COVID-19 Relief Programs & White Collar Risks

Womble Bond Dickinson Partner Britt Biles is the newest addition to the firm’s White Collar Criminal Defense and Government Investigations team. Before joining the firm in late 2021, she served as General Counsel of the U.S. Small Business Administration when the agency was implementing and administering the trillion-dollar COVID-19 relief programs established by the CARES Act. Biles helped guide the agency through unprecedented levels of scrutiny from lawmakers and the public. Before she was appointed General Counsel of the SBA, she served as a Special Assistant to the President and Associate White House Counsel as well as Assistant Chief Litigation Counsel at the SEC. In the latest episode of the “In-house Roundhouse” podcast, Biles and Womble Bond Dickinson attorney Mark Henriques discussed government investigations and prosecutions stemming from those grants and loans. The article below is based on that conversation.

During 2020 and 2021, the federal government made billions of dollars available to help businesses deal with the vast, wide-ranging challenges of the COVID-19 pandemic. Those relief programs, including the Paycheck Protection Program (PPP), required recipients to meet certain terms and conditions. 

Now that these programs are winding down, federal agencies are turning their attention to compliance issues and investigating companies that have not met the terms and conditions of the relief they received. This is leading to a significant number of investigations into allegations of relief fund misuse, and those investigations in turn are leading to both criminal and civil prosecutions. Companies that applied for and used COVID-19 relief funds need to take care to ensure they are in compliance with federal guidelines for accessing that money.

What is the Status of Relief Program Payments and Investigations?

“In 2020, the CARES Act, which was the first big federal response to the COVID-19 pandemic, made SBA one of the lead agencies in the economic relief program,” Biles said. The SBA alone was tasked with distributing and administering more than $1 trillion in relief loans and grants, including the PPP.
 
“These weren’t just small businesses programs. These programs were touching every corner of the American economy—big businesses, small businesses, public companies, private companies, non-profits, and independent contractors were all clamoring to access these programs,” Biles said.

The last of the SBA relief programs ended on Dec. 31, 2021. But the work of the program is far from over. For example, as of Dec. 2021, loan forgiveness applications still have not been filed for 2.3 million PPP loans, which represents nearly $130 billion in loan value.

Borrowers have up until the maturity date of the loan to apply for forgiveness, which could be two or five years from the date of disbursement. Also, there is an appeals process, which will continue for years to come. 

Biles said white collar criminal investigations into the use of COVID-19 relief funds are particularly significant and long-ranging. These investigations not only involve SBA relief funds, she said, but also programs overseen by the Department of Health and Human Services, the Treasury Department and the Labor Department.

“These investigations could stretch out for years, as we saw with the TARP investigations in the wake of the 2008 financial crisis,” she said. She noted that the availability of federal resources to investigate and prosecute cases will be a factor in how quickly this process plays out.

“We’re still less than two years out from the first disbursement of funds under the CARES Act, so the federal government still has plenty of time to act,” Biles said.

Which Agencies Are Investigating and Prosecuting COVID-19 Relief Cases?

Many federal entities currently are investigating the use of federal COVID-19 relief funds, including Congressional subcommittees. In particular, Congress is examining alleged fraud in the loan programs. Other Congressional investigations also area scrutinizing allegations of government contracting fraud.

The CARES Act also created the position of Special Inspector General for the Pandemic Response, and this office is investigating programs administered by the Treasury Department, such as emergency loans made to the airline industry. 

“This office, called SIGPR, is working closely with the Department of Justice, and a number of criminal referrals have already been made that resulted in criminal prosecutions,” Biles said.

Inspectors General at other federal agencies are conducting their own investigations, she said. The Pandemic Response Accountability Committee (PRAC) was created under the CARES Act to coordinate these efforts and is bringing in special agents from across the federal government to conduct investigations. Those cases are referred to DOJ for prosecution.  

Finally, the Department of Justice and the FBI have launched their own COVID-19 relief fund investigations, both civil and criminal. “And the SEC could bring a case at any time,” Biles said.

What Sanctions Do Companies Face in COVID-19 Relief Cases?

Criminal sanctions may include large financial penalties and jail time, and companies also face the loss of reputation in public circles. “The DOJ has made prosecuting individuals a priority, since a corporation can’t commit crimes on its own,” Biles said.

“The civil risks can’t be understated either,” she said. Private civil litigation from customers and business partners, ranging from qui tam whistleblower lawsuits to securities class actions, often emerges in the wake of government investigations. 

“Investigations and litigation beget investigations and litigation,” Biles said, noting that this certainly happened in the aftermath of the 2008 financial crisis. “A combination of private litigation and government investigations and enforcement actions can pose existential threats.”

So what should in-house counsel pay the closest attention to in order to avoid potential problems? One early step is to engage with legal counsel as early as possible—preferably before a formal investigation begins.

Companies also should pay attention to building and maintaining a strong compliance and ethics program.

“The government is keenly focused on the design and function of a company’s compliance program. Having a strong, functional compliance program is always a strong component of the defense,” she said.

A government investigation requires a “coordinated, strategic response” Biles said. “The last thing a company or individual needs is a lawyer who takes a position in an investigation, which might be the right position to take, but nevertheless increases the likelihood of other actions, prejudices the client in other matters, or does reputational harm,” she said. 

“You need to think about offense as well as defense. Some companies become improperly aggressive, while others cower in the face of a government investigation,” Biles said. “But neither is the right approach.” Company lawyers should:

• Tell their company’s story;
• Provide context for decisions that were made; 
• Push back on and correct factual inaccuracies; and
• Challenge novel or unsupported legal theories advanced by the government. 

“This is where a good compliance program and experienced counsel come in,” she said. 

Britt Biles will be part of Womble Bond Dickinson’s upcoming White Collar and Government Investigations podcast. The team has a great series of episodes planned and some wonderful guests lined up. Stay tuned for more information and insightful podcasts on cutting edge topics in the white collar space.