Department of Justice Prioritizing COVID-19 Fraud Lawsuits

Jacalyn Crecelius, J.D.

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— Updated on August 27, 2021

Department of Justice Prioritizing COVID-19 Fraud Lawsuits

The Department of Justice (DOJ) has made it clear that COVID-19 related fraud is still a priority issue. The DOJ is presently targeting a large range of COVID-19 fraud litigation. Included targets are the Paycheck Protection Program, Unemployment Assistance, Economic Injury Disaster Loans, and healthcare fraud. As of March 2021, the DOJ has criminally charged 474 defendants for schemes connected to the pandemic.

SBA’S Paycheck Protection Program

A mounting compilation of fraud charges have emerged related to the U.S. Small Business Administration’s (SBA) Paycheck Protection Program (PPP). The PPP is an SBA-backed loan that helps businesses keep their workforce employed during the COVID-19 crisis. As of May 2021, PPP loan volume was $521.2 billion.

A March report found the Treasury Department and SBA failed to institute safeguards necessary to prevent fraud, waste, and abuse. This caused nearly $84 billion in potentially fraudulent loans under the Trump Administration. The SBA Inspector General further found nearly $7 billion in loans issued to potentially ineligible businesses.

In April, the SBA was looking for an even faster way to get these loans out. As a result, they sought help processing from financial technology companies (FinTechs). That seems to have come back to haunt them. FinTechs handled 75% of the approved PPP loans the DOJ has connected to fraud. This is particularly worrisome, considering FinTechs only handled 15% of such loans overall.

In U.S. v. Dinesh Sah, the defendant applied for 15 different PPP loans totaling $24.8 million. In U.S. v. Richard Ayvazyan, et al., defendants sought $21 million using stolen and fictitious identities and sham companies.

COVID-19 Unemployment Assistance

The Coronavirus Aid, Relief, and Economic Security (CARES) Act became law in March 2020. States were permitted to extend unemployment compensation to independent contractors and other workers ordinarily ineligible for unemployment benefits. The DOJ found some interesting cases here as well.

One defendant applied for Massachusetts unemployment benefits, despite residing in Texas and receiving unemployment benefits via the Texas Workplace Commission. The defendant also allegedly accessed other unemployment claims using stolen identities to obtain benefits she was not entitled to obtain.

In California, a woman submitted fraudulent unemployment insurance claims using identities of current prison inmates. The defendant was on parole herself and received personal identifying information from an incarcerated inmate to carry out the scheme.

SBA’S Economic Injury Disaster Loans

The Economic Injury Disaster Loan program (EIDL) provides economic relief to small businesses and nonprofits experiencing temporary revenue loss. These loans are meant to meet financial obligations and operating expenses if not for COVID-19.

A July 2020 OIG report laid out serious concerns regarding EIDL fraud. Between March and June 2020 alone, the Office of Inspector General (OIG) received 1,038 hotline complaints. 692 of these tips were regarding potential EIDL fraud or scams. Additionally, nine financial institutions reported a combined total of $187.3 million in suspected fraudulent transactions.

In North Carolina, a defendant received a $149,900 loan based on a fraudulent application for a dissolved online retail business. The defendant also used false revenue and tax information, leading to a guilty plea for wire fraud. Non-business items purchased with EIDL funds are a triggering event for similar investigations.

Healthcare Fraud

Healthcare fraud has been around for a while, but COVID-19 has given it new life. Attempting to lighten the load of medical professionals, the loosening of long-standing regulations has only added to the fraud fire. The US Attorney General directed all US attorneys to prioritize “detecting, deterring and punishing [COVID-19 related] wrongdoing.”

In New York, a defendant pled guilty to participating in healthcare fraud conspiracy, distributing Oxycodone, and illegal financial transaction. The defendant illegally dispensed medication, with no medical oversight, by pretending to be a pharmacist. He also billed Medicare and Medicaid for these illegally distributed medications, receiving over $3 million in reimbursements.

Other forms of healthcare fraud have come in the form of false or misleading marketing.  Intense public fear and uncertainty over the novel coronavirus opened the door for wellness and supplement fraudsters. One such pair claimed their Wellness Warrior brand’s zinc and vitamin D nutritional supplements could treat, even prevent, COVID-19. In a consumer-directed email, they claimed a reduction in the chance of dying from COVID-19 by 52%.

COVID-19 Fraud: Potential Expert Witnesses

One might think only clinical and medical experts would be recruited to testify at a COVID-19 related trial. However, the aforementioned cases prove that expertise beyond health is necessary. The key word here is fraud, but the varieties of fraud make up a lengthy list.  To name just a few items from this list, we have wire, marketing, unemployment, tax, and consumer fraud. Therefore, related lawsuits will require experts in those areas and many more not discussed in this article. For instance, a forensic accountant might be the best expert to determine whether EIDL awards served business purposes.

We are entering a new era of COVID-19 related litigation. Marketing analysts, unemployment specialists, tax professionals, accountants, and so many more should be ready for their time to shine.

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