By Matthew S. Adams, Kelley Hodge, Matthew D. Lee and Marissa Koblitz Kingman

The Department of Justice (DOJ) has intensified its already aggressive crackdown on fraud related to COVID-19, recently announcing criminal charges against a telemedicine company executive, a physician, marketers and medical business owners for losses exceeding $143 million. These recent prosecutions provide a clear warning to all health care-related businesses that there will be enhanced scrutiny of the use of government funds related to the COVID-19 pandemic.

The CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, was intended to provide emergency financial assistance to those suffering economic losses related to COVID-19. It included $2.2 trillion in economic aid for Americans and their businesses. The law provided forgivable loans to small businesses to cover payroll and other specified expenses through the Paycheck Protection Program (PPP), and included the Provider Relief Fund, which was designed to provide needed medical care to Americans suffering from COVID-19.

The CARES Act also provided an opportunity for service providers to take advantage of COVID-19-related government assistance. Immediately after the CARES Act was passed in March 2020, the DOJ began efforts to investigate and prosecute pandemic-related fraud.

COVID-19 Related Health Care Fraud Crackdown

On May 26, 2021, more than a year after the CARES Act was enacted, the DOJ announced criminal charges against 14 defendants —11 newly-charged and three who were charged in superseding indictments — in seven federal district courts for their alleged participation in health care fraud schemes that resulted in over $143 million in false billings.

Deputy Attorney General Lisa O. Monaco described the alleged conduct as “theft from American taxpayers through the exploitation of the national emergency,” and that those charged “took advantage of the COVID-19 pandemic to line their own pockets instead of providing needed health care services during this unprecedented time in our country.” Monaco emphasized the government’s commitment to prosecuting bad actors and holding them accountable for exploiting government programs that were designed to help the American people.

As the DOJ announced the prosecutions, the Center for Program Integrity, Centers for Medicare & Medicaid Services (CPI/CMS) separately announced that it took adverse administrative actions against over 50 medical providers. The providers allegedly abused CMS programs that were designed to encourage access to medical care during the pandemic.

COVID-19 Health Care Crimes

The defendants are alleged to have committed various COVID-19 health care-related crimes, including but not limited to:

  • Offering COVID-19 tests to induce victims to provide their personal identifying information and thereafter misusing the victims’ information to submit claims to Medicare for unrelated medical tests
  • Submitting false claims to Medicare for sham telemedicine encounters
  • Offering and paying bribes in exchange for medical professionals’ referrals of medically unnecessary testing
  • Submitting false claims to Medicare for allergy and COVID-19 testing that did not occur
  • Misappropriating funds from the CARES Act Provider Relief Fund and submitting false loan applications and false loan agreements to the Economic Injury Disaster Loan Program
  • Obtaining billing privileges for multiple pharmacies by using nominees to serve as the purported owners and supervising pharmacists and then allegedly submitting false and fraudulent claims to Medicare

Deputy Inspector General for Investigations Gary L. Cantrell of Health and Human Services – Office of Inspector General (HHS-OIG) stated that his “agency and its law enforcement partners are aggressively and effectively investigating these egregious crimes, which is made equally clear given the results of this takedown. We will continue to support the unprecedented COVID-19 public health effort by holding accountable people who use deceptive tactics to profit from the pandemic.”

FBI Director Christopher Wray similarly stated that the “FBI, along with our federal law enforcement and private sector partners, are committed to continuing to combat health care fraud and protect the American people.”

Currently, the DOJ Fraud Section is prosecuting cases in the following districts: Western District of Arkansas, Northern District of California, Middle District of Louisiana, Central District of California, Southern District of Florida, District of New Jersey, and the Eastern District of New York. The National Rapid Response Strike Force of the Health Care Fraud Unit of the Criminal Division’s Fraud Section, in conjunction with the Health Care Fraud Unit’s Medicare Fraud Strike Forces (MFSF) led the enforcement actions. The DOJ also had the assistance of the FBI, HHS-OIG, U.S. Postal Inspection Service, Internal Revenue Service Criminal Investigation, Veterans Affairs Office of Inspector General, Department of Defense Office of Inspector General, Federal Deposit Insurance Corporation, Louisiana Medicaid Fraud Control Unit, and other federal and state law enforcement agencies in bringing these charges.

