16. PEACE, JUSTICE AND STRONG INSTITUTIONS

COVID-19 Coronavirus Business Impact: Special Inspector General for Pandemic Recovery Likely to Pursue Investigations Aggressively – JD Supra

COVID-19 Coronavirus Business Impact: Special Inspector General for Pandemic Recovery Likely to Pursue Investigations Aggressively  JD Supra

Key Takeaways

  • The US$2 trillion CARES Act establishes a new Office of the Special Inspector General for Pandemic Recovery (the “SIGPR”) to investigate fraud, abuse, and waste in connection with funds distributed under the CARES Act.
  • The SIGPR provisions are modeled after the Special Inspector General for the Troubled Asset Relief Program.
  • It is likely that, in the coming years, the SIGPR will aggressively investigate claims of fraud, abuse, and waste and refer cases to the Department of Justice.
  • The CARES Act also establishes the Pandemic Response Accountability Committee (“PRAC”) to assist with the SIGPR’s mission.

On Friday, March 27, President Donald J. Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Along with substantial economic relief, the CARES Act establishes a new Office of the Special Inspector General for Pandemic Recovery (“SIGPR”) to audit and investigate the Treasury’s distribution of funds under the CARES Act.

The SIGPR is largely modeled after the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) established by the Emergency Economic Stabilization Act of 2008, which created the Troubled Asset Relief Program (“TARP”). However, the funds appropriated in the CARES Act1 far exceed those appropriated to support the TARP2. If the SIGTARP’s activities over the past decade are any indication, the SIGPR is likely to pursue fraud investigations aggressively and refer matters to the Department of Justice for criminal prosecution.

SIGPR and SIGTARP Compared

The provisions of the CARES Act establishing the SIGPR are largely similar to the provisions of the Emergency Economic Stabilization Act of 2008 that created the SIGTARP. Like the SIGTARP, the SIGPR will be appointed by the President with the advice and consent of the Senate, will sit within the Treasury Department, and will be subject to removal by the President, who must provide both the House of Representatives and the Senate with an explanation for any removal of the inspector general.3 The SIGPR is authorized to “conduct, supervise, and coordinate audits and investigations” of the Treasury Department’s management of programs administered pursuant to the CARES Act, just as the SIGTARP is similarly tasked with auditing and investigating the Treasury Department’s administration of the TARP program.4 Both the SIGPR and the SIGTARP are required to submit quarterly reports to Congress identifying how funds were spent with respect to the programs they are charged with overseeing.5 And the general framework for inspectors general laid out in the Inspector General Act of 1978 applies to both the SIGPR and the SIGTARP. This means that the SIGPR is responsible for protecting whistleblowers who report misconduct,6 and is statutorily authorized to request information from federal, state, and local governments, to subpoena individuals and businesses, and even to request and execute search and arrest warrants.7 Additionally, the SIGPR must “report expeditiously to the Attorney General whenever the Inspector General has reasonable grounds to believe there has been a violation of Federal criminal law.”8

SIGTARP Enforcement Efforts

Since its creation, the SIGTARP has been a significant driver of investigations and law enforcement activity. Between December 2008 and December 2019, the SIGTARP recovered over US$11 billion through audits and investigations in cooperation with other federal agencies, and its investigations led to convictions of over 381 individual defendants.9 In the first decade of its existence, SIGTARP investigations led to criminal charges by federal and state authorities or enforcement actions by the Securities and Exchange Commission of over 100 bank officials, and of the 80 bank officials charged with criminal violations, 76 were convicted and received sentences including imprisonment.10

Notable criminal prosecutions and civil enforcement actions that involved the SIGTARP have included:

  • a US$5.06 billion civil settlement between Goldman Sachs, the U.S. Department of Justice and various other state and federal agencies, with support from the SIGTARP, in connection with allegations that Goldman had misrepresented the quality of residential mortgages bundled into mortgage-backed securities;11
  • a civil suit filed by the U.S. Attorney’s Office for the Southern District of New York in cooperation with the SIGTARP against Bank of America, N.A., Countrywide Financial Corporation, and Countrywide Home Loans, Inc., in connection with the sale of mortgage loans to GSEs from 2007–2009, which resulted in a US$1.27 billion civil penalty against the bank and a US$1 million civil penalty against a former Bank of America executive;12
  • criminal charges filed by the U.S. Attorney’s Office for the District of Nebraska in cooperation with SIGTARP against a former executive of TierOne Bank for defrauding the bank’s shareholders and misleading regulators, which resulted in a 132-month prison sentence and a fine of US$1.2 million;13 and
  • criminal charges filed by the U.S. Attorney’s Office for the District of Delaware against four former executives of the Wilmington Trust Corporation for underreporting the bank’s past due loans to regulators, investors, and the public, which resulted in 72-month prison sentences and fines of US$300,000 for two executives, a 54-month prison sentence with a fine of US$300,000 for a third executive, and a 36-month prison sentence for the fourth executive.14

These criminal prosecutions and enforcement actions illustrate that a wide array of conduct may subject businesses and individuals to scrutiny by the SIGPR.

