COVID-19 and the Explosive Rise of Unemployment Insurance Fraud

In mid-May, U.S. Attorney General Merrick Garland established the COVID-19 Fraud Enforcement Task Force. Attorney General Garland directed the task force to use the resources of the U.S. Department of Justice in partnership with agencies across government to enhance enforcement efforts against fraud related to the COVID-19 pandemic. Even by that time – more than one year into the pandemic – federal prosecutors, including those in the U.S. Attorneys Offices throughout New York and across the country, had been quite active in fighting COVID-19 fraud. The Justice Department had publicly charged close to 500 defendants with criminal offenses based on fraud schemes connected to the pandemic involving attempts to obtain over $569 million from the U.S. government and others.

Criminal prosecutions have continued at a seemingly accelerating pace – including throughout New York. For example, just weeks ago, the U.S. Attorney for the Southern District of New York charged four individuals with conspiracy to commit wire fraud, wire fraud, false statements, and aggravated identity theft in connection with an alleged scheme to defraud the U.S. Small Business Administration (SBA).

Prosecutors alleged that the defendants used the identities of more than 1,000 individuals to submit over 1,000 online applications to the SBA seeking over $10 million of funds through the SBA’s Economic Injury Disaster Loan (EIDL) Program, which Congress expanded in response to the COVID-19 pandemic. The government asserted that, in connection with the EIDL applications, the defendants falsely represented to the SBA, among other things, that the applicants were the owners of businesses with 10 or more employees, leading the SBA to advance payments of more than $7.6 million to the applicants. See https://www.justice.gov/usao-sdny/press-release/file/1442031/download.

As another example, consider that in early October in the Eastern District of New York, a Staten Island business owner pleaded guilty to mail fraud for defrauding customers who purchased personal protective equipment (PPE) during the early days of the pandemic. The government asserted that the defendant made false statements to thousands of customers regarding his company’s inventory and ability to quickly fill and ship orders of PPE; that after customers placed orders relying on these statements, the defendant issued false same-day shipping confirmations, which included tracking numbers that customers purportedly could use to monitor the shipment of their orders; and that despite these promises, the defendant did not fulfill orders for PPE on the promised timeline for hundreds of customers. In addition, the government said, the defendant took advantage of the demand for PPE by selling it at large markups, ranging from 150 percent to over 500 percent above what he paid for the goods. See https://www.justice.gov/usao-edny/pr/staten-island-business-owner-pleads-guilty-mail-fraud-scheme-exploit-covid-19-crisis.

As this column and other commentators have long predicted, numerous fraud charges have been filed relating to the Paycheck Protection Program (PPP). In the months since the PPP began, the Justice Department has prosecuted more than 100 defendants in more than 70 criminal cases, seizing over $65 million in cash derived from PPP loans as well as various real estate properties and luxury items purchased with those proceeds. See https://www.justice.gov/opa/pr/two-individuals-sentenced-covid-19-relief-fraud.

A guilty plea in early September in the Northern District of New York illustrates a common PPP fraud. In this case, an Ulster County man pleaded guilty to submitting fraudulent applications to obtain $4,309,581 in PPP loans in the names of four companies that he controlled, with each application grossly misrepresenting each company’s employees and payroll and each application including false corporate tax documents. The defendant admitted that none of his companies actually had a payroll or employees. See https://www.justice.gov/usao-ndny/pr/ulster-county-man-pleads-guilty-conspiring-commit-covid-19-relief-fraud.

Unemployment Insurance Fraud

One of the most troublesome and costly frauds arising from the COVID-19 pandemic is unemployment insurance fraud.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, enacted on March 29, 2020, expanded the ability of states to provide unemployment insurance for many workers impacted by COVID-19. In particular, it provided for three new unemployment insurance programs: Pandemic Unemployment Assistance (PUA); Federal Pandemic Unemployment Compensation (FPUC); and Pandemic Emergency Unemployment Compensation (PEUC). Congress appropriated more than $860 billion in federal funds for unemployment insurance benefits through September 2021.

Soon after the CARES Act was enacted, federal prosecutors found that international organized criminal groups targeted these funds by using stolen identities to file for benefits, and that domestic fraudsters – ranging from identity thieves to prison inmates – also committed unemployment insurance fraud. See https://www.justice.gov/opa/pr/justice-department-takes-action-against-covid-19-fraud.

In response, the Justice Department established the National Unemployment Insurance Fraud Task Force (NUIFTF), a prosecutor-led multi-agency task force staffed from more than eight different federal law enforcement agencies. See https://www.justice.gov/coronavirus/national-unemployment-insurance-fraud-task-force. (A representative of the NUIFTF was named a member of the COVID-19 Fraud Enforcement Task Force.) The NUIFTF has warned that criminals have been creating websites mimicking unemployment benefit websites, including state workforce agency websites, to steal personal information and file fraudulent unemployment insurance claims for benefits provided as a response to the COVID-19 pandemic. See https://www.justice.gov/usao-ma/pr/taunton-man-charged-pandemic-unemployment-and-mortgage-fraud. The non-profit Foundation for Government Accountability has suggested that unemployment fraud could total more than $300 billion. See https://thefga.org/press/unemployment-fraud-bonus-side-effect/.

