As a first in the nation, criminal complaints were filed recently in Federal Court in Rhode Island for fraud related to the seeking of more than a half million dollars in loans pursuant to the Coronavirus, Aid, Relief, and Economic Security (“CARES”) Act and the Paycheck Protection Program (“PPP”). The charges against David A. Staevely and David Butziger included conspiracy to make false statements to influence the Small Business Administration (SBA) and conspiracy to commit bank fraud, and Butzinger was also charged with bank fraud and Stavely with aggravated identity theft. The alleged scheme involved misrepresentations of the number of employees working at four different business entities and that two of the entities were not open for business at the start of the COVID-19 pandemic or at the time the loan applications were made.
One can expect prosecutions of this sort to increase exponentially. COVID-19 related fraud, bribery and corruption, hoarding and price-gouging of key supplies and personal protection equipment (PPE), false claims about the efficacy of drugs, treatments and equipment, and even insider trading relating to COVID-19 nonpublic information, are just some of the areas that will receive heightened attention by the federal government. Existing federal criminal statutes such as mail, wire, health care and bank fraud, as well as and the money laundering statute and the civil False Claims Act, make up part of the federal arsenal that will be utilized. There are also enhanced penalties under federal law for engaging in wire and mail fraud during a presidentially declared major disaster or emergency that may be applicable to individual cases. The States will also utilize similar state laws as they also exercise their jurisdiction where appropriate for pandemic related matters.
There are several telling signs of what is to come. First, 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 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.
Second is the CARES Act itself, which contains provisions for extensive oversight, establishing three such bodies: the Pandemic Response Accountability Committee (PRAC) made up of Inspectors General from relevant federal agencies to oversee the outlay of funds for COVID-19 measures and to prevent and detect fraud, waste and abuse in the allocation and use of the funds; the Special Inspector General for Pandemic Recovery (SIGPR) to oversee the distribution of funds under the CARES Act and to conduct and coordinate audits and investigations of program loans; and the COVID-19 Congressional Oversight Commission, to oversee the Department of Treasury’s and the Federal Reserve’s implementation of the stimulus package. This extraordinary level of oversight will generate a considerable amount of audits, investigations and ultimately prosecutions.
The third harbinger is our nation’s past practice in investigating fraud, waste and abuse of relief funds in national disasters and emergencies. Examples are the passage of the Emergency and Disaster Assistance Fraud Penalty Enhancement Act of 2007 following Hurricane Katrina, and the establishment of the Office of Inspector General for the Troubled Asset Relief Program (TARP) following the financial crisis of 2008. These initiatives have generated legal actions that continue today.
The primary purposes of this federal prioritization is to ensure that critical relief funds are properly disbursed and used appropriately, and are available for intended, qualified recipients. In light of this scrutiny, care must be taken and diligence employed in making sure that representations in applications and related certifications regarding program eligibility are accurate. Compliance with conditions and terms of the loans must also be scrupulous. An area of critical importance, the utilization of relief funds is obviously not without legal risk.
How Frier Levitt Can Help
Frier Levitt’s team approach of attorneys well-versed in COVID-19 legal issues [https://www.frierlevitt.com/articles/covid-19-resources/] can expertly assist you in navigating the legal issues that come with applying for and utilizing CARES Act funds, 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 us to speak to an attorney.