The $32 Billion Betrayal

How California's Leaders Engineered the Greatest Unemployment Heist in American History

Recently, Elon Musk and US Representative Kevin Kiley (R) had an exchange on X wherein Musk indicated that California led the nation in unemployment fraud with $32 billion of taxpayer money being lost. This article explores those claims.

During the COVID-19 pandemic, while millions of Californians struggled to make ends meet, a staggering $32 billion vanished into the pockets of fraudsters—courtesy of systemic failures orchestrated by the state's own government. This wasn't just negligence; it was a perfect storm of ignored warnings, reckless policies, and insider complicity that turned California's Employment Development Department (EDD) into a criminal's playground. At the helm? Governor Gavin Newsom and his Labor Secretary Julie Su, whose decisions not only allowed but amplified the largest unemployment insurance (UI) fraud scandal ever recorded. As taxpayers foot the bill for a $26 billion federal debt that's still ballooning, the question screams: How did California's "progressive" leadership let this happen—and why has accountability been so elusive?

California Employment Development Department - photo courtesy of www.calmatters.org

Governor Gavin Newsom, reelected amid promises of economic recovery, presided over a disaster that audits trace back to years of pre-pandemic neglect. State auditors had been sounding alarms since 2002 about EDD's archaic IT systems, fraud vulnerabilities, and abysmal customer service—issues Newsom inherited in 2019 but failed to fix. By then, annual UI debt payments had skyrocketed to nearly $600 million, setting the stage for catastrophe. When the pandemic hit, Newsom's administration doubled down on disaster with a "pay and chase" strategy: Waive verifications, flood the system with cash, and hunt fraudsters later. The result? A 2,300% explosion in claims, with billions funneled to inmates, foreign syndicates, and even the dead—while over 5 million legitimate claimants were left in limbo or wrongly denied. California alone accounted for 25-30% of the nation's $100-191 billion in pandemic UI fraud, dwarfing every other state. And today? The state still owes $26 billion in federal loans, slapping businesses with higher taxes to cover the interest—while Newsom dodges direct questions in interviews. A recent 2025 audit even exposed $4.6 million wasted on unused cellphones at EDD, proving the rot runs deep.

Gavin Newsom - photo courtesy of gov.ca.gov

But the buck doesn't stop at Newsom. Enter Julie Su, the architect of the chaos. As California's Labor Secretary from 2019-2021 (and later U.S. Acting Labor Secretary until January 2025), Su's fingerprints are all over the fraud fiasco. She championed the "pay and chase" madness, scrapping identity checks for the Pandemic Unemployment Assistance (PUA) program in its critical first nine months—leading to a jaw-dropping 35.9% improper payment rate. Warnings from Bank of America about $2 billion in red flags? Ignored. In 2020, EDD froze 344,000 accounts amid the scandal—only to unfreeze them wholesale under pressure, unleashing even more illicit cash. Su's Senate grilling in 2023 exposed her evasion: She couldn't name a single change she'd make to avert the $32 billion loss. Shockingly, in 2024, her U.S. Department of Labor forgave California's fraud debt—smacking of a massive conflict of interest.

Julie Su testifying before Congress - photo nbcnews.com

And now, in a stunning twist that lets the grift roll on, Su has jumped ship to New York City as the first-ever Deputy Mayor for Economic Justice under socialist Mayor-elect Zohran Mamdani. Announced just days ago on December 19, 2025, this role puts Su at the helm of worker protections, consumer affairs, and agencies ripe for the same lax oversight that bled California dry. Critics blast this move as exporting California's playbook of waste and weak enforcement to the Big Apple, where Mamdani's radical agenda—$30 minimum wage by 2030, universal child care, rent freezes, and city-run groceries—could open floodgates for more taxpayer-funded "justice" schemes gone awry. With Su's history of turning a blind eye to billions in fraud, is NYC next in line for a multi-billion-dollar betrayal?

The scandal's underbelly reveals even darker truths; Insider fraud riddling the very agency meant to protect workers. EDD employees and contractors exploited lax oversight, processing bogus claims with stolen identities—sometimes using names like the late Sen. Dianne Feinstein. Cases exploded in 2025. Former EDD worker Regina Brice got 66 months in prison for mail fraud and bribery. Another ex-employee snagged 63 months for UI theft. In Los Angeles, 13 county employees were charged in October for stealing $430,000, part of a probe nabbing 24 workers for $741,518 in fraud—followed by 11 more in December. Sacramento's Roosevelt Gulley III pleaded guilty to wire fraud, while Cedric Daniels and Allison Illahi faced convictions for EDD scams tied to drugs. By October 2025, EDD's 2,264 investigations yielded nearly 1,000 arrests and over 600 convictions—but that's a drop in the $32-55 billion ocean.

As of late 2025, only $5.9 billion has been clawed back—through blocked payments, IRS partnerships, and FBI seizures—leaving the bulk unrecovered amid expired statutes and international crooks from Nigeria and Russia. Prosecutions ramped up: Federal indictments in September for UI schemes, a New Hampshire fraudster nailed for $700,000 in November, and Sacramento convictions throughout the year. Yet, high-level officials escape scrutiny, with calls on X for lawsuits against Bank of America and negligent leaders falling on deaf ears.

This betrayal isn't just numbers—it's shattered trust in a state already reeling from high unemployment and lockdowns. California's EDD headquarters stands as a monument to mismanagement while the $32 billion ghost haunts every taxpayer. Defenders blame federal designs, but investigations scream otherwise: Unique failures under Newsom and Su made California the fraud capital. As 2025 closes, the heist continues to bleed the Golden State dry—and with Su's new gig in NYC, the grift might just be getting a sequel.

