Criminal complaints in two separate cases involving personal protective equipment (PPE) were recently filed in Federal Court in Brooklyn (Eastern District of New York). In the first matter, Donald Allen and Manuel Revolorio, two California businessmen, were charged with conspiracy to commit wire fraud, by seeking in excess of $4 million for KN95 masks and 3-Ply surgical masks that they allegedly did not own or otherwise have authorization to sell. The criminal complaint further alleged a scheme involving misrepresentations of business experience, inventory of PPE and the right to resell PPE, and an attempt to have more than $4 million wired to secure the PPE. In the second case, Kent Bulloch and William Young, Sr. were charged with conspiracy to violate the Defense Production Act (DPA), by hoarding and price-gouging of PPE, that is, allegations of excess stockpiling of KN95 and 3-Ply masks, and seeking to resell them in New York City at approximately 50% or more markup.
As in these two cases, prosecutions of fraud relating to COVID-19, and of hoarding and price gauging of PPE, will rely on existing federal statutes, as well as federal regulations issued in response to the pandemic. Although not widely used in criminal prosecutions, the DPA does contain criminal provisions for the willful performance of any act prohibited in the DPA or by “any rule, regulation or order thereunder.” In that regard, the DPA provides in part that “no person shall accumulate (1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess or prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.”
On March 18, 2020, President Trump issued an Executive Order invoking the presidential powers set forth in the DPA, and delegating to the Secretary of Health and Human Services (HHS) the authority to prioritize and allocate health and medical resources. HHS has since issued a “Notice of Designation of Scarce Materials or Threatened Materials Subject to COVID-19 Hoarding Prevention Measures,” which may be found on the HHS website at https://www.hhs.gov/sites/default/files/hhs-dfa-notice-of-scarce-materials-for-hoarding-prevention.pdf. This designation includes a list of PPE deemed to be “scarce or threatened materials.”
Notice of increased Governmental concern about COVID-19 related crime has been clear since the March 16, 2020 memorandum of United States Attorney General William Barr, directing all federal prosecutors (US Attorneys) to “prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.” [https://www.frierlevitt.com/articles/doj-shifting-focus-to-prosecute-covid-19-related-fraud/] In addition, Attorney General Barr established a Department of Justice nationwide task force, led by the United States Attorney for the District of New Jersey, Craig Carpenito, to coordinate law enforcement efforts to investigate and prosecute COVID-19 related crime.
One of the primary purposes underlying the federal prioritization of these types of cases is to prevent shortages of PPE and to protect our health care workers. It is an issue of utmost importance that will continue to receive the strictest of scrutiny. PPE acquisitions are a legal minefield, full of complexity and increased risk. Prosecutions arising out of PPE acquisitions and attempted transactions should be expected to increase in these trying times.
How Frier Levitt Can Help
Frier Levitt’s transactional and regulatory attorneys can render expert legal advice on contemplated transactions involving PPE, and its White Collar Criminal Defense and Government Investigations team stands ready to guide, assist and represent clients in Government requests for records and information, as well as investigations and prosecutions. For more information on any of the topics discussed in this article or other legal concerns, contact Frier Levitt today to speak with an attorney.
