The turbulent and unsettled times of the COVID-19 pandemic have unfortunately created an opportunity for scammers and fraudsters to take advantage of innocent people. Since the pandemic began, an increasing number of scams have been reported by consumers. According to the Federal Trade Commission, it has received nearly 70,000 complaints from victims of different fraudulent schemes, resulting in a total loss of $50 million to consumers, with a median fraud loss of $447 per complaint. Pandemic-related scams can come in many forms and may likely result in a variety of different lawsuits and criminal prosecutions. In the midst of this crisis, experts in each respective field will undoubtedly play an important part in establishing any wrongdoing or fraudulent conduct. The following areas represent the range of COVID-19 related fraud you may encounter in future cases.
In the early days of the coronavirus pandemic, protective equipment was suddenly in short supply and high demand, leading to many reports of price gouging. Price gouging is the intentional hoarding of essential supplies, such as face masks and disinfecting products, and selling them at inflated prices to desperate civilians. The Department of Justice has indicated that it is committed to cracking down on hoarding and price gouging. As Attorney General Barr stated in a memo to the Department’s prosecutors, “We will aggressively pursue bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering. Scarce medical supplies need to be going to hospitals for immediate use in care, not to warehouses for later overcharging.”
The United States Attorney’s Office of the Eastern District of New York has made an example of one Long Island store owner by pressing criminal charges for violating the Defense Production Act. It is alleged that defendant, Amardeep Singh, hoarded personal protective equipment at a warehouse to be later sold at his clothing and sneaker store. The complaint alleges that Singh knowingly and intentionally accumulated goods “in excess of the reasonable demands of business, personal, and home consumption, and for the purpose of resale at prices in excess of prevailing market prices, materials which had been designated by the President of the United States as scare materials and materials the supply of which would be threatened by such accumulation in violation of the Defense Production Act of 1950.”
In the prosecution of Singh and others engaged in similar conduct, the crux of the issues will likely be what defines “excessive” for the purposes of product accumulation and what is considered in excess of prevailing market prices. The Department of Justice does have its own COVID-19 Hoarding and Price Gouging Task Force, the officials of which may act as pertinent witnesses in establishing these standards. Likewise, experts in the availability and market pricing of such goods, as well as supply chain management, will likely be needed to prove whether or not the defendant violated the law.
Just like the scramble for PPE and other essential items, COVID-19 testing kits and treatments are a scarcity that leaves individuals susceptible to scams. The Federal Bureau of Investigation has warned about various health care fraud schemers that are selling fake testing kits and unapproved treatments via telemarketing phone calls, social media sites, and even by door-to-door visits. The scammers use the promise of kits to lure unsuspecting consumers into providing personal information such as social security numbers, financial data, and health insurance information. Medicare beneficiaries are particularly targeted, in that the scammers seek to obtain their Medicare information which can be used to fraudulently bill the program. If the claims are denied, the beneficiary would then be responsible for the cost.
If and when any lawsuits or criminal complaints are filed against these scammers, health experts will be critical in establishing the illegitimacy of phony tests. Health experts can also opine on the recommended courses of treatment for COVID-19 and how these fraudulent offers have deviated. Investigative experts, perhaps representatives from the FBI, will also be crucial for uncovering the logistics of these schemes and specific unlawful tactics of the scammers.
Contact tracing, which is the method by which the government can track people who have been in contact with others who have tested positive for COVID-19, is another area ripe with scams. Since the tracing work is done via mobile apps, many scammers will send out text messages offering the service. The texts can include a link that, when clicked, can cause tremendous damage, whether it be by downloading malware onto the phone or by phishing with a fake landing page meant to trick the victim into providing personal data.
Manual tracing programs are also ramping up and are staffed largely by volunteers. These programs involve the volunteer tracers reaching out to hundreds of people who have tested positive for coronavirus. In recent FTC complaints, victims have reported received texts from fraudsters posing as a contact tracer. Their advice: a real tracer will never request your Social Security number or credit card information.
Contact tracing is still in its infancy, but that does not mean that there aren’t already trained experts in the field that can discern proper tracing from frauds. Epidemiologists at Johns Hopkins Bloomberg School of Public Health have created its own crash course in infectious disease tracing to help state and local public health departments establish proper protocols for their tracing programs.
Volunteer contact tracers will also be important authorities to consult on the official tracing methods being employed and how scammers have capitalized on this process.
