If history is any guide, the ongoing coronavirus pandemic will provide many opportunities for fraudsters to separate the desperate and vulnerable from their money and personal information. With fraud cases still winding their way through criminal and civil courts more than a decade after the last financial crisis, federal and state law enforcement agencies have recently launched new initiatives to deter and detect fraud schemes related to COVID-19. The recent warnings from law enforcement agencies serve as a reminder to individuals and businesses alike to be vigilant in their electronic communications and financial transactions and to report any suspicious activity to investigative authorities.
Here is a look at recent directives from the U.S. Department of Justice (DOJ) and actions taken by various law enforcement agencies to target fraudulent schemes related to COVID-19.
Attorney General Prioritizes COVID-19 Fraud
On March 16, Attorney General William Barr issued two directives to all United States Attorneys in response to the growing coronavirus pandemic emphasizing the following key points:
- The DOJ’s law enforcement operations “must and will continue” to operate effectively during the outbreak and directed U.S. Attorneys to work with the Chief Judge in each district “to ensure that every appropriate precaution is taken” to protect those who make the justice system function.
- All U.S. attorneys are “to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.” The Attorney General urged the DOJ to “remain vigilant in detecting, investigating, and prosecuting wrongdoing related to the crisis.” “In particular, there have been reports of individuals and businesses selling fake cures for COVID-19 online and engaging in other forms of fraud, reports of phishing emails from entities posing as the World Health Organization or the Centers for Disease Control and Prevention, and reports of malware being inserted onto mobile apps designed to track the spread of the virus.”
- U.S. Attorneys are encouraged to consult with the DOJ and “to work closely with state and local authorities” to ensure that “all appropriate enforcement tools are available.” In furtherance of that directive, on March 19, Deputy Attorney General Jeffrey Rosen ordered each U.S. Attorney to appoint a COVID-19 fraud coordinator to serve as the legal counsel for that judicial district on matters relating to COVID-19, to direct the prosecution of COVID-19-related crimes, and to conduct outreach and awareness activities to enhance law enforcement goals. U.S. Attorney’s Offices across the country promptly announced their COVID-19 coordinators and coupled that announcement with tips to avoid scammers and information about how to report suspected fraud.
In a March 20 release, the Attorney General urged the public to report suspected fraud to the National Center for Disaster Fraud hotline by phone or email. That same day, the Federal Bureau of Investigation (FBI) and the Federal Trade Commission (FTC) issued separate warnings about the rise in scams related to COVID-19. The FBI specifically warned about emails “claiming to be from the [CDC],” websites and apps “claiming to track COVID-19 cases worldwide,” and emails seeking personal information to receive government stimulus payments, airline refunds, and medical supplies or treatments. In addition, the FBI urged the public to “[b]e cautious of anyone selling products that claim to prevent, treat, diagnose, or cure COVID-19” and to “[b]e alert to counterfeit products such as sanitizing products and Personal Protective Equipment (PPE).” The FTC echoed those warnings and cautioned people to, among other things:
- Hang up on robocalls
- Ignore online offers for vaccinations and home test kits
- Don’t respond to texts and emails about checks from the government
- Don’t let anyone rush you into making a donation to a purported charity or relief fund
First Federal Enforcement Action Seeks Injunctive Relief
The first federal enforcement action in response to alleged COVID-19 fraud was filed on March 21, 2020. In United States v. Doe, a/k/a/ “coronavirusmedicalkit.com,” Case No. A-20-CV-306 (W.D. Tex. Mar. 21, 2020), the government sought, and was granted, a temporary restraining order against the unknown operator of a website that claimed to offer consumers free World Health Organization (WHO) vaccine kits if they paid a $4.95 shipping charge by entering their credit card information on the website. In fact, there are no legitimate vaccines distributed by the WHO or any other entity.
What is notable about this first case is that the DOJ used a civil action to obtain immediate relief. This decision may reflect a proactive strategy by the government to use civil injunctions to shut down websites, freeze accounts, block account access, and forfeit assets. This strategy allows prosecutors to obtain relief quickly based primarily, or even solely, on information gathered by investigating agents. The strategy may also be borne of necessity, as the traditional tools used by prosecutors are currently unavailable in many districts, where grand juries cannot be convened, witnesses cannot be interviewed, in-person hearings are postponed, etc. By obtaining civil injunctive relief, the government can act expeditiously to stop on-going fraud while waiting for the normal processes of the justice system to resume to initiate grand jury investigations or conduct civil discovery.
Coordination with State and Local Law Enforcement
In many districts, federal, state, and local authorities have formed joint task forces to coordinate efforts to investigate COVID-19 fraud. In Illinois, for example, the COVID-19 fraud coordinator appointed by the U.S. Attorney will “work with federal, state, and local law enforcement partners . . . [to] coordinate and lead investigations and prosecutions of those who attempt to take advantage of people during this time of crisis.”
While the federal government will likely continue to take the lead in investigating conduct that is national or international in scope, it is likely that, at least in certain states, the attorney general’s office will actively pursue complaints of price gouging and consumer fraud made by or against local residents.
On March 25, a coalition of 33 attorneys general urged major websites “to rigorously monitor price gouging practices by online sellers using their services.” The Illinois Attorney General created an online hotline to allow consumers to easily submit complaints about price gouging. The Office of the Attorney General of New York announced that it “is actively monitoring” and “continues to surveil and monitor businesses across the state” for potential incidents of price gouging and sales of bogus medical treatments. The New York Attorney General has already issued several cease and desist orders to businesses engaged in price gouging or that made phony claims in marketing treatments or cures for the coronavirus.
Act Quickly If You Suspect Fraud
If you believe you have been defrauded, or if you have concerns about the business practices of a supplier, customer, competitor, or service provider, act quickly to report your concerns. Prompt reporting prevents others from being harmed and increases the likelihood that you obtain relief.
Schiff Hardin lawyers can advise you as to (1) which law enforcement agency or agencies you should report your concerns; (2) how best to investigate and present your claims; (3) the nature and extent of your loss or damages; and (4) options to pursue claims against the fraudster.
Schiff Hardin’s Coronavirus Task Force continues to monitor areas of potential risk to our clients and the efforts of law enforcement to deter fraud and prosecute wrongdoers who try to exploit an international emergency. Stay tuned for additional insights on ongoing COVID-19 pandemic challenges and key issues facing our clients.