Comments made by Department of Justice (DOJ) attorneys during a recent webinar provided insight into the government’s civil enforcement priorities related to the coronavirus pandemic. In particular, government attorneys expect that civil enforcement related to COVID-19 relief funds will focus on certifications made by applicants seeking loan forgiveness and anticipate increased investigations into telemedicine services.
Last month, Mintz’s COVID-19 Compliance & Enforcement Defense Task Force discussed the enforcement risks related to acceptance of COVID-19 relief funds and our expectations of how civil and criminal enforcement actions may arise in this rapidly evolving landscape. This series culminated with a webinar that focused on how companies can avoid risk in deploying, tracking, and managing funds, identifying and managing employee concerns or complaints, and responding to a government inquiry.
Comments by DOJ attorneys during a recent webinar confirm our prediction that criminal enforcement of blatant fraud will continue. For example, this month federal prosecutors announced one of the biggest fraud cases yet involving COVID-19 relief funds, charging nine individuals from Florida and Ohio who allegedly used fake bank statements and other falsified documents as part of an extensive nationwide scheme to obtain over $24 million in loans.
However, DOJ may have more difficulty building successful civil fraud cases in light of the convoluted regulatory guidance provided in connection with the distribution of CARES Act funds. DOJ has a policy against using sub-regulatory guidance, such as the Small Business Administration’s FAQ guidance governing the Paycheck Protection Program (PPP), as a basis for establishing a False Claims Act (FCA) case. As we discussed in a prior post, this policy was added to the Justice Manual in late 2018 and explicitly prevents DOJ from using “mere noncompliance with guidance documents issued by federal agencies” to establish a FCA case.
Although the Department may use sub-regulatory guidance to prove scienter in certain cases, recent DOJ comments forecast that the Civil Division will play a more limited role in bringing fraud cases against PPP loan applicants related to the necessary certifications in loan applications, which has been the subject of evolving Small Business Administration and Department of the Treasury guidance. Rather, DOJ attorneys expect that enforcement actions related to relief funds will focus on certifications made by applicants seeking loan forgiveness. Companies should expect to see enforcement actions related to the Main Street Lending Program as well. DOJ continues to work with the whistleblower bar to investigate COVID-19-related fraud, and has even asked whistleblowers to email new qui tam cases directly to DOJ attorneys to ensure materials are received in a timely and efficient manner.
In anticipation of such enforcement, companies who received relief funds, such as PPP loans, should carefully document how they are using their funds in compliance with the program requirements for forgiveness. As always, companies should be cognizant of any complaints or concerns raised internally related to these topics and investigate such concerns appropriately. Companies should carefully consider whether documentation in either instance should be protected by the attorney-client privilege. Finally, if your company becomes the subject of an investigation, DOJ attorneys recommend that companies consider ways to cooperate with the government by, for example, providing more organized and user-friendly document productions and engaging in early factual discussions in order to facilitate a more efficient resolution of the matter.
In addition to COVID relief fund cases, DOJ attorneys expect telemedicine to be ripe for enforcement. Because the Department of Health and Human Services has greatly encouraged the use of telehealth and relaxed various telemedicine standards during the pandemic, DOJ believes this area is highly susceptible to fraud.
Beyond COVID-related enforcement, companies should expect the Civil Division to continue to investigate its current cases full-bore notwithstanding the challenges of interviewing adverse witnesses while social distancing requirements are in place. DOJ attorneys agree that current cases are staying under seal longer, but presume that this situation will subside as the legal profession adapts to conducting work virtually and courts begin to expect government attorneys to use remote technology to interview witnesses or collect documents in order to finalize their investigations.