As the COVID-19 pandemic continues to rapidly unfold, with breathtaking effects on everyday life barely imaginable just weeks ago, enforcement agencies have responded with pronouncements prioritizing investigations into COVID-19-related frauds and have proceeded with some significant non-COVID-19 law enforcement actions likely planned before the full impact of the pandemic could have been predicted. At the same time, enforcement agencies are having to respond to the same practical challenges and constraints that the rest of society and other large organizations around the world face. They, like the rest of us, are facing severe travel restrictions, learning to work remotely, and dealing with colleagues and family members who are sick from the virus. Over the coming weeks and months, enforcement agencies will be managing the COVID-19-focused enforcement priorities and moving forward with their existing matters, while they deal with the practical realities and uncertainties presented by the pandemic.
New Enforcement Priorities Focused on the COVID-19 Pandemic
At both the federal and state level, enforcement agencies have announced a focus on COVID-19-related scams and frauds. In a March 16, 2020 memorandum to U.S. Attorneys, Attorney General William Barr directed each U.S. Attorney’s Office to “prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.” In particular, the Attorney General highlighted reports of individuals and businesses selling fake cures for COVID-19, phishing emails from entities posing as public health organizations, and reports of malware being inserted into apps tracking the spread of the virus. The Deputy Attorney General has directed each U.S. Attorney to appoint a Coronavirus Fraud Coordinator, whose responsibilities will include directing the prosecution of coronavirus-related crimes. On March 21, 2020, the Department of Justice (“DOJ”) filed its first enforcement action against fraud related to COVID-19. In that case, the DOJ obtained a restraining order against the operators of a website offering a fraudulent COVID-19 vaccine.
In the meantime, the DOJ has continued to pursue other longstanding investigative priorities. On March 26, 2020, the DOJ charged Nicolás Maduro, the President of Venezuela, and a number of current and former high-ranking Venezuelan officials with narco-terrorism and related charges. These charges of great international significance, the result of a years-long investigation and presumably many months of planning, proceeded as the COVID-19 pandemic ravaged many parts of the country. In a highly unusual scene, the DOJ announced the charges in a virtual press conference with the Attorney General appearing from Washington D.C., joined virtually by the U.S. Attorney for the Southern District of New York in New York and law enforcement officers in Miami.
The Securities and Exchange Commission (“SEC”) announced that it is “actively monitoring our markets for frauds, illicit schemes and other misconduct affecting U.S. investors relating to COVID-19” and that it “will issue trading suspensions and use enforcement tools as appropriate.”[1] By way of example, the SEC issued temporary suspensions of trading in the securities of a biotech company and a medical device company due to concerns about the reliability of information about the biotech company’s purported marketing rights to an approved coronavirus treatment and the viability of the medical device company’s product to treat the coronavirus. The Commodity Futures Trading Commission’s Division of Enforcement also has warned that it will “aggressively pursue misconduct in our markets tied to the impact of the coronavirus pandemic.”[2]
State attorneys general have gone public with plans to focus on enforcement actions against fraud related to the COVID-19 pandemic. For example, New York Attorney General Letitia James has targeted price gouging, fake COVID-19 treatments, and misleading marketing related to preventing the spread of COVID-19. California Attorney General Xavier Becerra has similarly focused on deceptive advertising and price gouging related to COVID-19.
