The Justice Department is girding for a possible raft of fraud stemming from the trillions of dollars in government aid being doled out to dampen the economic impact of the coronavirus outbreak — training federal prosecutors across the country on what to look for and deploying data analytics tools to detect wrongdoing early, officials said.
Already, department officials have seen large numbers of scammers trying to profit from the global pandemic. The criminal division’s National Center for Disaster Fraud — created in the wake of Hurricane Katrina to take information on potential frauds — has received more than 9,000 tips in the past month, deeming 3,100 worthy of possible investigation and referring them to various state and federal agencies, officials said. The FBI’s Internet Crime Complaint Center also has reviewed more than 3,600 complaints pertaining to suspected coronavirus-related scams.
The FBI has issued several bulletins warning of frauds and other pandemic-related crimes, and the Justice Department has brought civil or criminal cases against people accused of peddling fake cures, taking money to sell personal protective equipment they don’t have or running complicated Medicare-reimbursement schemes. The department announced Wednesday that it had “disrupted hundreds of internet domains” created to exploit the crisis.
“The unfortunate fact is the only limitation here is the limitation on the creativity of these fraudsters to come up with ways to use the situation that we all find ourselves in to separate individuals, businesses and the government from lots of money,” said Brian Benczkowski, the assistant attorney general in charge of the criminal division.
Investigators are worried about an array of malfeasance. Small businesses could make false statements on their loan applications, inflating payroll numbers to get a bigger check from the $349 billion Paycheck Protection Program, which is soon expected to be supplemented with hundreds of billions more. They could suggest the money was being used to pay workers when it was not. Americans or even foreign entities could create documents for fictitious businesses to apply for loans. State government officials who get money might participate in kickback schemes as they award contracts.
Law enforcement officials have seen such abuses before during natural disasters such as Hurricanes Katrina and Sandy, and — perhaps most comparably — with the hundreds of billions of dollars doled out by the 2008 Troubled Asset Relief Program. That program’s inspector general’s office, which remains active, says its investigations have resulted in the recovery of $11 billion.
“It’s too early in the process for us to be able to say that we’ve seen actual evidence of stimulus fraud, because the programs are so new,” Benczkowski said. “But we know from past history, whenever the government makes a large amount of money available to help individuals and businesses, the fraudsters will come out of the woodwork and seek to get access to that money. So we are preparing vigorously for what we absolutely know is coming.”
Benczkowski said the department would deploy its “data analytics tools” — which it uses now in health-care fraud cases, including to help determine where opioids are being doled out recklessly — to help spot potential frauds.
He said officials were hopeful that the Small Business Administration and banks would give investigators information, including rejected applications, that might show patterns worthy of scrutiny — though the information would initially be anonymous.
“The department knows how to handle information, medical information, the type of information that we use to do these analytics, in a way that has minimal civil liberties impacts,” Benczkowski said. “Only when we see red flags do we start investigating more specifically.”
Most of the tips to the National Center for Disaster Fraud are not stimulus related; they have to do with consumer frauds or price gouging and hoarding. The department already has brought several such cases in court.
Last month, it sued to block a website that was peddling fake vaccines for the coronavirus, then brought criminal charges against a small-time actor in Southern California who was trying to sell pills that he said would cure it. This month, the department sued to stop a church that has long been on its radar from peddling its “Miracle Mineral Solution,” or MMS, as a coronavirus cure and prophylactic. Federal officials have tussled with the church for years over the substance, which it bills as a cure for everything but which the department says is actually a type of bleach.
Health experts and government officials have said repeatedly there is no vetted treatment for the coronavirus, and that a vaccine is still a year away. The Food and Drug Administration has issued dozens of warning letters to companies marketing unapproved products.
In the District, federal prosecutors charged a man accused of offering N95 masks, surgical masks, hand sanitizer and other personal protection equipment, but ultimately not delivering it.
Federal prosecutors in New Jersey brought a somewhat more complicated Medicare fraud case against a man they said orchestrated an illegal kickback scheme through a marketing company he ran.
