In-House Counsel Working to Keep Compliant With CARES Act Funds
Voya Financial deputy general counsel Justin Smith sees risk with "financial intermediaries who may use this mechanism as a way of pushing a product instead of what the law is intended for."
April 27, 2020 at 06:22 PM
5 minute read
Congress thrust financial institutions into the middle of coronavirus aid packages, and now those companies are working to keep themselves from becoming witnesses, targets or defendants in any future fraud investigations.
The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, is historic, both in the amount of money being dispersed with over $2 trillion and the broad range of industries receiving it, according to Edward "Ted" Kang, a partner at Alston & Bird and part of its COVID-19 task force.
"That's because not one industry has been spared by the virus," said Kang, a former federal prosecutor who also leads the law firm's white-collar, government and internal investigations team. "As a result, this money is being dispersed very quickly as people need these paychecks and loans. What I think is coming is the likely potential for False Claims Act enforcement once all the dust has settled."
Justin Smith, senior vice president and deputy general counsel at Voya Financial, agreed. Voya, formerly ING U.S., is a financial, retirement, investment and insurance company based in New York City.
"At Voya we are seeing the biggest impact in the retirement space," Smith said. "Congress created a special distribution for folks who have balances in various retirement plans, including 401Ks. People can simply self-certify their coronavirus-related need … and they can get up to $100,000 of their money quickly and spread the income tax out over a three-year period."
Congress has also warned about any fraud in the procurement or use of CARES Act funds. Kang explained that Congress has created three enforcement mechanisms: A special inspector general to investigate fraud; the Pandemic Response Accountability Committee, comprised of inspectors general from a number of agencies; and a bipartisan congressional oversight commission, which can issue subpoenas and call for hearings.
On Monday Robert Westbrooks, a veteran inspector general who has worked in numerous federal agencies, was named executive director of the Pandemic Response Accountability Committee. Westbrooks is an attorney and a certified public accountant. The group also launched a website and Twitter account @COVID_Oversight to provide updates and resources on pandemic spending.
Because of the urgency in these times, Smith said he doubts regulators or law enforcement will come in "and pick on sponsors for getting it slightly wrong around the edges. Congress also gave corporate sponsors several years to amend their formal plan documents."
Where Smith sees risk, however, is with "financial intermediaries who may use this mechanism as a way of pushing a product instead of what the law is intended for."
Smith thinks the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and state securities and insurance regulators might be keeping their eyes on intermediaries. "Are there intermediaries calling up, convincing them to take a coronavirus-related distribution in order to sell them some financial product [like an annuity]?" he asked.
Smith said his company also set up a task force to study the legislation and determine how it can help clients who call wanting to know what to do or how to access funds.
"Most of our own outbound calls to outside counsel have really been interpretive questions about these distributions," he added.
Kang said his firm is answering those types of calls and much more. "It is covering the landscape because the False Claims Act exposure is now extended to any company that accepts a loan," he explained.
Kang noted that companies that never had exposure to the False Claims Act before, because they were not defense or health care contractors getting Medicare, now have such exposure because they are making certifications and claims to the federal government for money.
The exposure means that companies could be held criminally or civilly responsible because the act punishes reckless as well as intentional misconduct. The act also holds out the possibility of treble damages in extreme cases.
"We are educating our clients to the extent of the exposure, and really getting granular about the certifications," Kang said. "It's easy to check the box and say, 'Yeah, yeah, yeah …' but what level of diligence has been conducted to make sure certifications are accurate?"
In addition, he said, staying in compliance with those certifications about how the money will be used is an ongoing obligation. "Often certifications are made, the loan received, and then the certifications fall off the radar," he said.
Kang warned that the government could "get aggressive later on. We are looking at months or years of Monday morning quarterbacking, and they may take a very different posture than they are right now."
That's why, Kang said, in-house counsel need to be thinking about compliance now and making sure the certifications are done right.
"So if that [enforcement] day comes, in-house counsel will have a good answer and can document the steps they took to show compliance," he advised.
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