Will COVID-19 Prompt an Uptick in White-Collar Crime Investigations?

While the COVID-19 pandemic may be slowing the pace at which white-collar crimes are prosecuted, it would be unwise to expect that the pace of white-collar investigations will slow…

While the coronavirus (COVID-19) pandemic may be slowing the pace at which white-collar crimes are prosecuted, it would be unwise to expect that the pace of white-collar investigations will slow.  In fact, the current pandemic is likely to trigger a wave of new fraud investigations, with a focus on price gouging, financial fraud, and misuse of COVID-19 relief funds.

White-Collar Prosecution in Times of Crisis

Like all of us, the COVID-19 pandemic is forcing federal agents, prosecutors and other government officials to change how they do their jobs.  For a variety of reasons, many court operations, particularly criminal proceedings, have been subject to significant delay.  While this delay may result in a short-term reduction in white-collar proceedings, state and federal officials have made it clear that they will be marshaling their resources to investigate and prosecute COVID-19 related fraud.

On March 16, 2020, Attorney General William Barr issued a memorandum directing “[e]very U.S. Attorney’s Office . . . to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic[,]” and further encouraging individual offices “to consult with the Civil Division’s Consumer Protection Branch[], the Criminal Division’s Fraud Section[], and the Antitrust Division’s Criminal Program[] for additional guidance on how to detect, investigate, and prosecute these schemes.”

It is not unusual to see an increase in white-collar investigations and enforcement proceedings following a national disaster or state of emergency.  Following Hurricane Katrina, a special DOJ task force brought charges against more than 900 individuals.  In the wake of Superstorm Sandy, the New Jersey Attorney General’s Office cracked down on businesses that violated the state’s price gouging statute, recovering more than a million dollars in civil penalties, consumer restitution, and other fees.

Misuse of the funds made available through the Troubled Asset Relief Program (TARP), which was established in response to the 2008 financial crisis, also resulted in aggressive enforcement action.  The Special Inspector General for the Troubled Asset Relief Program (SIGTARP), which was tasked with overseeing TARP’s administration, brought hundreds of fraud cases and recovered more than $11 billion from those that misused TARP’s funds.

COVID-19 Criminal Fraud Prosecutions

The economic fallout from the COVID-19 pandemic is placing unprecedented pressure on U.S. businesses. In New York and New Jersey, in particular, the impact of the pandemic has been especially painful.  Because an investigation can place additional financial stress on businesses and their owners, it is imperative for businesses to prioritize compliance during these uncertain times.

Price Gouging and Hoarding

The DOJ has formed a task force charged with addressing hoarding and price gouging associated with the COVID-19 pandemic.  President Donald Trump also issued an executive order under section 102 of the Defense Production Act (DPA), which prohibits the hoarding of designated items. Under the order, the Secretary of Health and Human Services (HHS) is authorized to protect scarce healthcare and medical items by designating particular items as protected under the DPA.  Once an item is designated, the statute makes it a crime for any person to accumulate that item either (1) in excess of his or her reasonable needs or (2) for the purpose of selling it in excess of prevailing market prices.

New Jersey also has its own anti-price gouging law. Pursuant to the New Jersey Consumer Fraud Act (N.J.S.A. 56:8-107), businesses are prohibited from imposing excessive price increases during a declared state of emergency for merchandise used as a direct result of an emergency or used to “protect the life, health, safety, or comfort of persons or their property.” Attorney General Gurbir S. Grewal announced in March that his office is dedicating significant resources to investigating price gouging complaints. “We are taking an all-hands-on-deck approach to consumer complaints about price gouging and other abuses related to the COVID-19 pandemic,” said Attorney General Grewal.

Given the focus on price gouging, manufacturers and resellers of ventilators, personal protective equipment (PPE), and other items that are currently in high demand due to COVID-19 should be prepared for scrutiny.  Businesses should have procedures in place to monitor prices and otherwise ensure compliance with price gouging regulations.

Misuse of COVID-19 Relief Funds

Federal agencies are aggressively policing COVID-19 relief programs for potential fraud. If your business is taking advantage of state and federal COVID-19 relief programs, be prepared for your application and your expenditures to be closely scrutinized for compliance with the program’s requirements. This is particularly true for the CARES Act Paycheck Protection Program, which is being overseen by the Office of the Special Inspector General for Pandemic Recovery (SIGPR). Given that misrepresentations on applications, certifications, or other program documents may give rise to a criminal fraud investigation or violations of the False Claims Act, it is important to verify the accuracy of all information submitted, memorialize decision making in connection with the application process in writing, and keep detailed records of how the funds are expended.

Financial Crimes

Public companies must also be diligent in their financial statements and disclosures. When submitting filings with the Securities and Exchange Commission (SEC) and making statements to investors, it is imperative to ensure that you are adequately disclosing the risks created by COVID-19.  It is also important to verify that your company has robust policies and procedures in place designed to prevent the misuse of material nonpublic information during and after the outbreak. The SEC has already issued a public statement regarding insider trading, warning that insiders are “regularly learning” new material non-public information that may “hold an even greater value than under normal circumstances.” 

How We Can Help

Businesses in the potential crosshairs of state and federal regulators must be more vigilant than ever when it comes to compliance.  If your business requires new policies and procedures to ensure regulatory compliance, or simply needs to supplement existing policies and procedures, you should seek guidance from an attorney experienced in developing policies and minimizing regulatory risk.  If you suspect that you or your business may be the subject of a criminal investigation, or if you receive a subpoena related to your use of federal funds, it is imperative to contact an experienced white-collar criminal defense lawyer as soon as possible, and certainly before meeting with state or federal law enforcement agents.  Being proactive can often go a long in reducing your potential liability.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.