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COVID Fraud a Year on from the Onset of the Pandemic

Posted  February 19, 2021

The COVID-19 pandemic has raged across the world over the last year, causing widespread harm both to humanity and the economy. Even in these trying times, fraudsters have not let up and have found ways to exploit the pandemic for personal gain. As we move into the one-year anniversary of the pandemic starting with the United States we look back on the ways programs intended for relief have been exploited, and a few of the fraudsters who have allegedly taken advantage of the suffering of many for personal gain.

CARES Act and PPP

In March 2020, Congress passed, and the President signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act provided $2 trillion in government spending across a variety of programs intended to provide relief to Americans in the midst of the economic downturn caused by the pandemic. Among the programs included in the CARES Act was the Paycheck Protection Program (“PPP”), which provided loans to small businesses to keep employees on the payroll rather than laying them off due to financial hardship at the time. If the loan applicant adhered to the criteria in the PPP program, the loans would later be forgiven. Other funding included billions for personal protective equipment (“PPE”), billions for farms and farmers, billions to the Department of Defense for Defense Production Act purchases of PPE and other equipment, and billions for small business loans independent of PPP. In light of all of this government spending, fraudsters saw an opportunity for personal gain. Below we highlight just a few examples.

Fraudsters find Opportunities in Crisis

In addition to fraud on the PPP program, fraudsters found other ways to exploit the pandemic.  Unscrupulous healthcare providers exploited regulatory changes.  Phony contractors sought to sell PPE and other essential goods and services that they could not deliver, often at highly inflated prices.  Other fraudsters preyed on fears and hopes, promising “safe” investments, fake cures, and “innovations” they claimed would deliver riches.

COVID-Related Frauds

May 2020 – First Charges for Fraud on PPP

In May 2020, we saw the first charges against two individuals in Rhode Island for conspiracy to commit fraud under the PPP program. The individuals allegedly applied for multiple PPP loans on the basis of claiming they owned multiple businesses and had dozens of employees. In reality, the individuals allegedly used non-existent business and businesses they did not own to apply for the loans. The individuals allegedly claimed they had dozens of employees in four locations despite having no employees or businesses. The government investigated and charged the individuals with conspiracy to commit fraud.

In the same time period, we saw multiple instances of fraud against consumers. One individual was criminally charged for allegedly selling stolen COVID testing kits where he would then not run the tests because he did not have the ability to do so and just kept the money. The FTC also warned individuals and marketers to not make unsubstantiated claims their products were effective in battling COVID-19.

August 2020 – Price Gouging and PPP Fraud

In August 2020, we saw continued attempts at price gouging and PPP fraud attempts. In New Jersey, two companies settled with the government on allegations they were priced N-95 and three-ply masks in April 2020. The government had seized the millions of masks and as part of the settlement the companies were required to sell the masks at no cost.

An additional instance of alleged PPP fraud came to light when a New York individual was charged with fraudulently obtaining $7 million in PPP loans and other loans. The individual claimed his company had over 200 employees and a wage bill of $1.5 million when in reality the company employed no more than 14 people, and the individual took much of the $2.8 million received from the PPP program and spent it on personal expenses including luxury items.

November 2020 – PPP Loans for Fraudsters with Expensive Tastes

In November 2020, thirteen individuals were charged with attempting to defraud the PPP seeking millions in loans. The cases were spread out all over the country but specifically in Minnesota, Ohio, Texas, and California. The individuals charged applied for millions in PPP loans collectively and a man allegedly spent funds they received on personal expenses like a down payment towards a pool installation and down payments on residential properties.

December 2020 – Securities Fraud

In December 2020, in addition to the PPP frauds that have become widespread throughout the pandemic, we saw COVID frauds extend into the securities space. During this time, the SEC obtained a judgment against a medical supply company that had issued a fraudulent press release in March 2020 claiming they had new COVID finger-prick tests available to the general public. In reality, the tests had to be administered by medical professionals and were not FDA approved. While the company ultimately only paid a $25,000 civil penalty, the matter demonstrated the SEC’s interest in attacking COVID-related misrepresentations by companies seeking to bolster their stock price.

Overall, 2020 was a difficult year for everyone. The alleged fraudsters described here attempted to take advantage of a difficult situation but luckily were thwarted by able government investigators. The need for whistleblowers to come forward with information related to COVID frauds remains high. Whistleblowers can play a critical role in helping the government stay in front of these emerging schemes by exposing wrongdoing under whistleblower rewards laws.  If you have information about frauds related to COVID-19 or any other fraud on government programs, contact us.

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Tagged in: COVID-19, FCA Federal, Government Loan Programs, Government Programs Fraud, Misrepresentations, Securities Fraud,


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