Whistleblowers and the COVID-19 pandemic

To combat the COVID-19 pandemic, both on the medical and economic fronts, the United States government has committed large sums of money and implemented regulatory programs to achieve those ends. The pandemic has not only affected the safety and well-being of individuals, but it has also affected businesses, both large and small, who have been struck by the sudden uncertainties affecting our economy. In light of these implemented measures, unscrupulous individuals have sought to gain personal benefit from these programs by committing fraud to the detriment of those legitimately entitled to the aid being provided. These frauds not only frustrate the purpose of government aid and programs, directly affecting those who are the intended beneficiaries but are also a waste of taxpayer money. 

In its fight against fraud, the government greatly depends on whistleblowers: people who are willing to come forward with information and evidence in their possession concerning fraud and misconduct. In many cases, the government does not have all the information necessary to find and prosecute those who commit fraud. Often, only whistleblowers can shed light on the fraudulent conduct of others. To encourage whistleblowers to come forward, many laws protect against retaliation in cases where the person is blowing the whistle on their employer. Many of these laws and programs, such as the federal False Claims Act, also provide monetary rewards, financially compensating those who do the right thing.

Government aid and programs aimed at combating the COVID-19 pandemic

In response to the COVID-19 pandemic, the government implemented various measures to combat the dual health and financial crisis. On an economic level, the government has taken steps providing for scientific research, medical testing, and treatment of patients. To address the financial crisis, the government has taken measures to directly aid individuals going through economic need, as well as programs aimed at helping businesses weather these unprecedented times.

A landmark law enacted by the federal government to help mitigate the effects of the pandemic was the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This statute provided $2.2 trillion of economic stimulus and was enacted in March 2020. The CARES Act provided direct cash payments to individuals who file tax returns in the U.S., leading to many individuals receiving $1,200. Larger sums were provided to families with children. This statute also increased unemployment benefits. It also created the Paycheck Protection Program (PPP). 

Under the PPP, many small businesses could obtain forgivable loans. If a business obtained a PPP loan and used the amounts received for specific purposes, it did not have to pay off the loan. The primary purpose of the PPP was to avoid mass layoffs of employees due to unfavorable financial conditions. If employers kept employees, instead of laying them off, by using funds received from a PPP loan to cover payroll, they could later get the loan forgiven. 

The CARES Act also established the Economic Stabilization Fund (ESF) and expanded the Small Business Administration Economic Injury Disaster Loans (EIDL). The ESF helped eligible businesses, municipalities, and states in the form of loans and other investments. Similarly, the EIDL provided loans to businesses so that they could continue to operate during the pandemic.

Following up on and extending the CARES Act, the Consolidated Appropriations Act of 2021 provided almost $900 billion of coronavirus stimulus relief. Among its major components, it offered more funds for the PPP, an additional direct cash payment to eligible individuals of $600, monies to extend federal unemployment benefits, and billions of dollars for vaccines and testing. 

Approximately one year after the CARES Act was enacted, the American Rescue Plan Act of 2021 was signed into law in March 2021. This statute provided for an additional $1.9 trillion in economic stimulus intended to combat the COVID-19 pandemic and sought to build on what had already been done by the CARES Act and the Consolidated Appropriations Act. Its key provisions extended unemployment benefits, expanded several tax credits, provided for another direct payment to individuals, more monies for the EIDL and PPP programs, and funds for vaccines and testing.

As can be seen, measures implemented by the federal government in light of the COVID-19 pandemic have been substantial and among the most expensive in U.S. legislative history. Many of these were landmark pieces of legislation, significantly surpassing measures taken in previous years in response to other emergencies and economic recessions. 

Types of fraud affecting government pandemic aid

Just as a myriad of aid and programs are directed at helping individuals and businesses that have struggled during the pandemic, there has been a plethora of schemes undertaken by unscrupulous individuals to defraud and personally benefit from these coronavirus relief programs. The following are some examples of COVID-19 pandemic aid related fraud:

• Individuals and businesses have provided false information on loan applications, such as those under the PPP, to obtain them even though they do not qualify.
• Individuals and businesses have falsely certified that funds will be used for specific purposes (when they were not) to have PPP loans forgiven. 
• Companies have sold inadequate medical equipment, testing materials, or defective personal protective equipment to the government or healthcare providers, failing to meet specific minimum requirements established by law or regulation.
• Parties have engaged in kickback schemes to obtain government contracts related to the COVID-19 pandemic.
• False data or results have been produced during government-funded research aimed at developing treatments or vaccines.

