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Types of COVID-19 Fraud

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Among its many consequences, the COVID-19 pandemic has spawned a variety of legal risks for U.S. companies. This includes the risk of facing civil or criminal charges stemming from a federal COVID-19 fraud investigation.

As if companies did not already have enough to worry about during the novel coronavirus (COVID-19) crisis, recent news reports have highlighted a number of recent efforts to target fraudulent business practices at the federal level. The U.S. Department of Justice (DOJ) and other agencies are targeting companies, their owners, and executives for various offenses, and healthcare providers that are on the front lines of the pandemic are at risk for being charged with federal fraud offenses as well.

At present, companies in essentially all industries are susceptible to facing federal fraud allegations of some form in relation to the COVID-19 crisis. Congress has enacted several wide-reaching statutes during the pandemic, and these statutes have done everything from establish the Paycheck Protection Program (PPP) to provide additional paid-leave rights to affected employees. As a result, companies struggling to stay afloat during the pandemic also find themselves facing a host of new compliance obligations, and compliance deficiencies in any respect have the potential to lead to allegations of fraud.

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Dr. Nick Oberheiden

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John W. Sellers

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U.S. Department of Justice

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Joanne Fine DeLena

Former Assistant U.S. Attorney

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Joe Brown
Joe Brown

Former U.S. Attorney & Former District Attorney

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Amanda Marshall
Amanda Marshall

Former U.S. Attorney

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Aaron L. Wiley
Aaron L. Wiley

Former Federal Prosecutor

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Roger Bach
Roger Bach

Former Special Agent (OIG)

Gamal Abdel-Hafiz
Gamal Abdel-Hafiz

Former Supervisory Special Agent (FBI)

Chris Quick
Chris Quick

Former Special Agent (FBI & IRS-CI)

Kevin M. Sheridan
Kevin M. Sheridan

Former Special Agent (FBI)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Dennis A. Wichern
Dennis A. Wichern

Former Special Agent-in-Charge (DEA)

Federal Authorities are Not Holding Back When It Comes to Allegations of COVID-19 Fraud

“Fraud” is a general term that can describe both civil and criminal offenses at the federal level. Typically, civil offenses do not involve an element of subjective intent (i.e. “intent to defraud”), though companies can still face civil allegations for unintentionally defrauding consumers, other businesses, and the federal government. Criminal fraud generally requires evidence of intent, though this intent can be inferred, imputed, or established “constructively” in many cases.

Due to what is widely acknowledged to be widespread fraud during the COVID-19 crisis, federal authorities are not holding back with it comes to prosecuting companies, their owners, and executives for civil and criminal fraud. We are seeing investigations targeting a broad range of allegations, and the DOJ has recently begun filing criminal complaints to initiate a high volume of cases. Once an investigation begins, it can move quickly, and targets that are not quick to defend themselves can suddenly find themselves at risk for substantial penalties.

10 Examples of COVID-19 Fraud

With these considerations in mind, what constitutes COVID-19 fraud? When can companies, their owners and executives, healthcare providers, and others be charged with a civil or criminal offense in relation to their operations during the pandemic? Here are 10 examples of federal charges we are seeing during the COVID-19 crisis:

1. Paycheck Protection Program (PPP) Fraud

Paycheck Protection Program (PPP) fraud has become a hot topic since the U.S. Treasury Department announced plans to conduct extensive auditing of PPP loan recipients in late April. In addition to these audits – which will target companies that received loans of $2 million or greater – the DOJ and various other agencies are investigating PPP loan recipients for fraud as well. This includes the Small Business Administration’s Office of Inspector General (SBA OIG), Federal Bureau of Investigation (FBI), and Internal Revenue Service Criminal Investigations (IRS-CI). To date, charges stemming from these investigations have included bank fraud, wire fraud, making false statements, aggravated identity theft, and conspiracy.

2. Laboratory COVID-19 Testing Fraud

Due to the undeniable importance of testing as many people for COVID-19 as soon as possible, federal authorities are closely scrutinizing labs that offer COVID-19 testing services. With the high volume of COVID-19 testing that is being done (in addition to labs’ ordinary diagnostic and testing services), there is a risk that mistakes will be made, and many of these mistakes have the potential to lead to federal fraud allegations. Allegations of laboratory COVID-19 testing fraud can range from collecting payment for tests and then not providing results to unlawfully importing COVID-19 testing kits that are not authorized for use in the United States.

