Federal Prosecutors Are Focused On Criminal Price Gouging

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Price gouging was once thought of as a tool used only by the state attorney general to protect consumers from fraud during times of emergency.

But with the formation of the COVID-19 Hoarding and Price Gouging Task Force and a spate of criminal prosecutions by U.S. Attorneys under the Defense Production Act, it’s clear that the federal government is making it a priority.

On April 24, in the first-ever criminal prosecution for price gouging under the Defense Production Act, federal prosecutors in Brooklyn alleged that Amardeep Singh had amassed five tons of protective equipment apparel, sanitizing and disinfecting products, and other “scarce” goods, and that he had offered to sell them at substantial markups as high as 1,300 percent.

On May 26, the U.S. Attorney in Manhattan announced charges against a pharmacist for hoarding and price gouging scarce N95 masks, also in violation of the Defense Production Act, and making two false statements to law enforcement.

On the same day, a California attorney and an Arizona businessman were arraigned on federal price-gouging conspiracy charges brought over an alleged scheme to resell protective masks in New York City at inflated prices.

The Defense Production Act

The common thread in these cases is the use of the criminal price-gouging provisions in the federal Defense Production Act of 1950 which prohibits individuals and businesses from hoarding certain materials that may be deemed to be “scarce” for the purpose of resale at prices in excess of prevailing market prices. President Trump issued an Executive Order pursuant to the DPA, designating all health and medical resources necessary to respond to the spread of COVID-19 as “scarce.”

The COVID-19 Hoarding and Price Gouging Task Force is authorized to aggressively pursue bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering. New Jersey U.S. Attorney Craig Carpenito, the head of the COVID-19 Hoarding and Price Gouging Task Force, stated that “the Department of Justice and its partners will intervene whenever profiteers and scammers break the law by capitalizing on the public’s fear to enrich themselves.”

Penalties for violating the DPA are fines of up to $10,000 and a year of imprisonment.

Potential Targets Should Proceed with Caution

Because the DPA has not been used to prosecute price gouging before, legal issues will arise as to the scope and nature of the conduct it prohibits. Since those issues remain unsettled for now, any seller of materials related to COVID-19 should proceed with caution in both pricing and inventory decisions. Sellers must also be cognizant of price gouging laws in all 50 states.

Companies, businesses, warehouses and individuals should be careful about possessing large amounts of “scarce” materials and must recognize that in the future prosecutors may calculate their markup rates.

With a federal task force in place and state prosecutors also poised to act, vendors must also recognize the need to seek legal advice immediately upon receiving a subpoena. The price gouging laws in 50 states vary greatly, and the potential for federal criminal charges pursuant to the DPA can hold significant consequences, including imprisonment. Mere possession of large amounts of goods that fall within the DPA may be deemed as “hoarding” and expose a business to criminal prosecution.

State and federal authorities can also be expected to cooperate in these investigations. Documents produced to any attorney general can be shared with the AGs in other states as well as the federal government. Any person or business that receives a subpoena should immediately consult with counsel who can assess the full potential for civil and criminal exposure both locally and federally before responding.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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