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By Marissa Koblitz Kingman

The U.S. Department of Justice has recently begun charging defendants with bank fraud in relation to Paycheck Protection Program loans as part of its continuing efforts to investigate and prosecute individuals for crimes associated with COVID-19 related aid. If the government is able to prove that fraud occurred, individuals face the prospect of significant time behind bars, even if the PPP loans are for relatively small amounts.

The CARES Act

The CARES Act (Coronavirus Aid, Relief and Economic Security Act), enacted in March 2020 and later reauthorized to create a second draw lending program, was designed to provide emergency financial assistance to those suffering economic losses and uncertainty as a consequence of the COVID-19 pandemic. It included $2.8 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 also provided an opportunity for people to take advantage of the government assistance, and all signs point to one of the most expansive white-collar criminal investigations in U.S. history as the government’s vast investigative resources continue to aggressively prosecute fraud and abuse in these programs.

Bank Fraud Related to COVID-19

A person commits bank fraud if they knowingly execute, or attempt to execute, a scheme to defraud a financial institution; or obtain any of the moneys, funds, credits, assets, securities or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations or promises. If someone is found guilty of bank fraud, they can be fined up to $1 million or imprisoned for up to 30 years, or both.

Documents for PPP loans are generally submitted to financial institutions, i.e. banks. If a person submits documents that contain any false information as part of their PPP loan application, they could be charged with bank fraud.

Bridgitte Keim, of Tampa, Florida, recently pleaded guilty to bank fraud for submitting false and fraudulent loan applications and supporting documents for PPP loans. Keim faces up to 30 years in prison.

According to the plea agreement, between April and May 2021, Keim executed a scheme to defraud a federally insured financial institution (a bank) and the SBA. Keim also recruited family members to provide their personal information in exchange for free “COVID money.” Keim prepared and submitted false and fraudulent PPP loan applications to the bank on behalf of her relatives in the names of fictitious businesses. Keim created email addresses in the names of her relatives and communicated with bank employees by impersonating her relatives to convince loan officers that they were communicating with the actual prospective borrowers.

Based on these false statements, the bank approved and funded a $20,833 PPP loan in the name of one of Keim’s relatives. Keim subsequently diverted $7,500 in loan proceeds to her personal bank account.

Continued aggressive prosecutions over relatively small loans that could lead to harsh prison sentences demonstrate that individuals and businesses must proceed with caution when navigating potential fraud issues related to COVID-19 aid. Any communications with banks containing inaccurate information, even if just in e-mail correspondence with the bank, could lead to very serious criminal charges.

Any individual or 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 to assess the full potential for civil and for civil and criminal exposure before responding.


For more information on federal enforcement activities related to COVID-19 aid, contact Marissa Koblitz Kingman, a member of the firm’s White-Collar Criminal Defense & Regulatory Compliance Practice Group, at 973.548.3316 or mkingman@foxrothschild.com

By Matthew D. Lee and Marissa Koblitz Kingman

The U.S. Department of Justice continues to seek long prison sentences for those convicted of COVID-19 related fraud. Recently, courts have agreed with prosecutors, and have issued increasingly lengthy prison terms to those convicted of Paycheck Protection Program fraud. These prison terms send a clear message to any individual or business that benefited from government aid that they should not only expect enhanced scrutiny, but if the government is able to prove that fraud occurred, individuals face the prospect of serious time behind bars.

The CARES Act

The CARES Act (Coronavirus Aid, Relief and Economic Security Act), enacted in March 2020 and later reauthorized to create a second draw lending program, was designed to provide emergency financial assistance to those suffering economic losses and uncertainty as a consequence of the COVID-19 pandemic. It included $2.8 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 also provided an opportunity for people to take advantage of the government assistance, and all signs point to one of the most expansive white-collar criminal investigations in U.S. history as the government’s vast investigative resources continue to aggressively prosecute fraud and abuse in these programs.

