The Daily - The Great Pandemic Theft

Episode Date: September 27, 2022

During the pandemic, an enormous amount of money — about $5 trillion in total — was spent to help support the newly unemployed and to prop up the U.S. economy while it was forced into suspension.But the funds came with few strings and minimal oversight. The result: one of the largest frauds in American history, with billions of dollars stolen by thousands of people.Guest: David A. Fahrenthold, an investigative reporter for The New York Times, focused on nonprofits.Background reading: Investigators say there was so much fraud in federal Covid-relief programs that — even after two years of work and hundreds of prosecutions — they’re still just getting started.A federal watchdog almost tripled its estimate of the amount of unemployment benefits paid out to people who weren’t entitled to them, raising the figure to $45.6 billion, from $16 billion.For more information on today’s episode, visit nytimes.com/thedaily. Transcripts of each episode will be made available by the next workday. 

From The New York Times, I'm Michael Barbaro. This is The Daily. Good morning. Today we are announcing charges against 47 defendants. Last week, a grand jury indicted dozens of people in Minnesota for stealing nearly a quarter of a billion dollars from a COVID relief program. Their goal was to make as much money for themselves as they could while falsely claiming to feed children during the pandemic. The scheme that began with a simple idea in March of 2020

grew to become the largest pandemic fraud in the United States. According to my colleague, David Fahrenthold, it's the latest and most glaring evidence yet that when it comes to pandemic aid, the United States government made it shockingly easy to commit fraud. fraud. It's Tuesday, September 27th. David, this is your first time on The Daily. I actually first met you at The Washington Post when we were young reporters. Now we're both at The Times. And you have become, over the past few months of your career here, the pandemic-era fraud reporter at The Times. And I kind of want you to explain how it is that that became your unofficial beat. Well, like many beats, it started with one really good story. So I came to The Times in January with a beat to cover

nonprofits. I wanted to be an investigative reporter writing about nonprofits. And it just happens, as I settled into this beat in the first couple weeks of January, and I was looking for a nonprofit story to write, the FBI raided a huge number of offices connected to a nonprofit. And as I began to learn about that story and hear about the fraud this nonprofit was alleged to have committed, the dollar amounts blew me away, tens of millions of dollars. And it led me back to a pandemic relief program. And that was sort of my entree to this world and the huge amounts of money and, unfortunately, the huge amounts of fraud that were in it. And when you say huge amounts of fraud, what are you talking about?

What's the scale of this? I mean, one thing I've had trouble with is trying to find a comparison. You know, when you write about the fraud that happened against pandemic programs starting in 2020, you know, it's hard to think of any other episode in at least recent American history where so many people stole so much from the U.S. government or so many people just make it more broad, so many people broke federal law all at the same time. Well, let's talk about how it is that that happened, that fraud became so rife within federal programs

designed to help Americans get through one of the worst kind of economic catastrophes of modern times, which is, you know, the pandemic basically shutting down the U.S. financial system. So you have to go back to March 2020. Nothing that any of us really wants to do, but try to put yourself back in March 2020. So much of the economy was shutting down overnight. The government, Congress is looking for a way to provide financial help to businesses, to people that were hurt by this. And so there's a beginning of this outpouring of federal money that eventually came to $5 trillion and that went in all kinds of

different directions. There was aid to governments, aid to hospitals, aid to feeding programs. But the programs where the sort of most notable frauds occurred were three that were aimed at very broad swaths of the general population. Two of them existed before, but in a sort of more structured, limited way, and that was the federal unemployment benefits. And then there was something called the Economic Injury Disaster Loan Program. Before the pandemic, this was a small business administration loan program that was available. Say a hurricane hit your town or a flood hit your county, there would be limited areas declared to be disaster zones.

The government would come in and give loans to people, you know, with the idea of rebuilding your business after it was knocked out by a flood. Those two programs were sort of supersized and they were made available to huge swaths of the population. And then there was also something called the Paycheck Protection Program, which was a new program that used loans from private banks to businesses that were hurt economically by the pandemic. But the government would back those loans. Those three programs were the ones that we look back now and see sort of the most evidence of fraud. They also did a lot of good.

