The COVID19 Pandemic has led to substantial changes in society as a whole. In the depths of the crisis, Congress passed the Covid Aid, Relief, and Economic Securities (CARES) Act, to combat the economic destruction caused by the pandemic. Two aspects of the Act are of special concern to the Department of Justice (DOJ). They are the Paycheck Protection Program (PPP) and the massive expenditure for Personal Protective Equipment (PPE) for healthcare workers. Over a billion dollars was spent in these programs in a very short period of time. Now, DOJ is investigating companies and individuals who benefited from these programs as to whether any crimes were committed in obtaining these funds.
Paycheck Protection Program
The Paycheck Protection Program was a government program designed to protect businesses shut down by the pandemic. Basically, businesses could obtain forgivable loans to pay for certain expenses, one of which was the payment of salaries. Businesses would apply for these loans through commercial financial institutions, and, provided they met certain criteria, these loans would be quickly approved. After the loans were received, the businesses would have to abide by strict requirements in how the loan proceeds were spent.
Federal investigations into PPP fraud begin in certain ways. A bank may find a discrepancy in a loan document and can contact the federal government. A disgruntled employee may report a supposed violation to the government. A government agent may discover a potential violation during his or her own investigation. The subject or target of an investigation will most likely learn of an investigation from a subpoena or a knock at the door by a federal agent. Regardless of how the company learns of an investigation, the matter is serious and could be life altering. It must be taken seriously.
The involvement of a highly qualified white collar defense attorney at the earliest possible stage of the investigation can significantly affect the investigation. In many cases, there may be a misunderstanding or innocent error. If not handled properly, however, these explainable mistakes can balloon into serious felony charges. The earlier the right defense attorney is involved in the case, the greater the possibility of a successful outcome.
What Conduct is The Government Likely to Investigate?
Some of the more common allegations investigated by the government include:
- False statements in a loan application
- Applying for multiple PPP loans from different financial institutions
- Use of PPP loan proceeds from an improper or unapproved purpose
- Filing a false certification for PPP loan forgiveness
The mishandling of the response to an investigation at the beginning increases the possibility of an indictment. Providing false information to an investigator, 18 U.S.C. 1001 is a felony. Often times, someone confronted by an FBI special agent will be nervous and confused. If that person provides information that turns out to be false or misleading, an indictment is possible even if there was no underlying crime.
The crimes that can flow from PPP Fraud include:
Wire Fraud 18 U.S.C. 1343 – Wire Fraud is probably the most commonly charged white-collar crime. It involves the use of the wires (including the internet) in connection with obtaining something of value through false or misleading statements.
Bank Fraud 18 U.S.C. 1344 – Bank Fraud involves a scheme to defraud a federally insured financial institution.
False Statements to a Financial Institution – 18 U.S.C. 1014. This is a commonly charged offense that most often occurs when a false statement is made in connection with a loan application.
There is also the possibility of an attempt or conspiracy charges under 18 U.S.C. 1349. Conspiracy involves an agreement between two or more people to commit a crime, in this case a fraud. A conspiracy can be charged with the substantive fraud, or it can stand alone as a separate crime. An attempt to commit bank fraud is a crime even if no crime has occurred. For example, if a loan application is submitted containing false information but the loan is rejected by the bank, the person submitting the loan is nevertheless guilty of attempted bank fraud.
If you are suspected of PPP Fraud or believe that a PPP Fraud may have occurred, it is important to retain an experienced white-collar defense attorney at the soonest opportunity. Call us. We can help.
Personal Protective Equipment Fraud.
There is another type of fraud that arises under the CARES Act: PPE Fraud. The global pandemic completely overwhelmed the ability of American industries, and international suppliers, to produce adequate personal protection equipment. PPE Fraud occurs when a supplier of PPE provides faulty, substandard, or in the case of Christopher Parris, no PPE at all. In the beginning of the pandemic, the government purchased millions of dollars of PPE, often with little or no oversight. This large infusion of capital brought new suppliers into the market, often times, new companies with no experience in government contracting.
DOJ is now actively investigating many of the tens of thousands of transactions involving PPE to determine if there has been fraud. Some of the charges that can come out of a PPE Fraud investigation are:
Wire Fraud 18 U.S.C. 1343 – As with nearly all modern transactions, the “wires”, including the internet, are used to conduct business. The use of the internet brings any fraud within the jurisdiction of the federal courts.
False Claims Act 31 U.S.C. 3729 – The False Claims Act is a Civil War era statute that allows private individuals to pursue claims against those who have defrauded the government. It also contains criminal provisions. Significantly, a “whistleblower” can notify the government of a fraud of which he or she is aware and collect a percentage of any financial recovery obtained by the government under certain circumstances.
As with other investigations, conspiracy and false statement charges commonly arise in PPE Fraud investigations.
The case of United States v. Christopher Parris also demonstrates that investment fraud cases can arise in the PPE context. According to the government, Parris’ fraud began long before the COVID-19 pandemic. Parris and a partner would offer investors a wide range of investment options in non-existent companies or companies that were barely functional—a typical Ponzi scheme. In this way, they obtained millions of dollars from unsuspecting victims.
When the COVID-19 pandemic hit the United States, Parris morphed his business model to create Encore Health Group, a company that purportedly brokered the sale of PPE, including N95 masks as well as other supplies. Encore, however, had no supply of masks to sell and no access to N95 masks. Nevertheless, it entered into a contract with the U.S. Department of Veterans’ Affairs to supply masks it did not have. Parris has pled guilty to both schemes.
Not every case is as clear as the Parris case. Entering into contracts with the government is complicated, particularly for companies that have never done it before. The Code of Federal Regulations contains thousands of sections and tens of thousands of subparts that apply to “government contractors” that impose obligations that may not be readily apparent to a company that has never contracted with the government before. As with most white-collar offenses, a criminal charge of fraud requires a “specific intent to defraud”. Therefore, an innocent mistake or a failure to understand the regulations may constitute a defense to a charge.
Is There Anything That Can Be Done if a Company Suspects It Might Have Supplied Faulty or Inferior PPE?
The short answer is YES. The first thing the company must do is retain an experienced white-collar defense counsel. Time is of the essence, and the sooner the attorney is retained, the greater the likelihood of a successful outcome.
Every case is different with different facts that must be individually analyzed in each case. Generally speaking, however, there is a process that should be followed. First, the PPE attorney should secure all the records and interview witnesses to determine the facts. Second, the attorney should analyze those facts to determine if a crime has occurred. Sometimes, an act that appears on its face to be criminal is actually perfectly legal. A person reporting a potential violation to his or her company may misunderstand the facts. An investigation is necessary to determine what actually happened.
The second phase of the attorney’s job will be to “fix” any problems he or she discovers in the investigation. The term “fix” does not apply an alteration to any evidence or testimony—that would constitute obstruction of justice. Rather, some errors occur because of a misunderstanding of the law or the actions of one corrupt individual. Correcting the problem may involve the implementation of a compliance program, training, or some other corrective action.
Finally, the company may decide to self-report the violation as a means of mitigating the consequences of its action. If a decision to report a crime to the DOJ is made, the attorney should be the person to make that report and will continue to advise the client through the process. Often times, when a company voluntarily self-reports, the government will not seek to punish the company.
Contact PPP & PPE Fraud Defense Lawyers
The earlier counsel is involved in the matter, the greater the odds of a successful outcome. If you suspect you may have an issue with PPE Fraud, contact us. The attorneys at Boyle and Jasari have the proven experience to help individuals facing charges from the Department of Justice.
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