population apparently got in on the action, too: the EDD allegedly paid out hundreds of millions of dollars in fraudulent claims in prisoners’ names, including those of at least 133 inmates on death row.

Remarkably, EDD not only failed regularly to cross-reference its unemployment payouts with a list of state prisoners, but it also had just two bureaucrats assigned manually to inspect reports of suspected fraud. State officials eventually admitted to having paid out approximately $20 billion in fraudulent claims during the pandemic, and to making an estimated $55 billion in improper payments. Talcove claims those figures don’t even tell the full story. “The state lost $32.6 billion dollars of taxpayer money to fraudulent applications,” he said. “In California, at one point, you had more people applying for unemployment insurance benefits than you had people over the age of 18.”

While Newsom has conceded that “bad actors” took advantage of the UI program, he has also defended his government’s record, saying they took swift action as soon as the alleged prison scheme surfaced. The EDD, for its part, has a webpage documenting its anti-fraud efforts. But any suggestion that California has fraud under wraps is contradicted by findings from its non-partisan state auditor.

Last December, the auditor reported that EDD’s UI program—which remains on the auditor’s “High Risk” list—had a fraud rate of 7.6 percent in 2023 and 7.9 percent in 2024. Applied to the state’s UI spending, those figures suggest more than $1 billion in stolen taxpayer funds since the pandemic. “EDD continues to have high rates of improper UI payments, including fraudulent payments,” the auditor wrote. “These inadequacies have resulted in a substantial risk of serious detriment to the State and its residents.”

While many states dealt with UI scams during the pandemic, California stands in a class of its own. At best, the EDD’s performance amounted to mass government incompetence; at worst, it reflects total indifference to fraud.

“This happens in every single state,” Talcove concluded, “but it happens a lot more in California.”

Newsom came to power vowing to pursue “guaranteed health care” for Californians. Under his leadership, the state extended Medi-Cal coverage to illegal aliens, covered sex-change surgeries for Medi-Cal enrollees, and offered “gender-affirming care services” to enrollees of “all ages.”

Total budgeted Medi-Cal spending—which includes federal, state, and local contributions—has more than doubled on the governor’s watch, rising from $93.5 billion the year before he took office to $196.7 billion in the current annual budget. During the same period, California’s resident population declined by 0.2 percent.

Experts have long warned of Medi-Cal’s vulnerabilities to fraud. The state auditor first designated “Medi-Cal Eligibility” as a “high-risk” issue in 2007 and has applied that label to it ever since. But the state government has made little progress in addressing what the auditor calls “eligibility discrepancies” that present a “substantial risk of serious financial detriment to the State.” California’s attorney general has conceded that “Medi-Cal fraud could reach billions of dollars annually.”

Newsom may have inherited a bad situation, but his actions have made it worse. During the Biden administration, California received federal approval to “increase, and eventually eliminate, asset limits” for some Medi-Cal recipients, a change that, according to Talcove, resulted in flood of improper payments. In addition, Medi-Cal suspended prior authorization requirements for certain health-care services and medications, creating yet another vulnerability for fraudsters to exploit.

In some cases, prosecutors say, that is precisely what happened. In one instance, Paul Richard Randall, Kyrollos Mekail, and Patricia Anderson allegedly “took advantage” of Medi-Cal’s loosened restrictions as part of a scheme that defrauded taxpayers of more than $178 million. The conspirators allegedly used a business called Monte Vista Pharmacy to process fraudulent prescriptions; Randall and others allegedly laundered the proceeds through third parties to fund kickbacks to Anderson and obscure the operation from law enforcement, according to a 2025 Department of Justice press release. Mekail had pleaded guilty to criminal charges in August 2024, and Randall is reportedly expected to do the same this year.

In another case, Terry Patton was charged with accepting more than $2.3 million in kickbacks and bribes from addiction-treatment facilities in exchange for patient referrals. Prosecutors say the patients were paid to attend the treatment facilities to which Patton had referred them.

