On Friday, July 17, 2020, Special Inspector General for Pandemic Recovery (SIGPR) Brian D. Miller and U.S. Attorney for the Eastern District of Virginia (EDVA) G. Zachary Terwilliger announced a formal partnership to pursue civil and criminal investigations of financial misconduct and fraud related to the CARES Act of 2020. SIGPR Miller, himself a former EDVA prosecutor, and his team will be physically located in office space that is 75 yards away from the EDVA U.S. Attorney’s office in Alexandria, Virginia. The partnership will result in a coordinated response by EDVA and SIGPR to investigations related to the more than $2 trillion in funding for loans, loan guarantees, and other investments and federal programs created by the CARES Act. Two Assistant U.S. Attorneys from EDVA will serve as liaisons to SIGPR to accelerate the issuance of grand jury subpoenas and civil investigative demands related to CARES Act-related financial fraud.
The coordinated effort between EDVA and SIGPR follows the expected increase in oversight and enforcement activity that have followed from past government enforcement trends in the wake of national crises. Prosecutors in EDVA recently charged a Virginia couple after they allegedly submitted false loan applications in the names of businesses and received a payout of over $1.4 million in coronavirus relief loans. And in May, a Virginia man was charged by EDVA prosecutors with submitting fraudulent coronavirus loan applications that resulted in the disbursement of over $190,000 in funds. These cases are part of DOJ and SEC’s commitment to expending significant resources to enforce coronavirus-related misconduct, including securities fraud and other financial wrongdoing. As we covered last month, DOJ and SEC have begun charging executives, companies, and third parties for misrepresentations regarding the abilities of companies to supply PPE and testing kits and the financial condition and future prospects for public companies affected by COVID-19.
The EDVA-SIGPR partnership is significant in light of the government’s promise to audit any company that received more than $2 million in relief funds. Companies and individuals who received CARES Act funds should expect heightened inspection of their loan submissions and scrutiny of how funds were used. Misstatements on loan applications or improper expenditures could result in criminal or civil investigations for fraud, so it is critical that proper internal procedures and oversight ensure that relief funds were properly received and spent. Companies and executives must also ensure that they continue making accurate statements and disclosures in public filings and in statements to investors and government entities.
Any company or executive who is concerned about compliance or legal enforcement in response to COVID-19 enforcement efforts should contact outside legal counsel with experience in white-collar enforcement. Companies who receive inquiries or subpoenas from EDVA, SIGPR, or any other law enforcement agency should immediately contact outside legal counsel with significant experience and knowledge of EDVA, DOJ, and SEC practice for guidance to assess the potential civil and criminal exposure and risks before responding to such inquiries or subpoenas.