47 People Charged in Largest Pandemic Fraud Case to Date

Posted On Thursday, September 22, 2022
By: Chalon C. Young

Takeaway: The Biden administration underscored its promise to uncover and prosecute pandemic-related fraud this week, issuing indictments in its largest fraud case yet.

On September 20, 2022, the Department of Justice commenced its largest pandemic fraud prosecution to date, issuing indictments against 47 people for conspiring to steal $250 million from a government program meant to provide meals to children in need. This is the first major prosecution of this size under the Biden administration, which has promised to investigate pandemic fraud and bring those responsible to justice.

During the pandemic, the U.S. Department of Agriculture made exceptions to who could participate in its Federal Child Nutrition Program. This allowed restaurants and other providers to assist children in picking up meals outside of schools. According to the indictments, the nonprofit organization Feeding Our Future exploited this exception, setting up nutrition program sites in Minnesota and fraudulently claiming to serve thousands of meals a day.

Feeding Our Future is alleged to have created shell companies to register with the nutrition program and launder the money it received, which totaled over $200 million in federal funding and over $18 million in administrative fees. The organization is alleged to have created fake meal count sheets and fake attendance rosters at the fraudulent meal distribution sites. The money received by the co-conspirators was allegedly spent on luxury vehicles, travel, and real estate.

Prosecutors allege that Feeding Our Future operated a “pay-to-play scheme,” wherein people who operated fake food distribution sites were required to pay a kickback to the organization. 

The scheme came to light when the Minnesota Department of Education began inquiring into the food distribution sites. Feeding Our Future allegedly gave false assurances that the sites were legitimate and were being monitored. However, when the Department continued to investigate, the organization’s founder brought a lawsuit against the Department alleging discrimination and violation of Minnesota’s Human Rights Act. 

In a statement addressing the unprecedented sweeping indictments, Attorney General Merrick Garland vowed to continue investigating aggressively pandemic fraud schemes, stating that the indictments “underscore the Department of Justice’s sustained commitment to combating pandemic fraud and holding accountable those who perpetrate it.” Garland further stated, “the Justice Department will continue to bring to justice those who have exploited the pandemic for personal gain and stolen from American taxpayers.”

Read the Department of Justice’s press release here.

DOJ Reveals New Corporate Enforcement Strategy

Posted On Tuesday, September 20, 2022
By: Chalon C. Young

Takeaway: Changes in DOJ corporate compliance programs focus on prompt reporting and self-disclosure, and individual accountability. Companies can protect their interests by creating a diligent, comprehensive risk-based compliance program.

Following a major revision in corporate enforcement strategy that took place last fall, Deputy Attorney General Lisa Monaco announced the Department of Justice’s (DOJ) new corporate enforcement strategy on September 15, 2022. Prosecutors were urged to speed up investigations into corporate wrongdoing, companies were warned not to delay disclosures, and self-reporting programs were expanded.

Prompt Reporting and Voluntary Self-Disclosure

Under the new strategy, the DOJ aims to incentivize companies to promptly self-report corporate malfeasance. Monaco urged prosecutors to speed up investigations of individuals, noting that corporate prosecutions have declined over the past few decades. To deter companies from delaying these investigations, Monaco stated that any cooperating company that does not promptly turn over documents and information to the government in an investigation may lose some or all credit for cooperating. 

Monaco reiterated previous DOJ guidance, strongly urging companies to voluntarily self-disclose instances of wrongdoing. As an incentive to self-disclose, Monaco stated that absent substantial aggravating factors, the DOJ will not seek guilty pleas in situations where the wrongdoing is voluntarily self-disclosed and remediated.

Individual Accountability

Monaco’s new strategy focuses heavily on individual accountability and suggests a more aggressive approach to individual prosecutions. Cooperating companies are required to come forward more quickly with evidence of individual malfeasance. Monaco stated that when a company discovers evidence suggesting individual criminal liability, it should immediately turn that evidence over to the DOJ.  Failing to promptly turn over evidence against individuals will endanger a company’s cooperation credit. Monaco also informed that the DOJ would not enter into deferred prosecution agreements with companies until the DOJ has begun individual prosecutions or has created an investigative plan to do so.

As an incentive, companies that claw back compensation from employees engaged in wrongdoing are looked upon more favorably. Monaco emphasized the importance of companies holding individuals accountable for their own actions, stating “compensation systems that clearly and effectively impose financial penalties for misconduct can deter risky behavior and foster a culture of compliance.”

Corporate Recidivism

Monaco addressed the DOJ’s position on recidivist corporate offenders, informing that even prior unrelated misconduct would factor into the resolution of corporate criminal cases. To alleviate concerns arising from this factor, Monaco clarified that criminal resolutions taking place more than 10 years prior to a company’s current misconduct, and civil or regulatory settlements more than five years prior, would be given less consideration. 

However, Monaco detailed that the DOJ did not wish to deter acquisitions of companies with a history of compliance issues. If an acquisition results in an enhanced compliance program, the DOJ will give additional goodwill to acquiring companies that voluntarily self-disclose criminal conduct and significantly improve corporate compliance.

Read Deputy Monaco’s statement at: https://www.justice.gov/opa/speech/deputy-attorney-general-lisa-o-monaco-delivers-remarks-corporate-criminal-enforcement

Implications

The DOJ emphasized that these changes were meant to encourage companies to develop a robust compliance system. Companies that devote the time and resources to strengthening compliance will be able to prevent and detect individual malfeasance and are less likely to face heavy penalties in the event of a violation.

Considering these new policies, it is imperative that corporations build a comprehensive, risk-based compliance program and conduct thorough due diligence in acquisitions. The attorneys at Pietragallo Gordon Alfano Bosick & Raspanti, LLP  are skilled at assisting corporations in enhancing compliance and responding to government enforcement actions.  We assist clients in all 50 states, the District of Columbia, and abroad. 

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