Other Enforcement Mechanisms under the CARES Act

The SIGPR is not the only new mechanism the Act creates to monitor fraud and abuse. The CARES Act also establishes a Pandemic Response Accountability Committee (the “PRAC”) within the existing Council of Inspectors General on Integrity and Efficiency to assist with the SIGPR’s mission of preventing and detecting “fraud, waste, abuse, and mismanagement” in connection with funds distributed pursuant to the CARES Act or any other legislation “making appropriations for the Coronavirus response and related activities.”15 On Monday, March 30, the Council of Inspectors General on Integrity and Efficiency announced that Glenn A. Fine, who currently serves as the Acting Inspector General for the Department of Defense, will serve as the Chair of the PRAC.16 Mr. Fine, a former Dechert Partner, has extensive public-sector experience. He has served as the Acting Inspector General for the Department of Defense since 2016, and previously served as the Principal Deputy Inspector General for the Department of Defense (2015–2016), Inspector General for the Department of Justice (2001–2011), Special Counsel to the DOJ Inspector General (1995–2000), and an Assistant United States Attorney in the Office of the U.S. Attorney for the District of Columbia.17

While the amount appropriated for the SIGPR in the CARES Act ( US$25 million) is less than the amount allocated for the SIGTARP in the Emergency Economic Stabilization Act of 2008 ( US$50 million),18 the CARES Act appropriates significant amounts for the PRAC and other inspectors general. The CARES Act appropriates US$80 million to the Pandemic Response Accountability Committee, US$25 million each to the Inspectors General for the Small Business Administration and the Department of Labor, and US$35 million to the existing Inspector General for the Treasury Department, for additional investigations relating to the use of funds in response to the COVID-19 pandemic.19 Adding these amounts to the US$25 million allocated for the SIGPR under the CARES Act,20 the legislation allocates a total of US$190 million to offices specifically tasked with monitoring potential fraud, waste, and abuse.

Conclusion

While the immediate focus has been on the economic relief provided by the CARES Act, in the months and years ahead, SIGPR audits and investigations will almost certainly lead to significant criminal and civil enforcement activity.

Footnotes

1) The US$2 trillion estimate includes US$500 billion for providing liquidity to eligible businesses, more than US$350 billion for small business loans, and US$150 billion for direct relief to state and local governments, among various other appropriations. See Pub. L. No. 116-136 §§ 1107(a), 4027(a), 5001(a).

2) Emergency Economic Stabilization Act of 2008, Pub. L. 110-343 § 115 (Oct. 3, 2008).

3) Pub. L. No. 116-136 § 4018(b)(1), (3); 12 U.S.C. § 5231(b)(1), (4); Inspector General Act of 1978 (the “IGA”), 5 U.S.C. App. § 3(b).

4) Pub. L. No. 116-136 § 4018(c)(1); 12 U.S.C. § 5231(c)(1).

5) Pub. L. No. 116-136 § 4018(f); 12 U.S.C. § 5231(i).

6) Pub. L. No. 116-136 § 4018(c)(3); 12 U.S.C. § 5231(c)(3); IGA §§ 3(d)(1)(C), 5(a)(20).

7) Pub. L. No. 116-136 § 4018(d)(1); 12 U.S.C. § 5231(d)(1); IGA § 6(a)(1), (4), (f).

8) IGA § 4(d).

9) OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, Quarterly Report for October 1, 2019–December 31, 2019 at 2–3.

10) Id.at 2; OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, More than 100 Bankers Investigated by SIGTARP Have Been Charged with Committing Crime or Civil Fraud (Aug. 6, 2016).

11) OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, Goldman Sachs Agrees to Pay More Than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities.

12) OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, $45 Billion TARP Recipient Bank of America Ordered to Pay $1.27 Billion in Civil Penalties for Defrauding the United States (July 30, 2014).

13) OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, Former CEO of $3 Billion TierOne Bank Sentence to 11 Years in Prison for Orchestrating Scheme to Hide More than $100 Million in Losses from Shareholders and Regulators.

14) OFFICE OF THE SPECIAL INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM, Court Sentences Former Wilmington Trust Chief Credit Officer and Controller to Prison (Dec. 19, 2018).

15) Pub. L. No. 116-136 § 15010(a)(6), (b).

16) COUNCIL OF THE INSPECTORS GENERAL ON INTEGRITY AND EFFICIENCY, Glenn A. Fine Appointed Chair of CIGIE’s Pandemic Response Accountability Committee (Mar. 30, 2020).

17) OFFICE OF INSPECTOR GENERAL FOR THE DEPARTMENT OF DEFENSE, Biography of Glenn A. Fine (last accessed Mar. 31, 2020).

18) Pub. L. No. 116-136 § 4018(g)(1); 12 U.S.C. § 5231(g).

19) Pub. L. No. 116-136 §§ 1107(a)(3), 2215, 5001(f)(3).

20) Id. (g)(1).

Source: jdsupra.com

Leave a Comment