Since the onset of COVID-19, the U.S. Department of Justice (Department) has prioritized pandemic-related cases in a very public way. In a series of March 2020 memos, Department officials have warned of a range of pandemic-related schemes, dedicated staff and shored up public reporting hotlines. The Department even constituted a "Hoarding and Price Gouging Task Force" to enforce little-known provisions of the Defense Product Act (DPA) aimed at price gouging on goods intended to slow the spread of the virus. Attorney General William P. Barr directed federal prosecutors "to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic."

What followed has been a range of price gouging, program fraud, health care fraud, anti-kickback, and consumer protection enforcement actions proving the Department's willingness to pursue pandemic-related cases, even as federal criminal prosecutions overall were down 80 percent from February to April 2020, according to Syracuse University's TRAC Reports.

These new cases teach important lessons for businesses and applicants for the nearly $2.7 trillion in economic relief that the government dispensed in the wake of the pandemic. These cases also offer a glimpse of prosecutions to come.

Price Gouging and PPE Fraud Enforcement

Just as DOJ was establishing its anti-price gouging Task Force, the Secretary of Health and Human Services ("HHS") designated 16 categories of personal protective equipment ("PPE"), disinfectant, ventilator equipment, and other medical goods as "scarce healthcare and medical items." After that designation, it became a misdemeanor to accumulate those "scarce" goods in excess of reasonable business or personal needs, or to sell them in excess of "prevailing market prices."

While prioritizing abusive market practices with respect to these items, the Task Force has offered little guidance as to what prices are "excessive." Federal law does not define "price gouging" or what constitutes an "excessive" markup, and state laws vary. Depending on the jurisdiction, resale prices could be "excessive" if they are set 10% above the average, pre-pandemic price (New Jersey); more than 20% above the "average price" (Pennsylvania); at a "gross disparity" with average market prices over the prior 30 days (Florida); or at any price deemed "unconscionably excessive" (New York).

In June 9, 2020 comments to the Senate Judiciary Committee, Associate Deputy Attorney General William Hughes and New Jersey U.S. Attorney Craig Carpenito, who heads the Task Force, emphasized a focus on whether a reseller is "profiteering" from the transaction. For example, it is meaningful to the Task Force if a "reseller's costs are not particularly higher than the costs a traditional distributor incurs, but the reseller nevertheless demands a resale price substantially higher than the traditional price for the same goods." Predictably, the Department offered no bright line rule; instead, it promoted a know-it-when-you-see-it analysis of reseller profit margins.

Despite uncertain pricing standards, the Department has readily invoked the DPA to address pandemic-related price-gouging. In its first prosecution, prosecutors in the Eastern District of New York ("EDNY") charged Amardeep Singh with stockpiling over five tons of medical equipment, including masks and gloves, and selling those goods in the "COVID-19 Essentials" section of his store at a more than 1,000 percent markup. The criminal complaint detailed Singh's business pre-COVID-19, noting that he only started selling medical materials after the outbreak. EDNY also charged Kent Bulloch and William Young with reselling one million KN95 face masks at a 50 percent markup in New York City.

According to recent statements by U.S. Attorney Carpenito, the Task Force has opened "hundreds" of like investigations. To prepare for this continued scrutiny, sellers of designated goods should take care to set prices in accordance with their jurisdiction's laws, and maintain detailed purchase and sale records. This is particularly true for businesses who pivoted to selling "scarce" materials only after the outbreak.

PPP Fraud

The Department also has prioritized waste and abuse relative to the some $2.7 trillion in economic relief. Even at this early stage, federal prosecutors nationwide have pursued allegations of fraudulent PPP loan applications. Such was the case when Washington software engineer, Baoke Zhang, was charged with bank fraud for seeking $1.5 million in forgivable, SBA-backed loans from multiple banks, allegedly claiming fictitious payroll expenses associated for bogus IT companies. Zhang submitted IRS documentation that allegedly inflated his actual payroll costs and misstated the age of his company, which was issued an Employee Identification Numbers just days before his application.

As in Zhang, PPP fraud cases typically involve overstatement of employee rolls and, thus, payroll budget, and investigations involve a simple comparison of submitted payroll lists with state labor and IRS records, according to charging documents.