What to Expect Next

The aggressive crackdown on health care fraud related to the COVID-19 pandemic is consistent with the government’s focus on rapidly investigating and prosecuting COVID-19 related fraud, as discussed in our previous alerts “Justice Department Continues Historic Level of Enforcement Against COVID-19 Fraud” and “DOJ Announces First Criminal Prosecution for Misuse of COVID-19 Relief Funds Dedicated to Health Care Providers.” Federal authorities have continued to receive an outpouring of complaints related to suspected fraudulent activity from whistleblowers. The government makes reporting alleged fraud easy for the public by having a hotline dedicated to pandemic-related fraud as well as an accessible online complaint form. There will likely be a steady increase in prosecutions.

Any health care business owner who is concerned about compliance with the CARES Act or about potential exposure to COVID-19 related fraud allegations should immediately consult counsel and not wait to be contacted by law enforcement. Those who have already received a subpoena or inquiry from any law enforcement agency should immediately consult with counsel who can assess the full potential for civil and criminal exposure before responding.

For up to date information on prosecutors’ efforts in combating COVID-19 related fraud, consult Fox Rothschild’s proprietary PPP Fraud Prosecution Tracker, an interactive tool that monitors new case filings and the disposition of cases surrounding alleged fraud and abuse in connection with PPP nationwide.

For access, contact Matthew S. Adams at madams@foxrothschild.com, Kelley Hodge at khodge@foxrothschild.com, Marissa Koblitz Kingman at mkingman@foxrothschild.com or Matthew Lee at mlee@foxrothschild.com.

By Matthew S. Adams and Marissa Koblitz Kingman

Businesses that are asked to complete SBA Form 3509 face considerable risk because many companies did better than expected financially after receiving a PPP loan, despite the initial economic hit due to the pandemic.

If the SBA ultimately determines that the PPP Borrower Application was not completed in good faith because the loan was not “necessary” for the company’s operations, the borrower could face civil or even criminal penalties.

What is SBA Form 3509?

The SBA requires for-profit borrowers to complete SBA Form 3509 if the borrower received a PPP loan of $2 million or greater. The SBA’s stated purpose of the form is to facilitate the collection of supplemental information that will be used by SBA loan reviewers to evaluate the good-faith certification that borrowers made on their PPP Borrower Application that economic uncertainty made the loan request necessary.

What Information Must You Provide?

SBA Form 3509 requests extensive information about the borrower’s finances before and after the receipt of a PPP loan, including:

  • Gross revenues for the first and second quarters of 2020
  • What business operations were altered or disrupted due to the pandemic
  • What operations were reduced due to the pandemic
  • What capital improvement projects were done
  • How much cash does the company have
  • What dividends or other capital distributions were made
  • What prepaid debt was paid
  • If any employees received over $250,000 on an annualized basis

The questions in SBA Form 3509 are focused on whether the PPP loan was necessary to support the ongoing operations of the borrower.

Why You May Need Legal Guidance

In March and April 2020, many companies across the country were faced with great economic uncertainty. It was abundantly clear in the first few weeks of the pandemic that some businesses were going to be severely negatively affected by COVID-19. But those dire predictions evolved over the next few months, and it turned out that some companies actually had a successful financial year.

For businesses that fared better than expected, SBA Form 3509 may pose a challenge. An addendum to the form may be necessary to explain why the company certified that its “current economic uncertainty” made the PPP loan request “necessary to support the ongoing operations,” when it ended up doing financially well.

A supplemental memorandum to the SBA, with the assistance of counsel, can explain the company’s thought processes and deliberations that went into preparation of the application for the PPP loan. Specific detail regarding the nature of the business, the company’s workforce, a timeline of relevant events, business activity at the time of the loan, expenses and mitigation efforts may need to be carefully outlined for the SBA. The narrative accompanying SBA Form 3509 may also need to describe how the loan application was completed in good faith and that the loan was necessary to support the company’s ongoing operations at the time, despite the ultimate financial stability of the borrower.