But Congress built them. When Congress built them, it put systems in place that made all three of those programs basically an open door to fraud. systems in place that made all three of those programs basically an open door to fraud. And explain what those systems were that Congress put into these programs that you have just described. The unemployment program, the paycheck protection program, the small grants for businesses. All of them contain some element of what the government calls self-certification. Basically, it's the honor system. Congress said, look, there's not time. We don't really even have the structure put in place to check and see if you're lying about whether COVID hurts you economically or COVID closed your business down. So we're just going to trust you. Click this box under penalty

of perjury to say that, yes, I have been impacted by the pandemic. I qualify under these programs. So that was the hurdle. It was barely a doorstep that you had to step over to get this money. It was just to say that you were deserving. And David, why is that unusual? I mean, under most circumstances, I'm guessing the government requires much more than self-certification. And if that's true, why did they change it in this moment? It is different than usual. I mean, there is an agency in the federal government that knows a lot about your business

and how your business was doing before the pandemic. That's the IRS. They get your tax returns every year. And there were elements put into these bills saying you cannot check the IRS to see if people are lying about the business they were doing before the pandemic. And I believe the logic was we don't have time. We don't, you know, we'd rather get the money out of the door now and chase it later. So the logic was that the nature of the pandemic financial crisis is so great,

the depth of the pain so deep, that we just want this money moving as fast as possible to Americans. That's right. So describe some of the examples of fraud that occurred within the programs that you just described. Well, let's start with the unemployment system. that occurred within the programs that you just described? Well, let's start with the unemployment system. The unemployment system is administered by states. It was extremely rickety to begin with. The states didn't really talk to each other.

People fooled that system very, very easily by just claiming to be who they weren't. Last week, California processed more than 405,000 pandemic unemployment assistance claims, accounting for more than half of all claims filed in the country, a number that a former EDD director says signals the potential for fraud. You know, using the Social Security of someone who's dead, using the Social Security number of someone else who, you know, lives in another state. The crime spree is also leaving millions of Americans struggling to deal with identity theft.

I haven't been to New Mexico since 1963. This is fraud. Submitting the same unemployment number to, I think in one case, 29 different states. Wow. Wow. The example that struck me about all this was there was a guy in California, a rapper.

He used the name Nuke Bizzle. That was his stage name. I just been swiping for EDD. Go to the bank and get a stack of leads. Made a music video about stealing from the unemployment system. He called the song EDD, which is for the California Employment Development Department. That's the department that paid unemployment benefits. I'm in D.O. having money for. I done got rich off of EDD.

In the video, he flashes envelopes, multiple envelopes of gift cards. And that's how California pays out unemployment benefits. It gives you a prepaid card. He's got like 30 envelopes laid out on his bed. And that's how easy it was. And that illustrated something about this system. He's not that afraid of getting caught. Right, if he's publicly bragging about it.

Yeah, and it's not like he's even using euphemism. He's using the name of the agency he's stealing from. I think that gives you a sense of how widespread that was. There was just a report that came out from the Labor Department's inspector general, which estimated that the amount of money stolen just from unemployment benefits could be over $45 billion. Wow. What about the two other programs you mentioned? The other two programs, the Paycheck Protection Program

and what they called EIDL, Economic Injury Disaster Loan Program, they were administered one by the government, one by private banks, but they worked very similarly and they were scammed very similarly, which is just that people would say, I have a business, it does X, I have this number of employees. I mean, just to give you a sense of how easy this was, I mentioned the Economic injury disaster loans, the small business administration loans that go,

you know, you could get if your business was hurt by the pandemic. Congress added a program in where when you apply, sometimes they try to make the system process those loans as fast as they could. It was a matter of days or weeks. But they were so worried about people going without that they actually, Congress put in a program to give you a grant of $10,000 just for applying. And you can keep that grant. So not alone, that's a grant. You can keep it even if they reject your application later. And so there was very little checking, even less

checking involved in that because they really wanted to make sure that nobody was in the lurch while they waited for the machinery of government to turn. And something like that sounds like a perfect recipe for fraud. I mean, you can make up an application and get cash for just submitting the application. Even if you get rejected, you get to keep the money. It's very tempting. Yeah, it's hard to imagine a better opportunity.

