On March 26, 2021, approximately one year after the enactment of the CARES Act, DOJ published a press release announcing its criminal and civil enforcement efforts against fraud arising from the COVID-19 pandemic. Among other things, the DOJ announced that it has charged over 470 defendants with criminal offenses involving over $569 million in government funds and that it is employing numerous civil tools, such as the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), in its efforts. Attorney General Garland is quoted as reaffirming DOJ's commitment "to protecting the American people and the integrity of the critical lifelines provided for them by Congress" and the release also states that DOJ expects its nationwide enforcement efforts "to yield numerous additional criminal and civil enforcement actions."
DOJ's efforts to date focus largely on three funds created by the CARES Act: (1) the Paycheck Protection Program (PPP) fund, for which it is targeting business owners who materially misrepresented their payroll expenses in their loan applications or used the funds for prohibited purposes; (2) Economic Injury Disaster Loans (EIDL), for which it is targeting ineligible newly created, shell, or non-existent businesses that had applied for loans; and (3) Unemployment Insurance (UI), for which it is targeting identity thieves, prison inmates, and international organized criminal groups. But PPP, EIDL, and UI are not the only funds that were created by the CARES Act that are being monitored by DOJ. For instance, last month, DOJ charged the first individual for misusing proceeds connected to the Provider Relief Fund, which is intended to help healthcare providers who were financially impacted by COVID-19.
With over 120 defendants criminally charged so far, the most prominent CARES Act enforcement efforts are the DOJ's PPP fraud actions. Most defendants charged with PPP fraud are alleged to have either lied about their payroll expenses (some defendants allegedly went so far as to revive dormant corporations or purchase shell companies with no operations) or to have misused those funds for personal expenses (including, buying a 40-foot catamaran, a Rolls Royce, or an 18-room Tuscan-style mansion)—or both. For example, in United States v. Dinesh Sah, an individual sought $24.8 million by applying for fifteen PPP loans from eight lenders on behalf of eleven companies. The individual obtained approximately $17.3 million and allegedly used the funds to purchase multiple homes, jewelry, and luxury vehicles.
DOJ has been pursuing pandemic-related fraud using its authority under the FCA and FIRREA. In the first settlement, from January 2021, DOJ resolved claims against an Internet retail company and its president and CEO arising from false statements to banks designed to influence those banks to approve, and the SBA to guarantee, a PPP loan. In discussing the matter, DOJ explained that the FCA permits private citizens with knowledge of fraud against the government to bring a lawsuit on behalf of the US and to share in the recovery. DOJ also stated that the number of whistleblower complaints was growing and that they continue to be an essential source of leads for the government.
In the near term, we expect CARES Act enforcement to continue at the same aggressive pace. In fact, the Criminal Division recently issued a job posting for a trial attorney specifically focused on CARES Act fraud. And more federal money is coming, which means more opportunities for fraud. The American Rescue Plan Act—the recent stimulus bill signed by President Biden on March 11, 2021—included additional funding for PPP, EIDL, and unemployment benefits. And on March 30, 2021, President Biden signed the PPP Extension Act, which extended the deadline for PPP loan applications from March 31 to May 31, 2021.
Arnold & Porter continues to track CARES Act enforcement developments, including through our CARES Act Enforcement Tracker. We routinely advise borrowers and lenders on issues arising under the PPP and other CARES Act programs. If you have any compliance- or enforcement-related concerns, the authors and Arnold & Porter's Task Force are available to answer questions and provide guidance.
*Lisa Cordara contributed to this blog post. Ms. Cordara is a graduate of Fordham University School of Law and is employed at Arnold & Porter's New York office. She is not admitted to the practice of law.
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