On June 2, 2020, the U.S. Senate confirmed Brian D. Miller as the Special Inspector General for Pandemic Recovery (“SIGPR”), placing him in charge of regulatory oversight of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Miller’s role as SIGPR will be one of the most significant oversight and enforcement mechanisms intended to curb waste, fraud, and abuse by recipients of the funds disbursed in the CARES Act’s grant and loan programs, which include:

• Economic Stabilization Fund (Main Street Lending Program): $500 billion for eligible businesses, states, and municipalities.
• Paycheck Protection Program (“PPP”): $349 billion for small businesses (later increased to $669 billion by the Paycheck Protection Program and Health Care Enhancement Act).
• COVID-19 Relief Fund: $150 billion in direct aid to states and local governments with populations over 500,000 people for COVID-related expenses.
• Hospitals and healthcare: $140 billion.
• Unemployment and payroll tax relief: $250 billion.

The CARES Act established several oversight and enforcement bodies to monitor and account for the funds disseminated:

• Pandemic Response Accountability Committee: Established within the Council of Inspectors General on Integrity and Efficiency, the PRAC consists of 20 federal inspectors general. Its acting chair is Michael Horowitz, Inspector General of the Department of Justice. PRAC’s executive director, Brian Westbrooks, is a former postal inspector who served the last five years as inspector general of the Pension Benefit Guaranty Corporation.
• Office of the SIGPR: Miller will head an independent oversight body with the power to issue subpoenas and conduct audits and investigations of funds disbursed by the Treasury Department.
• Congressional Oversight Commission: Five members selected by congressional leadership. Current members are Sen. Pat Toomey (R-PA), Bharat Ramamurti (a longtime aide to Sen. Elizabeth Warren, D-MA), Rep. French Hill (R-AR), and Rep. Donna Shalala (D-FL). While a chair has not yet been selected, the COC submitted its initial report on May 18, raising questions about the rollout of the Treasury Department’s $500 billion lending program.
• Each of these oversight bodies will be empowered to refer matters to DOJ for civil or criminal enforcement. In addition, other authorities including state attorneys general, the Securities and Exchange Commission, and the Internal Revenue Service will be able to conduct investigations apart from and in collaboration with the oversight bodies.

If history is any guide, the SIGPR office headed by Miller will be especially active in pursuing enforcement actions related to the disbursement of CARES Act funds. In the wake of the 2008 financial crisis, a Special Inspector General for the Troubled Asset Relief Program (SIGTARP) pursued investigations that yielded more than 380 convictions and recovered more than $11 billion in misspent funds, an effort that remains ongoing more than a decade later. By comparison, TARP focused on the financial industry, whereas CARES Act programs authorize more than three times as much spending across all recipients.

Because of the broad oversight mandate given to SIGPR and other enforcement authorities, any business or municipality that receives CARES Act funds should understand the risks of improperly obtaining or using such funds. The principal enforcement tool is the False Claims Act, 31 U.S.C. § 3729, which allows for treble damages and penalties against entities that make false statements or fail to disclose conditions that would make them ineligible to receive funds. DOJ recovered more than $3 billion in FCA actions in 2019 alone, and whistleblowers who bring private FCA suits can receive rewards of up to 30 percent of the recovery. In addition, companies seeking funds through PPP should be aware, among other conditions, that the Small Business Administration’s affiliation and aggregation rules set limits on the size of companies (generally fewer than 500 employees) that can receive funds. In addition, the Small Business Administration’s rules regarding ineligible borrowers generally apply to PPP.

Recipients of CARES Act funds should take, at a minimum, the following steps to ensure that they do not expose themselves to liability:

• In applying for funds, understand eligibility requirements and exceptions for particular programs. Thoroughly document compliance with applicable requirements and intended use of funds. Be aware of the consequences of false statements and certifications.
• In spending funds, understand use-of-funds limitations such as prohibitions on stock buybacks, executive pay, and, in the case of CARES Act aid, that, among other requirements, the funds received and spent must be related to COVID-19. Thoroughly document how funds are spent and any communications with government authorities. Consider public disclosure of how funds are spent, and maintain a paper trail to prepare for eventual audits.
• Bolster existing compliance programs to train employees on CARES Act regulations. Create a checklist to ensure that steps are taken to maintain compliance. Monitor government guidance for updates, and consult with outside counsel on trends and best practices, or to respond to government inquiries.
• Be alert to employee and competitor complaints regarding potential misuse of funds, false statements or certifications, or other violations, especially in the context of departing employees. Conduct comprehensive internal investigations of any complaints and thoroughly document findings.

As our firm serves as counsel to clients who secured CARES Act funding, we are closely monitoring developments in the oversight of CARES Act funds and the enforcement of related regulations. If you have any questions, please contact Robert M. Kurucza (202-661-7195), a former senior official at the OCC in the Treasury Department and the SEC, now in Seward & Kissel’s Washington, D.C. office, or Michael G. Considine (212-574-1334), formerly a supervisory federal prosecutor in the DOJ, now in the Firm’s New York office, or your relationship attorney at the Firm.

Seward & Kissel has established a COVID-19 Resource Center on our web site to access all relevant alerts that we distribute.