First Assistant U.S. Attorney Joe Thompson stood before reporters on December 17, 2025, delivering numbers that defied comprehension: $18 billion in Minnesota Medicaid billing examined, with “half or more”—potentially $9 billion—obtained through fraud.
“The magnitude of fraud in Minnesota cannot be overstated,” Thompson declared. “It’s staggering, industrial-scale fraud.” Investigators were discovering “a new $50 million fraud scheme” every single day they investigated. What happened next would shut down $10 billion in child care funding across America.
Federal Government Pulls the Plug
Within weeks of Thompson’s bombshell announcement, the U.S. Department of Health and Human Services froze approximately $10 billion in child care and family assistance payments to five Democratic-led states.
Minnesota, California, Colorado, Illinois, and New York—all suddenly cut off from federal funds supporting hundreds of thousands of vulnerable families. The action represented the most aggressive federal intervention in state-administered social services in modern history, affecting over 200,000 families who rely on these programs for survival.
The Viral Video That Changed Everything
The immediate trigger came from an unexpected source: a 42-minute YouTube investigation posted December 26, 2025, by conservative content creator Nick Shirley.
His video showed nearly a dozen Minneapolis daycare facilities that appeared completely empty despite receiving millions in government funding. Within days, the footage exploded to over 100 million views across social media platforms.
HHS Deputy Secretary Cites YouTube Investigation
HHS Deputy Secretary Jim O’Neill made the extraordinary move of explicitly referencing Shirley’s viral video when announcing Minnesota’s payment freeze on December 30, 2025.
“You have probably read the serious allegations that the state of Minnesota has funneled millions of taxpayer dollars to fraudulent daycares across Minnesota over the past decade,” O’Neill wrote on social media. He stated Minnesota “allowed scammers and fake daycares to siphon millions of taxpayer dollars” and ordered immediate suspension of all child care payments.
Quality Learning Center Becomes Ground Zero
The daycare with the misspelled sign—Quality Learning Center—became the scandal’s visual symbol. State records showed the facility received $1.9 million from Minnesota’s Child Care Assistance Program in fiscal year 2025 alone.
Following the viral exposure, the center closed temporarily, reopened briefly, then shut down permanently on January 6, 2026. Owner statements to media shifted from denying closure to confirming permanent shutdown within a 48-hour period.
State Inspectors Find Different Reality
Minnesota Department of Children, Youth and Families Commissioner Tikki Brown dispatched inspectors to facilities featured in Shirley’s video immediately after it went viral. Inspectors found children present at eight of nine locations visited; the ninth hadn’t opened for the day yet.
Brown raised methodology concerns about whether Shirley filmed during scheduled operating hours. ABC News noted it “has not independently verified any of his claims” from the viral investigation.
Nationwide “Defend the Spend” System Activated
HHS implemented sweeping changes affecting all 50 states through a new “Defend the Spend” verification system. All Administration for Children and Families payments now require justification, receipt documentation, or photographic evidence before releasing funds to any state.
The agency launched a fraud hotline and demanded Minnesota Governor Tim Walz provide comprehensive audits including attendance records, licenses, complaints, investigations, and inspection reports for facilities featured in the video.
The Feeding Our Future Foundation
Federal prosecutors had been building massive fraud cases in Minnesota for years before Shirley’s video emerged. The largest involved Feeding Our Future, a Minneapolis nonprofit that orchestrated the biggest COVID-19-era fraud scheme in America.
Seventy-eight individuals were charged with exploiting child nutrition programs to steal approximately $250 million by creating over 250 fake food distribution sites and falsifying paperwork claiming they served 91 million meals to children who never existed.
Racial Discrimination Lawsuit Backfires Catastrophically
When Minnesota’s Department of Education attempted stopping Feeding Our Future payments in 2021 due to mounting suspicions, founder Aimee Bock sued the state. Her lawsuit alleged racial discrimination because the organization primarily served the Somali community.
Bock won the case, forcing the state to resume payments. The legal victory allowed the fraud to continue unabated for additional months, ultimately increasing the total stolen amount by tens of millions of dollars.
Porsche, Luxury Goods, and $3.7 Million Seized
A federal judge recently ordered forfeiture of $5.2 million from Aimee Bock following her March 2025 conviction. Assets seized included a Porsche sports car, designer luxury goods, and $3.7 million held in various bank accounts.
To date, 57 of the 78 Feeding Our Future defendants have been convicted. Federal prosecutors continue pursuing remaining cases while tracing stolen funds moved to offshore accounts and converted into hard assets.
Autism Therapy Centers Exploited Vulnerable Families
Separate federal investigations uncovered systematic fraud in Minnesota’s Early Intensive Developmental and Behavioral Intervention program designed for children with autism. Prosecutors allege providers recruited children from immigrant communities, falsely certified them as eligible for expensive autism treatment they never received, and paid parents kickbacks for their cooperation.
Provider Ilhan Hassan allegedly stole $14 million through Smart Therapy Center, which submitted $31.8 million in fraudulent claims between 2021 and 2025.
