The Biden Administration’s Appointment of a Chief Pandemic Fraud Prosecutor: What It Means and What You and Your Business Should Be Doing Now

The U.S. Department of Justice (the “DoJ”) made good on President Biden’s State of the Union promise earlier this month to appoint a chief prosecutor for pandemic fraud, including that related to monies made available under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and its Paycheck Protection Program (“PPP”), which is overseen by the Small Business Administration (“SBA”). Associate Deputy Attorney General Kevin Chambers, a veteran prosecutor and former Big Law litigator and Big Four auditor, was named to the high-profile position.

This signals a likely escalation in prosecutorial activity that was already highly active, including more than 2,800 criminal and civil cases – many of which are getting public attention and some of which are resulting in significant fines and judgments. Thus far, the government has seized more than $1.2 billion of funds disbursed through various pandemic relief programs.¹ There have been more than 350 indictments, approximately 300 arrests, and 150 convictions so far – and, with stepped-up emphasis, these statistics will only grow.

As Mr. Chambers himself said during his formal introduction: “[T]he work to this point has been extraordinary and I'm looking forward to building on that work, and redoubling our efforts to identify pandemic fraud, to charge and prosecute those individuals responsible for it and whenever possible, to recover funds stolen from the American people.”²

The DoJ has been given broad powers to aggressively prosecute those who are accused of committing crimes and have shown dubious conduct during one of the most traumatic times in the nation’s history. The environment for borrowers against whom the DoJ can credibly pursue charges is, indeed, a challenging one. For example:

• A U.S. District Court judge in Rhode Island imposed a 44-month prison sentence (in addition to a year for evading arrest) on a man who admitted to having simultaneously submitted four duplicate PPP loan applications, from which more than $500,000 was secured.^3,4
• In New Jersey, a man received a two-and-a-half-year sentence after pleading guilty in December to charges that included submitting a fraudulent PPP loan application resulting in nearly $500,000 in proceeds as well as altering a U.S. government check.⁵
• A Florida man was sentenced in January to five years in prison for securing approximately $1.3 million in pandemic-relief funds after filing 13 fraudulent applications for more than $2.1 million in benefits.⁶
• A 44-month prison term was handed down to a Florida woman in February for her role in a scheme in which more than $2 million in PPP loan proceeds were obtained as a result of fraudulent applications for more than $3.3 million.

What does this mean for the more than five million recipients? The answer is an emphatic “It depends.”

As described by The New York Times, the Cares Act and PPP were “hastily created and frequently chaotic,”⁷ administered not by the government itself but by a vast network of private-sector financial institutions, including large and small brick-and-mortar and internet-based banks. The objective at the time was to push money into the economy for emergency stimulus, which was badly needed – and needed fast

In the frantic push for businesses and their owners to obtain the lifelines that PPP funds would provide, many found themselves without support in completing the necessary paperwork – with accountants and bankers often too overwhelmed to timely provide such support, with frequently-changing guidance from the SBA itself. It is these same borrowers who are among those whose PPP eligibility and forgiveness requirement compliance is now being intensely scrutinized.

PPP borrowers are strongly encouraged to look back at the representations made during the loan and forgiveness application process in order to be ready when and if the federal auditors come knocking – a scenario that is prudent to assume will arise. In other words, businesses that obtained PPP funds, and their owners, should assemble and organize appropriate supporting documentation and consider preparing explanations for any underlying circumstances, identified assumptions, and potential errors or misstatements. The individual borrower, with so much at stake, can never be overprepared and should take steps to document its support when it is fresh in one’s mind, rather than trying to reconstruct such items when the auditors show up years later. Legal counsel and accounting advice from firms that are experienced in this area is highly recommended while this process is conducted.

While the full implication of the appointment of Mr. Chambers as the chief pandemic fraud prosecutor remains to be seen, it is safe to say that the level of inquiry will be heightened for quite some time. Being prepared to answer the questions that may be asked is critical to businesses that wish to successfully navigate the rough waters that regulatory and prosecutorial scrutiny may bring.

James J. Agar is a managing director with Eisner Advisory Group’s Financial Advisory Services practice (“FAS”), where he is a member of the firm’s New Jersey Forensic, Litigation & Valuation Services Group (“FAS”). A CPA Certified in Financial Forensics and a Certified Fraud Examiner, he brings nearly 30 years of experience to clients across a broad range of industries and ownership structures, and their internal and outside counsel.

Henry Vargas is a manager with Eisner Advisory Group’s Financial Advisory Services practice (“FAS”), where he is a member of the firm’s New Jersey Bankruptcy and Restructuring Group. A Certified Public Accountant and a Certified Fraud Examiner, he brings several years of audit and advisory experience to clients across a broad range of industries regarding multiple accounting issues. Henry has extensive experience with the Payroll Protection Program (“PPP”) loan application and forgiveness processes, as well as in the preparation of responses to the U.S. Small Business Administration (“SBA”) regarding resulting inquiries.

¹ Pandemic Relief Fraud- A Focus And Priority For The Department Of Justice | Pietragallo Gordon Alfano Bosick & Raspanti, LLP - JDSupra
² Director for COVID-19 Fraud Enforcement Kevin Chambers Delivers Remarks at COVID-19 Fraud Enforcement Task Force Roundtable | OPA | Department of Justice
³ Massachusetts man sentenced to federal prison for fraud and faking his own death | WJAR (turnto10.com)
⁴ Staveley Sentenced to 4 Years for PPP Fraud - WarwickPost.com
⁵ Middlesex Man Sentenced to 30 Months in Prison for Paycheck Protection Program Fraud Scheme and Obtaining Funds from Stolen and Altered U.S. Treasury Check | USAO-NJ | Department of Justice
⁶ Man Sentenced for PPP Fraud Adds to Growing Number of Convictions for Swindling Government (newsweek.com)
⁷ Spotting $62 Million in Alleged P.P.P. Fraud Was the Easy Part - The New York Times (nytimes.com). See also Small-Business Loan Program, Chaotic From Start, Gets 2nd Round - The New York Times (nytimes.com)