EnforceMintz — Long Tail of Pandemic Fraud Schemes Will Likely Result in Continued Enforcement for Years to Come

In last year’s edition of EnforceMintzwe predicted that 2024 would bring an increase in False Claims Act (FCA) enforcement activity related to COVID-19 pandemic fraud. Those predictions proved correct. The COVID-19 Fraud Enforcement Task Force (CFETF), in conjunction with five COVID Fraud Enforcement Strike Forces and other government agencies, has resolved many significant criminal and civil pandemic fraud cases over the past year. In April 2024, the CFETF released a COVID-19 Fraud Enforcement Task Force 2024 Report (the CFETF Report) describing the CFETF’s recent efforts and including a plea for more fraud enforcement funding, which suggests that additional enforcement activity is on the horizon. While that funding request has thus far gone unheeded, we expect more civil pandemic fraud enforcement actions (and continuing criminal actions) in 2025.

Civil and Criminal Paycheck Protection Program (PPP) Fraud Enforcement

Since 2020, criminal PPP fraud has dominated COVID-19 fraud enforcement headlines, and 2024 was no different. Criminal fraud schemes have concerned common fact patterns involving fraudsters who (i) obtained funding to which they were not entitled, (ii) submitted false certifications or inaccurate information in a loan application, or (iii) submitted false certifications or inaccurate information in seeking loan forgiveness. However, in the past year, civil PPP fraud enforcement has begun to evolve.

In 2024, criminal PPP fraud enforcement broke up multiple COVID-19 fraud rings involving actors who fraudulently obtained loans for fictitious businesses, packed PPP applications with false documentation (provided in exchange for kickbacks), and falsely certified information regarding the number of employees and payroll expenses that would entitle them to PPP funding. Typical charges in these cases included wire fraud, bank fraud, making false statements to federally insured financial institutions, conspiracy, and money laundering.

On the civil side, PPP fraud enforcement seemed to increase in 2024. Interestingly, some civil PPP fraud cases involved schemes similar to criminal actions. Often the government’s decision to pursue such cases as civil, criminal, or both depends on the evidence of intentional fraud. For example, in January 2024, a clinic and its owners agreed to a $2 million judgment in connection with multiple fraudulent acts, including PPP fraud arising from their certification that they were not engaged in illegal activity and that their business suffered quarterly or year-over-year losses, therefore entitling them to PPP funding. In October 2024, one FCA recovery totaling $399,990 involved a home health agency and its owner who received two PPP loans after certifying that the company would receive only one. More recently, in December 2024, a private asset management company and its owner agreed to pay $680,000 to settle FCA allegations brought by a relator. The company and its owner allegedly falsely certified that PPP loans were economically necessary and included false statements in the information submitted when seeking forgiveness for the loan. Cases of this nature apparently did not rise to the level of criminal wrongdoing, in the government’s view.

A number of civil PPP fraud FCA cases from the past year involved increasingly complex theories and allegations. These more complicated fact patterns require years of investigation and are expensive. As a result, such fraud enforcement actions may have a “long tail” and continue for years to come.

For example, in May 2024, a private lender of PPP loans agreed to resolve allegations that it knowingly awarded inflated and fraudulent loans to maximize its profits, then sold its assets and bankrupted the company. The lawsuit was initiated by whistleblowers (known under the FCA as “relators”), including an accountant and former analyst in the lender’s collection department. As part of the settlement with the lender, the United States received a general unsecured claim in the bankruptcy proceeding of up to $120 million.

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https://natlawreview.com/article/enforcemintz-long-tail-pandemic-fraud-schemes-will-likely-result-continued