There has been a slew of legislation and government payments related to COVID-19. Consequently, there are sure to be many investigations regarding alleged fraudulent activity and we are already seeing some of them. These prosecutions will likely fall in the following four primary areas: (1) healthcare fraud and kickbacks; (2) government contractor fraud; (3) claims regarding treatment for the coronavirus; and (4) government payments such as under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Legislation and Prosecutors are Already in Place
There are already laws under which the government can bring these cases. These include healthcare fraud (18 U.S.C. §1347), the anti-kickback statute (42 U.S.C. §1320a-7b(b)), wire fraud (18 U.S.C. §1343), mail fraud (18 U.S.C. §1341), false statements (18 U.S.C. §1001), making false, fictitious or fraudulent claims against the government (18 U.S.C. §287), conspiring to do these things (18 U.S.C. §§371 and 286) and many others. There are also civil and administrative statutes, including the civil false claims act (31 U.S.C. §§3729-3733).
Many United States Attorneys’ Offices (USAO), including the Northern District of Texas, have prosecutors or task forces focused on these cases. The USAO task force in the Western District of Virginia even sent letters to the CEOs of all major hospital systems across Virginia alerting them of potentially fraudulent and illegal activity associated with the pandemic and asked for help in identifying potential fraud. https://www.justice.gov/usao-wdva/pr/virginia-coronavirus-fraud-task-force-asks-hospitals-help-identifying-potential-fraud. Notably, the government has already begun investigating and filing fraud cases associated with the pandemic.
Healthcare Fraud and Kickbacks
Healthcare fraud is already a government priority. See https://wirskyelawfirm.com/healthcare-fraud-investigations-on-the-rise/. Lately, the government has focused on kickbacks in addition to traditional healthcare fraud cases. See https://wirskyelawfirm.com/healthcare-fraud-investigations-on-the-rise/. Traditional healthcare fraud cases allege that a healthcare provider or those doing business with them have obtained funds, directly or indirectly, from the government or private payors based upon false or fraudulent representations. Prosecutions under the anti-kickback statute allege arrangements where bribes are paid in exchange for a referral of healthcare services paid for by the government. Individuals and entities who provide COVID-19 services will not be immune from these investigations.
Healthcare is the primary area in which whistleblowers file civil false claims act (FCA) actions. Under the FCA, private citizens can file suits on behalf of the government and the citizens receive a percentage of the government recovery. Generally, the FCA imposes liability on a defendant who knowingly presents, conspires or causes to be presented, a false or fraudulent claim for federal funds. See https://wirskyelawfirm.com/false-claims-act-basics/. It is important to note that FCA cases can be filed in essentially any area where there is a claim for government funds and this exposure applies to the other coronavirus related payments discussed in this article.
An example of a COVID-19 healthcare fraud criminal prosecution was filed on March 30, 2020, when the District of New Jersey arrested Eric Santos for conspiring to violate the anti-kickback statute and conspiring to commit health care fraud. According to the Department of Justice (DOJ) press release, Santos ran a marketing company that generated genetic cancer screening leads for which he was paid kickbacks. As the COVID-19 crisis began to escalate, Santos allegedly used the pandemic as an opportunity to expand his pre-existing kickback schemes by agreeing to be paid kickbacks per test for COVID-19 tests, provided that those tests were bundled with a much more expensive respiratory pathogen panel (RPP) test, which does not identify or treat COVID-19. https://www.justice.gov/usao-nj/pr/georgia-man-arrested-orchestrating-scheme-defraud-health-care-benefit-programs-related.
Government Contractor Fraud
Government contractor fraud cases are somewhat similar to healthcare fraud prosecutions. These cases are based upon a government contractor obtaining funds from the government based upon allegedly false or fraudulent representations.
An example of such a case was filed on April 10, 2020 when Christopher Parris was arrested for wire fraud in the District of Columbia for allegedly attempting to sell millions of nonexistent respirator masks to the Department of Veterans Affairs in exchange for large upfront payments. According to the DOJ press release, the criminal complaint alleges that he made fraudulent misrepresentations in an attempt to secure orders from the Department of Veterans Affairs for 125 million face masks and other personal protective equipment (PPE) for over $750 million. Parris promised that he could obtain millions of genuine 3M masks from domestic factories when he knew that fulfilling the orders would not be possible. https://www.justice.gov/opa/pr/georgia-man-arrested-attempting-defraud-department-veterans-affairs-multimillion-dollar-covid.