You know, there were YouTube videos about how to do it. Wait, sorry, there were YouTube videos about how to do this beyond the rapper in California? Oh yeah, there were instructional YouTube videos or people would explain, here's how you do it, here's what you say. You know, here's maybe a faked form that they filled out to show my income in 2019 was $3 million, and now it's nothing. People ran that sometimes to get the loans and sometimes just to get the $10,000 advance grants. sometimes just to get the $10,000 advance grants. In some cases, people would apply for multiple loans for very large businesses

and could sometimes get millions of dollars for businesses that either they owned the business but had been defunct for years or they had just made it up, you know, a week ago. My favorite example, there's so many great examples here, but my favorite example is people who submitted these loans and listed their names as N slash A. N slash A. David, why do you think that this kind of fraud

somehow became so acceptable and so common so quickly? Obviously, you're describing a lack of safeguards, and that is clearly a factor. But to see so many people breaking the law so casually at once raises the prospect that it's not just about the lack of security. No, there was sort of a psychological moment for a lot of people. And you can see this in some of the cases that have been charged where they lay out how the conspirators were allegedly talking about their crime before they did it and after they did it, where people felt like everybody else is doing this. I see my friends, I see my brother-in-law, I see people around me walking around with tens of thousands of dollars with a new boat,

a new house, a new car, and nobody's getting caught. And so am I a sucker for not doing it? One text that I saw in one of these cases, somebody, one of the participants is worried they're going to get caught. And the ringleader says, 10K is not enough for jail time, LOL. There was this sense that like, yeah, we're all stealing, but like, is anyone going to, you know, is this really a crime that's going to get us punished at a time when we can see everybody else is stealing from the government? But if what we're talking about was an open secret at the time, and it very much seems it was because people are bragging about it and encouraging it on social media, does the federal government make any changes to these programs as a result? Does it beef up the standards?

Does it increase the security? It does, but slowly. I mean, one key difference was that the $10,000 grants came from a limited pool of money, and that ran out. So the easiest thing to steal ran out in the middle of the summer 2020. And then last year, and particularly this year, under my administration, the watchdogs are back. You started to see an effort to really grapple with what happened before from a law enforcement perspective.

Tonight I'm announcing that the Justice Department will soon name a chief prosecutor for pandemic fraud. To try to introduce retroactively the deterrent that had just completely vanished in 2020, you know, by going back and finding the people that broke the law then and arresting them and making a big deal out of it so that maybe we're going to, you know, retroactively get people to think that maybe stealing from the government is bad again. Hmm. And who ends up getting arrested given the scale of what you have described? Well, you have hit on the key problem for law enforcement. The problem, just from talking to people who investigate these cases, is not that each individual case is hard to prove.

You know, in these cases, the lie that you told is in a government file. All they have to do is go and find the paperwork, compare it to the IRS files, figure out that you were lying about your business, and come after you. One investigator I talked to called it footsteps left in concrete. That's how good the clues are. But the problem is that there are so many of these cases that it's far beyond the capacity of even federal law enforcement to chase them all at once. Just to give you a sense of the caseloads, the Small Business Administration Inspector General, you know, they have a staff of, you know, a few dozen. They got more than 2 million loan applications that the Small Business Administration Inspector General, you know, they have a staff of, you know, a few dozen. They got more than two million loan applications that the Small Business Administration sent them saying like, hey, you know, we think these things may be full of identity theft.

Wow. So federal law enforcement realizes very quickly, look, we have to triage these cases. You know, it's going to take us centuries to do them all. And is it worth it, right? And is it worth it, right? I mean, so many cases, and I'm sure in many cases, the amount stolen is pretty small, and the cost of investigating it versus the cost of what was stolen might just not make sense. Absolutely. This is a case where you look at that scammer I mentioned who said, you know, 10K is not enough for jail time. She was probably right. There have not been any prosecutions where, as far as we can tell, where the only offense was you got a $10,000 grant and that was it. There was no other aggravating factors. And what the federal law enforcement told us was, look, it cost us more than $10,000 to investigate that case.

And we think the money's probably gone. There's no money to recoup. Somebody who got $10,000 in April 2020 has spent it. There's no money to get out of them now. So ultimately what you're saying is a lot of people are going to get away with stealing from the federal government. And that's pretty striking because not only is this a story perhaps of the most widespread fraud that I can remember in modern U.S. history, it may be the most widespread case of the government letting people get away with fraud.

