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California's 2020 unemployment fraud claims may top $31B: RPT

Blake Hall, ID.me CEO, joins Yahoo Finance's Kristin Myers to break down unemployment fraud claims across the U.S., and how his company is helping the state of California prevent them.

Video Transcript

KRISTIN MYERS: Now, in California, more than $10 billion has been paid in fraudulent unemployment claims, while nationally that number is up over 30 billion. We're joined now by Blake Hall, CEO of ID.me. Now, Blake, I guess, let's just first start with those headline figures because I was stunned to see that so much money was being paid out, essentially, to scammers.

So I know that you're working with the state of California. I'm wondering if you can talk to us about how bad the problem is in that state and even maybe an idea of how big this problem might be nationally.

BLAKE HALL: Sure. Thanks, Kristin. Based on what we're seeing in the states where we're combating this, unemployment fraud really focused on the Pandemic Unemployment Assistance Program designed to aid the sharing economy workers, I think the national figure for fraud and loss is closer to $200 billion based on what we're seeing, almost half of the claims that have been paid out.

The reason why is that you can basically take a single identity. And you can convert it into about $20,000 worth of benefits. And traditional unemployment fraud is more about eligibility fraud. And these workforce agencies have tooling and interfaces with the IRS and tax systems, where they can reconcile a claim about wages or why you lost your employment with employer data.

This new program for sharing economy workers doesn't have any of that. So if you're able to commit identity theft on one person, you can take $20,000 in federal funds. And if you do the math on that, 50,000 claims equals a billion. And you've got organized crime attacking these states at scale.

KRISTIN MYERS: $200 billion is a huge number. My mouth definitely dropped open. We're already getting messages from other producers, absolutely stunned that the number is that huge. I hear how you're saying how easy it is to scam the system. I'm wondering, because we have new types of unemployment insurance because of this pandemic, really where do we see most of these fraudulent claims being made? Is that under the traditional unemployment scheme, or is it under the ones that we have for part-time and for gig workers?

BLAKE HALL: Sure, so I can talk a little bit about what we're seeing. So ID.me, the company that I run, we're a federally certified identity provider. We verify identity for the Social Security Administration, for the United States Department of the Treasury, for Veterans Affairs, even for health care workers that prescribe narcotics and controlled substances online. So we are no stranger to high risk and high value transactions.

We began to work with Florida in August to combat the unemployment fraud and now work in 15 states. The entire left side of America uses us, with nine more pending. Collectively, these states represent about 75% of the population of the United States of America.

And when we first engaged on new claims, we knew that something was really wrong the fraud rates were so high, I literally thought that something might be broken with our product. I had the team rerun reports because we were seeing fraud rates that are over 10 times as high as what we see targeted on federal agencies across virtually every single threat vector that you could possibly have.

And so the most common form of identity theft is somebody just taking breached personal data from the Equifax breach or pick your favorite breach, 80%, 90% of American adults' name, date of birth, Social, address is already on the dark web. And then they were filing a claim.

And a lot of these state workforce agencies didn't have basic fraud prevention tooling as they've distributed $500 billion in federal aid over the last 10 or 11 months. And so criminals were able to very easily defraud these systems.

Now, when we came in, it's not enough to have possession of stolen data. You actually have to have possession of a phone that has tenure that's tied to that identity. And on that single control alone, we're blocking about 20% of new claims, gross claims volume that are fraudulent.

Another 7 and 1/2 to 10% of gross claims fraud is something called social engineering, where these attackers are all over Instagram, Facebook, Twitter. They're posing as workforce agency workers, representatives of ID.me. And they're basically trying to convince people that they're a representative of the government agency and getting them to hand over their government ID images, to click links. And they're doing it through social media.

So Thanks to California's relationship with the social media companies, we've begun actively partnering with Facebook and Twitter and Instagram to combat these attacks.

KRISTIN MYERS: Is there a way to tell? As you're saying this, I'm thinking, OK, I wonder now if my name and my identity has been used to get unemployment checks fraudulently. Is there a way for folks to go out there and check? Or does it require them finding out, essentially, that their identity has been hacked?

BLAKE HALL: Well, the feedback loop that's going to be the real kind of moment of reckoning for a lot of these states to just highlight how big the problem is, is that your unemployment benefits will show up on your tax returns. And in some states. Unemployment benefits are taxable. In other states, it'll show up on your tax return. But the unemployment benefits themselves are not taxable. And so as individuals start to get these forms from workforce agencies that let them know that their identity was used to file for unemployment, the extent of the problem will become clear.

What is really concerning is that as we got into it, we said, hey, look, identity fraud on these programs is about 30% of gross new claims volume. Your traditional fraud, your eligibility fraud, like prisoners who are they're claiming to be from an identity point of view but are clearly not eligible, that's going to stack on top of the identity fraud. And we're even seeing first party fraud, where some of the dumber criminals are using their own identity. And they're applying in multiple states for this program. So we are starting to uncover more of that.

As states kind of worked with us in October to lock down the new claims fraud, we had Arizona at the beginning of December say, well, what about all the claims that came in February through September before we had an effective fraud prevention program. So we went back and screened about 250,000 claims that they were paying on. About half were fraudulent. And we--

KRISTIN MYERS: You know, Blake, I hate to interrupt you. But unfortunately we've really just run out of time. We're going to have to get you back on to chat more about this. Blake Hall, CEO of ID.me, thanks so much for joining us.

BLAKE HALL: Thanks, Kristin.