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State False Claims Acts: A Key Tool in the Fight against COVID Frauds

Posted  December 16, 2020

We all remember the early days of the pandemic when coordination at the Federal level was lacking and states were left to their own devices. States reacted in a variety of ways to fight this public health catastrophe, they created subnational coalitions, struck their own deals for secret mask shipments from China, and conducted their own foreign policy to buy tests from South Korea.

Things were chaotic and, and as always happens in times of crisis, unscrupulous actors jumped in to angle for ill-gotten profits. This is not new. Contractors tried to defraud New Deal programs at the height of the Great Depression, the US military during World War 2, and the US flood insurance program in the aftermath of Hurricane Katrina. Unfortunately, this current crisis has not revealed the better angels of our nature.

Luckily there are a series of laws that can recoup taxpayer dollars lost to fraud, the False Claims Acts of various states and localities. These laws are modeled after the Federal False Claims Act (FCA), which was passed at the height of the US Civil War, another time of crisis that featured contractors selling the Union Army mules as horses, sand as flour, and rags as uniforms. The law allows the government to sue to recover taxpayer money lost to fraud. It also allows private persons, whistleblowers, to sue on the government’s behalf and share in up to 30% of the recovery.

In 1987, California was the first to mimic the law at the state level and more than 30 states have followed since. Given the lack of Federal leadership (and to a certain extent, spending) in the early pandemic, state FCAs are going to be essential in fighting fraud. Two recent cases show exactly how this can, and will, be done.

Promises of Masks in Indiana

Last week, the state of Indiana filed a lawsuit under its FCA against purported salesmen of N95 Respirators. In April, the Defendants offered to sell Indiana millions of N-95 masks made by corporate giant 3M. The supplies were desperately needed. According to the state’s complaint, the Defendants had absolutely no connection with 3M and had no ability to obtain these facemasks for resale to Indiana.

The masks were meant for healthcare, and other essential, workers on the frontline of the pandemic. The Defendants reached out to Indiana state officials, via email, and offered up to 5 billion N95 masks for roughly $3/mask, the offer was suspiciously good for one day only. At that time the annual production of these masks was only 1.1 billion globally, or roughly 20% of what was offered to Indiana. Obviously, Indiana did not get its masks.

Fake Hand Sanitizer in Massachusetts

In another COVID fraud-related case, Massachusetts, under its state FCA, reached a $550,000 settlement with an alleged manufacturer of hand sanitizer. The Defendants in this case sold thousands of dollars’ worth of hand sanitizer to the Massachusetts Bay Transportation Authority for use on Boston’s mass transit system. Unfortunately, according to the state, the hand sanitizer contained no alcohol and lacked antiviral properties.

The Defendant falsely told MBTA officials that its product sanitizes at a “30-second flash and provides a 6-hour prolonged effect” to fight off COVID. Three large shipments of the “sanitizer” now sit unused (and unusable) in storage. Defendants have agreed to retrieve these shipments as part of the settlement.

What’s Next?

With the approval of various vaccines, this pandemic’s end is finally in sight, but a long shadow has been left on state budgets. They are reeling from the loss of tax revenue and the anxious economic climate. Given that states spent billions of dollars with contractors in the early, crazed days of the pandemic, state FCAs will be essential enforcement tools to recover money from fraudsters such as the one discussed above. These two cases are surely just the beginning.

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Tagged in: COVID-19, FCA Federal, FCA State, Government Programs Fraud,