Twelve charged in $10 million scheme involving ghost home daycares in San Diego

Federal prosecutors in San Diego on Tuesday unsealed charges against 12 people accused of fraudulently collecting more than $10 million in taxpayer-funded childcare subsidies for home daycare businesses that authorities say had few or no children actually attending. The charges, announced jointly by the Justice Department and the IRS's criminal investigations division, describe a scheme in which licensed at-home providers in the San Diego area submitted attendance logs for children who prosecutors say were rarely present.

All 12 defendants were arrested on Sept. 10 and their indictments were unsealed five days later. U.S. Attorney Adam Gordon's office and IRS Criminal Investigation announced the case at a joint news conference, describing it as a coordinated, monthslong effort to root out fraud in programs meant to help working families afford childcare.

What Investigators Say Happened

According to prosecutors, the defendants operated licensed home-based daycare facilities and filed the paperwork required to draw down government childcare subsidy payments, including detailed attendance records showing when specific children were dropped off and picked up. Investigators allege that in reality, many of the facilities saw few or no children over the months, and in some cases years, that payments were collected.

In one case described by prosecutors, defendant Turkiya Alawad, 63, was outside the United States between Jan. 1 and Jan. 30, 2024, yet continued to submit and collect childcare payments for the same dates. In another, prosecutors say defendant Abdulrahman Alawad, 25, claimed to have cared for children in March and April, but surveillance footage allegedly showed children entering the facility only once — on the day a state inspector visited. He is accused of collecting more than $300,000 in childcare payments in 2025 alone. Other defendants are accused of collecting more than $1 million apiece.

The Numbers

• 12 defendants charged in the San Diego area
• More than $10 million in alleged fraudulent childcare payments
• Fraud allegedly carried out over periods ranging from months to years
• First case brought by the Justice Department's Fraud Enforcement Division since its creation in April 2026

"There were no children," Colin McDonald, head of the Justice Department's Fraud Enforcement Division, told reporters at the news conference, according to wire reports. "There were no daycares. But the taxpayers were paying for all of it."

Context: A Widening Crackdown on Benefit Fraud

The San Diego case is the first indictment brought under the Justice Department's National Fraud Enforcement Division since it was formally established through an April 2026 memorandum, which folded the Criminal Division's Tax Section, its Health Care Fraud Unit and its Market, Government and Consumer Fraud Unit into a single division under McDonald, with authority to coordinate fraud investigations and prosecutions nationwide.

The case is also the latest in what the administration has described as an intensified push against fraud in federal benefit programs. Vice President JD Vance chairs the administration's Task Force to Eliminate Fraud, created in March 2026 to coordinate strategy against fraud, waste and abuse in programs covering housing, food, medical care and cash assistance administered jointly with states. McDonald said the public should expect additional investigations and indictments "in the coming months."

Investigators drew comparisons to Feeding Our Future, the Minnesota nonprofit at the center of a scheme that exploited federal child-nutrition and childcare subsidy programs during and after the pandemic. That case grew into one of the largest pandemic-fraud prosecutions in the country, with prosecutors alleging roughly $250 million siphoned from federal programs overall and more than 70 people indicted; the organization's founder was sentenced this year to nearly 42 years in prison. The portion of that scheme tied specifically to childcare subsidy claims, about $4.6 million, was far smaller than the sum alleged in San Diego, though the broader Minnesota fraud, which also reached into meal programs, was larger overall.

"These are taxpayer-funded programs designed to help working families, children and vulnerable communities. When those funds are diverted for personal profit, families lose, honest providers lose, taxpayers lose and the public trust in these programs is damaged."

That warning came from Jared Koopman, head of IRS Criminal Investigation, who told reporters the defendants used the proceeds to buy homes, wire money overseas and make large cash withdrawals. IRS-CI, better known for tax enforcement, has increasingly pursued fraud in federal benefit programs; officials said the San Diego investigation dates back to at least February.

Who Is Affected

The subsidy payments at issue flow through childcare assistance programs jointly funded and administered by the federal government and the states. Nationally, the primary funding vehicle is the Child Care and Development Fund, a federal block grant overseen by the Department of Health and Human Services that channels billions of dollars a year to states. States in turn designate a lead agency, in California's case the Department of Social Services, to handle day-to-day administration, including licensing home providers and monitoring attendance claims — a structure in which a scheme built on falsified records can draw on both state and federal money before either layer of oversight catches the discrepancy.

Advocates for such programs have long warned that fraud, even involving a small number of providers, can fuel pressure to tighten eligibility rules or slow reimbursements for the far larger number of legitimate home-based providers who rely on timely payments to stay in business. Federal officials noted that despite several defendants sharing surnames, each case was investigated and charged independently, cautioning against assuming a single unified conspiracy.

What Happens Next

All 12 defendants face wire fraud charges, which carry a maximum of up to 20 years in prison per count, and some also face money-laundering counts, which carry their own maximum of up to 20 years per count. Because fraud proceeds can separately support a laundering charge for each financial transaction involved, defendants facing both sets of counts can face longer potential sentences than the fraud charges alone would suggest. Prosecutors said the investigation is continuing and additional charges are possible.

Court proceedings in the U.S. District Court for the Southern District of California are expected to unfold over the coming months as the government seeks to recover the allegedly stolen funds. McDonald's comments suggest the case will not be an isolated one: the administration's fraud task force has flagged childcare and other benefit programs as an ongoing enforcement priority, meaning home-based providers in other states could face similar scrutiny in the months ahead.