On March 16, 2020, Attorney General William Barr directed all U.S. Attorney’s Offices to prioritize the detection, investigation, and prosecution of all criminal conduct related to the COVID-19 pandemic. The Department of Justice (DOJ) has since announced investigations and prosecutions that illustrate how it is approaching COVID-19-related fraud, with particular focus on preventing the introduction of stolen or counterfeit personal protective equipment, tests and drugs into the market. Although hospitals and healthcare companies would not knowingly engage in the sorts of schemes that the DOJ is now investigating, failure to perform basic due diligence on new business partners could leave honest companies’ conduct under scrutiny and subject related funds and goods to potential government asset-seizure actions. Healthcare companies should make sure their supply chain compliance protocols are up to speed to deal with this new reality, as it appears that the DOJ will utilize many of the criminal and civil statutes in its arsenal to ensure its effective prosecution of COVID-19-related fraud.

DOJ Guidance

In his memorandum, Attorney General Barr encouraged coordination with the DOJ Civil Division’s Consumer Protection Branch, the Criminal Division’s Fraud Section, and the Antitrust Division’s Criminal Program as well as state and local authorities.[1] In his March 24, 2020, follow-up memorandum, Deputy Attorney General Jeffrey Rosen identified reported schemes related to COVID-19 and specific tools available to U.S. Attorneys to prosecute these schemes.[2] The Deputy Attorney General also emphasized the importance of coordination with state and local authorities.

Some of the criminal activities Deputy Attorney General Rosen identified included:

• Sales of fake testing kits, cures, “immunity” pills, and protective equipment.
• Fraudulent offers for free COVID-19 testing in order to obtain Medicare beneficiary information, which is then used to submit false medical claims to Medicare.
• Prescription drug schemes involving the submission of medical claims for unnecessary treatments or other drugs marketed as purported cures for COVID-19.[3]

Deputy Attorney General Rosen also identified specific criminal and civil statutes U.S. Attorneys could utilize to prosecute COVID-19-related fraud. The following criminal statutes were identified as ways to combat fraud and illegal schemes: mail fraud (18 U.S.C § 1342); wire fraud (Id. § 1343); computer fraud (Id. § 1030); healthcare fraud (Id. § 1347); conspiracy to commit fraud (Id. § 1349); identification fraud and aggravated identity theft (Id. §§ 1028-1028A); fraud in connection with major disasters and emergencies (Id. § 1040); and trafficking in counterfeit goods (Id. § 2320).

Additionally, Deputy Attorney General Rosen identified civil statutes to combat the sale or introduction of misbranded, fake, or adulterated drugs or devices into interstate commerce in violation of the Federal Food, Drug, and Cosmetic Act (FDCA) (15 U.S.C. § 1263(a)), and the sale, manufacture, distribution, or import of a consumer product not in conformity with safety regulations in violation of the Consumer Product Safety Act (15 U.S.C. § 2068).[4]

Recent DOJ Enforcement Actions

With a powerful set of statutory tools at its disposal and numerous reports of fraud and misconduct, the DOJ has not wasted any time bringing actions to curtail these activities. On March 22, 2020, the U.S. Attorney’s Office for the Western District of Texas brought the first civil case combating coronavirus-related fraud. Prosecutors alleged operators of a sham website violated the wire fraud statute by claiming to offer consumers access to COVID-19 vaccine kits in exchange for a shipping charge paid by credit card.[5] To secure a temporary restraining order (TRO), prosecutors relied on 18 U.S.C. § 1345, a statute that allows the government to seek an injunction against fraud, including wire fraud. The statute is designed to protect the public interest and therefore the government is not required to show irreparable harm, the inadequacy of other remedies at law, or a balancing of the parties’ interests in order to obtain the TRO.[6]

On March 26, 2020, the U.S. Attorney’s Office for the District of New Jersey charged Erik Santos with one count of conspiracy to violate the Anti-Kickback Statute. The complaint alleged that Santos operated a marketing company that generated leads to testing companies. Santos allegedly solicited and received payments from companies involved in clinical and diagnostic testing in exchange for steering individuals eligible for COVID-19 testing to those companies for testing reimbursed by Medicare. Santos was charged with one count of conspiracy to commit healthcare fraud and one count of conspiracy to violate the Anti-Kickback Statute.[7]

On April 1, 2020, the U.S. Attorney’s Office for the Central District of California filed a criminal case against Frank Ludlow, charging him with introducing misbranded drugs into interstate commerce in violation of the FDCA, 21 U.S.C. §§ 331(a), 333(a)(2). The complaint alleges that Ludlow, a United Kingdom resident, allegedly sold a coronavirus cure not approved by the U.S. Food and Drug Administration for any use.[8] Ludlow faces up to three years in prison if convicted.

