April 20, 2021 – Alerts
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 email@example.com or Matthew Lee at firstname.lastname@example.org.
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.
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 email@example.com or 215.299.2765; or Marissa Koblitz Kingman, a member of the White-Collar Criminal Defense & Regulatory Compliance practice, at firstname.lastname@example.org or 973.548.3316.