COVID-19 Related Prosecutions and Sentences

As discussed in our prior alert, “Paycheck Protection Program-Related Convictions Result in Harsh Federal Prison Sentences,” the Justice Department began, immediately after the CARES Act’s passage, to investigate and prosecute pandemic-related fraud at lightning speed. Many cases have now been fully litigated and the defendants have been sentenced. Recently, the sentences have appeared to become harsher. Two examples of the recent lengthy federal sentences include:

A Texas man was sentenced to over nine years in prison for his scheme to fraudulently obtain and launder proceeds from more than $1.6 million in Paycheck Protection Program loans. He was convicted of wire fraud and money laundering. He pled guilty to submitting fraudulent PPP loan applications to two different lenders on behalf of three entities. The defendant falsely represented the number of employees and payroll expenses in each of the PPP loan applications and submitted fraudulent tax records for the entities.

Three members of a San Fernando Valley family were sentenced to up to seventeen (17) years in federal prison for scheming to fraudulently obtain more than $20 million in Paycheck Protection Program and Economic Injury Disaster Loan COVID-19 relief funds. All three were found guilty of one count of conspiracy to commit bank fraud and wire fraud, eleven counts of wire fraud, eight counts of bank fraud and one count of conspiracy to commit money laundering. Two family members were also convicted of aggravated identity theft.

These sentences handed down by federal judges demonstrate that individuals and businesses must proceed with caution when navigating potential fraud issues related to COVID-19 crimes. Any attempt to correct prior potential mistakes in seeking and receiving government aid should be conducted with counsel. Minor actions could mean the difference between having to simply pay funds back and spending years behind bars.

Any individual or 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 to 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 COVID-19 Fraud Prosecutions Tracker, an interactive tool that monitors new case filings and the disposition of cases involving alleged fraud and abuse in connection with PPP and other COVID-19 related aid programs nationwide. For access, contact Matthew D. Lee at mlee@foxrothschild.com or Marissa Koblitz Kingman at mkingman@foxrothschild.com.

The Presumption of Innocence is a new podcast on hot topics in the world of white-collar criminal and regulatory enforcement featuring Matthew S. Adams and Matthew D. Lee, Co-Chairs of Fox’s White-Collar Criminal Defense & Regulatory Compliance Practice Group.

Taking turns as host, Adams and Lee will be joined by guest speakers with distinct perspectives to take a deeper dive into issues that are front of mind for our clients.


Episode Two: Avoid Falling Prey: The Dirty Dozen and Other Trending Tax Scams

In episode two, Matthew Adams and Matthew Lee break down the Internal Revenue Service’s annual “Dirty Dozen” list of nefarious schemes encountered in 2021, discuss what is being enforced and explore other fraud trends on the horizon.

 

The Presumption of Innocence is a new podcast on hot topics in the world of white-collar criminal and regulatory enforcement featuring Matthew S. Adams and Matthew D. Lee, Co-Chairs of Fox’s White-Collar Criminal Defense & Regulatory Compliance Practice Group.

Taking turns as host, Adams and Lee will be joined by guest speakers with distinct perspectives to take a deeper dive into issues that are front of mind for our clients.

Episode One: The Anatomy of a PPP Fraud Investigation 

In episode one, Adams is joined by Jessica Hollobaugh, CPA/ABV, CFE, a partner in the forensic evaluation services group at Withum, to discuss the Paycheck Protection Program and the fraud enforcement efforts that surround it.

By Matthew Adams, Joseph DeMaria and Marissa Koblitz Kingman

Recent remarks to the American Bar Association’s National White Collar Criminal Defense Institute by Deputy Attorney General Lisa O. Monaco serve as a clear warning to businesses that the Biden Justice Department will demand prosecutions of individuals who have engaged in corporate criminal enforcement misconduct when resolving its investigations.