New York appears to be rife with unemployment insurance fraud related to COVID-19, as highlighted by the following recent cases:

• Prosecutors alleged that a defendant fraudulently obtained more than $45,000 in unemployment insurance benefits by claiming falsely that she had not been employed since February 2020 due to a lack of work because of the COVID-19 pandemic but that, in fact, she had been employed for at least some of that period and her employment ceased not because of the pandemic but because she stopped showing up to work. See https://www.justice.gov/usao-sdny/press-release/file/1439311/download.
• A licensed acupuncturist who operated medical offices allegedly engaged in a scheme to obtain COVID-19 unemployment benefits for herself and a family member by fraudulently submitting and causing to be submitted to the New York State Department of Labor (NYSDOL) materially false online applications and certifications for COVID-19 benefits. According to the government, among other things, the applications and/or certifications represented that the acupuncturist was unemployed when, in fact, she continued to operate the medical offices, and her family member was unable to work because of COVID-19 during a five-month period when the family member was in China. See https://www.justice.gov/usao-sdny/press-release/file/1436956/download.
• Eight people from Brooklyn were charged with engaging in a fraudulent scheme to obtain millions of dollars in unemployment benefits. Prosecutors alleged that, between June 2020 and April 2021, the defendants submitted fraudulent claims to the NYSDOL for unemployment insurance benefits using the personal identifying information of third party victims to fraudulently receive unemployment insurance benefits funded, in whole or in part, by COVID-19 pandemic assistance programs. The defendants’ scheme allegedly resulted in approximately $2 million in unemployment benefits being distributed to the defendants and others. Four of the defendants allegedly posted photos of themselves on social media in which they were holding and fanning out large sums of cash. See https://www.justice.gov/usao-edny/pr/eight-brooklyn-individuals-charged-multi-million-dollar-covid-19-relief-fraud.
• A Buffalo woman pleaded guilty to wire fraud involving benefits connected to a presidentially declared national emergency. Prosecutors said that she defrauded the NYSDOL by fraudulently collecting unemployment insurance benefits to which she was not entitled. According to the government, the defendant applied for and received benefits in her own name, under false and fraudulent pretenses, and also used the personal identifying information of two individuals fraudulently to create benefit accounts and collect benefits in the names of these individuals. The benefit money was deposited into bank accounts the defendant held and controlled at Key Bank, which also issued ATM cards in both her name and in the names of the two individuals, which the defendant used to make cash withdrawals of the benefits. As a result of the fraud, the defendant unlawfully collected $48,833.15 in benefits. See https://www.justice.gov/usao-wdny/pr/buffalo-woman-pleads-guilty-covid-fraud.
• A woman from Batavia was charged with wire fraud and theft of government funds. According to the charges, she knowingly used the personal identifying information of other individuals unlawfully to apply for and collect unemployment benefits connected to federal COVID-19 relief programs. The government said that the defendant came to the attention of law enforcement when she was arrested on charges of criminal possession of a controlled substance during a vehicle traffic stop in Bergen, New York, and troopers observed a crack pipe with white residue inside her vehicle. After the arrest, prosecutors said, the defendant’s vehicle was searched, and the troopers recovered six New York State unemployment benefit cards issued to individuals other than the defendant. The government said that an examination of bank records for the benefit cards revealed several indicators of fraud and that video footage from ATMs where the cards were used confirmed that the defendant had consistently withdrawn money from the cards. The defendant “routinely used the personal identifying information of others in order to apply for and collect unemployment benefits in their names,” resulting in a loss of at least $99,141.39 to the government, prosecutors said. See https://www.justice.gov/usao-wdny/pr/batavia-woman-arrested-charged-covid-fraud.
• A former employee of the NYSDOL pleaded guilty to federal program theft and admitted to abusing her position as an employee of the NYSDOL to obtain $314,168 by submitting and approving 20 false unemployment insurance applications. The stolen funds included benefits from federal programs intended to help out-of-work New Yorkers during the COVID-19 pandemic. In pleading guilty, the defendant admitted to receiving lists of names and personal identifying information from another individual and using her access to NYSDOL systems to submit and approve fraudulent unemployment insurance claims using the names and other information she had received. See https://www.justice.gov/usao-ndny/pr/former-state-employee-pleads-guilty-unemployment-insurance-fraud.

Conclusion

While prosecutors remain on the hunt for unemployment insurance fraud related to COVID-19, at least two U.S. senators want the government to do more. Senators John Thune (R-S.D.) and Mike Crapo (R-Idaho) have introduced the Recovering Fraudulent Claims Act, see https://www.thune.senate.gov/public/_cache/files/ecdb9b1f-ca2a-4009-a9f6-d04613f7aa38/F778C73F98F61FE4DCCE73952CA561EC.mur21610.pdf. If enacted, this bill would establish the COVID-19 Unemployment Insurance Fraud Task Force to investigate alleged instances of fraud in the unemployment insurance programs established by the CARES Act. The bill also would require the task force to report back to Congress on its findings and provide insight into the amount of fraudulent unemployment insurance payments that have been recovered since the establishment of the programs and the number of individuals who have been prosecuted since the start of the COVID-19 pandemic. It remains to be seen whether this bill ultimately will become law, but at least one thing is certain: Unemployment insurance fraud is high on the government’s radar.

Reprinted with permission from the November 4, 2021, issue of the New York Law Journal^©, ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.