In-Home Supportive Services, a Medi-Cal sub-program, has also presented major fraud concerns. In 2009, former Governor Arnold Schwarzenegger estimated that IHSS fraud could be as high as 25 percent. That same year, a Sacramento grand jury report on the county’s IHSS program claimed IHSS fraud was “reported to be rampant and out-of-control.”

Yet, even in light of these worries, Newsom has dramatically increased funding for IHSS. Between Newsom’s first budget and his most recent proposal, the state legislative analyst estimates that total IHSS costs will have swollen by around 170 percent, with $33.4 billion proposed for the next fiscal year, including $12.5 billion from the state. According to recent estimates, taxpayers are funding nearly 800,000 IHSS providers, who offer caregiving, cooking, shopping, cleaning, and laundry services to elderly and disabled people. In about 70 percent of cases, providers and recipients are family members. According to co-author Schrupp’s reporting, the IHSS program is responsible for 41 percent of all “job gains” during the Newsom administration.

The IHSS program almost seems designed to facilitate scams. According to sworn testimony summarized in the Sacramento report, IHSS participants have falsely represented recipients’ needs; misrepresented hours worked timecards; and even secured payment after a recipient has died. The system operates largely on trust, with providers “working” in the privacy of the recipient’s home. The state’s IHSS protocols explicitly prohibit random unannounced home visits, which would be the best tool to uncover any potential rackets.

Oversight of the IHSS program is woefully inadequate. A 2021 Riverside County audit of the local IHSS program, for example, found county social workers had failed to process and report “integrity referrals” in a “timely” fashion. When complaints did reach county regulators, many, apparently, were reviewed by people with financial ties to IHSS. The report found that 41 of the 68 county staff at the Department of Public Social Services, which the auditor claimed is responsible for program oversight, were also IHSS providers—that is, they had a vested interest in protecting the system.

Beginning in 2024, federal officials announced multiple prosecutions for IHSS fraud. In one case, prosecutors alleged that Cindy Lynn Fromm claimed to have provided services for more than a year while the recipient was incarcerated. In others, prosecutors said that IHSS caregivers falsified timesheets and claimed to have provided services while beneficiaries were in hospitals, care homes, other facilities—or dead.

Experts who have studied the Medicaid system say that it has long been rife with fraud. Malcolm Sparrow, a Harvard professor who has advised the federal government on health-care fraud, suggested to Congress that “fraud and abuse” might represent somewhere between 10 percent and 20 percent of Medicaid spending. (Sparrow noted difficulties in attempting to calculate accurate “loss rates,” due to the fact that government studies “have been sadly lacking in rigor” and have “produced comfortingly low and quite misleading estimates.”) Brian Blase, president of the nonpartisan Paragon Health Institute, estimates a current Medicaid fraud rate of “15 to 20 percent of the entire program.”

Talcove estimates that the Medicaid fraud rate in California is 20 percent, which he calls a “very conservative” figure. Federal officials, however, believe that the current Medi-Cal fraud rate is even higher—and, given the state’s oversight failures and massive Medi-Cal expansion under Newsom, they are almost certainly right. Multiple high-ranking sources at the U.S. Department of Health and Human Services, which is currently probing fraud in California, told City Journal on the condition of anonymity that their initial estimate for Medi-Cal’s fraud rate since 2019 is 25 percent.

Based on state experts’ best guesses of annual Medi-Cal expenditures and applying a conservative, 15 percent fraud rate to each fiscal year since 2019, Medi-Cal has lost some $146 billion in taxpayer funds to fraud on Gavin Newsom’s watch.

Meantime, in Sacramento, state legislators have begun sounding the alarm. In February, Leticia Castillo, a Republican in the California State Assembly, proposed a bill that would create a Medi-Cal “fraud assessment task force” to “review current fraud prevention tools” and “evaluate how best practices from the federal government and other states could be applied in California.”

To date, Newsom has not supported the bill publicly.

