As discussed in a prior post, the Department of Justice has formed a nationwide task force comprised of AUSAs from each of the 93 U.S. Attorneys’ Offices, as well as Main Justice. Together they total more than 100 federal prosecutors, to investigate and prosecute fraud related to the ongoing pandemic. The District of New Jersey U.S. Attorney Craig Carpenito spearheads this effort.
The Defense Production Act and 2020 Executive Orders provide the framework for these cases. It can be a criminal fraud to hoard or charge excessive prices for various PPE (personal protective equipment), such as N-95 face masks, surgical gowns, gloves, and disinfectant products. There are currently hundreds of investigations around the country.
Criminal fraud charges in this context require willful violations of the DPA and the orders and regulations issued thereunder. Hoarding must have occurred after March 25, 2020, when an Executive Order delegated powers to DHS to designate 15 categories of health and medical resources as scarce. Price gouging requires prices “in excess of prevailing market prices,” rather than a specific percentage markup. To date, no court has issued an opinion interpreting the meaning of “excessive” in this context.
Notable cases are ongoing in the District of New Jersey and the Eastern District of New York. They involve the importation of supposed FDA-approved N-95 masks from China. As alleged in the Complaints, it was later discovered that the masks were in fact not tested, nor were they approved. The government has charged the Chinese manufacturers and is currently investigating the individuals and companies involved in purchase and sale both here and abroad.
A number of high-profile price gouging cases have been brought in the Southern and Eastern Districts of New York against companies and individuals charging between 50 – 1300% mark-ups on masks. Several prosecutions allege outright fraud, where orders were placed and fees paid to individuals who had no ability to acquire or deliver the PPE. Some of these cases involved orders worth hundreds of millions of dollars.
Federal, state, and local governments, too, have been defrauded in their rush to acquire desperately needed PPE. Many public entities cannot compete with private companies – and even other countries – when purchasing PPE from Chinese manufacturers because of the oft-required 50-100% payment upfront. Government contracts rarely permit payment of more than 10% of the purchase price upfront. In order to secure the contracts, middlemen and layers of companies have been used. These situations lend themselves to fraud and price gouging by adding costly layers of people between the purchaser/end user and the manufacturer.
United States citizens and companies must be particularly vigilant in purchasing and importing PPE from overseas manufacturers. Registration and approvals must be legitimate and precede the importation. The items must meet FDA standards and the prices charged must not be excessive. A failure to comply with these requirements risks scrutiny and potential charges by federal law enforcement.
Our attorneys and staff are actively and aggressively defending clients being investigated for PPE fraud. We are also available to meet with new clients. Being mindful of the importance of self-distancing, we at times work remotely but are available to meet new clients either in person or through video conferencing, and have the capability to offer initial consultations by phone. Challenging times demand innovation and accommodation to our clients’ needs. Stahl Criminal Defense is here for all of your criminal legal needs during this time. To contact the firm, call 908.301.9001 for the NJ office and 212.755.3300 for the NYC office, or email Mr. Stahl at firstname.lastname@example.org.