Sharing is CAR(E)ing: EDVA U.S. Attorney Agrees to Help SIGPR Prosecute CARES Act Fraud

July 27, 2020
Firm Publication

The newly appointed Special Inspector General for Pandemic Recovery (SIGPR), Brian Miller, struck an important partnership with the U.S. Attorney’s office for the Eastern District of Virginia (EDVA U.S. Attorney).

On July 17, SIGPR and the EDVA U.S. Attorney entered into a Memorandum of Understanding (MOU) under which the offices pledged to develop a cooperative effort to investigate and prosecute criminal and civil fraud involving the $2 trillion distributed by the Treasury Secretary to American business, states and municipalities under the CARES Act. The MOU will significantly help SIGPR, a brand new law enforcement agency, pursue its mandate of investigating fraud, waste and abuse relating to CARES Act funding.

SIGPR’s Mandate

SIGPR is a key component of the CARES Act oversight structure established by Congress. SIGPR has a mandate to “conduct, supervise, and coordinate audits and investigations” of the distribution and management of CARES Act’s financial assistance funds and programs. The agency, which Miller must build and staff from scratch, was allocated an initial budget of $25 million. SIGPR is modeled closely off the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

Congress created SIGTARP in the wake of the 2008 global financial crisis to oversee the funds allocated under the Troubled Asset Relief Program (TARP). SIGTARP has used its broad powers to aggressively investigate TARP-related misconduct. To date, SIGTARP investigations have resulted in the recovery of over $11 billion and 300 defendants being sentenced to prison.

MOU Will Streamline SIGPR Investigations and Prosecutions

Miller’s efforts to ramp-up SIGPR operations and actively pursue investigations has been hampered by the lengthy government hiring process, which has prolonged his ability to staff-up the agency. A bipartisan group of senators led by Senator Chuck Grassley (R-Iowa) introduced a bill in May that would expedite SIGPR’s hiring and contracting authority, allow the agency to use volunteers and detailees from other government agencies, and to “re-hire” up to 25 former government employees who are receiving a government pension (re-hired annuitants).

Granting SIGPR re-hired annuitant authority will be particularly beneficial in that it incentivizes highly-experienced and trained law enforcement agents, investigators and attorneys to work for SIGPR, as happened at SIGTARP, because these individuals would be eligible to receive both a SIGPR salary and retirement payments. The Senate referred the bill to the Senate Committee on Banking, Housing, and Urban Affairs, but no other action has been taken. In the meantime, Miller has arranged to utilize personnel and resources from the EDVA U.S. Attorney. Under the MOU, the EDVA U.S. Attorney will assign a criminal paralegal “specifically to SIGPR investigations and prosecutions . . . .” and will also “provide forensic support for civil enforcement matters.”

Most crucial, the MOU creates the potential for expedited prosecution of criminal violations uncovered by SIGPR in two ways. First, the MOU will provide SIGPR priority access to a prosecutor that is ready, willing and able to successfully prosecute its cases. While SIGPR has broad law enforcement powers – including the authority to make arrests, execute search warrants, issue subpoenas and take testimony – it does not have the authority to file civil or criminal charges. Rather, SIGPR must partner with federal or state prosecutors to have charges filed on fraud it uncovers. This means that SIGPR will need to locate a willing prosecutor for each investigation the agency believes warrants the filing of charges.

Based on my first-hand experience during my tenure at SIGTARP, finding a prosecuting agency willing to take an investigation to prosecution is by no means easy or automatic. For example, prosecuting agencies have existing dockets of cases and investigations as well as resource constraints. The MOU, however, paves the way for SIGPR to expedite the investigation and prosecution of its cases via dedicated assistance from a well-respected U.S. Attorney’s office committed to prosecuting CARES Act fraud. In this regard, the MOU provides that two EDVA Assistant U.S. Attorneys will serve as special liaisons to SIGPR and will be “direct points of contact for case-related inquiries from SIGPR.”

Additionally, the EDVA U.S. Attorney committed to “create a streamlined, accelerated process for SIGPR investigations to obtain needed preliminary legal process, including grand jury subpoenas and court orders, subpoenas, and civil investigative demands.” Making things even more fluid, the SIGPR office will be located 75 yards away from the EDVA office in Alexandria, Virginia.

Second, the MOU enables SIGPR investigations to be prosecuted in one of the fastest federal courts in the country. The U.S. District Court for the Eastern District of Virginia (D.C. EDVA) has earned the nickname “Rocket Docket.” D.C. EDVA judges are known to push cases forward on an extremely expedited schedule.

Indeed, SIGTARP’s most prominent and successful prosecution resulted from a case filed in the D.C. EDVA in coordination with the EDVA U.S. Attorney’s office. In that case, Lee Bentley Farkas, the former chairman of a private mortgage lending company, was indicted in June 2010 for his alleged role in a more than $1.9 billion fraud scheme that attempted to defraud TARP and contributed to the failures of two major financial institutions. Farkas opted to fight the charges in court and was convicted in April 2011 after a 10-day trial.

Two months later, Farkas was sentenced to 30 years in prison and ordered to forfeit $38.5 million. In commenting about the case, the then EDVA U.S. Attorney (Neil MacBride) praised the relative speed it took prosecutors to mount their case against Farkas, convince six co-conspirators to flip against him, bring the case to trial, and achieve a lengthy sentence against Farkas. MacBride told reporters, “There’s a reason the Eastern District is called the ‘Rocket Docket,’ and we saw that today.”

Takeaways for CARES Act Fund Recipients

We continue to believe SIGPR will follow the path of SIGTARP and aggressively investigate CARES Act fraud. The MOU is a step in that direction. Accordingly, we reiterate the prior recommendations we made to CARES Act fund recipients and applicants.

In particular, it is important to take seriously any contact from SIGPR, including subpoenas, requests for information, and audit requests that might be considered routine. Such contacts may be part of a serious investigation into the contacted party or can easily escalate to such a level if not handled carefully.

If you have any questions about SIGPR or government oversight related to funds received from the CARES Act, please contact the author. Michael J. Rivera served as Chief Investigative Counsel for SIGTARP.

Michael would like to thank summer law clerk Carter-William Palek for his contributions to this content. Carter-William Palek is a law student at the University of Alabama School of Law and is not licensed to practice law.