Pandemic fraud | Foley Hoag LLP – White Collar Law and Investigations
This is the seventh in our First 100 Days series examining important trends in white-collar law and investigations during the early days of the Biden administration. Our previous entry was on FCA application. Next, health care fraud.
2020 saw the onset of a global pandemic. While the focus was unmistakably on the devastation caused, from early 2020, law enforcement divisions were proactively monitoring areas at risk resulting from the pandemic. By the end of 2020, it became clear that these areas of potential risk had materialized into potential violations, with law enforcement agencies initiating a number of actions for a range of COVID-19 issues. As we look to the year ahead, we expect increased application of the pandemic response in the following areas:
Public disclosures and misleading statements
Government law enforcement agencies have focused on possible false claims regarding the pandemic and financial security.
When it comes to COVID-19 statements, many companies have released public statements regarding treatment, testing, PPE, etc. of COVID-19. Some of these statements have drawn attention. For example, the SEC has seen numerous captions making misleading and false statements related to vaccine development and access to PPE. In 2020, the SEC suspended more than 30 shares from trading and has since filed seven fraud cases on that basis.
Another area of interest will be public disclosure of operations and finances in the aftermath of the pandemic. Businesses need to ensure that public filings and statements match the realities behind the scenes. If a company’s public filing indicates that operations are proceeding normally, but in reality it only has a few weeks of cash left, this may be grounds for investigation and / or enforcement.
The “old” crimes have also seen new iterations during the pandemic. In particular, the government support provided in response to the coronavirus has created a new opportunity for identity theft. While this crime itself is familiar, the sources of money and the interests involved differ.
We hope that the state and national agencies will focus on the following issues in this area in 2021:
- Fraudulent claims for unemployment assistance and benefits;
- Groups that have made fraudulent requests on behalf of others; and
- Those who helped individuals make claims and took some or all of the benefits.
This area is likely to become particularly busy during the upcoming tax season as more people find out that they have been victims of identity theft.
The healthcare fraud space has already seen a significant number of COVID-related crackdowns in 2020 with investigations and actions against nursing homes for negligence resulting from the pandemic. We anticipate that the application of COVIDs in this space will continue. In addition to the focus on negligence, an investigation into treatment, qualification, telehealth and billing plans is likely to arise. Specifically, healthcare fraud units can prey on individuals posing as skilled professionals, or those who sell and provide ineffective or unproven COVID-19 treatments or vaccines. Billing will also be a priority given that the services rendered in the field of telehealth are easier to handle and more difficult to follow.
False Claims Act
The False Claims Act (FCA) is one of the ways the DOJ will use to target COVID-19 fraud. Specifically, we predict that FCA cases will focus on the CARES Act, rather than PPP loans, given the monetary value at stake. (PPP loans are smaller, and although these loans are still a goal execution (see below), they are less likely to be the subject of an FCA claim.)
One of the main goals of the CARES Act was to quickly inject money into the economy. This narrow focus on disbursements meant less attention and development of fraud prevention mechanisms in the Law. However, although the qualification standards were low, they were not non-existent. For those who have taken advantage of the quick disbursements of funds (and received large sums of money) without caring about the proper guidelines, they may now be faced with the possibility of a civilian FCA investigation. These types of cases will take a long time to develop, so we may not see a lot of activity in this space until the end of 2021.
When these cases arise, the speed with which the law and guidelines were issued will become important to the defense, as defendants are likely to challenge the ambiguity of the standards. We also expect maturity issues, with defendants arguing that the loans are not yet due and therefore no losses have been incurred.
Payroll Protection Program
Payroll Protection Program (PPP) loans will also be the focus of application in 2021. The US Attorney’s Office has signaled this by hiring a new Assistant US Attorney to handle all PPP matters for the department.
$ 525 billion has been allocated in phase 1 of the PPP program. The SBA has six years to audit all loans made and will audit every loan over $ 2 million. For those who remain, the SBA will check a statistical sample based on various characteristics of the loan and whether the recipient has requested loan cancellation.
In the meantime, other actors could ask for the application of the law. The focus of these potential actions will be on the two certifications of attested loan recipients. The first was the Certification of Eligibility, certifying that the applicant was eligible for the funds, and the second was the Certification of Necessity, certifying that the applicant needed the funds. Fortunately for potential defendants, the certification of necessity apparently applied as needed at the time of application, not following when some companies receiving funds performed better than expected.
We will continue to monitor developments in this area as they arise.