During the last years of the Obama administration, then Deputy Attorney General Sally Yates issued a memorandum emphasizing that if a corporation sought cooperation credit with the Justice Department in resolving a federal corporate criminal investigation, the corporation would be expected to identify individuals within the corporation who were personally responsible for the misconduct, and provide the Justice Department with evidence to support a prosecution of those individuals. The Yates Memorandum was highly criticized because of the conflict of interest it could create between the corporation and its officers and employees. The Department’s emphasis on ferreting out individual misconduct in this manner could cause the company to become an arm of the Justice Department in conducting federal criminal investigations. Several high-profile federal prosecutions were infected by corporate counsel moving too aggressively against the company’s own officers and employees in an effort to persuade the Justice Department to resolve the investigation of the corporation.

The Trump administration, through then Deputy Attorney General Rod Rosenstein, issued guidelines that withdrew the emphasis on pressuring corporations to turn individuals in to the Justice Department in an effort to resolve criminal investigations. In her October 28 remarks, Monaco returned to the emphasis of the Yates Memorandum on searching for individual prosecutions of corporate misconduct. Indeed, Monaco’s guidelines appear to provide even more emphasis on individual prosecutions than the Yates Memorandum.

Monaco informed the federal defense bar that the Justice Department would be providing more resources and support, including dedicated agents, to assist prosecutors in uncovering and prosecuting the most sophisticated corporate criminals. For example, a new squad of FBI agents will be dedicated exclusively to the Department’s Criminal Fraud Section. Monaco also emphasized that the Department will review and assess a company’s prior misconduct, even if unrelated to the current investigation, in deciding an appropriate resolution. The Department will work closely with other federal and state regulators to understand the scope of a company’s prior misconduct. Monaco expressed that a record of past corporate misconduct may reflect a company’s lack of commitment to compliance programs and the appropriate culture to discourage criminal activity. Further, Monaco emphasized that the Department would be looking to use corporate monitors more than the previous administration as a method to monitor corporate compliance with a resolution of a criminal investigation, especially in connection with Deferred Prosecution or Non-Prosecution Agreements that are commonly used to resolve such investigations.

What Corporations Can Expect Next

Monaco’s remarks left no question that corporations and their officers will be under close government scrutiny. Significant resources will be spent on combatting corporate crime. Monaco specifically stated that, “our mission must remain the same — enforce the criminal laws that govern corporations, executives, officers and others…We will hold those that break the law accountable…Accountability starts with the individuals responsible for criminal conduct…it is unambiguously this Department’s first priority in corporate criminal matters to prosecute the individuals who commit and profit from corporate malfeasance.”

To avoid ending up in the crosshairs of a criminal investigation, companies should work with counsel to ensure they are demonstrating a commitment to compliance programs and making efforts to root out criminal activity. Additionally, if a corporate officer or employee is to be questioned by corporate counsel in connection with allegations of misconduct, and/or in response to a criminal investigation, counsel must be careful to protect the rights of the individual, including consideration of advising the officer or employee of his or her right to retain individual counsel. The conflict of interest that can be created by the Justice Department’s expectation that corporate counsel will identify individual wrongdoers to the government, and provide evidence that the DOJ can use to prosecute those individuals, compels a careful approach to such internal investigations.


For more information on corporate compliance and government investigations, contact the authors: Matthew S. Adams at madams@foxrothschild.com or 973.994.7573; Joseph A. DeMaria at jdemaria@foxrothschild.com or 305.442.6547; or Marissa Koblitz Kingman at mkingman@foxrothschild.com or 973.548.3316; or another member of the firm’s White-Collar Criminal Defense & Regulatory Compliance Practice.

A Fox Rothschild podcast brought to you by the White-Collar Criminal Defense and Regulatory Compliance Practice

The Presumption of Innocence is a new podcast on hot topics in the world of white-collar criminal and regulatory enforcement featuring Matthew S. Adams and Matthew D. Lee, Co-Chairs of Fox’s White-Collar Criminal Defense & Regulatory Compliance Practice Group.Taking turns as host, Adams and Lee will be joined by guest speakers with distinct perspectives to take a deeper dive into issues that are front of mind for our clients.


Episode One: The Anatomy of a PPP Fraud Investigation 

In episode one, Adams is joined by Jessica Hollobaugh, CPA/ABV, CFE, a partner in the forensic evaluation services group at Withum, to discuss the Paycheck Protection Program and the fraud enforcement efforts that surround it.

