DOJ SIGNALS INTENTION TO USE THE FALSE CLAIMS ACT TO PROSECUTE COVID-19 FRAUD SCHEMES
On June 26, 2020, Principal Deputy Assistant Attorney General Ethan P. Davis delivered remarks on the False Claims Act before the U.S. Chamber of Commerce in Washington, D.C. During his remarks, Davis clearly signaled that the Department of Justice (“DOJ”) will be moving aggressively under the FCA to prosecute unscrupulous fraudsters who would seek to profit off the current COVID-19 public health emergency.
Davis declared that “[DOJ] will energetically use every enforcement tool available to prevent wrongdoers from exploiting the COVID-19 crisis,” and that “[i]n that effort, the False Claims Act is one of the most effective weapons in our arsenal.” Specifically, Davis explained that “[DOJ] will deploy the False Claims Act against those who commit fraud related to the various COVID-19 stimulus programs, like the Paycheck Protection Program and the Main Street Credit Facility” that were created under the CARES Act.
The Paycheck Protection Program (“PPP”) offers loans to provide incentives for small businesses to retain employees on payroll, and those loans are forgiven if businesses those employees are retained for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. Thus far, the PPP has issued forgivable loans totaling more than $500 billion. Davis explained that those receiving such loans are required to certify compliance with the program’s conditions, and when seeking forgiveness of the loan, must certify that the funds were used for eligible costs. If the borrower offers false certifications, FCA liability may result. Given that the federal government is injecting enormous financial resources into the economy, Davis stressed that “vigorous FCA enforcement is more important than ever to ensure that taxpayer dollars are spent as intended,” and that “the Civil Division’s Fraud Section has implemented a number of initiatives to identify, monitor, and investigate potential violations of the FCA in this area,” including coordination within DOJ and with other agencies to “identify potential program vulnerabilities and safeguard PPP funds, as well as to identify any potential wrongdoing that warrants investigation.”
Likewise, Davis addressed the fraud risks involving other assistance programs like the Main Street Credit Facility (“MSCF”), which provides loans to small and medium-sized businesses that require financial assistance to maintain their operations during the current public health emergency, and the Provider Relief Fund (“PRF”), under which HHS has been providing billions of dollars to providers “on the front lines of the COVID-19 crisis.”
The MSCF requires funding recipients to comply with certain requirements, including eligibility requirements, and Davis stated that DOJ “will use the False Claims Act to hold accountable those who knowingly attempt to skirt those requirements.” Likewise, providers who receive funds under the PRF must agree to various terms and conditions, including that they have provided or are providing care to those with actual or possible cases of COVID-19, and must agree to restrictions on balance billing patients. Davis emphasized that “[w]here a provider knowingly violates these requirements, the False Claims Act may come into play.”
Davis also indicated that DOJ’s enforcement actions may include civil prosecution of private equity firms investing in companies receiving CARES Act funding. According to Davis, “[w]hen a private equity firm invests in a company in a highly-regulated space like health care or the life sciences, the firm should be aware of laws and regulations designed to prevent fraud” and that if that firm “takes an active role in illegal conduct by the acquired company, it can expose itself to False Claims Act liability.” Davis warned that “[w]here a private equity firm knowingly engages in fraud related to the CARES Act, [DOJ] will hold it accountable.”
At the same time, Davis assured his audience that, consistent with the FCA not being an “all-purpose anti-fraud statute” designed for “garden-variety breaches of contract or regulatory violations,” DOJ would not pursue businesses for making “immaterial or inadvertent technical mistakes in processing paperwork, or that simply and honestly misunderstood the rules, terms and conditions, or certification requirements.” Rather, Davis stressed that DOJ would “pursue cases only where the borrower knowingly failed to comply with material legal obligations and certifications” and that companies who have acted in good faith “will have nothing to fear from [DOJ],” which is “concerned only with actionable fraud.”
Given the hundreds of billions of taxpayer dollars that Congress has appropriated in response to the COVID-19 pandemic, and DOJ’s determination to use the FCA to recover any amounts taken through fraud, we can expect to see many such cases filed over the course of the next year and beyond. Whistleblowers who uncover and bring such FCA cases on behalf of the government are eligible to receive 15%-30% of any recovery. If you have information concerning any such fraud schemes, Kaiser Law Firm, PLLC will be happy to assist you in evaluating the merits of the case. Just call toll free at 844-800-6657 or complete an email contact form on our website: https://kaiserfirm.com/contact-us/