Coronavirus: State Attorneys General and the New COVID-19 Stimulus

With the president’s signature on March 27, 2020, the government passed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the largest economic stimulus package in American history. Passed in response to the coronavirus disease 2019 (COVID-19) pandemic, the CARES Act will have an enduring impact on the country for years to come, particularly so for the industries and businesses eligible for stimulus relief funds. The massive scale of the CARES Act immediately calls to mind questions about how the government will respond in its attempt to prevent fraud, waste, and abuse in carrying out the stimulus.

The closest relative to the current economic stimulus is the financial-crisis relief funding created in 2009 through the American Recovery and Reinvestment Act (2009 Recovery Act) and the Troubled Asset Relief Program (TARP). Along with such funding, the government created a watchdog agency, and regulators across the board − from federal agencies to state attorneys general − focused civil and criminal resources on recovery-related fraud prevention, investigations and prosecutions.

For companies and industries likely to see relief from the new stimulus necessitated by COVID-19, several lessons learned from the 2009 Recovery Act may be important guides to navigating what will assuredly be a complex regulatory environment going forward.

The COVID-19 stimulus and the echo from the 2009 Recovery Act

As has recently been reported in numerous outlets, the COVID-19 stimulus package includes $500 billion to the Treasury Department’s Exchange Stabilization Fund for loans, guarantees, and investments, as well as $454 billion to support the Federal Reserve’s lending facilities for certain businesses, states, and municipalities.

The stimulus package includes the creation of a Treasury Department office that will oversee the distribution of funds and the installment of a special inspector general and oversight board. The special regulatory oversight finds its roots in the government’s last extraordinary economic stimulus − the 2009 Recovery Act. In passing the $800 billion in relief following the financial crisis, the Recovery Act also created an oversight board (the Recovery Accountability and Transparency Board) and provided $84 million in enforcement funding.

But the government focus was not limited to the Recovery Board. The TARP also created a special inspector general position. And, in significant part, these programs were matched by the creation of a multi-agency task force referred to as the “largest coalition ever brought to bear in confronting fraud.” See Statement of B. Jones and R. Adkins, at 2, Hearing on the Oversight of the Financial Fraud Enforcement Task Force, Subcommittee on Admin. Oversight and the Court – Committee on the Judiciary, U.S. Senate (June 30, 2011). Led by the US Justice Department and composed of more than 25 federal agencies and state attorneys general, the Financial Fraud Enforcement Task Force represented a “whole of government” effort—at the combined federal and state levels—to both combat financial-crisis fraud and address potential fraud stemming from the Recovery Act’s massive stimulus.

A renewed regulatory environment - state attorneys general at the fore

While the circumstances which necessitated the governmental intervention differ, the financial crisis brought a wave of increased financial fraud enforcement, and the COVID-19 stimulus may replicate it or lead to similar enforcement activities. Already at the federal level, the Justice Department is mobilizing its resources much in the way it did following the financial crisis. Fraud coordinators are being appointed in US Attorneys’ Offices across the country, and the Justice Department just days ago announced what it described as its “first action in federal court to combat fraud related to” COVID-19. Rather than a criminal prosecution, however, the Justice Department filed a civil consumer protection complaint against an alleged fraudster selling sham COVID-19 vaccine kits.

The Justice Department’s first COVID-19 case may be a harbinger of what’s to come from a myriad of enforcement agencies, many of whom played key roles in the Recovery Act-era Financial Fraud Enforcement Task Force. However, the most impactful of these enforcers may not be one from the federal agencies. Rather, state attorneys general from across the country are expected to again take a large role in anti-fraud COVID-19 stimulus enforcement.

Using the significant authority vested in them through their states’ consumer protection laws, state attorneys general played a central role in the enforcement landscape after the financial crisis. Acting in their individual capacities and together in multi-state actions, they have brought enforcement matters in a range of industries and subject areas.

Now, in the context of the COVID-19 stimulus, the extraordinary infusion of government funds for distribution by states to the private sector may lead state attorneys general − emboldened from their experiences in crisis-era enforcement and the Recovery Act stimulus − to seek out fraud, waste, and abuse related to COVID-19 stimulus funds in their own states.

If you have any questions regarding these issues and their implications, please contact your DLA Piper relationship partner or any member of DLA Piper’s white collar enforcement team.

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