Federal Government Ramps Up Their Anti-Fraud Efforts (Part 1 of 2)

By May 13, 2020September 3rd, 2020PPP Loan Fraud
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I have been a practicing white collar defense lawyer for more than 35 years and I have never seen the government respond as swiftly or vigorously to fraud as they are right now. Within weeks of the first COVID-19 cases in the United States, federal and state governments were already issuing fraud warnings and building a prosecution infrastructure to pursue cases.

It has been over 100 years since our country has seen a pandemic of this scale. Sadly, panic, desperation, and economic turmoil often lead people to make poor choices – and what we are experiencing right now is no exception.

Some fraud is certain to be intentional – the work of bad actors scheming to make a quick buck. But not everyone investigated for (or charged with) fraud acts out of malice. The government is currently casting a very broad net for fraud, and there will inevitably be individuals who find themselves under criminal investigation even though they did not have any intent to violate the law.

In part one of this two-part series, I will describe the government’s current prosecution priorities and why it is important to stay informed about COVID-19 fraud investigations. The second article in this series will cover actionable advice that you can take to protect yourself from fraud investigations (and what to do if you are investigated).

First, we will take a brief look at the last time the government ramped up fraud prosecutions, following the 2008 financial crisis – and how things have changed as a result. To understand just how serious the government is with respect to current investigations, it helps to compare what we are seeing today with investigations of the past.

The Federal Government is on the Lookout for Coronavirus-Related Fraud

On April 10, 2020, the U.S. Government Accountability Office (GAO) announced the use of the Fraudnet Hotline to combat COVID-19 Assistance Fraud. The Fraud Hotline was publicized no more than 14 days after the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law (and before most of the aid was even released). The Department of Justice has publicized the use of National Center for Disaster Fraud Hotline and webpage. The swiftness with which the federal government is ramping up for fraud investigations is a marked difference from the past.

The last major economic stimulus package — The Troubled Asset Relief Program (TARP), passed following the 2008 financial crisis — was sharply criticized. A key part of the controversy revolved around executives paying themselves over $180 million in bonuses after the government invested in a $185 billion bailout. The whole TARP program came to be viewed by many as a government failure and mismanagement of taxpayer dollars. Despite rampant criticism, and even public outcry, fraud investigations were minimal (and incredibly slow to take place). According to the Office of the Special Inspector General for TARP (SIGTARP), there have been 380 convictions for fraud since the TARP Act was passed.

Perhaps, because of TARP criticism or the sheer size of the multi-trillon dollar aid packages, the federal government appears poised to respond swiftly and vigorously to CARES Act fraud. While C-suite executives of major corporations were largely able to avoid fraud investigations and convictions associated with TARP, this time things are likely to be different. U.S. Attorneys’ Offices in every district have already appointed “Coronavirus Fraud Coordinators” to work with federal, state, and local law enforcement — a move that’s been supported by an $850 million Coronavirus Emergency Supplemental Funding program through the Dept. of Justice (DOJ). Even before passage of the CARES Act, the DOJ issued a memorandum directing every U.S. Attorney’s Office “to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.”

In a nutshell, the federal government is shifting resources toward its top priority: coronavirus-related fraud. And this time around, they are taking it seriously.

Big Red Flags: Types of Fraud Under Investigation

Unlike the last economic stimulus package, almost every American received some form of aid under the CARES Act, from individuals to businesses large and small. As you might imagine, the government is keen to recoup as much of its $2 trillion+ bailout as possible by pursuing anyone who does not act as the government believes the law provides.

The problem is the hastily drafted coronavirus-related laws leave much to be desired. They are not particularly clear, and ambiguities remain. The SBA has updated its own website multiple times about the Payroll Protection Plan (PPP). In part two of this article, I will offer some specific advice on how to protect yourself (and your business) from fraud investigations.

Many individuals, small business owners, and C-suite executives might easily overlook the risks associated with the coronavirus economic stimulus package. After all, most business people consider themselves to be successful, law-abiding individuals. Chances are, you have been paying taxes faithfully for years, and now, you are facing the financial struggle of a lifetime. Even the healthcare industry, an industry long viewed as recession-proof with a high level of job security, is feeling the squeeze.

I often have said that “desperate people do desperate things in desperate circumstances.” It can be easy to rationalize “fudging the numbers” when it comes to payroll expenses at a time to try to get more PPP funding when many businesses are staring down the barrel of bankruptcy. Even worse, small business owners may simply not have the appropriate documentation to prove that their figures are accurate — making them look suspicious during an investigation when in reality they acted in good faith.

Here are some of the forms of fraud the government is currently keeping a close eye on:

Of course, no one can be certain of all the various types of criminal investigations and indictments that will pop up in the coming months and years. All we know for sure is that federal government is ready to prosecute this new era of COVID-19 fraud that is certain to take center stage for years to come. Unfortunately, this will likely lead to thousands of criminal investigations, many of which will involve business people who did not intend to violate the law. All signs indicate that the government appears willing to vigorously prosecute anything that remotely resembles Coronavirus-related fraud.

Coronavirus Fraud Investigations and Prosecutions Have Already Started

You do not have to look any further than the news to see just how seriously the federal government is taking COVID-19 fraud. Less than six weeks after most of the coronavirus-related legislation was passed, U.S. Attorneys’ Offices are already prosecuting fraud.

A man from Beaumont, Texas was charged by the feds this week with allegedly seeking $10 million in PPP loans by claiming 250 employees the government says were fictitious. In Georgia, a reality TV star was also charged in federal court with obtaining a $2 million PPP loan that he allegedly used to purchase $85,000 in jewelry and pay $40,000 for child support.

However, a significant number of those investigated or accused of fraud do not believe they have done anything wrong. Beyond that, many laymen do not understand all the various laws at play. And right now, even professionals are confused as to what is expected by the CARES Act and PPP.

To learn more about how to protect yourself from fraud investigations, or what to do if you are already under investigation, check out part two of this series. I will provide actionable tips I have acquired from decades of white-collar defense experience. If you need personalized advice or assistance in the meantime, feel free to contact my office.