Such a fact-specific chronicle detailing the significant uncertainties that the company faced due to the expected operational disruptions caused by the COVID-19 pandemic may be necessary not only to ensure full forgiveness of the loan, but to demonstrate good faith and avoid potential civil and criminal liability.

The CARES Act

The CARES Act (Coronavirus Aid, Relief and Economic Security Act) enacted in March 2020, was designed to provide emergency financial assistance to those suffering economic losses related to COVID-19. It included $2.2 trillion in economic aid for individuals and businesses and provided access through the Small Business Administration (SBA) to forgivable loans to cover payroll and other specified expenses through the Paycheck Protection Program (PPP). It also provided government assistance through the Economic Injury Disaster Loan (EIDL) program and Unemployment Insurance (UI) program. However, the CARES Act has also provided an opportunity for fraudsters to take advantage of the government assistance.

COVID-19 Related Investigations, Prosecutions and Civil Penalties

Immediately after the CARES Act was passed in March 2020, the DOJ began efforts to investigate and prosecute pandemic-related fraud. By the end of March 2021, it had charged more than 470 defendants with criminal offenses based on fraudulent schemes connected to the COVID-19 pandemic.

The government also pursued and secured civil injunctions against defendants who sold products such as fake vitamin supplements and silver ointments, making false claims about the products’ abilities to prevent or treat COVID-19 infections. The government used other civil tools to address CARES Act-related fraud as well, like the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the False Claims Act (FCA). FIRREA allows prosecutors to seek civil penalties for violations of certain federal criminal statutes. The FCA permits the government and private citizens to seek monetary recovery for penalties related to false claims for federal funds.

The government made clear that its focus on CARES Act fraud would only intensify in the coming months and years.

The Task Force

On May 17, 2021, the government again enhanced its efforts to investigate and prosecute fraud. U.S. Attorney General Merrick B. Garland announced the establishment of the Task Force to marshal the resources of the DOJ in partnership with other agencies to enhance enforcement efforts against COVID-19 related fraud. He warned that the “Department of Justice will use every available federal tool – including criminal, civil, and administrative actions – to combat and prevent COVID-19 related fraud. We look forward to working with our federal government colleagues to bring to justice those who seek to profit unlawfully from the pandemic.”

In announcing the creation of the Task Force, DOJ said it had already been working together with its partner agencies to hold hundreds of bad actors accountable. The Task Force was created to incorporate the existing coordination mechanisms within DOJ and is expected to work closely with other government agencies to combat fraud. The Task Force includes several entities within the DOJ, including the Criminal and Civil Divisions, the Executive Office for United States Attorneys, and the FBI. Other government agencies have also been invited to be part of the Task Force, including the Department of Labor, the Department of the Treasury, the Department of Homeland Security, the SBA, the Special Inspector General for Pandemic Relief and the Pandemic Response Accountability Committee. The Task Force is expected to bolster efforts to investigate and prosecute the most culpable criminals and other bad actors.

The creation of the Task Force is consistent with the government’s focus on rapidly investigating and prosecuting COVID-19 related fraud, as discussed in our prior alerts – Justice Department Continues Historic Level of Enforcement Against COVID-19 Fraud and DOJ Announces First Criminal Prosecution for Misuse of COVID-19 Relief Funds Dedicated to Health Care Providers.

The government has continued to receive an outpouring of complaints related to suspected fraudulent activity from whistleblowers. Investigators also make reporting alleged fraud easy for the public by having a hotline dedicated to pandemic related fraud as well as an accessible online complaint form.

For up-to-date information on prosecutors’ efforts in combating COVID-19 related fraud, consult Fox Rothschild’s proprietary PPP Fraud Prosecution Tracker, an interactive tool that monitors new case filings and the disposition of cases involving alleged fraud and abuse in connection with PPP nationwide. For access, contact Matthew D. Lee at mlee@foxrothschild.com or Marissa Koblitz Kingman at mkingman@foxrothschild.com.

