Joint Statement on COVID-19 Fraud Before the Senate Committee on the Judiciary — U.S. Department of Justice

Summary

A joint statement of the U.S. Department of Justice by William Hughes, Associate Deputy Attorney General, and Craig Carpenito, U.S. Attorney for the District of New Jersey. It was presented June 9, 2020 before the Committee on the Judiciary, United States Senate, for a hearing on COVID-19 fraud and law enforcement's response. The statement describes the Department's task force on hoarding and price gouging under the Defense Production Act, including Executive Order 13909 issued on March 18, 2020. It also describes work against fraud relating to the CARES Act's Paycheck Protection Program, stating that as of June 3, 2020, the Department's prosecutors have brought six cases charging fraud in connection with PPP loan applications.

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“Joint Statement on COVID-19 Fraud Before the Senate Committee on the Judiciary — U.S. Department of Justice.” Original at www.judiciary.senate.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/056-2020-06-09-ppr-wave3-hv-9e0befc159ac743e-hughes-carpenito-testimon-f251ff5a3d/, SHA-256 7ef24ffbc85c8e1e3dca66297803a9faeda90f7995c56fb989702c211f9ee85a.

Full text

STATEMENT OF THE
U.S. DEPARTMENT OF JUSTICE

WILLIAM HUGHES
ASSOCIATE DEPUTY ATTORNEY GENERAL
OFFICE OF THE DEPUTY ATTORNEY GENERAL

AND

CRAIG CARPENITO
U.S. ATTORNEY FOR THE DISTRICT OF NEW JERSEY

BEFORE THE

COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE

FOR A HEARING ENTITLED

“COVID-19 FRAUD: LAW ENFORCEMENT’S RESPONSE TO THOSE
EXPLOITING THE PANDEMIC”

PRESENTED

JUNE 9, 2020
WILLIAM HUGHES
ASSOCIATE DEPUTY ATTORNEY GENERAL

CRAIG CARPENITO
UNITED STATES ATTORNEY FOR THE DISTRICT OF NEW JERSEY

U.S. DEPARTMENT OF JUSTICE
JOINT STATEMENT
BEFORE

THE UNITED STATES SENATE COMMITTEE ON THE JUDICIARY
WASHINGTON, D.C.
FOR A HEARING ENTITLED
“COVID-19 FRAUD: LAW ENFORCEMENT’S RESPONSE TO THOSE EXPLOITING
THE PANDEMIC.”

JUNE 9, 2020

Good morning Chairman Graham, Ranking Member Feinstein, and members of the
Committee.

Thank you for inviting us to appear before you today to discuss the Department of
Justice’s (the Department) efforts to detect and prosecute those who seek to exploit the COVID-
19 pandemic and the economic dislocation it has caused for personal financial gain. We have
been tasked by the Attorney General and Deputy Attorney General to lead the Department’s
Hoarding and Price Gouging Task Force (Mr. Carpenito) and to coordinate more generally the
Department’s response to criminal conduct relating to the COVID-19 pandemic (Mr. Hughes).
We want to thank the Committee for its attention to this issue and to the good work of the
Department to protect the safety and security of our nation during this unprecedented crisis.

The Department is committed to detecting, investigating, and prosecuting wrongdoing
related to the crisis. The Department has received reports of, is investigating, and has already
commenced prosecutions of individuals and businesses using the crisis to seek windfall profits at
the expense of public safety and the health and welfare of the American people, from the sale of
fake cures for COVID-19 online, hoarding and price gouging with respect to critical medical
supplies, and defrauding the CARES Act economic programs.

To be clear, the Department will not tolerate any bad actors who seek to treat the
pandemic as an opportunity to defraud their fellow citizens or the government. In addition to the
work of the task force charged with addressing hoarding and price gouging, the Department is
also engaged in an effort to detect and counter fraud as well as price-fixing and other forms of
market manipulation that constitute violations of antitrust law. The Department’s attorneys work
side-by-side with the Federal Bureau of Investigation (FBI) and other investigative partners from
a variety of federal, state, and local agencies.

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Prosecuting Hoarding and Price Gouging under the Defense Production Act

Hoarding and price gouging, in particular, have the added effect of inhibiting frontline
healthcare professionals, essential workers, and the public from acquiring the supplies they need
to protect themselves from contracting the virus. The limited supplies of these crucial products,
and associated reports of hoarding and price gouging, prompted the signing of an Executive
Order by the President invoking authority under the Defense Production Act (DPA) and the
subsequent formation of the anti-hoarding, anti-price gouging task force led by Mr. Carpenito.

