ARTICLE
15 February 2021

Cos. Should Keep A Close Watch On SIGPR Enforcement

CW
Cadwalader, Wickersham & Taft LLP

Contributor

Cadwalader, established in 1792, serves a diverse client base, including many of the world's leading financial institutions, funds and corporations. With offices in the United States and Europe, Cadwalader offers legal representation in antitrust, banking, corporate finance, corporate governance, executive compensation, financial restructuring, intellectual property, litigation, mergers and acquisitions, private equity, private wealth, real estate, regulation, securitization, structured finance, tax and white collar defense.
The Coronavirus Aid, Relief and Economic Security, or CARES, Act and the subsequent Consolidated Appropriations Act 2021 constitute the signature pieces of Congress' economic response to the...
United States Coronavirus (COVID-19)
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The Coronavirus Aid, Relief and Economic Security, or CARES, Act and the subsequent Consolidated Appropriations Act 2021 constitute the signature pieces of Congress' economic response to the COVID-19 pandemic.

Importantly, the CARES Act created the special inspector general for pandemic recovery to oversee CARES Act programs, implicating a range of corporate CARES Act participants.

As a new administration takes the reins in Washington, company general counsel should keep a close watch on SIGPR.

The office is new and its track record sparse, but its mandate is sweeping, covering the audit and investigation of any loans, loan guarantees and other investments made by the secretary of the U.S. Department of the Treasury under Division A of the CARES Act, as well as "the management by the [s]ecretary of any program established under" the CARES Act.1

This means SIGPR will be scrutinizing the compliance processes of a range of companies that have received loans and other funding as a result of the COVID-19 pandemic - and thus there is no better time than now for companies to ensure that they have established the internal controls necessary to document appropriate use of any CARES Act funds.

On June 2, 2020, Brian D. Miller was confirmed by the U.S. Senate as the special inspector general for pandemic recovery.2 Miller is a former federal prosecutor from the Eastern District of Virginia and was the inspector general of the U.S. General Services Administration.

We continue to expect that SIGPR will be aggressive in its fraud investigations and will refer multitudes of criminal investigations to the U.S. Department of Justice for criminal prosecution.

Companies should recognize the parallels between SIGPR and the special inspector general for the Troubled Asset Relief Program, or SIGTARP, established by the Emergency Economic Stabilization Act to investigate the recovery package in the wake of the 2008 financial crisis.

SIGPR appears to be structuring its investigation pattern after that of SIGTARP, meaning that companies are now vulnerable to scrutiny over their eligibility for the loans and other funding they receive as well as their compliance with the terms and conditions of such funds.

SIGPR's investigations will likely mirror those of SIGTARP, as SIGPR turns its attention to the emergency lending facilities administered by the Federal Reserve Board and capitalized by the Department of the Treasury.

Beyond those programs, SIGPR has also signaled its intent to look closely at the direct loans from Treasury to businesses in the airline and national-security industries, the payroll support payments to businesses in the airline industry, and the use of funds under the Coronavirus Relief Fund, which may implicate businesses awarded contracts to perform COVID-19-related work for state and local governments.

SIGPR's reports to Congress make clear that the office is taking an aggressive approach to building cases in partnership with criminal and civil law enforcement agencies.3

Companies and lenders involved in any - or multiple - of the several major programs within SIGPR's core jurisdiction are likely to face scrutiny over, among other things, their eligibility for the funds they have received, their compliance with use restrictions, limits on executive compensation, and their candor and consistency across the myriad certifications involved in applying for and disbursing CARES Act funds.

In its Dec. 31, 2020, quarterly report to Congress,4 SIGPR described how it had already accomplished the following:

  • Referred 69 investigative leads to law enforcement partners;
  • Initiated five new preliminary investigations;
  • Received and vetted 27 complaints, two of which were referred to law enforcement and one that was opened for investigation internally at SIGPR; and
  • Developed risk scores for a Main Street Lending Program dataset.5

The below sets out helpful information for companies about SIGPR's priorities and how companies can prepare for impending audits and investigations.

SIGPR's Relationships With U.S. Attorney's Offices and Other Government Bodies

SIGPR has already established relationships with U.S. attorney's offices around the country in order to enforce its objectives under the CARES Act. Many offices have signed memoranda of understanding, or MOUs, with SIGPR.

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Footnotes

1. CARES Act § 4018(c)(1).

2. See Cadwalader's May 6, 2020 Clients & Friends Memo, "COVID-19 Update: Meet the Special Inspector General for Pandemic Recovery."

3. See Aug. 3, 2020, Special Inspector General for Pandemic Recovery Initial Report to Congress, https://www.sigpr.gov/sites/sigpr/files/2020-09/SIGPR-Initial-Report-to-Congress-August-3- 2020_0.pdf; Sept., 30, 2020, SIGPR Quarterly Report to the United States Congress, https://www.sigpr.gov/sites/sigpr/files/2020-09/SIGPR-Quarterly-Report-to-CongressSeptember-30-2020_0.pdf; and Dec. 31, 2020, SIGPR Quarterly Report to the United States Congress, https://www.sigpr.gov/sites/sigpr/files/2021-02/SIGPR-Quarterly-Report-to-CongressDecember-31-2020.pdf.

4. Dec. 31, 2020 SIGPR Quarterly Report to the United States Congress, https://www.sigpr.gov/sites/sigpr/files/2021-02/SIGPR-Quarterly-Report-to-CongressDecember-31-2020.pdf.

5. Id. at 2.

Originally Published by Law360.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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