More than a year into the pandemic and all the government programs, funding, and relief that came along with it, the federal government is accelerating its pace of prosecution of fraud.
Since the passing of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the federal government created an entire office to prosecute COVID-19 related fraud. The new law established the Special Inspector General for Pandemic Recovery (SIGPR) to oversee the CARES Act, where employees can submit complaints. SIGPR worked on 20 preliminary inquiries and full investigations in the second quarter of the year, received and vetted 620 hotline complaints, and referred 201 to other agencies. Every US Attorneys Office has a liaison for SIGPR who helps direct fraud investigations on a local level.
Healthcare fraud has long been a focus area for the U.S. Attorney’s Office in Northern Texas. The legal tool is often the false claims act, which dates back to the Civil War when war profiteers made false claims about the services they were providing to the union army. North Texas was one of the first locations for the federal Health Care Fraud Task Force, but the Payment Protection Program loans keep investigators even busier. “The intersection between COVID-19 relief funds and health care fraud is one of their highest priorities,” says Arthur Gollwitzer, a partner with Jackson Walker, who focuses on white-collar litigation.
Earlier this summer, a Texas man was sentenced to more than 11 years in prison for wire fraud and money laundering charges for his scheme to obtain $24.8 million in forgivable PPP loans. Dinesh Sah pleaded guilty in March after submitting 15 fraudulent applications to eight different lenders of businesses he allegedly owned. The applications claimed numerous employees and hundreds of thousands in expenses, and he fabricated federal tax filings. Unfortunately, reality did not match up with the applications.
There are many cases in Texas involving PPP fraud, and nearly all of them follow a similar pattern:
- Misrepresenting the number of employees.
- Claiming to own multiple businesses.
- Dramatically overstating the payroll.
The most egregious filed applications for businesses that didn’t exist at all. These are all low-hanging fruit for investigators, but it won’t end there.
In Beaumont, an engineer was sentenced to 24 months in federal prison for seeking more than $13 million in PPP loans as part of the CARES Act. He claimed to have 250 employees with a payroll of $4 million, but the business had no employee if it existed at all. But they won’t all be that obvious or easy to prosecute.
The statute of limitations for False Claims Act cases is 10 years, so there is still plenty of time for investigators to dig into the less egregious fraud that has arisen because of all the money flying around. “The more complex cases are yet to come,” Gollwitzer says. “They will take a longer time to investigate, but I don’t think anyone should take the low-hanging fruit as a sign that that’s all the government will do.”
The government can identify many of these instances through data mining, where it might take a look at a medical practice that was submitting claims for elective surgeries while they were banned in 2020 or submitting claims for in-person procedures while they were only offering remote appointments. “Those are not as low-hanging fruit as the defendant who creates a sham application for a sham business that would also be pretty easy to spot,” Gollwitzer says.
Because of the unprecedented nature of the PPP, applying for them was no easy matter. Early in the pandemic, rules were changing day to day, leaving business owners and financiers in the dark about the proper way to apply for loans, whether they would be forgivable, or how much they should apply for. While billions of dollars were handed out in loans throughout the pandemic, the government is hard at work making sure the funds are being used by businesses that need them. Business owners need to continue to stay on top of their accounting to make sure they don’t run afoul of the rules set in place. “I’ve worked with clients on PPP loan applications, and there is some really basic stuff that if you get it wrong, it’s potentially a false statement to the government, which is either a crime or the basis for a false claims act case,” Gollwitzer says.