COVID-19 Fraud
Why Are Whistleblowers Needed to Help Stop COVID-19 Fraud?
In the wake of the economic instability caused by the COVID-19 pandemic, Congress passed a number of measures implementing programs that provide financial assistance to individuals and businesses. The major funding bill passed in response to COVID-19 is the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, which is expected to provide approximately $2 in relief funding.i To receive a portion of this funding, individuals and small businesses have to submit certain information to the federal government. Submitting information that is false or fraudulent is a violation of the False Claims Act (“FCA”). Because the federal government can only investigate a fraction of the information submitted, the government relies on whistleblowers who are aware of false or fraudulent submissions to help uncover them. The federal government also relies on whistleblowers to alert it to ways in which individuals and businesses are taking advantage of the COVID-19 pandemic to engage in other types of fraud, including health care fraud and securities fraud.
What Types of Programs May Result in COVID-19 Fraud?
One of the major programs implemented under the CARES Act is the Paycheck Protection Program (“PPP”) administered by the Small Business Administration (“SBA”), which provides loans to qualifying small businesses.
To receive a loan under the PPP, a borrower must certify that:
- Uncertain economic conditions caused by COVID-19 make the loan request necessary
- The funds will be used to retain workers, maintain payroll or make mortgage, lease or utility payments; and
- The borrower is not receiving duplicate funds from another government programii
To have a loan forgiven under the PPP, the borrower must show that during the 8- to 24-week period after loan disbursement:
- Employee and compensation levels were maintained; and
- At least 60% of the loan proceeds are spent on payroll costs and the remainder are spent on other eligible expensesiii
As of February 1, 2020, the SBA had provided more than 6 million total PPP loans valued at more than $595 billion.iv
In addition to PPP loans, the SBA has also provided Economic Injury Disaster Loans (“EIDL”), which can be used for a broader range of purposes and include both advances and long-term, low-interest loans.v As of February 15, 2021, the SBA had approved more than 3.7 million COVID-19-related EIDLs totaling over $200 billion.vi
Additionally, the Federal Reserve created a Main Street Lending Program (“MSLP”) to provide loans to small- and medium-sized for-profit businesses and nonprofit organizations that do not qualify for PPP loans.vii Businesses and non-profit organizations who participated in the program had to, among other things, certify that they will follow certain compensation, stock repurchase, and capital distribution requirements in the CARES Act. The program terminated on
January 8, 2021.viii At the time of its termination, the MSLP had provided $17.5 billion in loans.ix
The Treasury Department’s Exchange Stabilization Fund (“ESF”) received $500 billion in CARES Act funds, which to be used to provide loans and loan guarantees of: (1) up to $25 billion for passenger air travel; (2) up to $4 billion to cargo air carriers; and (3) up to $17 billion to businesses critical to maintaining national security.x
Who Investigates COVID-19 Fraud, and What Types of Fraud Are Investigated?
The CARES Act established a Pandemic Response Accountability Committee (“PRAC”), which is a committee of the Council of the Inspectors General on Integrity and Efficiency, including the SIGPR, to conduct and support oversight of the disbursement of CARES Act funds to prevent fraud.xi One of the inspectors general on the PRAC is the Special Inspector General for Pandemic Recovery (“SIGPR”), appointed pursuant to the CARES Act to conduct, supervise, and coordinate audits and investigations of loans, loan guarantees, and other investments made pursuant to CARES Act programs.xii The SIGPR also works in conjunction with the Department of Justice, which prosecutes cases of COVID-19 fraud.
As of March 17, 2021, the Department of Justice has prosecuted more than 100 defendants in more than 70 criminal cases and seized more than $65 million in cash proceeds derived from fraudulently obtained PPP funds, as well as real and personal property bought with such funds.xiii The Department of Justice also investigates other types of fraudulent behavior related to COVID-19, including sales of personal protective equipment at inflated pricesxiv and the sale of fake testing kits, fake treatments or cures.xv The Department of Justice has also prosecuted individuals who have exploited opportunities provided by the COVID-19 pandemic to engage in more traditional types of FCA violations, such as scams to obtain Medicare or Medicaid information that is then used to submit false medical claims.xvi
The Securities and Exchange Commission (“SEC”) has also charged individuals and companies with COVID-19 fraud relating to false claims about COVID-19 testing equipmentxvii and personal protective equipment,xviii and engaging in illegal stock sales bolstered by false statements about the COVID-19 pandemic.xix
How Berg & Androphy Can Help You Report and Stop COVID-19 Fraud
Individuals who are aware of COVID-19 fraud that has occurred, is currently occurring, or is about to occur can submit a whistleblower complaint to the SIGPR, submit a Form TCR (short for Tip, Complaint, or Referral) to the SEC or file a qui tam action in state or federal court asserting FCA claims, which the Department of Justice may choose to join. If the government joins and the action is successful, whistleblowers can receive rewards of 15-30% of the funds recovered in the case.
