Trends Emerge in the Defense and Prosecution of COVID-19 Related Fraud.

June 25, 2020
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By Andrea L. Moseley

As expected, fraud relating to the present COVID-19 pandemic is being prosecuted for the first time.  These crimes of opportunity were predictable and the Department of Justice has come to the table, loaded for bear.  Now, our white collar defense community must focus on how to provide the highest level of representation for those being investigated and/or prosecuted as a result of this new wave.

Over two months ago, I began writing a series of blogs called “What do scam political action committees (“Scam PACs”) and the coronavirus (“COVID-19”) have in common?”  The series highlighted the fact that both political fundraising and COVID-19 are currently rife with opportunities for fraud.  The U.S. Department of Justice has recently highlighted its intent to step up its enforcement game against both Scam PACs and coronavirus-related fraud.

In my experience, the emergence of new waves in crime mean that DoJ will want to send a loud general deterrence message to the public.  This type of momentum can result in overreaching in the form of harsh charging decisions and inflated sentences.  I will continue to track these cases and provide insight on how to avoid and guard against these trending legal issues.

Up until this point, I have focused on the defense and prosecution of “Scam” PACs in parts one, two, three and four.  Thanks to the National Association of Criminal Defense Attorneys (NACDL), I had the honor of presenting on this topic at the 2020 10th Annual West Coast White Collar Conference online.

Aside: Sign up now for this newly released CLE opportunity. This virtual white collar defense training will address many of the topics that were scheduled for the live seminar, with some new and exciting additions. As with NACDL’s Live white collar seminars, NACDL’s focus is always on delivering pure substance, the hottest topics, and offering attendees the best faculty from the diverse practice of white collar defense.  The duration of the entire seminar is approximately 11 hours and you can watch it anytime!

DoJ is on the hunt for COVID-19 Fraud, where and when did it start?

I described the multiple types of COVID-19 related fraud in this post.  The first two people in the nation charged with allegedly defrauding the Coronavirus Aid, Relief and Economic Security Act (CARES Act) Small Business Administration (SBA) Paycheck Protection Program (PPP) were in the District of Rhode Island.  Two businessmen were accused of allegedly filing bank loan applications fraudulently seeking more than a half-million dollars in forgivable loans guaranteed by the SBA under the CARES Act.  According to DoJ, the  CARES Act became law on March 29, 2020 and the institution of this first prosecution was on May 5, 2020.

As far as COVID-19 related fraud goes, PPP fraud cases appear to have the biggest dollars associated with them and you can bet these prosecutions will continue with full force.  On June 24, 2020, the latest PPP fraud case was announced by the Eastern District of Virginia.  The amount at issue in the Eastern District of Virginia case, according to DoJ, is over 1.4 million dollars.

The first PPP Fraud Case.

In the first PPP fraud case, the two individuals were charged with conspiring to seek forgivable loans guaranteed by the SBA, claiming to have dozens of employees earning wages at four different business entities.  The government alleges that there were no employees working for any of the businesses.  The federal complaint filed against them alleges conspiracy to make a false statement to influence the SBA, conspiracy to commit bank fraud, bank fraud against one of the two and aggravated identity theft against one of the two.

In the District of Rhode Island DoJ Press Release, you can hear echos of how the government will argue that this type of fraud is worse that other types of fraud and should be punished even more harshly.  The release makes clear that DoJ will argue at future sentencing hearings that “[d]efrauding a government program designed to provide financial assistance to small business owners during the Coronavirus pandemic is tantamount to taking money directly out of the pockets of those who need it most.”  If these two individuals are successfully prosecuted and sentenced before any one else, all eyes will be on the court to see what type of sentences will be handed down for PPP fraud.

According to court documents, the fraudulent loan requests were to pay employees of businesses that were not operating prior to the start of the COVID-19 pandemic and had no salaried employees, or, as in one instance, to pay employees at a business the loan applicant did not own.  Allegedly, both of the accused discussed via email the creation of fraudulent loan applications and supporting documentations to seek loans guaranteed by the SBA for COVID-19 relief through the Paycheck Protection Program (PPP). It is alleged that one of the two pretended to be a family member in real estate transactions.  Part of the investigation, according the court documents, included an FBI undercover agent posing as a bank compliance officer on the telephone and records provided by the Rhode Island State Department of Revenue reflecting that no records of employee wages were paid on behalf of certain claimed employers.

These two are the first individuals that are charged with PPP fraud but many companies may also be worried about whether it’s PPP application could draw the attention of DoJ.   If you or you company are concerned about your application for relief, Kropf Moseley is here to consult with you about your concerns and help you evaluate your next steps.  Check out my blog in the coming weeks for more on the state of affairs in the defense and prosecution of COVID-19 related fraud.



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