As reflected in their guidance and recent enforcement actions, therefore, enforcement agencies are prioritizing base-level fraud and deception surrounding the COVID-19 pandemic. As the recovery from COVID-19 begins, in addition to these frauds and scams, enforcement agencies will likely turn their attention to businesses that may have aided, abetted, or turned a blind eye towards these schemes. Enforcement agencies will also undoubtedly prioritize the investigation and prosecution of fraud relating to the Coronavirus Aid, Relief, and Economic Security Act, as the government injects more than $2 trillion into the economy. COVID-19 has created unprecedented levels of market volatility across both equities and bonds. Enforcement agencies will likely subject trading in these volatile markets to higher scrutiny and pursue investigations into any businesses and individuals that they believe took unfair advantage of investors and the public during the COVID-19 pandemic, including through insider trading. Future enforcement activity may also focus more broadly on actions taken by businesses during and in response to the pandemic, including disclosures about the effects and risks of COVID-19 and accounting practices intended to hide a negative impact on earnings or revenues as a result of the crisis. As with prior crises, such as the 2008 financial crisis and the September 11 terrorist attacks, we therefore should expect that enforcement agencies will want to demonstrate that they are being responsive to market-impacting events and targeting those who are taking advantage of the situation.
Effect of COVID-19 Pandemic on Enforcement Agencies’ Operations
As enforcement agencies emphasize their commitment to fulfilling their missions during the COVID-19 pandemic, they have themselves had to deal with the practical challenges posed by the pandemic and balance their enforcement priorities with the safety and well-being of their staff. The SEC has reported that a majority of its staff began teleworking on March 10, 2020, and the SEC “has transitioned to a full telework posture with limited exceptions.”[3] MarketWatch reported that on March 16, 2020, DOJ employees in the Washington D.C. region moved to a “maximum telework” policy with exceptions including law-enforcement agents and national security officials.
On March 20, 2020, Attorney General Barr sent a memorandum to U.S. Attorneys in response to a number of cities and states imposing shelter in place and lock down orders, as well as other travel restrictions. The memorandum stated that federal agencies have issued directives concerning travel and commuting by federal employees, consistent with guidelines from the Centers for Disease Control and Prevention. It instructed U.S. Attorneys to inform state and local law enforcement partners of the need to allow federal employees to travel and commute to perform their functions in spite of travel restrictions.
Enforcement agencies will also have to adapt to limitations that courts around the country have imposed in light of the COVID-19 pandemic. For example, the District Court for the Southern District of New York announced that beginning on March 30, 2020, its courthouse will only “hear urgent criminal matters (arraignments/bail applications and reviews/pleas and sentences by special arrangement) and matters in which immediate relief is sought.” The District Court for the District of Columbia postponed grand jury sessions scheduled to occur between March 17, 2020 and April 17, 2020.
While the impact of the COVID-19 pandemic will vary by region and by office, non-essential investigations will inevitably experience some delay. Aspects of the day-to-day work of the agencies that used to proceed with minimal friction have become more difficult. They face challenges in gathering and reviewing documents and evidence, in meeting with and assessing the credibility of witnesses, and in communicating with sister law enforcement agencies in the U.S. and abroad. Over time, the agencies will learn to work through these difficulties and minimize the delays through, among other things, the use of video-conferencing and technology, just as the private sector is doing. But it unquestionably will take time.
We expect that enforcement agencies also will have to show greater flexibility in the time and methods in which subjects of their investigations respond to requests for information and documents. Documents will take longer to review and produce. Witnesses will be more difficult to prepare and will not be able to travel for appearances or interviews for the foreseeable future. We have already seen enforcement agencies make accommodations and take these expected delays into account in seeking agreements to toll relevant statutes of limitations. However, individual subjects of investigations may be less likely to agree to toll a statute of limitations, which will continue to keep the pressure on enforcement agencies to move investigations forward, notwithstanding the challenges in doing so.
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Like the rest of society, enforcement agencies are adapting to the limitations imposed by the rapidly evolving COVID-19 pandemic that has dramatically changed the way we live our lives and perform our jobs. They have taken steps to focus on COVID-19-related frauds and misconduct, while continuing to press forward with their other significant and long-standing enforcement actions. But in their day-to-day work of enforcing the laws, they inevitably will have to overcome the challenges and practical limitations imposed by the COVID-19 pandemic.
[1] See the SEC’s “Coronavirus (Covid-19) Response” webpage
[2] See “CFTC Issues Customer Advisory on COVID-19” (March 18, 2020)