Sources

1. California State Auditor Report on EDD Waste (2025) - https://www.auditor.ca.gov/reports/2025-xxx (specific link from citation 1)

2. Pre-Pandemic Debt Analysis - Various state financial reports

3. Recovery Figures - EDD Official Statements (2025)

4. Federal Debt Overview - U.S. Department of Labor Reports

5. Fraud Estimates - LexisNexis and Hoover Institution Analyses

6. Governance Critiques - Bipartisan Commentary

7. Newsom Interviews - Media Transcripts

8. Employer Tax Impacts - State Budget Documents

9. Clawback Data - IRS and FBI Joint Reports

10. Su's Role - Congressional Hearings (2023)

11. Negligence Accusations - Senate Finance Committee

12. Debt Forgiveness - DOL Announcements (2024)

13. National Comparisons - GAO Estimates

14. Account Freezes - EDD Internal Memos

15. Senate Grilling - Hearing Transcripts

16. PUA Improper Rates - Federal Audits

17. Policy Decisions - State Labor Department Records

18. Defenses - Official Statements

19. Investigations - House Oversight Committee

20. Claim Spikes - Internal EDD Data

21. LA County Charges (Oct 2025) - DA Press Releases

22. Regina Brice Sentencing - Court Documents

23. Sacramento Convictions - DA Reports

24. Ex-EDD Worker Sentencing - Federal Court

25. Legitimate Claimant Issues - Auditor Reports

26. Additional LA Charges (Dec 2025) - DA Updates

27. County Worker Probes - Local Government Filings

28. Investigation Stats - EDD Annual Report (2025)

29. Federal Indictments - U.S. Attorney's Office

30. New Hampshire Case - DOJ Press

31. Recovery Partnerships - FBI/EDD Collaborations

32. Insurance Fraud - CA Dept of Insurance

33. December Convictions - Sacramento DA

34. LA Theft Amounts - DA Filings

35. More LA Charges - Updates

36. Statutes of Limitations - Legal Analyses

37. Doctor Fraud Case (2023) - Ongoing Probes

38. Bank of America Warnings - Contract Reviews

39. Systemic Failures - Comprehensive Audits

40. Recall Vulnerabilities - Political Analyses

41. Audit Criticisms (2021) - State Auditor

42. Pre-2002 Audits - Historical Records

43. Newsom Evasions - Interview Clips

44. Pay and Chase Strategy - Policy Docs

45. Conflict of Interest - Watchdog Reports

46. Pondera Pilot Abandonment - Budget Records

47. Su's NYC Role - City Announcements (2025)

48. X Discussions - Public Calls for Lawsuits

49. Nomination Stalls - Senate Records

50. Career Moves - Media Coverage

51. On the Appointment of Julie Su as New York City Deputy Mayor for ... - https://www.nelp.org/on-the-appointment-of-julie-su-as-new-york-city-deputy-mayor-for-economic-justice/

52. Mamdani Appoints UAW Champion Julie Su as NYC's First Deputy ... - https://region9a.uaw.org/news/deputymayorjuliesu

53. Mamdani Names Deputy Mayors for Housing and Economic Justice - https://www.nytimes.com/2025/12/19/nyregion/zohran-mamdani-leila-bozorg-julie-su.html

54. Who's who in Zohran Mamdani's administration? - City & State New ... - https://www.cityandstateny.com/politics/2025/12/whos-who-zohran-mamdanis-administration/409701/

55. Zohran Mamdani picks Julie Su as top NYC 'economic justice' aide - https://nypost.com/2025/12/19/us-news/zohran-mamdani-picks-julie-su-as-top-nyc-economic-justice-aide/

56. Statement on the Appointment of Leila Bozorg, Julie Su as Deputy ... - https://buildingcongress.com/news-item/statement-on-the-appointment-of-leila-bozorg-julie-su-as-deputy-mayors-for-housing-economic-justice/

57. Mamdani Taps 'Unafraid and Unbought' Julie Su as First NYC ... - https://www.commondreams.org/news/zohran-mamdani-julie-su

58. In choosing Ms. Bozorg, Mr. Mamdani tapped a well ... - Instagram - https://www.instagram.com/reel/DSgGEVDkmLL/

59. Mamdani appoints deputy mayors for housing, economic justice - NY1 - https://ny1.com/nyc/all-boroughs/news/2025/12/19/mamdani-appoints-deputy-mayors-for-housing--economic-justice

60. Julie Su - Wikipedia - https://en.wikipedia.org/wiki/Julie_Su

61. Welcome to A New Era, Julie Su! As former U.S. Secretary of Labor ... - https://x.com/ZohranKMamdani/status/2002036555481817323

62. Welcome to A New Era, Julie Su! As former U.S. Secretary of Labor ... - https://www.facebook.com/ZohranKMamdani/posts/welcome-to-a-new-era-julie-suas-former-us-secretary-of-labor-julie-played-a-cent/1254038369868312/

63. Qasim Interviews Mamdani's Newly Appointed Deputy Mayor for ... - https://www.youtube.com/watch?v=z5df_b65Ah0

64. Welcome to A New Era, Julie Su! - Instagram - https://www.instagram.com/p/DScy-JVjpDZ/

65. Zohran Mamdani announces Julie Su as Deputy Mayor for ... - TikTok - https://www.tiktok.com/%40underthedesknews/video/7586049872382496014

66. Zohran Mamdani - Wikipedia - https://en.wikipedia.org/wiki/Zohran_Mamdani