In addition to application fraud, prosecutors are focused on the use of PPP proceeds. Reality TV personality Maurice Fayne was charged in Georgia after he allegedly frittered away $1.5 million in PPP loan proceeds on a Rolex Presidential watch, diamond jewelry, and a Rolls-Royce Wraith. Luxury vehicles aside, guidance on permissible use of PPP funds has been in flux. Recent guidelines permit the use program funds for health care benefits and non-mortgage debt, both of which were not previously allowed. That evolving guidance may impact Department's ability to pursue criminal charges in more subtle cases; however, cases to date show it will readily pursue program funds procured by fraud or spent on purely personal expenses.

Health Care Fraud and Anti-Kickback Statutes

Some pandemic-related cases fit squarely into the Department's already-active health care enforcement agenda. Recent examples have involved alleged bundling of COVID-19 tests with more expensive, and allegedly unnecessary, respiratory pathogen panel ("RPP") tests.

"[W]hile there are people going through what they are going through, you can either go bankrupt or you can prosper" – so read the unfortunate quote attributed to Erik Santos in a criminal complaint filed in the District of New Jersey. U.S. Attorney Carpenito charged Santos, a marketing company proprietor, with receiving bribes and kickbacks for COVID-19 tests, and bundling those tests with unnecessary RPP tests. This variation on a classic bundling fraud was made all the more attractive by Attorney General Barr's focus on COVID-19 related misconduct.

Pandemic-related fraud cases have run the gamut from reimbursement for medically unnecessary services to allegations lying to investors about fraudulent COVID-19 testing practices. These cases sound a warning to health care market participants that the Department will use every tool in its arsenal to address pandemic-related alleged misconduct.

Consumer Protection

Public fear spawned by COVID-19 has also brought opportunities for the "snake oil" salesman. The AG's March memos warned of opportunists peddling bogus cures and dubious treatments, and Department lawyers have again responded with an array of actions to criminally prosecute and civilly enjoin them. In one recent case, a Georgia woman has pleaded guilty to violating the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) for selling an unregistered pesticide that she claimed protected against viruses, such as COVID-19.

The Department's Civil Division, too, has actively responded to allegations of companies making false pandemic-related statements to the public. For example, the Department permanently enjoined Purity Health and Wellness Centers, Inc. from falsely claiming that its "Ozone Therapy" treatment prevented COVID-19, and Genesis II Church of Health and Healing and its proprietors from marketing a powerful bleach product as a COVID-19 treatment.

Department Priorities Going Forward

These cases are likely but a glimpse of enforcement actions to come. In this environment, companies should concentrate their compliance efforts on addressing the Department's attention to these areas. For example:

• Businesses operating in markets for PPE and other goods designated as "scarce" by HHS should carefully document purchase and sales data and be prepared to substantiate resale prices that comport state and federal anti-price gouging laws, particularly recent entrants to the PPE market.

• Businesses receiving PPP, CARES Act Provider Relief Fund, or other program relief must ensure accurate applications and spending in accordance with the rules of the particular program involved, and closely monitor updated guidance from the U.S. Department of Treasury and the SBA in coordination with legal and accounting professionals.

• Health care providers and businesses in the COVID-19 laboratory testing space should expect continued scrutiny of reimbursement claims, particularly those tests submitted to federal payors such as Medicare, and should regard the government's view of medical necessity for tests related to COVID-19 to avoid the appearance of improper bundling.

• Sellers of food, drugs, and supplements, too, should expect scrutiny of advertisements under the FDCA, and should carefully vet COVID-19 marketing materials.

Costs associated with these "ounce of prevention" compliance measures comes at an inconvenient time, with many businesses struggling under the weight of the pandemic. However, given the Department's scrutiny of COVID-19 related business practices, and dedicated resources to enforcement actions, these and other compliance investments may be well advised. With $2.7 trillion in relief distributed so rapidly, and the fertile ground for fraud brought on by the COVID-19 pandemic, prosecutors will continue to investigate and charge enforcement actions where they deem appropriate.

Eric W. Moran is a member of Epstein Becker Green in the firm's in the litigation & business disputes and employment, labor & workforce management practices. Jeffrey P. Mongiello is an associate at the firm.