By Matthew D. Lee and Marissa Koblitz Kingman

The U.S. Justice Department’s COVID-related health care fraud crackdown continues to intensify. On a single day in September 2021, the Justice Department announced criminal charges against 138 defendants in 31 federal districts throughout the United States, alleging about $1.4 billion in losses. Among those charged are 42 doctors, nurses and other licensed medical professionals.

For businesses that took advantage of the $2.2 trillion in federal pandemic aid programs, this latest enforcement action demonstrates that an audit or investigation may be inevitable. Therefore, it is essential to ensure that compliance protocols are in place to avoid criminal consequences.

The CARES Act

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, provided emergency financial assistance in the form of forgivable loans to businesses to cover payroll and other specified expenses through the Paycheck Protection Program (PPP). It also included the Provider Relief Fund, which provided needed medical care to Americans suffering from COVID-19.

From the outset, the government vowed to ensure that it would take measures to prevent recipients from fraudulently taking advantage of the CARES Act programs.

Focus on Fraud in Health Care Sector

The Justice Department has been focused on COVID-19 health care related fraud since the pandemic’s inception. As Assistant Director Calvin Shivers of the FBI’s Criminal Investigative Division recently stated, “health care fraud targets the vulnerable in our communities, our health care system, and our basic expectation of competent, available care. Despite a continued pandemic, the FBI and our law enforcement partners remain dedicated to safeguarding American taxpayers and businesses from the steep cost of health care fraud.”

A coalition of federal and state law enforcement agencies are working together to investigate and prosecute alleged COVID-19 related fraud. The agencies include the Department of Health and Human Services Office of Inspector General, the FBI, the Drug Enforcement Administration, the Health Care Fraud Unit of the Criminal Division’s Fraud Section, the Health Care Fraud and Appalachian Regional Prescription Opioid Strike Force and the U.S. Attorneys’ Offices throughout the country.

Recent COVID-Related Criminal Charges

Recent criminal charges associated with the COVID-19 pandemic include a variety of allegations related to false billings. The defendants are alleged to have misused patient information to submit claims to Medicare for unrelated, medically unnecessary, and expensive laboratory tests, including cancer genetic testing.

Individual defendants are also alleged to have misused Provider Relief Fund monies for their own personal expenses, including for gambling at a Las Vegas casino and payments to a luxury car dealership.

Other recent charges include individuals accused of telemedicine fraud. In 11 judicial districts, charges have been filed against 43 defendants who allegedly paid doctors and nurse practitioners to order unnecessary durable medical equipment, genetic and other diagnostic testing, and pain medications, either without any patient interaction or with only a brief telephonic conversation with patients they had never met or seen.

Durable medical equipment companies, genetic testing laboratories and pharmacies then purchased those orders in exchange for illegal kickbacks and bribes. Prosecutors allege they also submitted more than $1.1 billion in false and fraudulent claims to Medicare and other government insurers. The claims included sham telehealth consultations that did not occur. The proceeds of the scheme were allegedly spent on luxury items, including vehicles, yachts, and real estate.

Criminal charges also included allegations that the defendants made false and fraudulent claims for tests and treatments for patients seeking treatment for drug and/or alcohol addiction through a national sober homes initiative program. Other medical professionals have been charged with over-proscribing millions of doses of opioids and other prescription narcotics and submitting false billings.

What to Expect Next

The federal government will soon make available an additional $25.5 billion for health care providers affected by the pandemic, including $8.5 billion allocated to the American Rescue Plan for providers who serve rural Medicaid, Children’s Health Insurance Program or Medicare patients, and $17 billion to the Provider Relief Fund.

The federal government’s estimate of $1.4 billion in alleged fraud losses to date underscores why its enforcement efforts are rapidly intensifying. Health care professionals and business owners should proceed with caution when taking advantage of the latest round of aid funding.

The recent spate of charges shows that even health care fraud unrelated to the pandemic is a top priority for federal investigators. Any health care business owner who is concerned about compliance with the CARES Act or is concerned about potential fraud exposure should 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 prior to responding.

