On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act" or the "Act") (Public Law 116-136), a sweeping measure that provides $2.2 trillion in emergency assistance to individuals, families, and businesses affected by the COVID-19 pandemic. The CARES Act was the third piece of economic stimulus legislation passed in response to the coronavirus pandemic and a fourth bill is expected.
The infusion of unprecedented sums of money under the CARES Act into various industries and businesses will increase government fraud investigations and whistleblower actions. Those perhaps unaccustomed to the risks associated with claiming government funds may be at increased risk of liability under the False Claims Act or, worse yet, federal criminal statutes for fraudulent conduct.
Previous Enforcement Activities
A similar spike in government investigations occurred in the years following legislation to address the subprime mortgage crisis. In 2008, the Emergency Economic Stabilization Act ("Stabilization Act") (Public Law 110-343) created the Troubled Asset Relief Program ("TARP"), which authorized the federal government to purchase and insure certain types of troubled assets in order to stabilize the economy and protect taxpayers.
The Stabilization Act established a Financial Stability Oversight Board and a Special Inspector General for TARP ("SIGTARP") to investigate suspected fraud, misrepresentation, and malfeasance. Hundreds of billions were disbursed through TARP and continue to be the subject of investigations twelve years later. According to the 2020 First Quarterly Report, SIGTARP has recovered $11 billion in fraud, waste, and abuse and has a federal conviction rate of 96 percent. The Courts have convicted 381 defendants that SIGTARP investigated and sentenced 300 of those convicted defendants to prison, including 76 bankers. $900 million was recovered in 2019 alone.
CARES Act Oversight
The CARES Act includes robust oversight efforts.
- Section 4020 establishes a Congressional Oversight Commission to conduct oversight of the implementation of the Act.
- Section 4018 establishes a Special Inspector General for Pandemic Recovery ("SIGPR") to be appointed by the President and tasked with conducting audits and investigations of "the making, purchase, management, and sale of loans, loan guarantees, and other investments made by the Secretary of the Treasury." On April 6, 2020, the President nominated Brian Miller to be SIGPR pending Senate approval.
- Section 15010 establishes the Pandemic Response Accountability Committee to promote transparency and conduct and support oversight to prevent and detect fraud, waste, abuse, and mismanagement. Under Title V, the Committee was appropriated $80,000,000. The Committee must report to the Attorney General any instance in which there are reasonable grounds to believe there has been a violation of federal criminal law.
In the years to come, there will be heightened scrutiny on funds disbursed under the CARES Act. Those receiving funds under the Act should be diligent and proactive in identifying and avoiding the many statutory and regulatory pitfalls associated with the application for and receipt and use of federal dollars. If past is prologue, the best way to deal with a government investigation is to avoid it in the first place.
At Dentons, we have lawyers with unparalleled expertise and experience in ensuring compliance with often complex regulatory obligations, including those surrounding federal grants. In the event of a government investigation, our team of experienced trial lawyers throughout the United States, including numerous former federal prosecutors, stands ready to defend and protect clients in an efficient, cost-effective manner in responding to criminal, civil, and regulatory enforcement actions. The CARES Act funds will undoubtedly be welcome, but all recipients should be aware of the attendant risks associated with claiming such funds.