Caring for the CARES Act: What comes next?

After months of preparation, the U.S. Special Inspector General for Pandemic Recovery (SIGPR) is starting to turn its investigative compass to address the most egregious fraud cases involving the CARES Act — the unprecedented $2 trillion economic aid package created to support Americans and businesses during the COVID-19 pandemic.

Since its creation last year, SIGPR, the independent federal law enforcement agency charged with the oversight of the U.S. government’s implementation of the CARES Act, has been assembling attorneys, investigators, analysts and forensic accountants tasked with investigating fraud, waste and abuse. And it has only just begun to carry out its mandate to monitor the receipt and allocation of funds in the CARES Act. (See sidebar: CARES Act: an explainer.)   

As of the fourth quarter 2020, the agency had referred 69 leads to law enforcement partners, initiated five new preliminary investigations and vetted 27 complaints, according to SIGPR’s last quarterly report to Congress. (See Quarterly Report to the United States Congress, Oct. 1 – Dec. 31, 2020)

That’s a drop in the bucket compared to the number of cases it will likely take on in coming years. And with the U.S. Congress passing a $1.9 trillion rescue package in March, SIGPR’s and U.S. attorneys’ workloads could increase substantially. (See Cos. Should Keep A Close Watch On SIGPR Enforcement, by Mark Grider, James Treanor and Cheryl Risell, Law360, Feb. 10.)

Experts are drawing parallels between SIGPR and the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), the watchdog for the $700 billion Trouble Asset Relief Program (TARP), which was created to mitigate the economic impact of the 2008 financial crisis and was initially headed by Neil Barofsky. (See: Relentless TARP Watchdog, by Dick Carozza, CFE, Fraud Magazine, November/December 2009.)

SIGPR still has a big job ahead of it. And like SIGTARP, the new agency is expected to uncover substantial fraudulent activity, ensuring that taxpayer dollars don’t go to waste. Since its creation in 2008, SIGTARP’s investigations have helped convict 300 defendants, including 76 bankers and 92 bank borrowers, and returned more than $11 billion to the federal government, investors, homeowners and other victims.

SIGTARP investigated fraud cases — big and small. In one of its more high-profile cases, it helped convict former executives at Bank of the Commonwealth for conspiracy to commit a bank fraud that resulted in one of the biggest bank failures in Virginia’s history.

The court ordered Edward J. Woodard, former CEO of the bank, to pay more than $333 million to the U.S. Federal Deposit Insurance Corporation. (See Former CEO Of The Bank Of The Commonwealth Sentenced To 23 Years In Prison For Massive Fraud, U.S. Attorney’s Office, Eastern District of Virginia, Nov. 6, 2013.)

The Bank of the Commonwealth case alone involved 1.2 million pages of documents, including 325 witness statements. (See Pieces in place for Bank of Commonwealth fraud trial, by Tim McGlone, the Virginian-Pilot, March 17, 2013.)

Similarly, investigating allegations of fraud and corruption related to the CARES Act will likely take months to develop and secure evidence of a committed crime and the cooperation of those involved.

With a new administration and a revitalized Department of Justice (DOJ) eager to demonstrate its independence, SIGPR will be uniquely positioned to tackle what are likely to be some of the largest complex white-collar investigations seen in the past decade. As a result, many companies and their executives will find themselves at the center of these investigations and will turn to experienced white-collar attorneys, forensic accountants and CFEs to assist in defending allegations of defrauding the CARES Act.

Broad mandate

SIGPR was granted vast subpoena powers and has been authorized “to conduct, supervise, and coordinate audits and investigations of the making, purchase, management, and sale of loans, loan guarantees, and other investments” under the CARES Act. (See SIGPR Overview, Special Inspector General for Pandemic Recovery.)

Its tasks also include the prevention and detection of fraud, waste and abuse, as well as the identification of individuals and businesses believed to have engaged in fraudulent activity. SIGPR has established a hotline and website dedicated to responding to allegations of fraud and waste, along with whistleblower protections. SIGPR, according to its last report to Congress, is still hiring.

SIGPR’s efforts will initially focus on corruption as it pertains to the allocation of $500 billion to the Department of Treasury’s Exchange Fund. This program provides for $46 billion for distressed industries such as the airline industry and companies that maintain our national security. Other eligible businesses, states and municipalities, and financial markets will also be able to tap the remaining $454 billion for support.

Leveraging resources

To leverage resources, SIGPR has established key relationships with the DOJ, FBI Economic Crimes Unit and IRS. And to ensure the prompt prosecution of those engaged in criminal activity, SIGPR has obtained commitments from key U.S. attorney’s offices in the Eastern District of Virginia, the Southern District of New York and the District of Massachusetts. Agreements with additional U.S. attorney’s offices will likely follow in the next few months as the number of investigations begin to increase.

As of the fourth quarter last year, SIGPR initiated five preliminary investigations, potentially representing millions of dollars of questionable expenditures, and the agency is working in partnership with U.S. attorney’s offices on three of them, according to SIGPR’s last report to Congress.

It has also partnered with the Treasury’s Financial Crimes Enforcement Network (FinCEN), which allows it to undergo a thorough analysis of FinCEN’s database of Bank Secrecy Act reports to weed out fraud, waste and abuse in CARES Act programs. “CARES Act crimes are financial crimes, making FinCEN a natural partner for SIGPR in fulfilling its mission,” the agency said in the report.

Keeping current on fraud trends is also important, and SIGPR is participating in several working groups to that end, including the Office of Inspector General Investigation COVID-19 working groups.

As SIGPR continues to grow as an investigative agency and with the necessary funding to ensure its oversight of the historic CARES Act over the next decade, it will continue to publish quarterly reports to Congress that will document its accomplishments. Within the year, we’ll have a better idea as to whether it will succeed in its role as overseer of this historic government assistance program and what awaits those who find themselves in the crosshairs of federal investigations.

John E. Mulvaney, Jr., CFE, CPA, leads CBIZ’s white collar and government enforcement practice, specializing in government and internal investigations. He was a former special agent in charge for SIGTARP and a supervisory special agent for the FBI for 26 years. Contact him at JMulvaney@CBIZ.com.

CARES Act: an explainer

In March 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act, was passed by Congress and signed into law by President Donald J. Trump, providing an unprecedented $2 trillion in economic aid to American families, workers and small businesses affected by the Coronavirus Disease 2019 (COVID-19).

The act created four different programs for granting assistance to American workers and families. (See The Treasury Department is Delivering COVID-19 Relief for All Americans, U.S. Department of the Treasury.)

• Assistance for American workers and families: Provides payments of up to $1,200 for working adults.
• Assistance for small businesses: Authorizes up to $659 billion towards job retention and other expenses.
• Assistance for state, local and tribal governments: Establishes a $150 billion relief fund to states and eligible local governments for expenses incurred as a result of COVID-19.
• Preserving jobs for American industry: Establishes several tax-incentivized programs for purposes of improving businesses’ cash flow over the next two years.

Among the largest and most ambitious programs within the CARES Act is the Paycheck Protection Program. The program has allocated $659 billion to be used by small businesses for retaining employees and covering expenses, such as mortgage interest, rent and utilities for an eight-week period. As of December, the government’s coronavirus response included $3.3 trillion in support to individuals, businesses, hospitals and others entities.