Need-to-Know Developments in Compliance, Investigations and White Collar Defense

COVID-19 Update

We hope this alert finds you, your families and your colleagues healthy and safe in these challenging times. The professionals in Manatt’s investigations, compliance, strategic response and white collar defense practices stand ready to assist clients with the numerous issues likely to arise out of the COVID-19 crisis, including compliance programs to ensure that any government funding received is properly used and tracked, internal investigations into allegations of wrongdoing, and the defense of any investigations arising out of the crisis. Our team includes several veterans of the response to the 2008 financial crisis, during which we assisted clients (both as in-house and outside counsel) in navigating similar issues in complying with, and responding to government inquiries concerning, TARP and other government programs.

Recognizing that recent events have been moving very rapidly, we offer the following digest of developments specifically related to compliance, investigations and white collar defense issues.

Oversight of Expenditures of CARES Act Funds

The past several weeks have seen massive appropriations of federal funds in response to the COVID-19 crisis and the associated economic damage caused by business closures, travel restrictions and stay-at-home orders. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law by the President on March 27, 2020, allocates $2.2 trillion to support individuals, small businesses and key industries such as healthcare, national security and travel.

This massive injection of funds into the economy will of course create the opportunity for fraud, waste and abuse. In order to ensure that these funds are not misused, the CARES Act allocates nearly $140 billion to existing Inspectors General offices in the federal agencies that will oversee the distribution of these funds. Significantly, however, the CARES Act also creates a Congressional Oversight Commission as well as two new law enforcement agencies charged with overseeing CARES Act funds: the Special Inspector General for Pandemic Recovery, located in the Treasury Department, and the Pandemic Response Accountability Committee, supervised by the Council of Inspectors General, an intergovernmental group of Inspectors General (IGs) across the federal government.

We can expect these three new bodies, as well as existing IGs, to be looking closely at those applying for and receiving CARES Act funds, and conducting a large number of audits and investigations into possible fraud, waste and abuse. While the Manatt team stands ready to assist in responding to inquiries from these bodies once they are up and running, we recommend that clients taking advantage of these programs designate one or more individuals within their legal and compliance functions to understand the CARES Act requirements and any implementing regulations, ensure compliance with application and reporting criteria, ensure that the funds are expended and accounted for properly, and investigate and report on any allegations of misuse. It would also be prudent to cultivate good, credible working relationships with the government officials managing the programs.

Pandemic Response Accountability Committee

Of these three new agencies, the Pandemic Response Accountability Committee (PRAC) seems to have the broadest mandate and powers. Constituted as a body within the Council of Inspectors General on Integrity and Efficiency, the PRAC is “to promote transparency and conduct and support oversight” of all funds appropriated under the CARES Act other than funds to individuals and federal agencies to:

  • “[P]revent and detect fraud, waste, abuse, and mismanagement; and
  • “[M]itigate major risks that cut across programs and agency boundaries.”

The PRAC consists of a chairperson chosen by the chairperson of the council, designated IGs from key federal agencies, and other IGs as designated by the PRAC’s chairperson. The PRAC chairperson shall also designate, in consultation with the majority and minority leadership in Congress, an executive director and deputy executive director qualified in accounting, auditing and financial analysis and in the management of large organizations. 

While the PRAC’s role can be seen as primarily one of coordination of the investigative activities of the various agency IGs, it does have independent law enforcement powers, including the power to subpoena documents and witnesses and take testimony under oath. It is also obligated to refer “any instance in which the Committee has reasonable grounds to believe there has been a violation of federal criminal law” to the Department of Justice (DOJ). Finally, in the interests of real-time transparency, the PRAC is obligated, within 30 days of the enactment of the CARES Act, to develop a website, which is required to have a wealth of information as designated in the CARES Act, including about the PRAC’s work; all grants of funds under its purview (again, other than those to individuals and other federal agencies); and audit reports from the PRAC, other IGs and the Government Accountability Office.

Congressional Oversight Commission

The Congressional Oversight Commission (COC) is tasked with overseeing the implementation of the CARES Act by Treasury, the Federal Reserve Board and other federal agencies, and reporting its findings to Congress. The COC will be made up of five members appointed by congressional leadership from both parties, and may both employ permanent staff and retain experts as needed. While the investigative authority of the COC is somewhat vague, it is empowered to hold hearings and take sworn testimony. The COC is required to submit reports to Congress on its oversight functions and findings every 30 days.

Special Inspector General for Pandemic Recovery

The Special Inspector General for Pandemic Recovery (SIG-PR) is tasked to “conduct, supervise and coordinate audits and investigations of the making, purchase, management and sale of loans, loan guarantees and other investments” made by Treasury under the CARES Act and any related program. The SIG-PR is also required to collect and report on a quarterly basis the recipients and amounts of loans, loan guarantees or other investments, and details concerning those managing or servicing the loans. The SIG-PR will have all the law enforcement powers of an IG, including, among other matters:

  • To request access to, and obtain, information from any federal, state or local agency, subject to any specific limitations placed on IG access by Congress
  • To subpoena documents and things from any person and enforce the subpoena in federal court
  • To take sworn testimony from witnesses

Criminalization of Hoarding and Price Gauging of Medical Supplies and Equipment Under the Defense Production Act

The shortages of personal protective equipment (PPE) such as masks and gowns, as well critical items such as ventilators, have been headline news. On March 23, 2020, the President issued an Executive Order delegating to the Health and Human Services (HHS) Secretary the authority to designate, and prevent the hoarding of, key health and medical supplies and equipment. On March 25, HHS issued its list of designated items, including N95 masks and other PPE, sterilization equipment and supplies, and ventilators and other respiratory equipment.

In a related action, on April 2 the DOJ and HHS jointly announced the seizure and redistribution to overstretched hospitals in New York and New Jersey of nearly 200,000 N95 masks after the arrest of a Brooklyn man.

COVID-19 Scams

Finally, but probably least surprisingly, enterprising con artists have already started preying on the fears of people by marketing fake cures and other COVID-19-related scams. The DOJ brought its first enforcement proceeding on March 22, 2020, obtaining a temporary restraining order against a website offering a fraudulent coronavirus vaccine.

On March 24, the DOJ issued a warning to be on the lookout and report COVID-19-related scams, including:

  • Individuals and businesses selling fake cures for COVID-19 online and engaging in other forms of fraud
  • Phishing emails from entities posing as the World Health Organization or the Centers for Disease Control and Prevention
  • Malicious websites and apps that appear to share virus-related information to gain and lock access to your devices until payment is received
  • Seeking donations fraudulently for illegitimate or nonexistent charitable organizations

For regular updates on the major challenges companies are facing, please visit our COVID-19 resources page, and subscribe for timely updates in your inbox here.

manatt-black

ATTORNEY ADVERTISING

pursuant to New York DR 2-101(f)

© 2020 Manatt, Phelps & Phillips, LLP.

All rights reserved