3. Sale of Unauthorized or Unproven COVID-19 Home Testing Kits

As infection rates in many states have once again begun to rise, more people are seeking to get tested, and many are opting for testing at home. The U.S. Food and Drug Administration (FDA) has identified the sale of unauthorized and unproven COVID-19 home testing kits as a major concern, and companies that sell home testing kits must be prepared to both (i) demonstrate that their kits are authorized, and (ii) substantiate any marketing claims regarding testing kits’ accuracy or other benefits.

4. Personal Protective Equipment (PPE) Fraud

While much of the concern around the availability of personal protective equipment (PPE) has subsided, there are still shortages, and companies that engaged in PPE fraud at the beginning of the COVID-19 outbreak in the United States are still very much at risk for being targeted and prosecuted by the DOJ. Many companies have already faced charges for fraudulent acts including collecting payment for PPE that was not delivered, supplying lower-quality PPE than what was promised, making false or misleading statements in order to secure procurement contracts, and selling PPE that does not meet its advertised standards.

5. Hoarding and Price Gouging

Many individuals and companies have faced allegations of hoarding and price gouging during the COVID-19 pandemic. This includes allegations of stockpiling PPE, hand sanitizer, and other essential products. Combatting hoarding and price gouging was an early priority in the federal government’s fight against COVID-19 fraud, and the DOJ and other agencies are continuing to target individuals and companies that have sought to unlawfully profit from the crisis both in physical retail stores and online.

6. Securities Fraud Pertaining to COVID-19 Disclosures

For public companies, the COVID-19 crisis also presents concerns in the area of securities law compliance. Specifically, public companies must make timely determinations as to whether and to what extent any financial impacts of the pandemic need to be disclosed to investors. Withholding material information in violation of federal securities laws is a classic form of securities fraud; and, if anything, the COVID-19 pandemic has heightened scrutiny of companies’ disclosure compliance. As appropriate, companies must continue to make all required disclosures in their earnings guidance, forward-looking statements, management’s discussion and analysis (MD&A) disclosures, Form 10-K reports, and other public filings.

7. Employment Fraud

Public and private companies alike face risks in the employment arena. For example, the Families First Coronavirus Response Act (FFCRA) granted employees who have been affected by the COVID-19 outbreak the right to paid, job-protected leave under various circumstances. Employers that fail to grant the leave authorized by the FFCRA, that misrepresent their employees’ legal rights (knowingly or unknowingly), and that violate other federal protections afforded to their workers may be at risk for various employment-fraud-related allegations.

8. Business and Government Contract Fraud

Companies can also face allegations for defrauding other businesses and the federal government. For example, a cleaning company that falsely represents that its cleaning solutions are effective in sanitizing work surfaces could be at risk for fraud (and other) allegations in business litigation. Likewise, companies that contract with the federal government for the supply of PPE and other products and services can face prosecution for federal contract fraud if they mispresent their capabilities, the quality of their products or services, or various other pieces of information. In both types of cases, the risks can be substantial, and companies must promptly engage experienced federal defense counsel in order to mitigate any potential liability.

9. Healthcare Fraud

Healthcare fraud is a concern for providers, patients, and the federal government. During the COVID-19 pandemic, the DOJ, the U.S. Department of Health and Human Services’ Office of Inspector General (DHHS OIG), and other agencies are continuing to stringently enforce healthcare entities’ compliance obligations under the Medicare and Medicaid guidelines, the Anti-Kickback Statute, and all other pertinent sources of federal authority. Healthcare providers face risks of fraud allegations related specifically to their operations during the COVID-19 pandemic as well, and they must adopt and adhere to comprehensive compliance programs in order to avoid steep penalties.

10. Tax Fraud

Finally, the Internal Revenue Service is carefully monitoring for signs of tax fraud during the COVID-19 crisis. This includes specifically, but without exclusion, fraud in relation to deductions tied to the use of PPP funds, claims for employment-related tax credits under the FFCRA, and the underreporting of income from PPE and COVID-19 testing kit sales. Depending on the circumstances involved, tax fraud can be prosecuted as either a civil or criminal offense, and informal inquiries and audits can quickly transform into IRS-CI investigations.

Are you concerned that you or your company could be at risk for allegations of COVID-19 fraud? If so, schedule a free and confidential case assessment with a federal defense lawyer at Oberheiden P.C. today.

Are You Under Investigation or Facing Charges for COVID-19 Fraud?

Our firm is providing defense representation for companies and individuals across the country during the COVID-19 pandemic. Our attorneys and defense consultants have centuries of combined experience, including significant prior experience as DOJ prosecutors and high-ranking federal investigative agents. To find out what you need to do in order to defend against allegations of COVID-19 fraud, call 888-680-1745 or inquire online now.

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