By Matthew D. Lee and Marissa Koblitz Kingman

The owner of a Florida jet company has agreed to pay a large penalty for using government aid – which was directed to his business – on his own personal expenses.  The scheme came to light because of a whistleblower lawsuit that was filed by a former employee of the company on behalf of the government. The employee received almost $60,000 as a result.  Such suits, brought under the False Claims Act (FCA), are a key part of how the federal government is rooting out fraud relating to the Coronavirus Aid, Relief, and Economic Security (CARES) Act and its Paycheck Protection Program (PPP).

The CARES Act

The 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 PPP loans to small businesses to cover payroll and other specified expenses and included the Provider Relief Fund, which was designed to provide needed medical care to Americans suffering from COVID-19.

Almost immediately after the act was passed, the DOJ began working to investigate and prosecute pandemic-related fraud. But in addition to criminal prosecutions, the government used civil tools like the FCA to address CARES Act-related fraud. The FCA permits the government and private citizens to seek monetary recovery for penalties related to false claims for federal funds.

The False Claims Act

The FCA, 31 U.S.C. §§ 3729 – 3733, is a federal statute originally enacted in 1863 in response to defense contractor fraud during the American Civil War. The FCA allows the government to recover damages and penalties for false claims made to the government in an attempt to gain some kind of federal payment. The FCA states that violators are liable for treble damages, plus a penalty that is linked to inflation.

In addition to allowing the government to pursue claims against people for fraud, the FCA also allows private citizens to file suits on behalf of the government (“qui tam” lawsuits).  Private citizens who successfully bring a qui tam lawsuit could receive a portion of the government’s recovery. This financial incentive motivates employees to bring whistleblowers actions. Companies should be aware that current and former employees who believe they have uncovered such fraud at their employer’s company will therefore likely want to bring a qui tam action. As discussed in our prior alert, because the FCA permits private citizens to seek monetary recovery for penalties related to false claims for federal funds, businesses should expect whistleblower actions pursuant to the FCA to continue to intensify.

The Government’s Fraud Task Force

On May 17, 2021, the government enhanced its efforts to investigate and prosecute fraud. U.S. Attorney General Merrick B. Garland announced the establishment of a task force to marshal the resources of the DOJ in partnership with other agencies to enhance enforcement efforts against COVID-19 related fraud.

In announcing the creation of the task force, the 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 Small Business Administration, the Special Inspector General for Pandemic Relief and the Pandemic Response Accountability Committee. The task force bolsters efforts to investigate and prosecute the most culpable criminals and other alleged bad actors.

Recent FCA Settlement

Following an investigation by the task force, Seth Bernstein, the owner of a jet charter company, agreed to pay $287,055 to settle allegations that he used PPP loan proceeds for his personal expenses. The government alleged that Bernstein applied for and received a PPP loan totaling $1,173,382.  Within a day of receiving the loan proceeds, Bernstein allegedly diverted $98,929 of the funds to pay for personal, non-company related expenses.

A former employee of the jet charter company subsequently brought a suit under the qui tam provision. From 2017 until early May 2020, the former employee served as a Senior Accountant and, after a promotion, Assistant Controller for Bernstein’s company.

On March 9, 2020, the company’s Chief Financial Officer and Co-Chairman, Daniel Hebert, informed the former employee and whistleblower that the company would be laying her off with three months’ severance pay. During her severance period, she was encouraged to still come into work, which she did until she accepted another position. The whistleblower’s last day at the company was on May 7, 2020.

What to Expect Next

The aggressive crackdown of fraud related to the COVID-19 pandemic has been unwavering. But in addition to criminal charges, the public should expect a steady increase in civil FCA settlements.

Federal authorities have continued to receive an outpouring of complaints from whistleblowers related to suspected fraudulent activity.

The government makes reporting alleged fraud easy for the public by having a national hotline dedicated to pandemic-related fraud as well as an accessible online complaint form.

Any 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.

Do 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.

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