While Parris’ case appears to allege egregious conduct, many sophisticated entities have found themselves involved in government contractor fraud investigations based upon the complex statutory and regulatory structure. Consulting with counsel is critical as a government contractor and particularly when dealing with COVID-19 related products because of the heightened scrutiny and potential health implications.
Treatment for the Coronavirus
There has been much speculation about cures and treatment of the coronavirus. The government has stated that there are no approved drugs or therapies to prevent or treat COVID-19, and that is the position that they are taking regarding those who claim to have one.
The Federal Trade Commission (FTC) and Food and Drug Administration (FDA) are the primary governmental agencies investigating these claims. The FDA has already begun pursuing warning letters, seizures, or injunctions against firms and individuals selling unapproved products and making false or misleading claims. https://www.fda.gov/consumers/health-fraud-scams/fraudulent-coronavirus-disease-2019-covid-19-products. The FTC has also sent warning letters to entities to stop making claims that their products and therapies can treat or prevent coronavirus, primarily including sellers of (1) vitamins and supplements including colloidal silver, teas, essential oils; (2) intravenous therapy and treatments using vitamin C; (3) ozone therapy; and (4) stem cell therapy. https://www.ftc.gov/coronavirus/enforcement/warning-letters.
Generally, under the FTC Act, it is unlawful to advertise without adequate substantiation that a product can prevent, treat or cure human disease. Moreover, there are many requirements and regulations that must be followed under Title 21 of the Code of Federal Regulation regarding FDA requirements for drugs and treatments. Misleading the public by a listed company can also subject the entity to an enforcement action by the Securities and Exchange Commission (SEC).
While these agencies are beginning with warning letters, seizures, or injunctions because they can usually proceed more quickly, some of these investigations will result in criminal prosecutions also. These and other federal agencies are working with local USAOs on parallel COVID-19 criminal investigations. https://www.justice.gov/coronavirus.
For example, Keith Middlebrook was arrested pursuant to a criminal complaint in March in Los Angeles. The complaint charged Middlebrook with one count of attempted wire fraud based on his claim that he developed a “patent-pending cure” and a treatment that prevents coronavirus infection. https://www.justice.gov/usao-cdca/pr/southland-man-arrested-federal-charges-alleging-fraudulent-investment-scheme-featuring.
Government Payments
The Government Accountability Office (“GAO”) is ramping up its oversight to prepare for an increase in investigations into fraud, waste and abuse of funds distributed under the CARES Act.
There are two primary areas where a recipient of funds has exposure. The first is misrepresentations in order to obtain funds. The other is a failure to abide by the terms and conditions of the payment. These cases will be prosecuted in generally the same manner as those discussed above with allegations that a party made false representations to obtain government funds or subsequently used government funds improperly.
Proactive Measures
The best protection against investigations in this area is to ensure that representations made to obtain funds or provide services are honest and truthful on the front end. That means substantiating the accuracy of the same so that if there is an investigation, there is contemporaneous, documentary support.
It is also important to ensure that representations continue to be accurate. For example, if circumstances change which later make representations inaccurate, the government may not give the party under investigation the benefit of the doubt. If this occurs, it may be advisable to consult with counsel on how to address the issue proactively.
Overall, consulting counsel, an accountant regarding financial representations, the government or Small Business Administration may provide protection. Obtaining funds from or doing business with the government is a highly regulated area, as is providing medicinal treatments. Well intentioned individuals can find themselves in a civil or criminal federal investigation if they do not do their due diligence before venturing into these areas. This is particularly applicable here because of the heightened scrutiny regarding alleged coronavirus fraud.
As the coronavirus pandemic continues, the government will continue to examine potential fraud using many of the same techniques used in white collar criminal and civil fraud cases. There is simply too much money and potential harm to the public to not do so.