In early March 2020, at the outset of the COVID-19 pandemic, former Attorney General William Barr instructed federal prosecutors to prioritize the “detection, investigation and prosecution of all criminal conduct related to the current pandemic.” His memos from the early days of the pandemic made it clear that COVID-19 related wrongdoing would be a top priority for the U.S. Department of Justice (“DOJ”) while the pandemic persisted. Over a year later, after one of the worst national health emergencies in this nation’s history and a change in presidential administrations, not much has changed—COVID-19 related wrongdoing remains a top priority for DOJ.
Unlawful Price Gouging and Hoarding was DOJ’s Initial Focus
Early on, ahistorical buying patterns, lockdown orders, and panic buying wreaked havoc on the nation’s supply chains, causing shortages in everything from computer chips to medical supplies to toilet paper. The increased demand and shorter supply caused prices to increase, and DOJ responded by focusing its efforts on addressing “COVID-19 related market manipulation, hoarding and price gouging.” Attorney General Barr launched the COVID-19 Hoarding and Price Gouging Task Force. As the name suggests, the task force’s responsibility was to work with various federal agencies and local law enforcement to identify individuals and businesses who sought to make profits higher than DOJ deemed appropriate on essential items.
President Trump’s invocation of the Defense Production Act (“DPA”) by executive order buoyed the task force’s efforts. Under the DPA, the government can bring criminal charges for unlawful price gouging and hoarding scarce and threatened scarce items, which the Eastern District of New York did for the first time ever on April 24, 2020. A Long Island store owner was accused of hoarding personal protective equipment, including masks, hand sanitizer and medical gowns. More prosecutions soon followed.
Passage of the CARES ACT Transformed COVID-19 Related Fraud
Fraud was also one of the early concerns of DOJ. In his March 24, 2020 memo, former Deputy Attorney General Dana Boente instructed federal prosecutors to be on the lookout for scams related to the sale of fake testing kits and cures, ineffective or deficient personal protective equipment, and websites that infected users with malware and ransomware. The government’s focus on petty scams would be short-lived, however. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was signed into law on March 27, 2020, quickly changed the form of fraud on which DOJ focused its attention.
The CARES Act created the Paycheck Protection Program (“PPP”). The PPP made billions available to businesses in need of help in the form of forgivable loans, and it did not take long before the program was exploited. DOJ began investigating PPP fraud almost immediately after the first applications were submitted.
DOJ brought its first criminal charges for PPP fraud in May 2020, and by September 10, 2020, DOJ had brought criminal charges against more than 57 people. Less than a year later, by March 26, 2021, DOJ had filed charges against over 120 defendants related to PPP fraud in at least 19 federal jurisdictions. According to a Justice Department press release, the alleged misconduct ranges “from individual business owners who have inflated their payroll expenses to obtain larger loans than they otherwise would have qualified for, to serial fraudsters who revived dormant corporations and purchased shell companies with no actual operations to apply for multiple loans falsely stating they had significant payroll, to organized criminal networks submitting identical loan applications and supporting documents under the names of different companies.”
The PPP Wasn’t the Only CARES Act Program Exploited
In addition to the PPP, the CARES Act also authorized the existing Economic Injury Disaster Loan (“EIDL”) program and appropriated more than $860 billion worth of federal funds for unemployment insurance. In June 2020, less than three months after the CARES Act was signed, the inspector general of the Small Business Administration had already received nearly 700 complaints about potential EIDL fraud. Later, in October 2020, the inspector general released a report indicating that the SBA had granted approximately $1.1 billion in COVID-19 EIDL loans to ineligible businesses. As of the date of the blogpost, over 140 defendants have been charged with federal offenses related to unemployment insurance fraud.
DOJ is Ramping Up Its COVID-19 Fraud Enforcement
Now that the worst of the national health crisis is behind us and price gouging and hoarding is less of a threat, DOJ is focusing its attention on COVID-19 related fraud schemes. By May 2021, DOJ had publicly charged over 600 defendants for some form of COVID-19 related fraud, but this is only the tip of the iceberg.
On May 17, 2020, current Attorney General Merrick Garland launched the COVID-19 Fraud Enforcement Task Force. The task force is led by the deputy attorney general and is made up of representatives from several divisions of DOJ, the Federal Bureau of Investigation, the Organized Crime Drug Enforcement Task Force, and various other federal agencies. The composition of the task force suggests that there will be better interagency communication channels and more resource sharing that could allow the government to investigate increasingly complex schemes across a broad array of conduct, prosecute more sophisticated offenders, and even audit the internal compliance systems of good faith actors, such as by reviewing the books and records of PPP loan recipients to ensure their eligibility for the program.
Since the launch of the task force, DOJ has already announced sweeping enforcement actions against 14 defendants across seven jurisdictions for their roles in various healthcare fraud schemes, including performing medically unnecessary services for Medicare beneficiaries seeking COVID-19 testing, and the first ever criminal charges against medical providers for submitting fraudulent Medicare claims for sham telehealth consultations.
Commentators have suggested that DOJ may even begin turning its attention to lending institutions by bringing civil actions under the False Claims Act and/or Financial Institutions Reform, Recovery and Enforcement Act for conduct such as approving applicants who were clearly not eligible for loans and failing to adhere to anti-money laundering requirements.
One thing is certain. With Attorney General Garland’s commitment to “use every available federal tool – including criminal, civil, and administrative actions – to combat and prevent COVID-19 related fraud,” we are all but guaranteed to see COVID-19 fraud enforcement actions for years to come.