Our firm has extensive experience in helping individuals to craft persuasive, compelling whistleblower complaints and in litigating qui tam actions in state and federal court that attract the attention and support of federal agencies and have resulted in significant rewards for our clients.
Contact Berg & Androphy today to schedule a free consultation and learn more!
i See Kelsey Snell, What’s Inside the Senate’s $2 Trillion Coronavirus Aid Package, NPR (Mar. 26, 2020; 5:34 PM), https://www.npr.org/2020/03/26/821457551/whats-inside-the-senate-s-2-trillion-coronavirus-aid-package.
ii Coronavirus Aid, Relief and Economic Security Act, Pub. L. No. 116-136 (“CARES Act”), § 1102(a)(1)(G), 134 Stat. 281, 291 (2020).
iii Top-line Overview of First Draw PPP, U.S. DEP’T OF TREASURY (Jan. 8, 2021), https://home.treasury.gov/system/files/136/Top-line-Overview-of-First-Draw-PPP.pdf.
iv Paycheck Protection Program, PANDEMIC OVERSIGHT.GOV (2021), https://www.pandemicoversight.gov/track-the-money/funding-charts-graphs/paycheck-protection-program.
v COVID-19 Economic Injury Disaster Loans, SMALL BUS. ADMIN. (2021), https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/covid-19-economic-injury-disaster-loans#section-header-6.
vi Congressional Research Serv., COVID-19 Relief Assistance to Small Businesses: Issues and Policy Opinions 5 (Mar. 15, 2021), https://fas.org/sgp/crs/misc/R46284.pdf.
vii Policy Tools: Main Street Lending Program (Mar. 11, 2021), BD. OF GOVERNORS OF FED. RESERVE SYS., https://www.federalreserve.gov/monetarypolicy/mainstreetlending.htm.
viii CARES Act, § 4003(c)(3)(D), 134 Stat. at 473.
ix Nick Timiraos, Fed Had a Loan Plan for Midsize Firms Hurt by Covid. It Found Few Takers., Wall St. J. (Jan. 4, 2021; 10:34 AM), https://www.wsj.com/articles/fed-had-a-loan-plan-for-midsize-firms-hurt-by-covid-it-found-few-takers-11609774458.
x CARES Act, § 4003(b), 134 Stat. at 470.
xi CARES Act, § 15101(b), 134 Stat. at 534.
xii CARES Act, § 4018, 134 Stat. at 482.
xiii Press Release, U.S. Dep’t of Just., Hialeah Tax Preparer Charged with COVID-19 Loan Fraud (Mar. 17, 2021), available at https://www.justice.gov/usao-sdfl/pr/hialeah-tax-preparer-charged-covid-19-loan-fraud.
xiv Press Release, U.S. Dep’t of Justice, Businessman Charged in Scheme to Hoard Personal Protective Equipment and Price Gouge Health Care Providers (Jan. 27, 2021), available at https://www.justice.gov/opa/pr/businessman-charged-scheme-hoard-personal-protective-equipment-and-price-gouge-health-care.
xv Press Release, U.S. Dep’t of Justice, Federal Grand Jury Indicts Orange County Man in Investment Fraud Scheme Centering on Bogus Claims of COVID-19 Cure (June 12, 2020), available at https://www.justice.gov/usao-cdca/pr/federal-grand-jury-indicts-orange-county-man-investment-fraud-scheme-centering-bogus.
xvi Press Release, U.S. Dep’t of Justice, Two Owners of New York Pharmacies Charged in a $30 Million COVID-19 Health Care Fraud and Money Laundering Case (Dec. 21, 2020), available at https://www.justice.gov/opa/pr/two-owners-new-york-pharmacies-charged-30-million-covid-19-health-care-fraud-and-money.
xvii Press Release, Sec. & Exch. Comm’n, SEC Charges Biotech Company and CEO With Fraud Concerning COVID-19 Blood Testing Device (Dec. 18, 2020), available at https://www.sec.gov/news/press-release/2020-327.
xviii Press Release, Sec. & Exch. Comm’n, SEC Charges Company and CEO for COVID-19 Scam (Apr. 28, 2020), available at https://www.sec.gov/news/press-release/2020-97.
xix Press Release, Sec. & Exch. Comm’n, SEC Charges Microcap Fraud Scheme Participants Attempting to Capitalize on the COVID-19 Pandemic (June 11, 2020), available at https://www.sec.gov/news/press-release/2020-131.