By Christine Mai-Duc and Alejandro Lazo 

California paid out more than $140 million for fraudulent unemployment claims made in the name of inmates in its state prisons and county jails, according to state and federal prosecutors who have been investigating the fraud for months.

Among the people who filed claims with California's unemployment agency were death row inmates Scott Peterson, convicted of murdering his wife and unborn son, serial killer Cary Stayner, who is at San Quentin, and Isauro Aguirre, who was convicted of murdering an 8-year-old in a high-profile child abuse case.

In a letter to Gov. Gavin Newsom, a Democrat, the district attorneys of nine California counties called it "the most significant fraud on taxpayer funds in California history" and asked for additional resources to expedite investigations. They said more than 35,000 claims have been made in the names of inmates at facilities run by the California Department of Corrections and Rehabilitation and more than half of those were paid out through August of this year.

The prosecutors estimated that the total amount of the fraudulent payments already made could be close to $1 billion statewide.

"In my nearly four decades as a prosecutor in this state, I have never seen fraud of this magnitude," Kern County District Attorney Cynthia Zimmer, who was part of the investigation, said at a press conference Tuesday

In some cases, prisoners may have been victims of identity theft, according to the prosecutors, with fraudulent claims made in their names for which other people received the money. But in other instances, they said, prisoners conspired on the fraudulent claims with people on the outside who then sent them money in jail.

McGregor Scott, U.S. attorney for the Eastern District of California, said several federal investigations into potential fraud were being conducted, with involvement of the Federal Bureau of Investigations and the Department of Labor. He said there are potentially thousands more inmates in federal prisons in California involved in fraudulent claims who have not yet been identified and a deputy U.S. Attorney has been hired to focus on the issue.

Mr. Newsom said later Tuesday he had instructed the state's Office of Emergency Services to create a task force to coordinate efforts to combat unemployment insurance fraud and assist the district attorneys.

In July, Mr. Newsom announced a "strike team" tasked with finding ways to modernize the state's unemployment system. That team said in its report, which was issued in September, that they were aware of reports of inmates receiving benefits but that the agency's fraud detection measures had failed to discover them.

"Unemployment fraud across local jails and state and federal prisons is absolutely unacceptable," Mr. Newsom said. "We will continue to fully partner with law enforcement and direct as many resources as needed to investigate and resolve this issue speedily."

The revelations come amid ongoing pressure on California's Employment Development Department, which handles unemployment benefits and has been overwhelmed by a flood of claims during the pandemic.

The agency said last week it has processed $110 billion of unemployment benefits from a total of 16.4 million claims since March. Officials said they were also cutting into a backlog of claims in which people who have filed for benefits have waited for more than 21 days. That backlog has been a major source of ire for lawmakers in California.

In August, 61 California lawmakers sent a letter to the governor saying more than 1.1 million unemployment claims had been unpaid, and that the EDD was rife with problems and an inability to resolve the backlog. The agency, which has said it won't clear backlogged claims until at least January, has been dogged by reports that claimants have had to call hundreds of times before connecting with an agent and are at times hung up on.

In September, the EDD said fraud attempts have increased during the pandemic and that it had spent months working with local, state and federal investigators to find offenders.

Write to Christine Mai-Duc at christine.maiduc@wsj.com and Alejandro Lazo at alejandro.lazo@wsj.com

(END) Dow Jones Newswires

November 24, 2020 20:09 ET (01:09 GMT)