The other major target for fraudsters is California’s expansive welfare state. As governor, Newsom has sought to project an image of a compassionate California that cares for its most vulnerable residents. The state is famously home to enormous wealth, but also to millions living in poverty, and, as of 2024, to more than 180,000 homeless people.

Responding to these realities, Newsom has unleashed a wave of spending on welfare initiatives. He has overseen much of a $24 billion state spend on homelessness projects, roughly doubled food-stamp benefits during the pandemic, and has maintained high levels of cash assistance. Just like unemployment insurance and Medi-Cal, though, these welfare programs proved easy targets for swindlers. The homelessness spending, for example, was a massive transfer of funds into a complicated web of non-profits and other contractors, with apparently little oversight. Unsurprisingly, fraud cases followed.

Cody Holmes served as chief financial officer of Shangri-La Industries, a Los Angeles–based affordable-housing developer. His company reportedly received nearly $26 million from the state to develop properties under a program aimed at housing the homeless. Prosecutors reportedly allege that Holmes, who pleaded not guilty, embezzled roughly $2.2 million to pay for “exotic cars” and monthly rent for a “6,500-square-foot mansion.” A City Journal review of political donations revealed Holmes was a frequent contributor to Democratic politicians and causes in California.

In a separate case, Steven Taylor was charged for having allegedly used “fake bank statements and false cash representations” to secure loans to fund his real-estate business. Taylor then allegedly used those illegitimately obtained loans to purchase an $11.2 million home, which he sold for $27.3 million to a publicly funded homeless-housing developer.

Earlier this year, Alexander Soofer, who served as the CEO of Abundant Blessings, a Los Angeles-based homelessness charity, was charged for having allegedly pocketed at least $10 million in homelessness funding to bankroll a “luxury lifestyle that included lavish vacations and designer clothes.”

None of these cases should come as a surprise. A 2024 report from the Inspector General Office for the United States Department of Housing and Urban Development found that California’s housing agency was not “adequately prepared to prevent, detect, and respond to fraud due to the lack of focus it placed on fraud risks and establishing a robust fraud risk management framework.” In addition, a 2024 report from California’s state auditor highlighted the government’s limited data on homelessness programs. For three of the five initiatives the auditor examined, it was “unable to fully assess” their success because of a lack of outcome data.

For many California watchers, the 2024 audit came years too late. In 2020, Representative Kevin Kiley, then serving in the California State Assembly, requested a similar report, he told City Journal, but state legislative Democrats rejected the proposal after Newsom intervened. “I brought the proposal to the state’s joint legislative audit committee, and it fell one vote short of approval after the administration came and testified against doing the audit,” Kiley said. “They likely knew what the audit would show and didn’t want taxpayers to get that window into how their money is, quite frankly, being squandered.”

Officials have also raised concerns about fraud in California’s SNAP benefits, officially known as CalFresh and more commonly called food stamps. As of last year, the state auditor had designated CalFresh as a “high risk” program. Annual state spending on food stamps has risen from roughly $8 billion in 2015 to nearly $16 billion under Newsom.

That expansion coincided with several fraud cases. In 2023, 15 people associated with a Romanian criminal ring were arrested for allegedly stealing CalFresh and other welfare funding, at least one of whom later pleaded guilty. The following year, seven people were charged for allegedly making “fraudulent cash withdrawals” as part of a multi-hundred-thousand-dollar theft of welfare benefits. In March, more than 50 people were charged as part of “a yearslong crackdown on organized theft rings” that included “many with ties to Romania.” The defendants allegedly stole millions in public funds by exploiting California’s Electronic Benefit Transfer system, which distributes benefits for programs like CalFresh.

Notwithstanding this steady drumbeat of fraud cases, at least one California Democratic lawmaker is pushing to lower penalties for those who steal from state welfare programs. In April 2025, State Senator Lola Smallwood-Cuevas sponsored a bill that would raise the threshold for felony welfare fraud from $950 to $25,000. The measure would also make it more difficult to charge perjury based on misstatements to county welfare departments. Republican State Assemblyman Carl DeMaio has said that if the bill becomes law, it will effectively “legalize welfare fraud” in California.