By Gabriel Herman and Marissa Koblitz Kingman

Paycheck Protection Program (PPP) loans were designed to help small businesses cover explicit allowable expenses during the COVID-19 pandemic. There are various eligibility requirements that businesses must satisfy before applying for PPP loans and subsequently upon seeking forgiveness. Because the loans were sought and made at rapid speed, many business owners unknowingly made errors in the application process or while spending the loan monies. Many lenders did not flag or even recognize such errors. After loans were distributed, the SBA issued guidance on eligibility requirements. Now, as businesses turn to the forgiveness process, seek an additional PPP loan or simply realize that they received loan proceeds in error, companies are left trying to navigate the complicated process of fixing errors. How businesses correct these mistakes is extremely important and can mean the difference between having to write a good faith error letter to a lender and fending off a criminal investigation.

Possible issues we’re seeing:

  • Including independent contractors in loan calculation
  • Incorrectly calculating full time employees
  • Making mistakes while computing payroll costs
  • Spending the loan money on impermissible uses
  • Improperly determining the covered period

Excess Loan Amount Errors

PPP borrowers have long feared the SBA will be inflexible when granting loan forgiveness to borrowers who made good faith errors in the application or forgiveness process. Loan forgiveness often hinges on whether a borrower was eligible to participate at the time of applying and whether the borrower is eligible for complete loan forgiveness based on the proceeds received. A loan is not eligible for forgiveness if the SBA determines that a “borrower was ineligible for the PPP loan based on the provisions of the CARES Act” See 85 Fed. Reg. 38306. Similarly, lenders will be instructed to deny the loan forgiveness application if the “SBA determines that the borrower [was] ineligible for the loan amount or loan forgiveness amount claimed by the borrower.” See 85 Fed. Reg. 33012.

SBA Procedural Notice 5000-20078 provides guidance to parties that have identified an “excess loan amount error” made by a borrower or lender when approving the PPP Borrower Application. Procedural Notice 5000-20078 addresses situations in which a borrower or lender made a good faith error that caused them to receive a PPP Loan in excess of the correct amount. Examples that may result in an “excess loan amount error” include:

  • Failing to subtract amounts paid to employees in excess of $100,000 (annualized and prorated) from reported payroll costs.
  • Including payments to independent contractors when calculating payroll costs in the PPP Borrower Application Form. As a result, the amount approved exceeded the correct maximum loan amount.

Borrowers who experience and identify a good-faith excess loan amount error are not precluded from seeking full loan forgiveness. Rather, borrowers are expected to repay the excess loan proceeds and then seek loan forgiveness on the properly obtained balance. Forgiveness will only be denied for the ineligible portion and the borrower must make payments on the remaining loan amount. Of note, Procedural Notice 5000-200078 does not require that borrowers immediately repay the entire amount of the excess loan proceeds Instead, borrowers will be required to make payments towards the excess amount in accordance with the terms of the note. Borrowers and lenders that identify an excess loan amount error are advised to notify the SBA even if a final determination of loan forgiveness has been made.

Borrowers should be aware that Procedural Notice 5000-20078 and its discussion of “excess loan amount error” does not apply to errors caused by people who make known misstatements or fraud.

PPP1 vs. PPP2

Generally, a borrower is eligible for a PPP2 loan if it previously received a First Draw PPP (PPP1) loan, will or has used the full amount of the loan only for authorized uses, has no more than 300 employees and can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. However, there are some additional disqualifiers in PPP2 that were not contained in PPP1, including one that forces an examination of the borrower’s relationship with China.

Congress specifically targeted China in PPP2, making any businesses with substantial ties to the country ineligible. Companies should proceed with extreme caution when deciding whether to seek a PPP2 loan if it has any relationship with China.

PPP2 disqualifies companies:

  • That are created in or organized under the laws of China
  • That have significant operations in China
  • In which a Chinese company owns or holds, directly or indirectly, 20% or more of the economic interest of the business
  • That have a resident of China on its board of directors.

If your business has received a loan and has ties to China, the business should expect heightened governmental scrutiny and seek counsel to proactively evaluate potential civil and criminal liability.

If a Borrower Suspects a Mistake Was Made

The owner of any business that has already received a PPP loan and thinks an error may have been made in applying for the loan or spending the loan should consult with counsel before communicating with any government agency or lender. An attorney can help assess the full potential for civil and criminal exposure, interface with the lender and government and help mitigate potential damages.