Erik Santos, prosecutors say, steered patients to certain medical testing companies in exchange for kickbacks per test that were reimbursed by Medicare. The plan did not initially involve the coronavirus, but prosecutors say Santos tried to profit from the pandemic by taking kickbacks for coronavirus tests when they were bundled with a different, more expensive test for other viruses.
According to charging documents, Santos said during a phone call with a federal informant that his other work was on hold because “everybody has been chasing the Covid dollar bird,” referring to covid-19, the disease caused by the novel coronavirus.
“While there are people going through what they are going through, you can either go bankrupt or you can prosper,” Santos said, according to the documents.
Efforts to contact Santos were not successful, and no attorney was listed for him in court records.
U.S. Attorney Craig Carpenito in New Jersey, who brought the case against Santos and who is leading the Justice Department’s task force on hoarding and price gouging, said of Santos’s comments: “I think it’s despicable. I think it’s the most un-American thing you can do.”
“I would think people would want to help, as opposed to trying to find ways to become a further burden right now,” Carpenito said.
In another, notable example, the Justice Department brought a coronavirus-related case against a 39-year-old Atlanta man already awaiting trial on charges that he defrauded investors out of $115 million during a decade-long Ponzi scheme.
In court papers, federal authorities alleged that Christopher Parris was involved in apparent attempts to defraud the Department of Veterans Affairs, as well as the states of California and Louisiana, by trying to sell masks, gloves and other protective gear he couldn’t actually get. He seemed to have been detected before he got any money from the government.
The investigation by agents from the Department of Homeland Security and the VA inspector general started not with Parris, but rather with a Louisiana-based company offering VA 90 million masks — at a significant price markup, according to court records.
As company officials and VA discussed price, and VA officials apparently grew suspicious, the inspector general began to monitor the phone calls and sent in an agent working undercover.
The company, according to court records, already had inked a deal to sell the Louisiana Governor’s Office of Homeland Security and Emergency Preparedness $7.3 million in supplies, including 160,000 masks from the company 3M, chemical suits, face shields and gowns. But Louisiana told a Homeland Security Investigations agent that the masks had not arrived. The state had received 40,000 chemical suits, at a cost of about $794,000, according to court documents.
“In other words,” a VA inspector general special agent wrote in a charging document, “the state of Louisiana expected to be in possession of 160,000 masks for its emergency response efforts that it does not have.”
On April 1, according to the charging document, the company told the undercover inspector general agent that its source for the supplies was actually Parris and his company, Encore Health. That same day, according to the document, Parris himself called VA offering to sell equipment.
The undercover inspector general agent began talking to Parris about a potential deal, and Parris tried aggressively to bring it to a close — even asking if they could avoid putting money in escrow, as is normal, to speed things along. Investigators began talking to the company directly, shedding the guise of working undercover, and listened in on calls an official had with Parris.
On April 6, according to the charging document, Parris told the company he could not get the masks officials had promised to Louisiana — even though he had already taken $4 million of the company’s money to secure the deal. All the while, Parris continued to try to negotiate with VA over the price of masks, not knowing he was talking to an undercover agent, according to the charging document. He was arrested days later.
Authorities alleged Parris was also involved in attempting to make a deal with California — though the state aborted it after a procurement officer grew suspicious it was a fraud.
Mike Steele, a spokesman for the Governor’s Office of Homeland Security and Emergency Preparedness, said Louisiana, which has seen its unfortunate share of disasters in recent years, had been working with federal authorities on the investigation. He said the state never puts all its stock in one supplier and also follows a “strict policy” when it comes to money changing hands.
“There is no payment from Louisiana until the products are delivered,” he said.
A lawyer for Parris did not immediately respond to messages seeking comment. Alvin Parris, Parris’s father, said in a brief telephone conversation that he was aware of the allegations against his son, but the two had not spoken directly about them.
Alvin Parris said his son, who majored in business and played trumpet in the band at Nazareth College, had been living in Atlanta.
“I know he had a business there,” Alvin Parris said, though he added he did not know what the business was and had not heard of Encore Health.