DOJ Updates Actions to Combat Fraud Related to COVID-19
On March 26, 2021, the Department of Justice provided an update on its criminal and civil enforcement efforts to combat fraud related to the COVID-19 pandemic. According to DOJ’s announcement, 474 defendants have been publicly charged with criminal offenses based on fraud schemes connected to the COVID-19 pandemic. Broadly, these schemes include:
- Paycheck Protection Program Fraud: DOJ announced that at least 120 defendants were charged with PPP fraud in cases ranging from individual business owners who inflated their payroll expenses in order to obtain larger loans to organized criminal networks who submitted identical loan applications and supporting documents under different company names. According to DOJ, most of the defendants charged had misappropriated loan proceeds for prohibited purposes, including for purchasing homes, jewelry, and luxury vehicles.
- Economic Injury Disaster Loan Program Fraud: The EIDL program provides loans to small businesses, agricultural, and non-profit entities. According to DOJ, frauds under this program include individuals applying for EIDL advances and loans through newly-created, shell, or non-existent businesses and then diverting the funds for illegal purposes.
- Unemployment Insurance Program Fraud: According to DOJ, through September 2021, more than $800 billion in federal funds has been appropriated for UI benefits. DOJ’s analysis indicates that international organized criminal groups and domestic fraudsters have targeted these funds by using stolen identities to file for UI benefits.
DOJ is using a number of tools to combat COVID-19 related fraud schemes, including through civil and criminal enforcement actions to safeguard the health and economic security of Americans. Among these efforts, DOJ emphasized that it has prosecuted or secured civil injunctions against defendants who sold products using false or unapproved claims about the products’ abilities to prevent or treat COVID-19. DOJ has also worked to shut down fraudulent websites facilitating consumer scams and to prevent vaccine-related fraud.
See here for the DOJ press release.
California Doctor to Pay Nearly $3.5 Million to Resolve SEC Fraud Allegations
On March 30, 2021, a California doctor was ordered to pay $1.4 million in disgorgement, about $166,000 in prejudgment interest, and over $1.9 million in civil penalties to resolve allegations by the Securities and Exchange Commission that he and his office manager fraudulently raised about $20 million from potential EB-5 immigrant investors by representing that the two planned to develop nursing homes. The office manager was separately ordered to pay $102,000 in disgorgement, nearly $12,000 in prejudgment interest, and about $102,000 in civil penalties in connection with the alleged fraud. The SEC’s allegations, which date back to 2015, accused the doctor and his office manager of diverting at least half of the $20 million collected from 40 prospective immigrants.
The order comes after the Ninth Circuit reversed and remanded a $15.5 million prior judgment in the case that was issued in August 2020. The Ninth Circuit found that the District Court had not explained the imposition of the penalties in a way that allowed for meaningful review on appeal. The Circuit noted that the Supreme Court’s June 2020 ruling in Liu v. SEC established new parameters on disgorgement.
See here for the Law360 news release.
Restaurant Chain Manager Sentenced to 30 Months in Prison for Employment Tax Fraud
On April 7, 2021, a California restaurant chain manager was sentenced to 30 months imprisonment, followed by one year of supervised release, and ordered to pay $2.3 million in restitution for employment tax fraud. The defendant was the manager of San Diego Home Cooking, a restaurant group with over 110 employees and five restaurants in the San Diego area. DOJ alleged that, in November 2014, the manager directed an outside payroll company to stop making employment tax payments to the IRS and, from the last quarter of 2014 through the last quarter of 2017, did not file employment tax returns and did not pay employment taxes. According to DOJ, the manager’s actions caused a tax loss of over $1.5 million.
See here for the DOJ press release.