As part of the $2 trillion CARES Act, millions of Americans were designated to receive Economic Impact Payments (EIP) in the form of stimulus checks. These checks have, of course, also been a target for fraudulent activity. The Internal Revenue Service previously issued a statement warning taxpayers about phishing scams from those attempting to gain access to personal information. The IRS also explained that the stimulus payments do not require any information from the government and no one from their agency will be reaching out to them by phone, email, or other means.
Some scams include asking the person to verify personal information over the phone or offer to assist them in obtaining their check faster. Some scammers even request that the person sign over their check to them. But as financial institutions and government agencies have noted, they would never call anyone to ask for such personal information, since they already have it. When in doubt, it is best to go to the actual government agency website to discern whether such contact came from a legitimate source.
A finance expert with experience in IRS operations will be particularly valuable to opine on how federal aid distribution works and the vulnerable areas of issuing millions of payments. An identity theft expert may also offer crucial insights on how personal information is illegally collected and how these sorts of checks can end up in the wrong hands.
Other scammers have taken advantage of the Paycheck Protection Loan component of the CARES Act, which offers forgivable loans to small businesses. Recently, two businessmen have been charged in the District of Rhode Island with bank fraud conspiracy in connection to their alleged fraudulent filing of bank loan applications seeking more than $500,000 in loans. Defendants David A. Staveley and David Butziger allegedly conspired via email to create fraudulent loan applications in connection to three restaurants owned by Staveley. But as the investigation determined, two of the three restaurants were not open prior to the start of the pandemic—as required by the program—and one restaurant was not actually owned by Staveley. They are the first individuals charged with fraud in connection to the Paycheck Protection Program, though the Small Business Administration (SBA) has also signaled they will be more stringently reviewing the companies which receive large loans through the PPP.
Finance and lending experts will be crucial to establish what constitutes fraud in this particular context. A financial expert familiar with the SBA will also be an important authority to opine on the logistics of providing federal business loans and will likely set precedent for similar prosecutions.
There is also a heightened risk of securities fraud during this pandemic. The Securities and Exchange Commission (SEC) has recently formed a Coronavirus Steering Committee “to proactively identify and monitor areas of potential misconduct related to the coronavirus pandemic.” Of course, insider trading by corporate and government insiders that are privy to nonpublic information is a serious threat, especially during a time of such market volatility. The Committee has identified insider trading and market manipulation as one of its priorities, as well as microcap fraud, financial statement disclosure fraud, and misconduct of investment companies. The SEC has also established enforcement protocols in the form of issuing complaints against fraud perpetrators, suspending securities trading, and even taking civil action.
Since early February, the SEC has received over 4,000 tips and complaints and have suspended over 30 securities issuers from trading due to investigations of accuracy surrounding COVID-19 related items. In March, the SEC suspended trading for Praxsyn Corporation after investigating its claim to have access to large quantities of N95 masks. After finding misconduct, the SEC pressed charges against the company and its CEO in late April in Florida federal court.
Securities fraud cases will require financial experts with robust SEC experience. As these types of securities fraud are stemming from a novel global pandemic, it will be critical to establish how these particular instances of misconduct have violated SEC financial disclosure protocols and procedural trading guidelines.
One important takeaway from COVID-19 scams is that, like the virus itself, everyone is susceptible. Experts across the board, in fields such as consumer protection, data collection, telecommunications, cybersecurity and others, are all in agreement that some of these scammers are particularly complex and may trap even the savviest consumer. Bill Versen, chief product officer for Transaction Network Services, a global provider of data communications that tracks robocalls, describes some of these scammers as “ingeniously evil” in that “[t]hey take topical current events and then weave that into their story to gain your confidence in order to defraud you.”
Constant vigilance is key. Dov Lerner, cybersecurity research expert at intelligence company, Sixgill, suggests that you should assume these communications are scams until proven otherwise. That means never give any personal information over the phone, do not click on any unknown website links, and do not answer the door for anyone claiming to be a government official unless they can provide identification.
Governmental agencies have also ramped up their efforts to protect against scams. The Federal Trade Commission has created resources for consumers to obtain up-to-date alerts on scams via email. But most importantly, if you believe you were the victim of a scam, contact local law enforcement immediately. The quicker that law enforcement and other governmental agencies are alerted, the more likely that these different scams can be identified and stopped.
Consult with a top fraud expert to strengthen your case and better advocate for your client.