Federal prosecutors, however, are stepping up enforcement. Last year, Bill Essayli, first assistant U.S. attorney for the Central District of California, announced the creation of a federal task force to combat fraud and corruption in the state’s homelessness programs. The task force has already brought charges in several multimillion-dollar homelessness-fraud cases—and Essayli has vowed that more are coming. “California has spent $24 billion in the last five years on homelessness, and no one can account for where that money has really gone,” Essayli said in January. Gavin Newsom, he added, is the “king of fraud.”

We reached out to Newsom’s office for comment on this story. A spokesperson, whose signature featured “she/her” pronouns, called Kiley’s claims “ridiculous,” accused the Trump administration of “mak[ing] up numbers,” and suggested, remarkably, that California had “no missing homelessness funds.”

The culture of fraud in California is so pervasive that it has allegedly reached the governor’s own office. Between 2022 and December 2024, Newsom’s chief of staff was Dana Williamson. In November 2025, she was charged with fraud for allegedly “siphoning campaign and COVID-19 recovery funds into her and an associate’s pockets.” Two other “well-connected aides in state politics were also charged” and struck plea deals that reportedly confirmed the scheme’s existence.

Newsom’s office said they were made aware of an investigation into Williamson in late 2024 and immediately moved to place her on leave. When she officially left the governor’s office a month later, though, Newsom’s send-off message applauded her “insight, tenacity, and big heart,” while making no mention of the investigation against her. And even with the charges against her, Williamson walked away from government with a $50,000 payout for unused vacation time.

Williamson, who has pleaded not guilty, is not the only state official to be charged with fraud during the Newsom administration. In January, Phyllis Hope Stitt, a former EDD employee responsible for determining UI claimant eligibility during the pandemic, pleaded guilty to defrauding the program of more than $750,000. That same month, former Madera County benefits eligibility worker Leticia Mariscal was charged for allegedly embezzling $40,000 in food stamp benefits.

The pattern that emerges in California is not one of isolated breakdowns in oversight but of a vast system that almost seems to invite fraud. From widespread failures in unemployment insurance to alleged schemes targeting Medi-Cal to mounting concerns over homelessness spending, each case points to significant lapses by state officials charged with stewarding public funds. According to California Assemblyman David Tangipa, “Sacramento is pervaded by a culture of corruption.” And he points the finger right to the top: Newsom, he says, has helped “create[] an environment where corruption thrives.”

Still, California’s fraud crisis is not a lost cause, nor is it beyond correction. On March 16, President Donald Trump signed an executive order creating the Task Force to Eliminate Fraud. The effort, led by Vice President J.D. Vance, will “coordinate government-wide efforts to combat widespread fraud, waste, and abuse in Federal benefit programs.” A fact sheet released by the White House highlighted California as a state where “insufficient safeguards and weak oversight increase the risk of large-scale fraud.”

The Minnesota fraud scandal, brought to national attention by City Journal, offers a revealing case study of what can happen when a seemingly hidden problem—one long in plain sight—finally comes into view. The extent of fraud in Minnesota had been an open secret for years. But once the scandal drew national attention, investigations snowballed, ultimately derailing the political career of Tim Walz. It may seem unlikely today, but a similar outcome is possible for Newsom in California.

Newsom is not untouchable, and the scale of fraud in California appears far larger than in Minnesota. Despite his claim to have taken “decisive action” against one form of fraud, the broader problem is real and ongoing, and taxpayers, in California and across the country, have reason to be furious. Newsom will no doubt rely on charisma and partisan appeal to downplay the extent of these abuses. But listen closely, and you can still hear the California cash machine, steadily dispensing untold billions to criminals, scammers, and organized crime rings—funds taken from taxpayers and diverted from those most in need.

Photo by Justin Sullivan/Getty Images