That's right. Instead, they focused on who were the biggest fish, who stole the most, who stole the most brazenly. You know, how do we try to go after the people who abused the system in the grandest way? And the story that got me into this is an example of a case like that, a case that they just couldn't ignore. It turned out that one of the biggest, most brazen, most lucrative scams of anything in the pandemic was happening in an obscure little nonprofit up in Minnesota. We'll be right back. So David, describe exactly what happened in Minnesota. So what happened in Minnesota was allegedly a very large fraud against a very large pandemic relief program.

This one was called the Federal Child Nutrition Program. Basically, it was meant to keep children from going hungry during the pandemic. And before the pandemic, this program fed kids in places like daycares and after-school programs and summer camps. Basically, it was a program that was sort of limited by structure. If you wanted to get some of this money, you needed a building. You don't need an institution where kids came. And there's a commonality here between what happened to this program

and what happened to things like that economic injury disaster loan program, which is that during the pandemic, they took this thing that was sort of limited and blew it up, make it so much bigger. Because the need was greater. The need was bigger. In this case, it's not just that there are hungry kids

in a summer camp. Every kid is out of school. And so we have to change the program to reach kids who are not in any institution because it's March or April 2020. They're home. Right. So they changed it in a couple of ways. One, they made it so that you could give the kids meals to go. Instead of having to come and sit down and have a head count, they could just come up in their car and get a bunch of meals put in the car.

The second was that they allowed people who had never been part of the program before to suddenly begin qualifying for this funding. So for-profit restaurants, new non-profits that had existed before, a whole bunch of new people come into the system because the need is so much greater. And just like the economic programs, just like the business loan programs, the scrutiny that had been on these groups before in the pre-pandemic era, lessens. To pick one important example, the state doesn't have to actually visit a new site before it starts sending it money. The state won't come out to your place and see whether you have a building, have a kitchen, have any kids there. They're just going to take your word for it on that.

So the oversight goes away, just like those other programs, at the same time that the program becomes so much more lucrative and so much broader. So that's the context. That's the context. So in this system, with all the checks reduced, there's one last line of defense that's built into the system. And that's this set of nonprofits that are called sponsors. Basically, they are the last link in the chain. The money comes from the federal governments to the state governments to them. And they're supposed to parcel it out to the people who actually feed the kids and make sure to the people who actually feed the kids

and make sure that the people who feed the kids aren't lying about how many kids they're feeding. Got it. So they're the only ones left to police in the system. And if one of them goes bad, the system now is not really set up to detect it. Sponsors need to do the right thing or else the system goes to hell.

Exactly. And that brings us to one of the sponsors in Minnesota, this group called Feeding Our Future. Before the pandemic, this is a nonprofit. It's a pretty small operation. So they oversee about $3.4 million worth of state aid that goes through them to the feeding sites in 2019. It's a tiny operation, never has an accountant on staff.

They had trouble even governing themselves. The IRS actually revoked their nonprofit status for failing to file a return for three years. Not exactly like a titan of great management. But then the pandemic hits and something unusual happens. Feeding Our Future, this tiny little operation, starts to grow and grow and grow rapidly. They start adding in new sites, bringing in new people

and saying, you know, look at all these new people we've recruited to feed kids. Look at all these new kids we found to feed. So in one year, they go from supervising the feeding of 4,000 kids to 400,000. They add 200 new sites under their supervision. Instead of handling $3.4 million in a year, they're handling $200 million in a year. Well, how did they do this? How did this group suddenly add 200 new feeding sites? What was the story? What they said was that they had partnered with people from Minnesota's very large community of East African immigrants, and they had found people in that community. There were a lot of kids out there that had not been served before, but also there was a specific kind of food that their places offered

that was familiar and culturally appropriate to people from Ethiopia or Somalia or Kenya. And so in some cases, their operations were claiming to be feeding far more children than even lived in the zip code that they were in. And when people asked questions about that, they would say, well, yeah, people are driving in from all over because we have the food they want, and they're not getting it where they live. Interesting and plausible.