“Fraud Tourism” Arrives From Philadelphia
The scale of Minnesota’s vulnerable programs attracted what prosecutors call “fraud tourism”—criminals traveling from other states specifically to exploit loopholes.
Two Philadelphia residents, Anthony Waddell Jefferson and Lester Brown, allegedly registered fake Minnesota companies and submitted $3.5 million in fraudulent claims entirely from their Pennsylvania homes. Federal authorities have now charged 92 individuals across various fraud schemes, with some cases involving multi-state criminal networks.
Housing Program Built With Fatal Design Flaws
Minnesota’s Housing Stabilization Services program, launched July 2020 as America’s first Medicaid-covered housing assistance, was intentionally designed with “low barriers to entry and minimal records requirements” to maximize accessibility.
Federal prosecutors now describe this design as making the program “susceptible to fraud.” The emphasis on reducing barriers for vulnerable populations inadvertently created systemic vulnerabilities that sophisticated criminal networks exploited on industrial scale.
Governor Walz Withdraws Amid Political Firestorm
Minnesota Governor Tim Walz—the 2024 Democratic vice presidential nominee—announced January 4, 2026, that he would not seek reelection. While citing multiple factors, Walz acknowledged the fraud crisis played a significant role.
“For several years, a coordinated group of criminals has attempted to exploit our state’s generosity,” Walz stated. “And while we are making strides against these fraudsters, we are now witnessing a group of political operatives trying to take advantage of this crisis”.
Political Accusations Fly in Both Directions
Walz characterized the federal funding freeze as political retaliation rather than legitimate oversight. “This has been his plan all along,” Walz wrote on social media, referring to President Trump. “He’s politicizing the issue to defund programs that help Minnesotans.”
His spokesperson told Fox News: “The governor has been combatting fraud for years while the President has been letting fraudsters out of jail”.
Trump Administration Deploys 2,000 Federal Agents
President Donald Trump deployed approximately 2,000 Department of Homeland Security agents to the Twin Cities in early January 2026, with DHS Secretary Kristi Noem personally participating in operations. Trump has repeatedly cited Minnesota as a “hub of fraudulent money laundering activity.”
HHS spokesperson Andrew Nixon defended the aggressive response: “For too long, Democrat-led states and governors have been complicit in permitting significant fraud to happen under their supervision”.
Five States File Emergency Lawsuit
On January 7, 2026, New York Attorney General Letitia James led a coalition of five affected states in suing the Trump administration to block the funding freeze.
The lawsuit argues the administration provided no legitimate fraud evidence for four of the five states, violated detailed legal requirements for imposing sanctions under these programs, and exceeded constitutional authority over congressional spending powers.
Federal Judge Issues Temporary Block
A federal judge on January 10, 2026, temporarily blocked the $10 billion funding freeze, providing immediate relief to affected states. The preliminary injunction prevents HHS from withholding funds while courts examine the legality of the administration’s unprecedented actions.
However, the broader dispute over fraud allegations, federal oversight authority, and appropriate remedies remains unresolved. Both sides are preparing for extended legal battles that could reshape federal-state relationships.
200,000 Families Caught in Crossfire
The funding freeze threatens critical services for hundreds of thousands of vulnerable families who have no connection to fraud allegations. In New York alone, $2.4 billion in TANF funding supports over 200,000 families with direct cash assistance for housing, food, and essentials.
Alex Adams, assistant secretary for HHS’s Administration for Children and Families, framed the stakes: The money “should be helping 19,000 American children, including toddlers and infants” in Minnesota, and “any dollars stolen by fraudsters is stolen from those children”.
Legitimate Childcare Providers Face Closure Risk
Childcare facilities with no fraud connections could lose operational funding, potentially forcing closures that would cascade through local economies.
The broad suspension affects nearly $2.4 billion annually in Child Care and Development Fund money supporting low-income family childcare across five states. Parents may face impossible choices between missing work to care for children or arranging unsafe alternatives. Providers struggle with immediate cash flow uncertainties, unable to meet payroll or facility expenses during the freeze.
The Unanswered Question That Haunts Everything
The controversy exposes fundamental tensions in social service program design: how to balance accessibility for vulnerable populations against fraud prevention without creating exploitation opportunities.
Multiple Minnesota programs prioritized reducing barriers and verification requirements to serve immigrants and low-income families more effectively. Those same design choices created systemic vulnerabilities that sophisticated criminal networks exploited for billions.
Sources:
“HHS Freezes Child Care and Family Assistance Grants in Five States Over Fraud Concerns.” U.S. Department of Health and Human Services, Administration for Children and Families, 5 Jan 2026.
“US Attorney’s Office: ‘Half or More’ of $18B Billed Through Minnesota Programs Tied to Fraud.” KSTP / ABC, 18 Dec 2025.
“How Fraud Swamped Minnesota’s Social Services System.” The New York Times, 29 Nov 2025.
“HHS Freezing Child Care Payments to Minnesota After Viral Video Spurs Fraud Probe.” ABC News, 31 Dec 2025.