Various federal agencies – particularly the FBI and the DOJ – have been vocal in announcing efforts to ferret out fraud and other criminal activity arising out of the COVID-19 pandemic. As described in prior blog posts on this site (here and here), the government focused on pandemic profiteering, such as price gouging and hoarding of PPE. Now, as the initial shock has dissipated somewhat, and after distributing hundreds of billions of stimulus funding, the government is shifting its enforcement focus.
Last week, in testimony provided to the Senate Judiciary Committee, FBI Assistant Director of the Criminal Investigative Division, Calvin A. Shivers, announced that the FBI had seen an uptick in individuals attempting to “fraudulently obtain funds made available through the CARES Act stimulus,” such as loans from the Paycheck Protection Program (“PPP”). [https://www.fbi.gov/news/testimony/covid-19-fraud-law-enforcements-response-to-those-exploiting-the-pandemic] While noting that other criminal activity related to profiteering, testing and treatment scams, and healthcare fraud continued to occur and remained a priority of the FBI, AD Shiver emphasized that the fraud landscape was “shifting” toward stimulus-related fraud. Specifically, he noted that the FBI has formed a “PPP Fraud Working Group in coordination with the Justice Department’s Fraud Section and the Small Business Administration Office of Inspector General” to investigate and combat PPP fraud. As of last week, the PPP Fraud Working Group had conducted almost 100 investigations, identified $42 million of potential fraud, and recovered nearly $1 million.
The government’s shift to stimulus fraud should not surprise anyone who lived through the economic recession of the prior decade. Any government stimulus – indeed, any government money – always comes with heighted scrutiny, whether civil or criminal. (See accompanying blog post on False Claims Act liability for stimulus recipients.) The emergency federal loan program of the last recession, the Troubled Asset Relief Program (“TARP”), also saw a corresponding uptick in federal and regulatory enforcement proceedings. We expect nothing different in connection with COVID-19 related stimulus.
Likewise, the FBI’s aggressive approach to investigating stimulus fraud should not be surprising and parallels the DOJ’s efforts. In March, DOJ announced its intent to closely monitor COVID-19-related fraud, and each U.S. Attorney’s Office was directed to designate a COVID-19 fraud coordinator. These efforts have resulted in PPP-related criminal charges against individuals for falsifying information to obtain stimulus funds. [https://www.justice.gov/opa/pr/two-charged-rhode-island-stimulus-fraud] While the conduct in that case, if proven, would be unquestionably fraudulent conduct, DOJ’s enforcement efforts, coupled with the FBI’s testimony before Congress, shows that we are only at the beginning of investigations and prosecutions related to stimulus fraud.
In that vein, any individual or company that recently has obtained government funds, whether in the form of a PPP loan or otherwise, should remain vigilant about avoiding unnecessary government scrutiny and possible criminal exposure. For example, the PPP loan and related forgiveness applications both expressly state that knowingly providing false or misleading information may warrant prosecution under federal fraud statutes, which includes penalties under 18 U.S.C. §§ 1001, 1014, and 3571, including fines up to $1,000,000 and imprisonment. This does not include other potential criminal charges, such as bank fraud, wire fraud, and identity theft.
While an individual who improperly but mistakenly obtains government funds is unlikely to be criminally charged – as prosecutors would have to establish that the individual had an intent to defraud to bring criminal charges – he or she may be nevertheless investigated by the government. Worse, even if there is no liability, an investigation could uncover other issues that would lead to further investigation and criminal charges for other, unrelated conduct. And any investigation will be done with the benefit–or handicap–of hindsight, depending on your perspective. Thus, it is imperative for any individual or company that is receiving stimulus money to clearly document all the steps they take with respect to that money, including keeping accurate books and records, retaining all necessary forms, receipts, invoices and paperwork, and otherwise memorializing their conduct in written memoranda.