Recent Case Examples of the Government Going After COVID-19 Relief Fraud

Misappropriation of Paycheck Protection Program loan:

• Per the Department of Justice: Seth A. Bernstein, the owner of a Florida-based jet charter company named JetReady, agreed to pay a $287,055 settlement amid the allegation that he misappropriated PPP loan proceeds to pay for his personal expenses. The United States Government alleged that Bernstein, on behalf of JetReady, applied for and received a PPP loan totaling $1,173,382 in April of 2020. Within a day of receiving the loan proceeds, Bernstein allegedly diverted $98,929 of the funds to pay for personal, non-company-related expenses. JetReady has since filed for bankruptcy.
• The civil settlement was helped by a qui tam or whistleblower action by a former JetReady employee. “Qui tam” actions (i.e., Whistleblower claims) are brought under the Federal False Claims Act (discussed further below). According to the False Claims Act, a private party can file an action on behalf of the United States and receive a portion of eventual recoveries. In this case, the Whistleblower former employee received $57,411 as a portion of the settlement. 
• Guilty plea in $43.8 Million COVID-19 Relief Fraud Scheme
• On April 6, 2022, the Department of Justice announced that an Oklahoma woman pleaded guilty to a scheme to defraud the PPP of over $43.8 million in COVID-19 relief loans guaranteed by the Small Business Administration under the CARES Act.
• According to Court Documents and the DOJ release, the defendant admitted that she conspired to submit at least 153 fraudulent PPP applications seeking approximately $43.8 million on behalf of at least 111 entities between May 2020 and June 2021. 

The cases above are just a few examples of frauds affecting COVID-19 pandemic relief. In general, these frauds occur:

• when ineligible individuals or entities obtain aid that is used in a way for which it was not intended;
• when substandard equipment or materials are purchased with pandemic relief funds; or 
• when illicit schemes, such as kickbacks, are employed.

Some frauds are not limited to the specific relief measures implemented during the pandemic. For example, some programs that already existed before the pandemic received additional funding from the previously mentioned pieces of legislation. Frauds that formerly existed and occurred can become more rampant given the vast additional funds available under these COVID-19 pandemic relief programs. This is particularly the case for government-sponsored health insurance, such as Medicare and Medicaid. Given the extra funding available under the Coronavirus stimulus programs, healthcare providers can be enticed to upcode their services to make a more significant profit. They may also be inclined to provide medically unnecessary services or even go so far as billing for services that were never rendered. As another example, pharmaceutical companies might engage in off-label marketing of their drugs or medical devices for pandemic-related uses, even though these uses have not been approved by the U.S. Food and Drug Administration.

Statutes and programs under which pandemic fraud can be prosecuted

Many of the frauds surrounding pandemic relief can be prosecuted under the federal False Claims Act. This statute, originally enacted during the Civil War to prosecute defense contractor fraud, allows the government to prosecute those who submit false claims to the government. A claim can be any instance in which an individual or entity submits a request to the government for payment. This can be when a healthcare provider bills for services rendered to Medicare, Medicaid, or TRICARE patients. It can also be when a government contractor submits an invoice to the government in response to services rendered or products sold. If there is falsity surrounding a claim, the government can sue the offending party to recover any monies paid. When recovering funds paid fraudulently, the amounts can be increased to compensate for the effort expended in recovering them, and separate civil penalties can be imposed for each false claim that was submitted. 

The False Claims Act also includes a provision allowing whistleblowers, or relators, to initiate the lawsuit on behalf of the government. As a reward for coming forward and providing evidence, whistleblowers are entitled to receive a share of any recoveries made by the government in these cases. The statute provides that the whistleblower, or relator, can receive a percentage of the recovery reward, ranging between 15-30%, depending on the particularities of each case.

If the fraud involves publicly traded companies, they may be prosecuted by the U.S. Securities and Exchange Commission (SEC). These frauds can involve false disclosures in financial statements, false declarations made by companies regarding their business and the pandemic, and bribes paid to foreign government officials in exchange for certain concessions. Bribes paid to foreign governments are actionable under the Foreign Corrupt Practices Act. 

The Securities and Exchange Commission (SEC) has its own whistleblower office. Whistleblowers can file tips containing information and evidence on a myriad of frauds. This office even allows whistleblowers to initially file their tips anonymously via legal counsel. Rewards are granted to whistleblowers that provide information that leads to an eventual recovery. For example, in March 2022, the SEC announced an award of $1.25 million to a whistleblower who provided specific and credible information that led to an SEC investigation that resulted in a successful SEC-covered action. The SEC has awarded approximately $1.2 billion to 256 individuals since issuing its first award in 2012 (per SEC.gov).

A similar whistleblower office exists within the Commodity Futures Trading Commission (CFTC), allowing frauds involving various commodities to be exposed. The CFTC’s Whistleblower Program was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. After issuing its first whistleblower award in 2014, the CFTC has awarded approximately $120 million to whistleblowers and CFTC actions associated with those awards have resulted in nearly $1 Billion in recovery to the government (per CFTC.gov).

Lastly, any fraud involving tax matters can be reported to the Internal Revenue Service (IRS) Whistleblower office. If a person has information on any individual or entity that is evading its tax responsibilities at the federal level, they can file any information they have before this office. Like the programs described above, they may receive an award if the IRS recovers owed taxes based on the information they provide.

Blowing the whistle on COVID-19 pandemic fraud

Given the myriad of schemes carried out by fraudsters to defraud the government, whistleblowers play an essential role in shedding light on these practices and helping the government recover falsely distributed monies. If you feel like you have information on fraud or would like to discuss a situation that seems suspicious, please get in touch with us for a confidential and free-of-charge consultation.