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Novel Methods Used by Prosecutors to Combat Pandemic Fraud

Federal prosecutors are working diligently to recover billions of dollars in pandemic aid from individuals who fraudulently obtained funds from government programs meant to support the economy during the Covid shutdowns.

In an effort to uncover pandemic fraud schemes, prosecutors in some districts are screening individuals suspected of violent crimes. Other investigators are forming “strike force teams” to dismantle sophisticated enterprises or collaborating with local officials to identify potential fraudsters in their communities.

The federal government is actively seeking innovative ways to address the massive number of fraudulent claims that were submitted and approved during the pandemic. Many relief programs had minimal verification requirements and expedited processes to quickly distribute funds into the economy.

While the exact amount stolen is unknown, the Small Business Administration’s inspector general estimates that at least $200 billion, or 17 percent of the approximately $1.2 trillion in pandemic loans issued by the agency, went to “potentially fraudulent actors.” The office has already seized or recovered nearly $30 billion.

Thousands of investigations are still ongoing. The Labor Department’s inspector general is currently handling around 160,000 open investigations into unemployment-insurance fraud related to the pandemic.

However, uncovering individuals involved in pandemic-relief program fraud has proven challenging due to the sheer volume of cases. To date, the Justice Department has charged over 2,230 defendants with offenses and schemes associated with pandemic fraud. Over 550 convictions have been secured in relation to fraudulence regarding funds from the Paycheck Protection Program and the Economic Injury Disaster Loan program, according to the Small Business Administration’s office of inspector general.

Michael Galdo, the acting director of Covid-19 fraud enforcement at the Justice Department, stated that U.S. attorney’s offices employ various approaches, granting them significant freedom in determining the most effective ways to apprehend fraudsters.

Power in Local Connections

In Mississippi’s Northern District, officials from the U.S. attorney’s office are visiting individual counties and requesting local officials to review lists of individuals who received pandemic loans. This approach helps prosecutors identify recipients they might not otherwise discover, as local officials often have knowledge of whether someone actually owned a business, falsely reported the number of employees, or listed a nonexistent address.

Clay Joyner, the U.S. attorney for the district, explained that this approach led to the discovery of more cases than the district had the resources to criminally prosecute. As a result, the office is pursuing civil cases for many investigations involving smaller loans.

“If you were trying to pursue all of these cases criminally, it would almost be impossible,” said Joyner.

The civil division of the office has obtained over 200 judgments, more than any other district in the country. They have already recovered over $2.2 million and expect to recover more than $23 million through civil judgments.

Joyner also emphasized that pursuing civil cases is crucial due to the severe financial consequences. Under federal law, individuals involved in civil fraud cases may be required to repay three times the amount of the stolen loan, in addition to penalties and fees. Although the money is often already spent, most fraudsters agree to return the full amount through repayment plans.

Officials initially did not plan to pursue as many civil cases but recognized the potential provided by the district’s small-town, rural nature. An attorney in the office familiar with the area recognized the loan recipients’ names and suspected that many of them did not own businesses based on his upbringing in the same area.

Scrutiny of Other Suspects

Officials at the U.S. attorney’s office in Maryland have commenced screening all new suspects of violent crimes and illegal possession of firearms for pandemic fraud. Erek L. Barron, the U.S. attorney for the district, explained that this method enables officials to pursue investigations they wouldn’t have otherwise been able to handle.

“We can’t take each and every case, so we have to be very thoughtful about the dollar amounts and the individuals that we investigate and prosecute,” said Barron.

Since its implementation in 2021, this screening process has revealed reasonable suspicions of pandemic-related fraud in over 60 percent of the cases screened. Barron stated that this overlap presented an opportunity to address two priorities simultaneously.

“Those involved in violence likely have a propensity for participating in other wrongdoing,” he added.

An example of such a case is Jerry Phillips from Capitol Heights, Md., who was sentenced to seven years in federal prison for obtaining over $1 million in relief funds using fake and stolen identities. During his arrest, officials discovered four “ghost guns” at his residence, including one he had illegally modified into a machine gun. Court documents revealed that Mr. Phillips had purchased the firearms online using an alias and address he used for his fraudulent schemes.

Special Teams for Fraud

The Justice Department has launched “strike force teams” in multiple U.S. attorney’s offices. Phillip A. Talbert, the U.S. attorney for the Eastern District of California, explained that their joint strike force with the Central District of California employs a data-driven approach to identify significant fraud schemes. Analysts from the FBI and at least five other federal agencies collaborate with these offices, combing through databases to detect patterns of suspicious activity.

“If you only look at one or a few applications, it may not be apparent that it’s part of a larger fraud scheme,” Talbert said.

Prior to the strike force initiative, most fraud cases undertaken by the office were referred by banks and state and federal agencies. One case involved Andrea M. Gervais of Roseville, Calif., who pleaded guilty to theft of government money regarding over 90 fraudulent unemployment claims. The investigation began when officials discovered that a claim had been filed using the identity of a sitting U.S. senator. According to a source familiar with the investigation, the senator in question was Dianne Feinstein of California. While Feinstein’s office confirmed the fraudulent claims, they declined to provide further comment.

Talbert explained that the strike force enables the office to investigate more complex cases, particularly those involving international fraud rings.

Dan Fruchter, an assistant U.S. attorney in the Eastern District of Washington, stated that initially, the office focused on cases that were easier to prove, such as those involving fictitious businesses. However, he anticipates that the office will prosecute more intricate cases in the years to come. Investigations can become protracted when individuals with legitimate businesses falsify information in their applications or make improper purchases.

Since establishing its own strike force last year to enhance coordination with federal law enforcement, the office has charged 19 defendants and recovered approximately $4 million.

A Broad Sweep

In addition to U.S. attorney’s offices, hundreds of individuals across more than 40 offices of inspectors general are involved in pandemic fraud investigations. The FBI, Secret Service, Postal Inspection Service, Homeland Security Investigations, and Internal Revenue Service Criminal Investigation agents are also actively participating.

Brian Miller, the country’s special inspector general for pandemic recovery, expects to uncover new leads over the next few years as more borrowers default on pandemic loans, a telltale sign of potential fraud. Miller expressed concern regarding alarmingly high default rates on interest payments in certain programs and urged Congress to continue funding the office beyond 2025, when many final payments are due.

Michael Horowitz, the Justice Department’s inspector general and chairman of the Pandemic Response Accountability Committee, composed of 20 agency inspectors general, stated that the investigators have primarily prioritized multimillion-dollar fraud cases but anticipates an increased focus on lower-dollar cases in the coming years.

“Despite their size, these numbers would still be considered significant frauds at any other time,” said Horowitz.

**Unique Perspective:**

Tracking down individuals who fraudulently obtained pandemic aid is a top priority for federal prosecutors. With billions of dollars at stake, prosecutors are employing innovative methods to uncover and prosecute fraudsters. These methods include forming strike force teams, collaborating with local officials, and screening individuals involved in violent crimes for pandemic fraud. The sheer scale of pandemic fraud presents unique challenges, but prosecutors are determined to recover funds and bring perpetrators to justice. The use of civil cases, in addition to criminal prosecutions, has proven effective in dealing with the vast number of smaller fraud cases. As investigations continue, the collaboration between various agencies and offices of inspectors general is instrumental in detecting and preventing future fraudulent activities. The dedicated efforts of these prosecutors highlight the importance of safeguarding public funds and holding those responsible accountable for their actions.

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