COVID-19 Relief Programs & White Collar Risks

2021: The year of the sustainability-linked loan
Written by Publishing Team

Womble Bond Dickinson Partner Britt Billes is the latest addition to the company’s criminal defense and government investigations team. Prior to joining the company in late 2021, she served as general counsel for the US Small Business Administration when the agency was implementing and managing the trillion-dollar COVID-19 relief programs established under the CARES Act. Biles helped guide the agency through unprecedented levels of scrutiny from lawmakers and the public. Prior to her appointment as General Counsel in the Small Business Administration, she served as Special Assistant to the President and Associate Counsel for the White House as well as Assistant Senior Litigation Counsel at the Securities and Exchange Commission. On the latest episode of the “In-House Roundhouse” podcast, Biles and Womble attorney Bond Dickinson Mark Henrix discusses government investigations and prosecutions arising 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 companies deal with the widespread challenges of the COVID-19 pandemic. These relief programs, including the Paycheck Protection Program (PPP), require recipients to meet certain terms and conditions.

Now that these programs are about to expire, federal agencies are turning their attention to compliance issues and investigating companies that did not meet the terms and conditions of the exemption they received. This has led to a large number of investigations into allegations of misuse of relief funds, and these investigations in turn lead to criminal and civil prosecutions. Companies that have applied for and used COVID-19 relief funds need to be careful to ensure they comply with federal guidelines for access to those funds.

What is the status of the Relief and Investigations Program payments?

“In 2020, the CARES Act, which was the first major federal response to the COVID-19 pandemic, made the SBA one of the leading agencies in the economic relief program,” Beals said. The Small Business Administration alone is tasked with distributing and managing more than $1 trillion in relief loans and grants, including public-private partnerships.

“These weren’t just small business programs. These programs were touching every corner of the American economy — big corporations, small businesses, public companies, private companies, nonprofits, independent contractors were all demanding access to these programs,” Biles said.

“These weren’t just small business programs. These programs were touching every corner of the American economy – big corporations, small businesses, public companies, private companies, nonprofits, independent contractors were all demanding access to these programs.” Brett Beals, partner

The last SBA relief program ended on December 31, 2021. But the work of the program is not over yet. For example, as of December 2021, loan forgiveness requests had not been submitted for 2.3 million PPP loans, representing approximately $130 billion of the loan value.

Borrowers have until the loan maturity date to apply for forgiveness, which may be two or five years from the date of disbursement. There is also an appeals process that will continue for years to come.

Beals said white-collar criminal investigations into the use of COVID-19 relief funds are particularly important and long-term. She said these investigations relate not only to relief money from the SBA, but also programs overseen by the Departments of Health and Human Services, the Department of the Treasury and the Department of Labor.

“These investigations can span years, as we saw with the TARP investigations in the aftermath of the 2008 financial crisis,” she said. She noted that the availability of federal resources for investigation and prosecution would be a factor in speeding up the implementation of this process.

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

What agencies investigate and prosecute COVID-19 relief cases?

Several federal entities are currently investigating the use of federal COVID-19 relief funds, including congressional subcommittees. In particular, Congress is considering alleged fraud in loan programs. Other congressional investigations include scrutiny of allegations of government contract fraud.

The CARES Act also created the position of Special Inspector General for Epidemic Response, and that office investigates programs run by the Treasury, such as emergency loans to the airline industry.

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

She said that the inspectors general of other federal agencies are conducting their own investigations. The Epidemic Response Accountability Commission (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. These cases are referred to the Ministry of Justice for prosecution.

Finally, the Department of Justice and the FBI launched their investigations of the COVID-19 Relief Fund, both civil and criminal. “And the Securities and Exchange Commission can file a case at any time,” Biles said.

What penalties do companies face in cases of COVID-19 relief?

Criminal penalties may include significant financial penalties and imprisonment, and companies also face a loss of reputation in public circles. “The Department of Justice has made prosecuting individuals a priority, because the company cannot commit crimes on its own,” Beals said.

“Civilian risks also cannot be underestimated,” she said. Private civil lawsuits from clients and business partners, ranging from whistleblower lawsuits to securities class lawsuits, often emerge in the wake of government investigations.

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

So what should an in-house attorney pay the most attention to avoiding potential problems? One early step is to engage with legal counsel as soon as possible – preferably before a formal investigation begins.

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

“Government places a strong emphasis on the design and functionality of a corporate compliance program. Having a strong functional compliance program is always a strong component of defense.”

Beals said the government investigation required a “coordinated strategic response.” “The last thing a company or individual needs is a lawyer taking a position on the investigation, which may be the right position to take, but nonetheless increases the likelihood that further action will be taken, harm the client in other matters, or cause reputational damage,” she said.

“You need to think about offense as well as defense. Some companies become inappropriately aggressive, while others shiver in the face of a government investigation,” said Beals. “But that is not the right approach.” The company attorney must:

  • tell their company story;
  • provide context for the decisions made;
  • repel and correct factual errors; And
  • Challenge new or unsupported legal theories presented by the government.

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

Brett Beals will be part of the upcoming White Collar and Government Investigation podcast Womble Bond Dickinson. The team has a great series of episodes planned and some great guests lined up. Stay tuned for more information and insightful podcasts on the latest topics in the white collar field.


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