A homicide detective reviewing the phone of a gang suspect saw a message that struck him as odd: an IRS notice about a six-figure tax refund.

That raised eyebrow was the catalyst for an investigation that San Diego prosecutors say uncovered a $1.75 million tax fraud scheme that involved four San Diego street gangs stealing federal COVID-19 relief money.

On Wednesday, the District Attorney’s Office announced that a grand jury had indicted 17 people on conspiracy and other charges related to tax fraud. All but one were arrested — and one of them is in custody for his alleged role in an unrelated killing. Several people appeared in San Diego Superior Court on Wednesday.

Authorities said some of the defendants are “known, violent gang members.” Some face tougher gang laws. Some are charged with white-collar crimes.

“This case illustrates the lengths to which street gangs will go to find new ways to fund their violent crimes,” said District Attorney Summer Stephan.

The overt acts detailed in the 50-page indictment detail some of the text messages sent between several defendants. Several of the messages begin with a simple question: Have they done their taxes yet?

The alleged fraud was simple. The 2021 tax form included a line for the COVID-19 relief. Self-employed people were asked how many days they had taken off this calendar year for illness or to care for family members. The form said the law allowed no more than 60 days.

Tax returns filed in this case showed that significantly more than 60 days were entered. In the worst case, someone entered 790 days. Another entered more than 15,000. No one noticed.

“Whatever systems were in place, they failed,” Stephan said. “They failed the American people, and they failed us here in San Diego.”

The refunds started rolling in, with people collecting anywhere from $97,000 to nearly $230,000. The alleged 31-year-old gang leader pocketed much of the fraudulent tax returns received between April and October 2022, Stephan said, adding that he used some of the money to buy diamond-studded watches, diamond chains and a diamond-studded necklace with his gang enforcer.

It all started with an investigation into the death of 27-year-old Tre’Von Stewart-Jordan, who was shot and killed in Lincoln Park in August 2022. The investigation led to search warrants and access to phones and data. “Even though they were really focused on this murder investigation, they didn’t miss the importance of this unusual form of evidence,” Stephan said.

By the time investigators discovered the alleged fraud, most of the money had already been squandered — Las Vegas, gambling, guns, drugs — and could not be recovered, the district attorney said.

Authorities are still trying to recover money spent on cars and jewelry.

Stephan said this is not a victimless case.

“This type of fraud hurts everyone, especially when it’s in the hands of gangsters who can use it to buy more guns, more drugs, sell more trafficked women, sell more drugs that poison our community,” she said.

The murder investigation “was very successful,” she said. One defendant was convicted of murder and sentenced to life in prison without the possibility of parole. Other murder defendants are awaiting trial, including one defendant in a tax fraud case.

Originally published: September 4, 2024 at 6:41 PM