April 5, 2022 – The COVID-19 pandemic and the attendant economic crisis precipitated the largest increase in government spending in American history. Major stimulus legislation such as the CARES Act of 2020, the Consolidated Appropriations Act of 2021, and the American Rescue Plan Act of 2021 created and funded programs that added trillions of dollars to the U.S. economy at lightning speed.
While these efforts helped millions of Americans, the unprecedented flood of money also provided ample opportunity for unscrupulous actors. The Small Business Administration’s Office of Inspector General estimates that the agency handed out more than $80 billion in potentially fraudulent loans during the pandemic.
The Department of Justice (DOJ) is taking an aggressive approach to combat COVID-19 fraud. Last year, Attorney General (AG) Merrick B. Garland established the COVID-19 Fraud Enforcement Task Force to coordinate DOJ enforcement resources in partnership with other agencies. In a memo announcing the task force, Garland wrote, “The Department of Justice will use every available federal tool — including criminal, civil, and administrative actions — to combat and prevent COVID-19 related fraud.”
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The DOJ announced in May 2021 that it had publicly charged 474 defendants with criminal offenses connected to the COVID-19 pandemic, including attempts to obtain over $569 million from the U.S. government and individuals through fraud (Justice Department Takes Action Against COVID-19 Fraud; U.S. Department of Justice; 3/26/21). And Garland indicated that he plans to name a chief prosecutor to lead teams dedicated to combatting pandemic fraud.
However, complex and covert schemes are hard to uncover, and the government is ultimately reliant on private citizens using the False Claims Act (FCA) to blow the whistle on fraudulent behavior.
Former Principal Deputy Assistant Attorney General Ethan P. Davis called the FCA “one of the most effective weapons in our arsenal” to combat fraud perpetrated against the government (Principal Deputy Assistant Attorney General Ethan P. Davis delivers remarks on the False Claims Act at the U.S. Chamber of Commerce’s Institute for Legal Reform; U.S. Department of Justice; 6/26/20).
Under its qui tam provision, whistleblowers known as relators can bring a civil action to hold persons committing fraud accountable and assist in the recovery of assets. The government is then given the opportunity to intervene and take over responsibility for investigating and prosecuting the defendant. Government intervention is often the make-or-break moment for a qui tam action — most cases where the government opts not to intervene are unsuccessful. Moreover, the government retains authority to dismiss actions brought by qui tam relators, even over the objections of that relator.
A person is liable under the FCA (31 U.S. Code § 3729) if they knowingly present a false or fraudulent claim for payment, use false records to support a claim, conspire to do any of the things proscribed by the FCA, deliver less than all of the money or property owed to the government, falsely certify the receipt of property used by the government, purchase or receive public property from a government officer not authorized to sell it, or uses false records or statements to avoid paying or providing property to the government.
Under the FCA, parties found to have committed fraud are liable for treble damages. Relators whose cases are successful are entitled to a portion of the amount recovered, with shares typically ranging from 15–25% of the total recovery depending on how much the relator contributed to the action.
The FCA has led to the recovery of more than $59 billion (as of May 2020) since it was amended in 1986, and settlements and judgments exceeded $5.6 billion in Fiscal Year 2021 alone (“Fraud in the Pandemic: How COVID-19 Affects Qui Tam Whistleblowers and The False Claims Act”; Campbell Law Review, Vol. 43, Issue 3; Gavin A. Bell and W. Stacy Miller II; Spring 2021).
For a relator to successfully bring a qui tam action under the FCA, the alleged fraud must be material to — have a tendency to influence or be capable of influencing — the government’s decision to pay the party. The relator must also be the original source of the information relevant to the lawsuit. This requirement has been construed broadly by the courts, meaning that if information is publicly available on the internet, it may impact the success of a qui tam action.
Additionally, lawsuits brought under the FCA must meet the scienter requirement, i.e., that defendants knowingly acted to defraud the government. But under the definition outlined in the FCA, “knowing” does not require “proof of specific intent to defraud.” All this requirement means is that a person had actual knowledge of the information and acted in “deliberate ignorance” or “reckless disregard” of the truth or falsity of the information.
Even though the pandemic began more than two years ago, it is likely that the widely predicted increase in qui tam-related recoveries stemming from COVID-19 fraud will only begin to be seen this year. Fraudulent schemes take time to develop, be uncovered, and investigated either by the government or private counsel retained by the relator. Moreover, qui tam actions are filed in camera and under seal for 60 days, and the government may further request that a court extend the seal during any investigation into the matter. Nonetheless, we can look to existing enforcement actions to see what types of COVID-19 fraud whistleblowers will likely uncover.
A major source of COVID-19-related fraud comes from misappropriation of COVID-19 relief funds from programs such as the Paycheck Protection Program (PPP), Economic Injury Disaster Loan (EIDL) program, Provider Relief Fund (PRF), and Unemployment Insurance (UI). Criminal actors often use falsified applications or spend funds for non-authorized purposes to defraud grant or loan programs. For instance, individuals have been charged with submitting fraudulent PPP loan applications; allegations have included misrepresenting tax and payroll records and providing falsified certifications as to the gross revenue and number of employees of a business.
Lenders have also engaged in fraudulent behavior, as the PPP program provides lender fees. Company executives have been arrested for allegedly making false representations to obtain approval from the Small Business Administration (SBA) to serve as a non-bank lender through the PPP.
As a result of the minimal oversight and ease of receiving payment, health care fraud related to Medicare and Medicaid was already one of the federal government’s costliest problems prior to the pandemic. And these issues are likely to have only gotten worse due to the global pandemic and more generous reimbursement policies adopted in response to the health crisis. Paying kickbacks or bribes in exchange for referrals or prescriptions is one common method of health care fraud.
Medicare and Medicaid billing fraud is another common fraudulent practice in the context of COVID-19. Fraudulent actors can manipulate the reimbursement program by exaggerating how much time they spend treating patients, inaccurately reporting the complexity of the treatment they provide (upcoding), or prescribing treatments that are not medically necessary.
The Department of Justice has brought criminal and civil actions and secured convictions in several cases in health care and COVID-19 fraud.
Existing criminal and civil actions against fraudsters cover just a small fraction of the fraud that has probably occurred in response to government assistance and regulations brought about by the COVID-19 pandemic. In the coming months and years, we can expect to see many more cases of COVID-19 fraud exposed. The False Claims Act will continue to serve as an essential tool for private citizens to assist the government in recovering those funds.
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