More than a year has passed since U.S. Attorney General Merrick B. Garland established the COVID-19 Fraud Enforcement Task Force to utilize the resources of the U.S. Department of Justice (DOJ) and partner with various governmental agencies to combat COVID-19-related fraud. Since that time, the DOJ has touted its enforcement efforts in both the civil and criminal arenas, having criminally charged 1500 people (with 450 people convicted thus far) and opening civil investigations into more than 1800 individuals and entities. Additionally, the DOJ has seized $1.2 billion in relief funds.
In many cases, these DOJ investigations and prosecutions are not limited to the misuse of Paycheck Protection Program (PPP) loans and PPP loan fraud schemes but are also aimed at deterring and holding individuals accountable for healthcare-related COVID-19 fraud more generally. By all indications, recent enforcement actions indicate no slowdown in sight.
For example, on August 29, 2022, in the Middle District of Florida, a convicted felon pled guilty to a host of charges, including wire fraud and bank fraud, for his involvement in a $2.6 million COVID-related fraud scheme. The convicted felon had submitted false and fraudulent applications for various loans, including one for a PPP loan. The loan applications he submitted not only included numerous false representations related to his criminal history and number of employees, but also allegedly presented a fake commercial lease to obtain the loan. Moreover, he used the personally identifiable information, such as name, date of birth, driver license information and Social Security numbers, of people purported to work for him to submit fraudulent payroll and tax documents. The convicted felon’s fraudulent scheme led the private lender and Small Business Administration (SBA) to approve the loan and resulted in the deposit of approximately $2,617,447, which was then used to purchase residences, a boat, an engagement ring, stocks, and ammunition, all of which has now been forfeited to the federal government.
With regard to recent civil enforcement actions, the DOJ has been consistently alleging PPP fraud under the False Claims Act (FCA). In both civil and criminal enforcement actions, the main target has usually been borrowers engaged in PPP loan fraud. However, in a recent case out of Texas, the DOJ targeted the lender. In that case, a regional bank approved and processed a PPP loan despite the bank’s employees’ knowledge of a PPP loan applicant’s ineligibility to apply for the same. The bank agreed to pay $18,673.50 to “resolve allegations it improperly processed a PPP loan on behalf of an ineligible customer,” thereby making this the first FCA settlement with a PPP lender. This case demonstrates that witting or unwitting borrowers of PPP loans are not the only focus of the federal government – lenders and the extent of their knowledge as to the truth or falsity of these PPP applications are potential targets as well.
Most recently, on September 14, 2022, the DOJ announced the formation of three Strike Force teams to further bolster the DOJ’s ongoing efforts to address COVID-19 related fraud. As a show of force and coordinated effort, the Strike Force is comprised of several agencies, including the FBI, the Department of Labor Office of Inspector General, the Small Business Administration Office of Inspector General, the Department of Homeland Security Office of Inspector General, and Internal Revenue Service Criminal Investigations, thereby bringing combined fraud, cybercrime, and money laundering expertise to bear in enforcement efforts. The Strike Force teams will primarily operate in large cities including Los Angeles, Sacramento, Miami, and Baltimore. Attorney General Garland explained that the Strike Force Teams will “build on the Department’s historic enforcement efforts to deter, detect, and disrupt pandemic fraud wherever it occurs.”
As we have cautioned previously, it may become challenging for the government to discern between borrowers that intended and affirmatively acted to commit fraud and those that were well-intentioned but nonetheless failed to comply with this fast-tracked federal relief program. As a result, many unwitting borrowers or participants – and now even knowledgeable lenders – may find themselves caught in the DOJ’s fishnet of fraud charges with potentially severe consequences. It remains critical for business owners who loaned or received PPP funds to immediately review their compliance, mitigate any non-compliance, and address corrective measures and exposure to enforcement with the appropriate government agency.
Moreover, healthcare providers, owners and executives of medical businesses, physicians, and healthcare marketers and manufacturers should carefully track their billing practices, review their internal policies and procedures, train and audit staff, and institute safeguards, if necessary, to ensure COVID-19 relief funds are not being intentionally or negligently misused.