DOJ Continues Historic Level of Criminal and Civil Enforcement Against COVID-19 Fraud
On
Enforcement actions have reached historic levels. To date, DOJ has prosecuted 474 criminal matters in 56 federal districts nationwide involving attempts to obtain over
The announcement summarized DOJ's efforts across three fronts:
- Paycheck Protection Program fraud. DOJ charged 120 defendants with PPP fraud. Some business owners inflated their payroll expenses to obtain larger PPP loans while others revived shuttered businesses and purchased sham companies to apply for multiple PPP loans. Organized criminal networks submitted identical loan applications under the names of different companies, and then spent those proceeds on luxury goods. DOJ underscored two egregious offenders. One defendant in the
- Economic Injury Disaster Loans fraud. This program was slower to get off the ground than the PPP.
Since the start of the pandemic, DOJ has prosecuted domestic and international fraudsters for peddling false cures, treatments, and personal protective equipment, including, for example, industrial bleach, ozone gas, vitamin supplements, and colloidal silver ointments. More broadly, through its International Computer Hacking and Intellectual Property (ICHIP) program, DOJ has mentored foreign counterparts around the globe to battle COVID-19 cyber-enabled and intellectual property fraud, including fraudulent and mislabeled COVID-19 treatments. ICHIP has provided webinars educating foreign prosecutors and law enforcement officials in
Notably, DOJ obtained its first civil settlement for PPP fraud involving an internet retail company whose president allegedly submitted false statements to federally insured banks. These charges included violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA). In addition to criminal prosecutions, we expect that DOJ will continue to leverage these powerful civil statutes-which allow for significant monetary penalties-to punish and deter false statements made in connection with CARES Act fraud.
Private Plaintiff Securities Fraud Suits Follow Closely Behind DOJ Enforcement Actions
The historic level of COVID-19 related enforcement activity warrants careful attention from individuals and entities in the health care sector. As DOJ's criminal and civil enforcement actions intensify, securities fraud lawsuits brought by private plaintiffs are likely to follow. The securities fraud suit recently filed by investors against
In our Health Care Enforcement 2020 Year in Review & 2021 Outlook, we highlighted the
On
In early 2020,
Defense Considerations in COVID-19 Securities Fraud Suits
We expect to see more COVID-19 securities fraud suits, and class actions, in the near term. We suspect that, given DOJ's enforcement activity, this area has the attention of the plaintiffs' bar. Actors in the health care sector are a potential target. However, the allegations in the
In any securities fraud case, plaintiffs must meet the heightened pleading standards established by Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act (PSLRA), which require particularity and specificity in allegations of fraud. Two aspects of the PSLRA are particularly noteworthy in the context of COVID-19 cases.
First, the PSLRA provides a safe harbor for forward looking statements. This protection applies if the statement was not material, not knowingly false when made, or accompanied by sufficient cautionary language. In our experience, many companies were quick to acknowledge and highlight the uncertainties and unknowns associated with COVID-19 and related market conditions. Accordingly, the PSLRA's forward-looking statements safe harbor may offer meaningful protection against COVID-19 securities fraud allegations.
Second, pleading and proving loss causation will present a high hurdle for plaintiffs in COVID-19 securities fraud suits. Generally, a company's announcement of bad news, followed by a stock drop, is insufficient to establish loss causation. For most of 2020, the COVID-19 news cycle moved at a rapid pace, including often inconsistent messaging from federal and state governments, and reports of outbreaks and vaccine developments. All of these factors pose challenges to plaintiffs seeking to survive a motion to dismiss.
Conclusion
A year ago, the federal government allocated over
The timing of DOJ's announcement is no coincidence. On
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