 

For additional information about correcting PPP loan errors, please contact Gabriel Herman at gherman@foxrothschild.com or 215.444.7338 and Marissa Koblitz Kingman at mkingman@foxrothschild.com or 973.548.3316.

April 20, 2021 – Alerts

By Matthew D. Lee and Marissa Koblitz Kingman

The Justice Department continues to intensify its crackdown on COVID-19 relief program fraud, a clear indication that any individual or business that has benefited from the government aid should expect enhanced scrutiny from various government agencies in the coming months and possibly years. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, was intended to provide emergency financial assistance to those suffering economic losses related to COVID-19. The Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program and Unemployment Insurance (UI) programs, included in the Act, have undoubtedly helped millions of deserving people and businesses survive the pandemic. However, the CARES Act has also provided an opportunity for fraudsters to take advantage of government assistance.

The CARES Act

The CARES Act, which included $2.2. trillion in economic aid, was intended to provide financial assistance to Americans and their businesses struggling under the economic hardships caused by the COVID-19 pandemic. The law provided forgivable loans to small businesses to cover payroll and other specified expenses through the PPP loan program. It also provided government assistance through the EIDL program and UI programs.

Criminal Investigations and Prosecutions

Within weeks of the CARES Act’s passage, the Department of Justice immediately began efforts to investigate and prosecute related fraud. The Department focused initially on the most egregious instances of COVID-19 related wrongdoing, but it has since cast a wider net.

By the end of March 2021, the Department of Justice had charged over 470 defendants with criminal offenses based on fraud schemes connected to the COVID-19 pandemic. The Justice Department’s Criminal Division Fraud Section has prosecuted approximately 120 defendants charged with PPP fraud. The accused include those who lied about payroll costs, employees or even having a business. Individuals who misappropriated loan proceeds by using the money to purchase cars, boats and houses were also quickly prosecuted. The government has seized over $580 million from fraudsters who applied for EIDL advances and loans, and over 140 defendants have been charged and arrested for federal offenses related to UI fraud. The government has also prosecuted or secured civil injunctions against dozens of defendants who sold products such as fake vitamin supplements and silver ointments, making false claims about the products’ abilities to prevent or treat COVID-19 infections.

The Justice Department has made it clear that its focus on CARES Act investigations will only deepen in the coming months and years. Attorney General Merrick B. Garland recently stated that, “The Department of Justice has led an historic enforcement initiative to detect and disrupt COVID-19 related fraud schemes. The impact of the department’s work to date sends a clear and unmistakable message to those who would exploit a national emergency to steal taxpayer-funded resources from vulnerable individuals and small businesses. We are committed to protecting the American people and the integrity of the critical lifelines provided for them by Congress, and we will continue to respond to this challenge.” Acting Assistant Attorney General Nicholas L. McQuaid of the Justice Department’s Criminal Division similarly stated that, “To anyone thinking of using the global pandemic as an opportunity to scam and steal from hardworking Americans, my advice is simple – don’t. No matter where you are or who you are, we will find you and prosecute you to the fullest extent of the law.”

For the latest information on prosecutors’ efforts, consult Fox Rothschild’s proprietary PPP Fraud Prosecution Tracker, an interactive tool that monitors new case filings and the disposition of cases surrounding alleged fraud and abuse in connection with PPP nationwide. For access, contact White-Collar Criminal Defense & Regulatory Compliance Practice Co-Chairs Matthew Adams at madams@foxrothschild.com or Matthew Lee at mlee@foxrothschild.com.

Civil Enforcement

The government has also used civil tools to address CARES Act-related fraud. In the Eastern District of California, the Justice Department obtained a civil settlement for fraud involving the PPP, resolving civil claims under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) and the False Claims Act (FCA) against an internet retail company, its president and its chief executive officer. The claims arose from false statements made to lenders to influence the banks to approve, and the SBA to guarantee, a PPP loan.

FIRREA allows the government to impose civil penalties for violations of enumerated federal criminal statutes, including those that affect federally insured financial institutions. The FCA is the government’s primary civil tool to redress false claims for federal funds and property involving a multitude of government operations and functions. The FCA also permits private citizens with knowledge of fraud against the government to bring lawsuits on behalf of the United States and to share in any recovery. Such whistleblower complaints have been on the rise since the enactment of the CARES Act, with whistleblowers assisting the government in prosecuting misuse and abuse of the government funds.

