The United States and much of the World have been staggered by the global COVID-19 Pandemic. This disease caught medical professionals, public health officials and public policy makers off guard, infecting millions of Americans and killing hundreds of thousands. As the government frequently does when faced with an unanticipated catastrophe, it opened the flood gates of the U.S. Treasury, pouring $2.2 trillion dollars into combatting the problem. This vast amount of spending resulted, predictably, in allegations of hundreds of millions of dollars in fraud which, in turn, has resulted in increased enforcement actions by the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ). DOJ is ill-prepared to deal with this new onslaught of cases just as the medical profession was ill-prepared to handle the large number of patients the virus initially infected.
There are two preliminary points that should be understood. First, the Trump Administration and Attorney General Barr have de-emphasized white collar cases. As reported by Bloomberg, the number of white-collar prosecution has declines by nearly 30% in each of the first three years of the Trump Administration as DOJ shifts its enforcement priorities to the prosecution of illegal immigrants. With a decline in cases comes a reduction in the number of skilled white-collarprosecutors available to the government which further erodes the ability of DOJ to prosecute these complex and difficult cases.
The second preliminary point that needs to be made is that there is no such thing as “COVID-19 Fraud”that is specifically identified in any statute. Instead, the frauds that are arising during the time of COVID-19 cover the gambit from ordinary mail fraud and wire fraud schemes where individuals and companies market treatments and testing that simply do not work up to complex securities market manipulation cases. In some way the most basic frauds we are seeing harken back to the 19th Century in the early days of the Mail Fraud Statute when travelling salesmen sold snake oil as a remedy for any ailment available. Now, however, people like tele-evangelist Jim Bakker, are marketing a silver product for the treatment of COVID-19 even though there is no evidence it is effective and, in fact, may even be dangerous. At the same time, he received $650,000 in loans from the Payment Protection Program. Mr. Bakker is being sued by the State of Missouri and has received cease and desist letters for the FTC and the Federal Drug Administration (FDA) , but there are likely thousands of others out there engaged in the same conduct.
In addition to the routine mail fraud and wire fraud prosecutions, there are the more sophisticated Medicare Fraud and Healthcare Fraud cases where the Department of Health and Human Services (HHS) are billed for treatment that was not provided or properly documented or was not “medically necessary” under HHS regulations. Then there are the False Claims Act cases which arise when suppliers who contract with the government for the provision of Personal Protective Equipment (PPE) either failed to fulfill their orders or, more commonly, fulfilled the orders with inferior equipment that did not work or was manufactured the wrong country, etc.
Moving beyond the medically related frauds, there are a variety of financial frauds that flow from the CARES Act. There is the banking fraud that will come from the false statements used to obtain loans (grants really) under the Paycheck Protection Program. There are the securities and investment frauds that flow from the sale of stock or other ownership interests in newly formed corporation and limited liability companies. State and local governments too are victims of fraud as they purchase PPE, drugs and other equipment to combat the disease.
As companies attempt to develop effective vaccines around the world, the prices of publicly-traded companies fluctuate asnews of potential vaccines, research concerning their effectiveness, studies, etc. leaks to the public. This raises the specter of insider trading and market manipulations under the securities laws. Of course, one would expect domestic and international actors to engage in economic espionage and computer hacking in violation of the Economic Espionage Act and the Computer Fraud and Abuse Act.
This perfect alignment of events, an ill-prepared DOJ and a vast universe of fraud, sets the stage for an avalanche of unwarranted investigations and possibly ill-advised prosecutions of both individuals and companies. Inexperienced, unprepared and over-worked prosecutors may feel pressured to seek indictments whether they are deserved or not. Actions that are innocent can frequently be misconstrued as criminal, and, in the current political environment of fear, wrongful convictions can be expected to occur.
So how is an individual or a company to prepare for a potential investigation? The answer is not exactly the same for an individual and a company, but there is a common starting point. That starting point is to be prepared when DOJ or some other government agency comes calling. This means that whenever a potential criminal problem is identified within a company, that first thing to do is conduct a thorough investigation. This investigation should be conducted by outside counsel experienced in white collar criminal defense. The objective of the investigation is plain and simply to find out what happened and, if there is a problem, to fix it. The sooner a problem is discovered, the greater the opportunity for a successful resolution of the matter.
Too often, companies will attempt to stick their heads in the sand and hope that DOJ never comes calling. This is a strategy, and it could be successful. More often than not, however, an auditor, a whistleblower, a competitor or a government computer running certain algorithms will find evidence of the fraud and begin an investigation. It may still be possible to salvage some benefit from the government at this late point, but the further the government goes in its investigation, the more limited the benefit will be. It is also more difficult to do an independent investigation for a company when the government is in the midst of its own investigation.
Individuals face these same issues, but there is an additional risk for the senior employee, manager or officer. When the company receives knowledge of a potential criminal violation, from whatever source, the first thing is will do if it knows what it is going is retain experienced outside counsel to conduct the investigation. The outside counsel may report to an audit committee in a publicly traded company or to general counsel or the president or CEO in some instances. Too many employees and executives fail to understand, however, that this attorney or team or attorneys works for the company and not any individual employee.
Experience dictates that outside counsel will normally identify a “bad guy” who will be offered up to DOJ as sacrificial lamb at the end of the investigation. Therefore, In the event an individual finds that he or she has some close connection to a violation—even if someone else is actually guilty—that individual should retain his or her own independent attorney to protect his or her interest. Experienced white collar counsel are expensive, and the company may or may not pay for counsel. Nevertheless, the money spend to protect oneself in an internal corporate investigation is a very wise investment when compared to the cost, not only in legal fees but also in loss of employment, reputation and potentially freed if it becomes necessary to defend an indictment.
COVID-19 has already brought sickness, death and economic destruction to our shores, and we should expect it to get worse before it gets better. If society is not careful, COVID-19 will add to its parade of horrors the stress of wrongful prosecution and unjust imprisonments. It does not have to be this way, however. Just as medical professionals struggle to overcome the disease, companies and individuals can take effective prophylactic measures to protect themselves.
 “Trump Overseeing All-Time Low in White Collar Crime Enforcement”, https://www.bloomberg.com/news/articles/2020-08-10/trump-oversees-all-time-low-in-white-collar-crime-enforcement