Federal prosecutors announced Tuesday charges against 12 home-based childcare providers in San Diego County who are accused of defrauding the government out of more than $10 million by collecting childcare subsidies when they were not actually serving children.
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The charges, filed last week in 12 separate cases in San Diego federal court, allege that the providers knowingly submitted false attendance records to two local childcare resource agencies — YMCA of San Diego County and Child Development Associates — who then paid state childcare subsidy funds to them based on those records.
In some cases, the licensed providers allegedly claimed to be caring for more than 20 children per day when in reality they were caring for none, according to prosecutors.
The defendants, all of whom are located in San Diego and El Cajon, each collected between $538,000 and $1.2 million in childcare subsidies over the course of months to years, prosecutors alleged. Investigators arrested them last week in a coordinated takedown. Court records showed most had been released on bail as of Tuesday.
Each faces charges of wire fraud, which carries a maximum penalty of 20 years in prison and a potential $500,000 fine. Some also face charges of money laundering, which come with the same maximum penalty.
“These were made-up, fake daycares that day after day, month after month, year after year, billed the taxpayer for allegedly taking care of children, but there were no children,” Assistant U.S. Attorney General Colin McDonald from the Department of Justice’s National Fraud Enforcement Division said at a Tuesday morning news conference. “There were no daycares. These daycares were fake, and the taxpayers were paying for all of it, thousands of dollars a month.”
Though the fraud scheme alleged in each case is nearly identical, prosecutors do not allege coordination between the defendants. McDonald told the Union-Tribune in an interview that “taxpayer-funded benefit programs are the softest target for fraudsters,” and that such schemes can be taught and passed along through word-of-mouth without necessarily triggering the legal definition of conspiracy.
The federal investigation, which the Department of Justice dubbed “Operation Cradle to Grift,” began in February, about a month after conservative activists alleged on social media that some San Diego home-based childcare providers were receiving state childcare funds while not actually serving any children.
Criminal complaints in several of the cases detailed how federal agents from the IRS and Homeland Security Investigations set up stationary, motion-activated surveillance cameras earlier this year to watch the homes of the defendants for weeks at a time. The investigators then counted how many children were present at the homes each day and compared that with the attendance records the defendants submitted for subsidy payment.
“The attendance records are false and fraudulent in that they claim the individual provided care to children on dates and times that no actual childcare could have been provided, either because there were no children at the facility or the licensed provider was not at the facility — and in some instances was not even in the United States at the time of the purported childcare,” an agent with the IRS’ Criminal Investigation unit wrote in court documents.
The state provides subsidies that fund childcare for low-income families. Those funds are administered directly to providers by designated childcare resource agencies, based on providers’ self-reported child attendance records.
Both the providers and the parents of children in care self-certify that those records are accurate by signing them under penalty of perjury. Prosecutors on Tuesday did not address whether the falsified attendance records contained parent signatures.
Leaders of San Diego’s two childcare resource agencies have said they take steps to help protect against fraud, including reviewing monthly attendance sheets, checking providers’ enrollment against their licensed capacity, validating signatures and comparing providers’ rate sheets to invoices.
Both said they had reported concerns about providers in these cases and have been cooperating with enforcement authorities.
“It is unacceptable for individuals to defraud programs designed to provide child care benefits for hardworking families,” Child Development Associates said in a statement. “CDA takes suspected fraud very seriously and has program integrity systems in place to identify suspicious activity and report concerns to the appropriate law enforcement and regulatory agencies.”
In a statement, YMCA of San Diego County said: “Public funds intended to support the thousands of San Diego families who rely on childcare assistance must be protected from misuse. The Y takes that responsibility very seriously and remains committed to safeguarding these critical resources for the families they are intended to serve.”
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The state Department of Social Services, which regularly inspects licensed childcare providers for compliance with safety, health and development standards, said in a statement that it “takes any allegations of wrongdoing seriously and swiftly takes appropriate action, including working closely with law enforcement and prosecuting agencies to hold any bad actors accountable.”
Though investigators alleged in the criminal complaints that the fraud dates back to at least 2019 in many cases, the specific criminal allegations in the complaints deal only with conduct from the last few months, when agents used the footage from the surveillance cameras and compared it with the submitted attendance records.
For example, agents watched one woman’s El Cajon home for 36 days between early May and mid-June and allegedly never observed more than three children entering the home on a single day. The investigators believe two of those three children were the woman’s own offspring. And yet, that woman allegedly claimed on attendance records submitted to the government that she was caring for 22 or 23 children every weekday.
Her defense attorney declined to comment when reached by phone Monday.
In another case, agents set up a surveillance camera outside a San Diego man’s home on three different occasions in April, June and July, capturing 32 days of activity at the home. Prosecutors alleged that the man submitted records showing he was caring for 12 or 13 children each of those days, but the surveillance footage allegedly showed five or fewer children at the home most days.
Federal officials began investigating in February, about a month after private investigator Amy Reichert, who founded Restore San Diego, a community group that advocates for conservative causes, began posting about local home-based childcare providers on X, suggesting that they were committing fraud by collecting public subsidies while not actually serving any children.
“I feel vindicated today,” Reichert said in an interview on Tuesday.
Reichert had posted on X in January about at least one of the defendants. Her posts at the time appeared to be inspired by YouTuber Nick Shirley, who had produced a video in December accusing some Somali childcare providers in Minnesota of committing fraud. Shirley’s video came weeks after President Donald Trump spouted racist comments about Somali people during a Cabinet meeting, calling them “garbage.”
After Reichert’s posts, Shirley produced a video in March in which he and Reichert went to some San Diego childcare providers’ homes, filmed them and questioned whether they were serving any children.
None of the providers highlighted in Shirley’s video were named as a defendant.
Reichert said she relied on an alphabetical search of public state inspection records, and that she did not target anyone because of their race, religion or ethnicity.
Reichert’s and Shirley’s visits and online posts drew condemnation from several in San Diego — led by City Councilmember Sean Elo-Rivera and the United Domestic Workers union, which represents local home-based childcare providers — who said Reichert and Shirley were harassing and falsely accusing Somali childcare providers without showing proof they were committing fraud.
United Domestic Workers declined to comment on the accused providers.
Reichert said Tuesday it was “sickening how Democrats and unions used this issue politically.” She said her work wasn’t driven by conservative politics, but rather exposing government fraud, waste and abuse.
“I stand by my work,” she said.
McDonald, the assistant attorney general who previously worked as an assistant U.S. attorney in San Diego, did not say Reichert’s or Shirley’s work prompted the investigation. But in his interview with the Union-Tribune, he said that prosecutors “develop our cases from a variety of different points, including from public reporting.”
McDonald said it’s critical for prosecutors to know what’s going on in the community and be curious enough to follow those threads.
“One of the best things a good prosecutor can do is wake up and read the newspaper, because when you wake up and read the newspaper, you can learn about the things that are affecting the community,” McDonald said. “And you can learn about the work of reporters (and) independent journalists who are digging into certain suspicious activity.”
The cases announced Tuesday were not the first to allege such childcare fraud in San Diego. In 2023, prosecutors revealed a similar scheme by leaders of the former UMI Learning Center in Rolando Park.
Prosecutors said UMI leaders bilked $3.7 million in childcare subsidy funds by falsifying attendance records and parents’ school and employment records. UMI ringleaders were sentenced to varying terms in prison and ordered to pay restitution.
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