What’s Next?

While the government has focused tremendous resources on combatting CARES Act fraud, inspectors general have seized about $2.5 billion of the $84 billion in potential fraud. The CARES Act created the Pandemic Response Accountability Committee (PRAC), comprised of 22 inspectors general charged with ensuring the federal funds are spent properly. PRAC is currently working with the Office of Management and Budget and other government agencies to enhance technological tools to facilitate the detection of CARES Act-related fraud. The Biden administration has promised to ensure that CARES Act fraudsters will be investigated and prosecuted. President Biden also promised to investigate whether big banks provided concierge treatment to their larger, existing customers in applying for PPP loans, while small businesses struggled to obtain relief. It is expected that COVID-19 fraud investigations will continue over the next decade.

For more details on this alert, and federal white-collar and COVID-19 relief fraud enforcement trends, contact Matthew D. Lee, Co-Chair of the firm’s White-Collar Criminal Defense & Regulatory Compliance Practice Group at mlee@foxrothschild.com or 215.299.2765; or Marissa Koblitz Kingman, a member of the White-Collar Criminal Defense & Regulatory Compliance practice, at mkingman@foxrothschild.com or 973.548.3316.

By Patrick J. Egan, Joshua Horn and Stephanie Ohnona

The men used shell companies and payment processing businesses, among other  methods, prosecutors said. They concealed cannabis shipments as dog food, face cream and beverages.

While cannabis is legal in some states — including California where Eaze operates — the drug remains illegal under federal law and as such banks and payment processors are prohibited from doing business with cannabis companies. For this reason, major credit card companies like MasterCard and Visa do not have merchant codes for cannabis transactions.

Defense attorneys argued unsuccessfully that the banks were complicit in processing these cannabis-related purchases by credit and debit cards.

As more cashless payment applications, such as Venmo, enter the market, cannabis businesses must be conscious of whether the services are the proper solution to their payment processing needs. Going forward, companies in the cannabis industry should be mindful of these financial services transactions to remain in compliance with federal regulations.

For more information or questions about this alert, please contact Patrick Egan of the White-Collar Criminal Defense & Regulatory Compliance Practice Group at pegan@foxrothschild.com or Joshua Horn, Co-Chair of the Cannabis Law Practice Group at jhorn@foxrothschild.com.

Joshua Ashby and Kimberly L. Kwan have co-authored a Corporate Compliance Insights article entitled “How the Corporate Transparency Act Shakes Up AML: Beneficial Ownership Updates and More.” Their article addresses the recently-enacted Corporate Transparency Act, and how that new law changes what constitutes beneficial ownership and establishes more robust automated data collection. In addition, the law increases responsibilities and incentives for employees to blow the whistle on money-laundering activity. You can read the full article by clicking here.

By Matthew D. Lee and Marissa Koblitz Kingman

The Justice Department has widened its crackdown on COVID-19 fraud, announcing the first criminal case alleging misuse of federal relief funds designated for medical providers. The egregious nature of the alleged fraud and relatively small amount of funds involved provide valuable clues about the pace, breadth and focus of future prosecutions.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 29, 2020, established the Provider Relief Fund, which distributed funds to medical providers for use in responding to the pandemic. Earlier this month, the Justice Department criminally charged the owner of a Michigan home health services business, alleging that she misused relief funds designated for medical treatment and care of COVID-19 patients by issuing checks to her family for their personal use. It is likely the first of many such cases, as federal investigators scrutinize distribution of Provider Relief Fund dollars and the use of such funds by recipients.

The CARES Act

The CARES Act was intended to provide emergency financial assistance to those suffering economic losses related to the COVID-19 pandemic. It included the Provider Relief Fund, which targeted funding to medical providers to cover the costs of pandemic response and COVID-19 patient care.

