Fraud Cases

Kelly v. United States (U.S. Supreme Court, May 2020)

In a unanimous opinion, the Supreme Court reversed the convictions of the Port Authority officials involved in the infamous "Bridgegate scandal," holding that their convictions for wire fraud on a federally funded program, predicated on their blocking off certain lanes as political retribution against an opposition mayor, were not supported by sufficient evidence because they did not involve a scheme "to obtain money or property."

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Feds look for fraud in $670-billion small business loan program

As part of the federal government’s efforts to keep the economy going during the COVID-19 pandemic, Congress created a $670 billion emergency loan program for small businesses called the Paycheck Protection Program. The DOJ is now announcing that it will scrutinize businesses that apply for and receive this aid, especially large businesses and those applying for more than $2 million in loans. The loans are being administered through the Small Business Administration.

The Los Angeles Lakers made news in outlets like CNN, Politico, and NPR when it sought and obtained one of these loans. Other large, public companies have come under public and government scrutiny for obtaining these loans.

While the Lakers have committed to returning the money, the government has reportedly noticed signs of fraud in its initial review of loans dispensed through the PPP. Specifically, prosecutors have seen “red flags” including companies making false statements on loan applications. such as overstating their payroll costs, the number of employees they have, or the nature of their business. Such misrepresentations could be charged as wire fraud, theft of government funds, and making false statements, among other charges. Since many of these loans are distributing the money through banks, there may be bank fraud charges involved.

No prosecutions or criminal investigations have been announced yet, but the feds have predicted that “fraudsters will come out of the woodwork” given what looks like a golden opportunity.

Click here to read an article from Bloomberg News on the federal government’s review of the PPP loans.

DOJ Targets Internet Scams Involving COVID-19 Fraud

The Department of Justice issued a press release today announcing that it “has disrupted hundreds of internet domains used to exploit the COVID-19 pandemic to commit fraud and other crimes.”

The presser notes that the FBI has received thousands of tips related to COVID-19 scams from websites advertising fake vaccines and treatments, fake charity drives, or that were posing as COVID-19 content in order to distribute malware. As specific examples, the presser noted a website pretending to collect donations for the Red Cross’s COVID-19 efforts and a website requesting personal identifying information in connection with government relief programs.

The efforts follow guidance issued in March directing federal law enforcement and prosecutors to identify COVID-19-related scams. That memo directed prosecutors to consider charges including wire and mail fraud, computer fraud, healthcare fraud, identity fraud, counterfeit goods trafficking, misbranded drugs violations, and price-gouging charges.

Read the DOJ’s press release here.

Read the DOJ’s memo here.

Feds bring first prosecution under Defense Production Act

In an unprecedented move, the federal government has brought its first criminal prosecution under the Defense Production Act, charging Bobby Singh, a business owner in Long Island, with hoarding and price-gouging personal protective equipment. Under the Defense Production Act, the president can issue an executive order recognizing certain products and materials as “scarce materials” and tightly regulate their pricing and supply.

In this case, the criminal complaint alleges that Singh knowingly and intentionally accumulated such “scarce materials,” in this case personal protective equipment like face masks, hand sanitizer, “in excess of reasonable demands of business, personal, and home consumption,” and “for the purpose of resale at prices in excess of prevailing market prices.” In other words, the federal government is accusing Singh of hoarding and price-gouging PPE by buying more PPE than he needed to and charging more than a fair price.

The criminal complaint makes a host of allegations against Singh, featuring pictures from his business’s Instagram page and other social media posts showing Singh in front of a large supply of PPE, with captions stating things like “Face Shields in stock now.” The complaint then details the quantity of PPE Singh purchased, what he paid for it, and how much he charged when selling it. Some of Singh’s pricing seems innocuous–he bought masks in bulk at 7 cents a piece and sold each one for a dollar, a mark up of over 1000%, but perhaps not an unreasonable one given that the masks were selling for just a dollar. Prosecutors will instead likely focus on more sensational items, such as Singh charging $80 for $30 thermometers and $25 for a bottle of hand sanitizer.

It’s clear the federal government is trying to send a signal to retailers regarding their business practices in the age of the coronavirus. And to be clear, we certainly need regulations to protect against bad faith actors who hoard and price-gouge scarce medical equipment. But as in any criminal case, important questions need to be asked when the feds seek a criminal conviction. In this case, with these charges, that means asking: what quantity of PPE constitutes “in excess of reasonable demands”? What are “prevailing market prices,” especially during a pandemic? Why was Singh arrested without any prior notice that his business practices exposed him to criminal liability under a law that has never before been used to prosecute a business in this manner?

The prosecution makes good on a DOJ memo issued in late March directing prosecutors to consider bringing charges for hoarding and price-gouging under the Defense Production Act.

No doubt, Singh is likely arguing that he was doing what any business would do–recognizing an opportunity and capitalizing on it, especially in an environment where many businesses are struggling to stay afloat. The prosecution, for its part, will no doubt rely the public’s emotional reaction to the COVID-19 pandemic to paint Singh as a greedy individual exploiting a crisis. This prosecution will be one to watch, as will watching whether the feds bring more charges under the Defense Production Act. For what it’s worth, this author has seen face masks and gloves for sale at his neighborhood gas station at a far higher price than those charged by Singh.

Click here to read the federal government’s criminal complaint.


United States v. Lee John Maher (11th Cir. April 2020)

In an appeal of the defendant's conviction for retaining government property (in the form of federal grants), the Eleventh Circuit rejected the defendant's statute of limitations argument, holding that retaining government property is a "continuing offense." Given the definition of "retention," the statute of limitations does not begin to run until the defendant relinquishes possession of the government property.

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