You know, this was the pandemic which had scrambled a lot of people's calculations about who was in need and where they were coming from. And so I think people were surprised, but that argument did hold some water. Maybe there were people out there that the other groups hadn't seen or hadn't reached. And so what happens is the state, which has taken sort of a hands-off role, sees this astronomical growth and starts to raise questions. When Feeding Our Future is coming to them, and this is like the end of the summer of 2020, and saying, look, here's 40 new sites we want to add. Here's all these new places we want to add to the system. The state starts giving new scrutiny to those sites and sort of delaying their approval of these places. It's the first time that the state really seems to have pushed back

against this giant expansion of Feeding Our Future. And Feeding Our Future responds very aggressively. They sue. They sue the state saying, you've denied us our right to serve these kids. Children are starving because of you. They accuse the state of being racially discriminatory, saying that because we serve East African immigrants,

because many of our vendors are East African immigrants, there's racial animus behind this decision. And that works. It goes through the state court system. A state court judge rules that the state has not followed the right procedures to block Feeding Our Future. So then the state changes tactics. They basically start paying Feeding Our Future whatever they ask for, but secretly they go to the FBI. Hmm. And so what does the FBI find? What they've said is that operating within Feeding Our Futures Network were six different criminal conspiracies, six different groups of people who were basically lying about the kids they were feeding and getting money for food they didn't serve

to kids who didn't exist. And the mechanics of them are all relatively similar. What struck me was how, in some cases, comically bad the fraud was, comically obvious the fraud was. What do you mean? Well, just to give you an example, in one case, there was a guy who told the state that he was feeding 5,000 children a day, an enormous number of children from this place in Minneapolis.

And when you looked at the address, which was on the form, if you looked at the address, the address was a second story apartment in a building that you had to be buzzed in. You had to get buzzed in by somebody, go up the elevator, and walk down a really long hallway. At the very end of the hallway was this guy's apartment. This was a very busy residential apartment kitchen, apparently. Yeah, right, yeah. So he says he's feeding 5,000 children a day.

When we went to the apartment complex later, the people who lived next door were like, kids? No, we don't see any. There's not a line of 5,000 kids here every day. When we went to the apartment complex later, the people who lived next door were like, kids? No, we don't see any. There's not a line of 5,000 kids here every day. You didn't need to surveil that place to know you couldn't serve 5,000 kids there. In other cases, they had to submit a roster of names of the kids they said they were serving. And in some cases, those rosters, which we go to Feeding Our Future, were obviously false. Just to give you one example, one group, if you looked at their roster,

every one of the names contained a hyperlink to a site called listofrandomnames.com. So they clearly just copied a bunch of names. They just made up the names of kids, but they weren't creative enough to actually make up the names. They borrowed them from a site of made-up names. Exactly. And in one case, 500 consecutive names, the first name and last name all started with the same letter. The age column, because they had to put the age for every child, there was a code embedded in an Excel code that randomized the ages between seven and 17. Again, they didn't go to the trouble of like thinking up ages for all these kids. They just randomized them. And that was an obvious giveaway because they re-randomized the numbers every month. Every month they submitted the same roster with the same kids, but the randomizer had worked. And so Timmy, who was five last week, is now 10, and the next month was 12, and then back to five. I mean, so all this suggests that these people do not think that anyone's looking over their shoulders because they're not working very hard to hide their fraud. No, that's exactly the

impression you get, is that they were doing the bare minimum to meet the paperwork requirements to get this money, but not really taking any steps to disguise the sort of implausibility of things they were claiming. And on the back end, when the money comes in, what the FBI later found was that almost none of it was used to buy food or to pay employees to make the food. Almost all of it was used to buy things for the people who were supposedly operating the site. Like what? A number of luxury homes, some of them in this country, there's one that has an indoor basketball court in it, some beachfront property in Turkey and Kenya, a number of cars, guns, cryptocurrency. They bought a bar in Brooklyn Park, Minnesota.

