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State says it will pay $20 million to people wrongly accused of unemployment fraud

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After a seven-year legal battle, the state of Michigan finally says it's willing to pay $20 million in legal damages to people who had money taken from them because of false claims of fraud.

The case dates to 2015, when three men sued the state after being accused of defrauding the Michigan Unemployment Insurance Agency.

At the time, the state had been using an automated data system, known as MiDAS, to detect fraud. But MiDAS made mistakes, and the people it accused of fraud say they didn’t have an opportunity to dispute the system’s findings.

"As far as they were concerned, I owed the money and there's nothing they could do about it," said David Vela, who spoke on Stateside in 2017. "I didn't get any reason for it in the first place. I was suspected of fraud, because they didn't send it to the right address. They had defaulted everything so it was like I missed that step of saying, 'Oh, I didn't do anything wrong,' and trying to prove myself. They just defaulted me."

Vela said the state eventually claimed he owed more than $25,000 based on the fraud determination. And it began to garnish his wages to take back what it claimed he owed.

"When they finally did start taking the money out, I had to work overtime 12 hours a day on top of not getting any sleep,” Vela told Stateside. “It was a really rough time."

From 2013 to 2015, about 40,000 people in Michigan were wrongly accused of unemployment fraud by MiDAS. And while the state did pay back the money it took from people like Vela, it fought to avoid paying any additional monetary damages for the trouble it caused.

The case began under former Michigan attorney general Bill Schuette, and it continued under current Attorney General Dana Nessel, who appealed the case to the Michigan Supreme Court, despite claiming in her 2018 campaign that the Unemployment Insurance Agency had committed an “egregious act.”

This summer, the Michigan Supreme Court ruled against the state’s arguments, and said the plaintiffs in the case, named Bauserman v Unemployment Insurance Agency, were entitled to receive monetary compensation for the trouble they went through. Thursday, Nessel announced her office had agreed to settle the case for $20 million.

“All legal issues relative to the case have been decided and it is time to put this to rest and deliver this meaningful resolution to those Michigan residents who were harmed by this error.” Nessel said in a statement announcing the settlement.

But not everyone wrongly accused of fraud will be eligible to receive money from the settlement. The attorney general’s office said only people who had money taken from them for the first time on or after March 9, 2015 would be eligible. Full details of the settlement haven’t yet been made public. A judge will have the final say on whether to approve the settlement agreement.

Dustin Dwyer reports enterprise and long-form stories from Michigan Radio’s West Michigan bureau. He was a fellow in the class of 2018 at the Nieman Foundation for Journalism at Harvard. He’s been with Michigan Radio since 2004, when he started as an intern in the newsroom.
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