CARES Act Fraud and Whistleblower Protections


With the disbursement of funds under the CARES Act, federal enforcement of one key law is expected to increase in the coming months. The False Claims Act (FCA), enacted in 1863 during the American Civil War, is an expansive law that allows private citizens to file suits for fraud on behalf of the government. Squire Patton Boggs principal and former prosecutor Marisa Darden explains what the FCA is, the whistleblower provisions and protections under it, and general best practices for companies to navigate the FCA and the CARES Act.

 

Marisa T. Darden is a principal at Squire Patton Boggs in the Government Investigations & White Collar practice and a former state and federal prosecutor.


Additional Resources

Using the FCA to Combat CARES Act Fraud
Quotation from Department of Justice Publication by Stephen J. Cox, United States Attorney

In addition to criminal efforts, we [the Department of Justice] are looking to the False Claims Act (“FCA”), a powerful civil statute that allows the United States to recoup money that has been lost due to fraud.  The FCA allows the government to obtain treble damages and civil penalties from those who defraud federal programs, such as the CARES Act.

Full Article: Combating CARES Act Fraud: Ensuring Economic Relief for Americans Through Law Enforcement Efforts

 

CARES Act Fraud, Justice Dept. Priorties
Quotation of Deputy Assistant Attorney General Ethan P. Davis

PPP Fraud

In a time when the government is injecting vast amounts of federal funds into the U.S. economy, vigorous FCA enforcement is more important than ever to ensure that taxpayer dollars are spent as intended.  To that end, the Civil Division’s Fraud Section has implemented a number of initiatives to identify, monitor, and investigate potential violations of the FCA in this area.  Fraud Section attorneys are coordinating closely with the Office of the Inspector General at the Small Business Administration and other DOJ components to identify potential program vulnerabilities and safeguard PPP funds, as well as to identify any potential wrongdoing that warrants investigation.  Going forward, the Civil Division will make it a priority to use the False Claims Act to combat fraud in the Paycheck Protection Program. The same is true of other assistance programs created by the CARES Act.  

Main Street Credit Facility

The Main Street Credit Facility, for example, is designed to provide loans to small and medium-sized businesses that were in sound financial condition before the onset of the COVID-19 crisis, but that now need loans to help maintain their operations.  As with the PPP, borrowers and lenders are required to abide by the programs’ requirements, including various eligibility requirements.  We [the Department of Justice] will use the False Claims Act to hold accountable those who knowingly attempt to skirt those requirements.

The Provider Relief Fund

The CARES Act’s provider relief fund is another example.  Over the past several months, HHS has been distributing billions of dollars to health care providers, including those on the front lines of the COVID crisis.  Providers who receive funds must agree to a number of terms and conditions. Providers must attest, for example, that they have provided or are providing care to individuals with actual or possible cases of COVID-19.  They must also agree to restrictions on balance billing actual or presumptive COVID-19 patients.  Where a provider knowingly violates these requirements, the False Claims Act may come into play.

Private Equity Enforcement

Our [the DOJ's] enforcement efforts may also include, in appropriate cases, private equity firms that sometimes invest in companies receiving CARES Act funds. When a private equity firm invests in a company in a highly-regulated space like health care or the life sciences, the firm should be aware of laws and regulations designed to prevent fraud.  Where a private equity firm takes an active role in illegal conduct by the acquired company, it can expose itself to False Claims Act liability.  A pre-pandemic example is our recent case against the private equity firm Riordan, Lewis, and Haden, where we alleged that the defendants violated the False Claims Act through their involvement in a kickback scheme to generate referrals of prescriptions for expensive treatments, regardless of patient need.  Where a private equity firm knowingly engages in fraud related to the CARES Act, we will hold it accountable. 

Full Transcript of Speech (June 26, 2020)


CARES Act Fraud and Whistleblower Protections Brief Transcript


The CARES Act intends to distribute more than $2.2 trillion in stimulus funds. Federal regulators and the Department of Justice have already announced that they plan to aggressively root out corruption and fraud within the system. One tool that they'll have to use is the False Claims Act and the whistleblower protections that are associated under that statute.

My name is Marisa Darden. I'm a principal in the Government Investigations & White Collar Crime section at Squire Patton Boggs. I was a state and federal prosecutor before joining Squire Patton Boggs, and I'm going to talk more about the False Claims Act.

So what is the False Claims Act? It's actually a tool that's been used by the government for over a 150 years to reclaim losses as a result of fraud or fraudulent activity against the government. It's often used in the health care space, but it can be in any sector where public funds are disseminated and/or used. Some common examples would be programs that take money for Medicare or Medicaid, hospitals, any public-private partnership, and other organizations that take grant money or federal loans, including the CARES Act money, this $2.2 trillion stimulus package recently passed by Congress. Looking now, coronavirus-related concerns could include things like companies that are selling deficient or substandard personal protective equipment, an enforcement action related to electronic health records or other personal identifying information related to patient care, and hospitals and other entities should also be aware of investigations relating to patient care, management of systems and funds, research issues, or other areas of concern where a government would have an interest in protecting patients or other individuals.

So the interesting thing about the False Claims Act is that there really is no scienter or knowledge requirement in order to be prosecuted. In other words, the government does not have to prove that the company or the executives being prosecuted actually knew that there was a fraud perpetrated against the government. It's simply enough to recklessly disregard the signs or to be involved in something where the eventual result was a fraud against the government. And also damages can be very steep under the False Claims Act. In many cases, companies who are fined under the False Claims Act have to pay triple the original amount that was defrauded.

Under the False Claims Act, the qui tam provisions, which is really just a fancy word for whistleblower or relator, are some of the provisions that people hear and think about the most when they think of the False Claims Act. Essentially, when someone knows or learns about some alleged wrongdoing, they can file their own relator complaint suing on behalf of the wrongdoing or behalf of the government. Eventually, the government must notify the court as to whether they intend to pursue the relator's complaint and move forward in prosecuting or decline to investigate it further. One might wonder why a whistleblower would go through all this effort or put themselves at risk in order to do this on behalf of the government or some potential wrongdoing. And the way that the False Claims Act keeps the incentives high is to create a monetary value. So if a relator's claim eventually is found to recoup losses from the government, the relator themselves can recoup up to fifteen to twenty-five percent of the total monies recovered, which could be millions of dollars. The most important provisions under the whistleblower portion of the False Claims Act statutes are the robust protections afforded whistleblowers in the workplace. The statute protects the whistleblower from being retaliated against, discriminated against, or otherwise harassed as a result of their complaint. It's increasingly common to see whistleblower complaints pursued through a prosecution and to an end result. In fact, last year the Department of Justice recouped about $2.5 billion from the healthcare industry alone in qui tam relator complaints.

Some suggestions include having a top-down leadership approach that emphasizes open communication and robust compliance with the rules and regulations of your industry. Most importantly, document, document, document. Don't assume that your normal procedures and practices will capture the why or the how. Implement and sustain an effective compliance program that encourages cooperation and open dialogue amongst entities and groups. If individuals feel compelled to report information, they need to feel comfortable doing it within the organization first so that key individuals can participate meaningfully in assessing the problem, rooting it out from within, and doing something to fix it before government intervention takes place.

I'm Marisa Darden.Thanks for watching TalksOnLaw.