They bought a mosque in Louisville, Kentucky. There are more than 40 real estate properties that they supposedly bought with this stolen money, as well as things like they went to Las Vegas and spent $21,000 at an exotic car rental agency. And all kinds of extravagances from the big to the very small. So David, in the end, how much money did these six rings of fraudsters take and how much of it may be actually recoverable? They took more than $240 million,

which is a striking number, even in the world of pandemic fraud. It's a quarter of a billion dollars. It's enormous. A quarter of a billion dollars. And the enormous. A quarter of a billion dollars. And the Justice Department says they've recovered $50 million in cash and assets so far, and they're pursuing the seizure of dozens more houses, cars, and currency. I don't think they ever think they're going to get to $240 million because a lot of it, I believe, has gone overseas. But the indictments that came out last week, there were long lists of properties that they're

seeking to seize as a result of this. So, David, it seems pretty obvious that in this case, that one big check and balance on the system, that sponsor group, Feeding Our Future, that was supposed to be making sure that all the money went to the right place while the state wasn't going and doing site visits, that Feeding Our Future did not do its job. That's right. And Amy Bach, the head of Feeding Our Future, was indicted for bribery, money laundering, and wire fraud.

Another one of her employees was also indicted, allegedly, for soliciting bribes from the people that he was helping get into this system. One thing that the indictments don't make clear is, was Feeding Our Future the mastermind of all of this, or was somebody else masterminding it and they were maybe just duped on a massive scale? It seems so implausible that somebody whose job it was to be a watchdog could miss all these red flags, but that so far is the defense of the woman who runs Feeding Our Future, Amy Bach, just that she was looking and didn't see any of this. Hmm. David, we've spent a ton of time here talking about

efforts to steal money from these pandemic relief programs that were created in 2020, and not a lot of time talking about the legitimate people and businesses who applied for this money. And I have a sense that a lot of the money, maybe even most of the money, went to such people, right? The local restaurant that was about to go under and got PPP money, the unemployed hotel worker who is out of work and needs enhanced unemployment checks. Is that your sense, too, that for the most part, these programs worked and reached real people who really needed the money? Yes. I don't think anybody thinks that we shouldn't have done this because so much of it was stolen. I think, you know, the people

credit the $5 trillion for stabilizing the economy, even lowering child poverty overall. The amount of money stolen, the best estimates could be that it's over $100 billion, which is a lot of money, but a pretty small fraction of $5 trillion, which is the overall given out.

To me, I think the lesson from this is not that we shouldn't have given out $5 trillion, which is the overall given out. To me, I think the lesson from this is not that we shouldn't have given out $5 trillion, but just that the government has decided this is its role. It's a role that's going to play when the country's in a crisis like this. And it really does not have any of the machinery necessary to do that role well without getting a lot of the money stolen. So if this is the role the federal government's going to take on in the future, it should be a role they prepare for and set something up so we're not creating an honor system on the fly in the middle of a crisis. So the goal for next time is to get the balance between speed and security right,

because in the case of the pandemic, it very much seems like a premium was placed on speed and not much emphasis at all was placed on security. Yeah, there should be no excuse next time. Probably the government is never going to have, you know, Google's level of security. But I think there is some place in between that and just giving away trillions of dollars on the honor system. Well, David, thank you very much.

Thanks for having me on. On Monday, the FBI made its latest arrest in the case of the Minnesota fraud, arresting an alleged conspirator as he apparently sought to flee the country on a flight. spiritor as he apparently sought to flee the country on a flight. He was the 49th person arrested in connection with feeding our future. We'll be right back. Here's what else you need to know today. The value of Britain's currency, the pound, briefly fell to its weakest level against the U.S. dollar in history on Monday as investors rejected the economic

plans of the country's incoming prime minister, Liz Truss. Investors are selling British assets because they doubt the financial wisdom of Truss' plan to cut taxes and borrow large sums of money at a time when interest rates are rising and inflation remains unusually high. Among investors' fears, economists said, is that the plan could make inflation even worse. And in Russia on Monday, a gunman angry about last week's military draft, which is forcing tens of thousands more men to fight in Ukraine, opened fire at a local draft office in Siberia, seriously wounding a recruitment officer.

It was the latest attack on a draft office since Russia invaded Ukraine in February and highlights the depth of Russians' anger over the war. The mother of the suspected gunman said that her son was upset because his close friend had been drafted. Today's episode was produced by Rob Zipko, Jessica Chung, and Luke Vanderplug, with help from Muj Zaydi. It was edited by M.J. Davis-Lynn and John Ketchum.

Contains original music by Marion Lozano and Alishaba Itu, and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landvark of Wonderly. That's it for The Daily. I'm Michael Barbaro. See you tomorrow.