On April 10, 2020, Christopher Parris was charged by the U.S. Attorney’s Office for the District of Columbia with wire fraud for attempting to sell 125 million nonexistent respirator masks and other personal protective equipment to the Department of Veterans Affairs (VA) for what would have totaled $750 million.[9] According to an affidavit to the complaint, a Louisiana company purportedly in the business of selling industrial and safety supplies contacted the VA claiming it had respirator masks for sale and that Parris was its supplier. Parris then began negotiating directly with the VA.[10] The maximum penalty for wire fraud is 20 years imprisonment and up to a $250,000 fine.

Takeaways and Conclusion

While the DOJ’s enforcement of COVID-19-related fraud is still in its early stages, it is already clear that there will be no shortage of criminal actors trying to profit from the pandemic and that the DOJ will be creative in pursuing COVID-19-related fraud. While many of these actions were filed against individuals, they have also been used by the DOJ to go after businesses and as predicates to money laundering and asset-forfeiture actions. Honest healthcare companies and related suppliers must be on guard that they are not unwittingly assisting entities or individuals engaged in fraud and other criminal conduct, or are unknowingly acting as middlemen to fraudulent business transactions.

Healthcare companies and related entities must ensure their compliance programs relating to new customers are robust and being strictly followed, especially when engaging in transactions related to COVID-19. Healthcare companies should also reassess policies and procedures meant to guard against supplier fraud and determine whether those policies need to be updated in light of the COVID-19 fraud risks.

[1] Mem. from Attorney General William Barr (March 16, 2020), available at https://www.justice.gov/ag/page/file/1258676/download.
[2] Mem. from Deputy Attorney General Jeffrey Rosen (March 24, 2020), available at https://www.justice.gov/file/1262771/download.
[3] Id. at 2.
[4] Id.
[5] DOJ Press Release No. 20-333, Justice Department Files Its First Enforcement Action Against COIVD-19 Fraud (March 22, 2020), available at https://www.justice.gov/opa/pr/justice-department-files-its-first-enforcement-action-against-covid-19-fraud.
[6]See TRO and Order to Show Cause Why a Prelim. Inj. Should Not Issue, United States v. John Doe, 1:20-cv-00306 (W.D. Tex. March 22, 2020).
[7] DOJ Press Release No. 20-112, Georgia Man Arrested for Orchestrating Scheme to Defraud Health Care Benefit Programs Related to COVID-19 and Genetic Cancer Testing (March 30, 2020), available at https://www.justice.gov/usao-nj/pr/georgia-man-arrested-orchestrating-scheme-defraud-health-care-benefit-programs-related.
[8] DOJ Press Release No. 20-062, U.K. National Charged with Shipping Mislabeled and Unapproved Treatments for Patients Suffering from COVID-19 (April 1, 2020), available at https://www.justice.gov/usao-cdca/pr/uk-national-charged-shipping-mislabeled-and-unapproved-treatments-patients-suffering.
[9] DOJ Press Release No. 20-375, Georgia Man Arrested for Attempting to Defraud the Department of Veterans Affairs in a Multimillion-Dollar COVID-19 Scam (April 10, 2020), available at https://www.justice.gov/opa/pr/georgia-man-arrested-attempting-defraud-department-veterans-affairs-multimillion-dollar-covid.
[10] Aff. in Support of Criminal Compl. and Arrest Warrant, 1:20-mj-00058 (D.D.C. April 9, 2020), available at https://www.cbsnews.com/news/justice-dept-announces-arrest-in-multimillion-dollar-covid-19-scheme/.