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Novel Methods Used by Prosecutors to Combat Pandemic Fraud

Federal prosecutors are working tirelessly to recover billions of dollars in pandemic aid that was falsely obtained from government programs meant to support the economy during the Covid shutdowns.

To tackle this issue, prosecutors in some districts are examining individuals suspected of violent crimes to determine if they were involved in pandemic fraud schemes. Other investigators are forming “strike force teams” to dismantle sophisticated operations or relying on local officials to identify potential fraudsters in their areas.

These efforts are in response to the large number of fraudulent claims that were submitted and approved during the pandemic. Many relief programs had minimal verification requirements and expedited application approvals to quickly inject money into the economy. While the exact amount stolen is unknown, the inspector general of the Small Business Administration estimates that over $200 billion, or at least 17% of the $1.2 trillion in pandemic loans disbursed by the agency, went to “potentially fraudulent actors.” So far, nearly $30 billion has been seized or returned to the agency.

Thousands of investigations are still ongoing, with the Labor Department’s inspector general focusing on around 160,000 cases related to unemployment-insurance fraud during the pandemic.

However, uncovering those who defrauded pandemic-relief programs has been challenging due to the sheer scale of fraud. To handle the volume, the federal government has initiated legal proceedings against over 2,230 individuals implicated in pandemic fraud schemes. More than 550 convictions have been obtained specifically related to fraud involving funds from the Paycheck Protection Program and the Economic Injury Disaster Loan program.

Michael Galdo, the acting director of Covid-19 fraud enforcement at the Justice Department, acknowledges that U.S. attorney’s offices have been employing a variety of approaches to catch fraudsters, given their autonomy in determining the most effective methods.

In the Northern District of Mississippi, officials from the U.S. attorney’s office are visiting individual counties and requesting local officials to review lists of people who received pandemic loans. By leveraging their knowledge of the community, these officials can uncover recipients who might have engaged in fraud by, for example, falsely claiming business ownership, embellishing employee counts, or using vacant addresses.

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

Joyner said, “Thousands of the loans are for those lower-tier amounts. If you were trying to pursue all of these cases criminally, it would almost be impossible.” So far, the district’s civil division has obtained over 200 judgments, recovering over $2.2 million. The office anticipates recovering more than $23 million through ongoing civil judgments.

Civil cases are pursued because even though the fraudsters have typically spent the money, federal law, such as the False Claims Act, allows authorities to require individuals to repay three times the stolen amount, along with additional penalties and fees. Most fraudsters agree to repay the full amount through a repayment plan.

In Maryland, officials at the U.S. attorney’s office are screening new suspects of violent crimes and illegal possession of firearms for pandemic fraud. This approach has enabled the pursuit of investigations that would otherwise be unfeasible due to limited resources.

Erek L. Barron, the U.S. attorney for the district, said the overlap between violent crime and pandemic fraud presented an opportunity to tackle two priorities simultaneously. He noted that individuals involved in violence are likely to participate in other wrongful activities as well.

One recent case in Maryland involved Jerry Phillips of Capitol Heights, who was sentenced to seven years in federal prison after confessing to obtaining over $1 million in relief funds using fake and stolen identities. Upon searching his residence, officials discovered four “ghost guns,” including one that had been illegally modified into a machine gun. Court documents revealed that Phillips had purchased the guns online using aliases and addresses used for his fraud schemes.

To streamline efforts, the Justice Department has established “strike force teams” in various U.S. attorney’s offices. These teams collaborate with analysts from the FBI and other federal agencies to identify large-scale fraud schemes by analyzing patterns of suspicious activity in databases.

Phillip A. Talbert, the U.S. attorney for the Eastern District of California, explained that these fraud cases often involve complex schemes that may not be evident when examining individual applications. Through data-driven approaches and collaboration with federal agencies, these strike force teams are extending investigations to more challenging cases, including those connected to international fraud rings.

While simpler cases involving fake businesses have been the focus, officials expect to prosecute more complex cases in the future. Proving these cases can take longer, especially when individuals with legitimate businesses provide inaccurate information in their loan applications or engage in improper spending.

One example of an ongoing fraud case in the Eastern District of Washington involves Andrea M. Gervais of Roseville, California. Gervais pled guilty to theft of government funds after being involved in over 90 fraudulent unemployment benefit claims, including one filed using the identity of Senator Dianne Feinstein. The case came to light when investigators discovered a claim processed under Senator Feinstein’s name. Although the senator’s office confirmed the fraudulent claim, it declined to comment further.

Beyond the U.S. attorney’s offices, inspectors general from over 40 offices, along with agents from various federal agencies, including the FBI, Secret Service, Postal Inspection Service, Homeland Security Investigations, and Internal Revenue Service Criminal Investigation, are working on pandemic fraud investigations.

Brian Miller, the country’s special inspector general for pandemic recovery, expects to discover new leads as more borrowers default on pandemic loans, which could indicate potential fraud. Miller urges Congress to continue funding the office beyond 2025, as many final loan payments are due around that time.

Michael Horowitz, the Justice Department’s inspector general and chairman of the Pandemic Response Accountability Committee, expects prosecutors to pursue lower-dollar cases in the upcoming years. Despite the focus on multimillion-dollar fraud cases, Horowitz emphasizes that the current numbers involved would usually be considered significant fraud cases outside of a pandemic context.

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