WilmerHale partner Ronald Machen, former U.S. Attorney for the District of Columbia, examines what to expect under a Biden Justice Department, including ramped up antitrust and securities enforcement, and says corporate America should be ready for a robust and motivated DOJ.
The Biden administration has made no secret of its intention to overhaul how the Justice Department enforces the nation’s laws affecting civil rights and the environment. On the campaign trail, Joe Biden promised to create a new Environmental and Climate Justice Division within the DOJ and to revive its Civil Rights Division’s pattern-and-practice lawsuits to address systemic abuses by the police.
But for those watching closely, there are clear indications that the new administration will also turbocharge enforcement against corporate wrongdoing. With a focus on Big Tech and the GameStop trading debacle from across the political spectrum, there is strong bipartisan momentum to ramp up antitrust and securities enforcement.
Antitrust and fraud enforcement are also likely in the health-care arena, and the new administration promises to take action against government contractors and others who took improper advantage of federal pandemic relief. More generally, the DOJ will likely take a heavier hand by increasing corporate monitoring and refocusing attention on individual corporate executives.
Health-Care and Pandemic-Related Enforcement
The trillions of dollars of federal spending to combat the Covid-19 pandemic and its economic effects create much room for mischief. When President Obama assumed office amid the Great Recession, the DOJ aggressively enforced the False Claims Act (FCA) to target fraud, waste and abuse of the $1.8 trillion pumped into the economy during that crisis.
With government spending again breaking records, be prepared for history to repeat itself. The health-care and defense industries will be center stage given their proximity to pandemic stimulus funds, but enforcement coming in the wake of the nation’s recovery is sure to ripple across sectors. Given the Biden administration’s emphasis on rooting out abusers of pandemic relief, FCA investigations relating to the Paycheck Protection Program, Provider Relief Funds, and Operation Warp Speed are just getting started.
Covid-19 relief isn’t the only thing that will spark increased FCA activity. Biden’s anticipated support of the whistleblower community will also create a more inviting environment for qui tam suits than we saw under the Trump administration, which moved to dismiss FCA suits brought on behalf of the government in record numbers and saw an overall decline in FCA awards.
Within the health-care sector, pharmaceutical companies may face particularly tough scrutiny. The Biden administration promises to address exorbitant drug prices in the pharmaceutical industry through both enforcement and broader executive actions. The Trump administration secured several large settlements against generic drug companies relating to price fixing, and you can expect to see Biden continuing to ratchet up the pressure through new investigations of collusion and other anti-competitive practices.
Also on the table for pharmaceutical companies are the administration’s ambitious plans for holding drug makers and others liable for their connection to the opioid crisis. During the campaign, Biden vowed to appoint an Opioid Crisis Accountability Coordinator and boost investigations into companies and their executives.
After a small armada of loosely organized amateur investors skyrocketed the stock price of GameStop by more than 1,000% to squeeze the short positions of several hedge funds, some brokers shut down trading on the stocks to the fury of investors, commentators and politicians alike. Nearly everyone involved in this frenzy, from the investors to the institutions receiving and executing their trades, have already drawn the eye of regulators and law enforcement at the state and federal levels.
We expect to see the Securities and Exchange Commission and DOJ closely scrutinize sales practices of regulated entities that may have unfairly disadvantaged their customers to mitigate their own exposure. We also expect them to review whether financial institutions failed to detect and report market manipulation and investigate individuals who may have personally benefited from pumping the stocks.
Significantly, the episode—which is still unfolding—could reshape both securities enforcement and the market itself because of the spotlight placed on “payment for order flow” arrangements, zero-commission trading, and other issues fundamental to the way stocks are traded on a daily basis.
Even before the GameStop fiasco, the nomination of Gary Gensler as SEC chair and the expected reboot and growing assertiveness of the CFPB foreshadowed increased referrals to the DOJ for criminal prosecution of financial crimes. Notably, the Obama administration’s emphasis on predatory lending may receive a renewed focus under the Biden administration.
In short, whether or not the GameStop saga results in new regulation (both the House and Senate have already called for hearings on the matter), the volume of the debate will push financial enforcement higher on the DOJ’s enforcement agenda.
With the nominations of Judge Merrick Garland and Lisa Monaco to lead the DOJ, we anticipate a number of directives from the top realigning priorities closer to those in the Obama era.
For example, an early order of business for the incoming administration may be to restore priorities outlined in the Yates Memo, which focused on individual culpability in corporate wrongdoing. Most relevant for Foreign Corrupt Practices Act enforcement, the Biden administration is also likely to reconsider—formally or in individual investigations—the Trump administration’s guidance toward tempering the use of compliance monitors following corporate settlements.
As the Biden administration takes shape, some components may do no more than return to enforcement practices seen during the Obama administration. But the challenges facing the DOJ and the political climate are far different than they were four years ago.
Civil rights and climate change may have been the two most discussed issues during the campaign, but corporate America should prepare itself for a vigorous, adept, and motivated DOJ in 2021 and beyond.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.