The Government’s First Prosecution

The owner of the home health services business, Amina Abbas of Michigan, was indicted February 10, 2021 on charges of embezzling government property. The Justice Department’s Criminal Division alleges that Abbas intentionally misappropriated government funds that were allocated to aid medical providers in the treatment of patients suffering from COVID-19. Abbas is the first person to be criminally charged for the intentional misuse of funds intended to provide relief to health care professionals during the coronavirus pandemic.

Abbas previously owned 1 on 1 Home Health, which closed prior to the pandemic. Nonetheless, the shuttered company allegedly received approximately $38,000 through the Provider Relief Fund to pay for the medical treatment of COVID-19 patients. The government alleges that Abbas instead distributed the funds to her family members.

The investigation was carried out by the Office of Inspector General of the United States Department of Health and Human Services (HHS-OIG) and the FBI.

Predictions for Upcoming Prosecutions

Abbas allegedly embezzled less than $40,000, a relatively small amount. However, as we have previously written, the initial Paycheck Protection Program fraud prosecutions addressed loans ranging from as little as $30,000 to $24 million. That the Justice Department’s first Provider Relief Fund prosecution involves a relatively small loan suggests that the government will be aggressively prosecuting these matters. Accordingly, we can expect to see a steady influx of new criminal cases focused on government embezzlement in the months to come.

Further, as we discussed previously, the initial PPP fraud prosecutions also appeared to represent the most egregious cases. Similarly, the government appears to be concentrated on the most brazen examples of embezzlement. In this case, Abbas allegedly used 1 on 1 Home Health, a company that was no longer in existence, to receive government money through the Provider Relief Fund and provide it to her family members. We can expect that the first wave of prosecutions will include similarly egregious matters pertaining to phantom companies.

Just as the PPP loan fraud cases came swiftly, we should anticipate the same rapidity of prosecutions as it relates to the Provider Relief Fund. The government provides a national hotline and an online complaint form available to anyone with information about wrongdoing related to COVID-19.

That multiple federal agencies investigated the Abbas matter also suggests that not only will the government be spending considerable time and resources on prosecuting these matters, but that there will also be several different government agencies involved in investigating such cases.

Any business owner concerned about compliance with the CARES Act Provider Relief Fund should immediately consult counsel and not wait to be contacted by law enforcement. Those who have already received a subpoena or inquiry from any law enforcement agency should immediately consult with counsel who can assess the full potential for civil and criminal exposure before responding.

For additional information on the topic of this alert, contact Matthew D. Lee at mlee@foxrothschild.com or 215.299.2765; Marissa Koblitz Kingman at mkingman@foxrothschild.com or 973.548.3316; or any member of the firm’s national White-Collar Defense & Regulatory Compliance Practice.

PPP Fraud Prosecution Tracker

Fox Rothschild’s White-Collar Criminal Defense & Regulatory Compliance Practice Group is tracking in real time all federal criminal cases alleging PPP loan violations.

To access our PPP Fraud Prosecution Tracker, contact White-Collar Criminal Defense & Regulatory Compliance Practice Group Co-Chairs Matthew S. Adams at madams@foxrothschild.com or 973.994.7573, and Matthew D. Lee at mlee@foxrothschild.com or 215.299.2765.

In recognition of the continuing economic hardship caused by the COVID-19 pandemic, the Internal Revenue Service is easing its collection activities to avoid the seizure of bank accounts containing either Economic Impact Payments or Paycheck Protection Program loan proceeds.

In a guidance memorandum issued to all collection employees, the IRS has directed that before issuing a levy, employees should contact the taxpayer in question to determine if it received a PPP loan, and if so, where the funds were deposited.  Employees are further directed that they should not levy on a bank account that contains PPP funds received within the prior 24 weeks.  If PPP funds are inadvertently levied, the IRS must release the levy unless there are exigent circumstances, such as the expiration of a statute of limitations or an indication that the taxpayer intends to dissipate assets.

In a separate guidance memorandum, collection employees are directed to contact taxpayers in advance of a levy to determine if the taxpayer received an Economic Impact Payment, and if so, where the funds were deposited.  Collection personal are directed that they must not levy on a bank account known to contain such funds received with the prior 8 weeks.  If Economic Impact Payment funds are levied inadvertently, the IRS must release the levy unless exigent circumstances exist.