As you are undoubtedly aware, the DPA confers broad authority on the President to
combat hoarding and price gouging.1 Under Section 101(a)(1) of the DPA, the President may
require parties to accept and perform contracts deemed necessary to the national defense. Under
Section 101(a)(2), the President may allocate materials, services, and facilities in such manner as
deemed necessary or appropriate for the national defense. Under Section 102, the President may
prohibit hoarding scarce materials in excess of the reasonable demands of business, personal or
home consumption, or for the purpose of resale at prices in excess of the prevailing market price.
The DPA also gives the President a range of administrative and civil enforcement tools to
enforce compliance with the Act.

Section 101(b) of the DPA provides the mechanism for how the President triggers his
authority under section 101(a) of the DPA. Subsection (b) provides that the President must find
that (1) the material at issue “is a scarce or critical material essential to the national defense,” and
(2) “the requirements of the national defense for such material cannot otherwise be met without
creating a significant dislocation of the normal distribution of such material in the civilian market
to such a degree as to create appreciable hardship.”2

In Executive Order 13909, issued on March 18, 2020, the President made the findings
prescribed by subsection (b), thereby triggering his Section 101(a) authority. Specifically, the
President determined that the “health and medical resources needed to respond to the spread of
COVID-19, including personal protective equipment and ventilators, meet the criteria specified
in section 101(b)” of the DPA. Executive Order 13909 further confers on the Secretary of
Health and Human Services (HHS) the President’s authority under Section 101(a) “to require
performance of contracts or orders (other than contracts of employment) to promote the national
defense over performance of any other contracts or orders” and “to allocate materials, services,
and facilities as deemed necessary or appropriate to promote the national defense,” with respect
to “all health and medical resources needed to respond to the spread of COVID-19 within the
United States.” The order also delegates to the Secretary of HHS the various implementation
and enforcement authorities under Section 101 of the DPA with respect to health and medical
resources needed to respond to the spread of COVID-19. This Executive Order thus authorizes
the federal government to require the sale of needed resources either to the government or to any
other party it deems appropriate.

In Executive Order 13910, issued on March 23, 2020 the President declared it the policy
of the United States to prevent the hoarding of health and medical resources essential to

1
See 50 U.S.C. § 4501 et seq.
2
50 U.S.C. § 4511(b).

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combatting the spread of COVID-19. That order delegated to the Secretary of HHS the
President’s authority under Section 102 to designate materials as scarce for the purpose of
prohibiting the hoarding or price gouging with respect to such materials. In Executive Order
13911, issued on March 27, 2020, the President delegated the same authority to the Secretary of
Homeland Security.

On March 25, 2020, the Secretary of HHS published a notice in the Federal Register in
which he designated fifteen categories of health and medical resources as scarce. That notice
acknowledged that it is the policy of the U.S. that health and medical resources needed to
respond to the spread of COVID-19, such as personal protective equipment (PPE) and sanitizing
and disinfecting products, are appropriately distributed, and stated that that policy furthered the
goal of protecting the Nation’s healthcare system from undue strain. The materials designated as
scarce include respirator face masks like the N95 mask, ventilators, sterilization services,
medical gowns, Tyvek® suits, face shields, surgical masks, and surgical gloves. This notice
triggered the criminal prohibitions of Section 102 of the DPA. The designations are to be
periodically reviewed by HHS and are set to expire after 120 days unless a superseding notice is
published.

To carry out prosecutions for violations of the criminal prohibitions under the DPA, the
Attorney General announced to the Department the formation of a task force to combat hoarding
and price gouging. The Attorney General appointed Mr. Carpenito to lead the task force. He
further instructed each U.S. Attorney’s office and the relevant Department litigating components,
particularly the Antitrust Division, to designate experienced attorneys to serve as members of
and provide support to the task force.

The task force’s primary mission is to identify, investigate, and prosecute instances of
illegal hoarding of the critical medical supplies designated by HHS. Section 103 of the DPA
criminalizes the conduct prohibited by Section 102. Every violation of Section 103 requires
proof of two general elements: first, that the defendant actually did something expressly
prohibited, or failed to do something expressly required, by either the DPA itself, or by any rule,
regulation, or order issued under the DPA; and second, that the defendant did so willfully,
meaning with knowledge that his conduct was generally unlawful. Section 103 imposes criminal
penalties for willful violations of the DPA and of regulations and orders issued under the Act that
include up to a $10,000 fine and imprisonment of no longer than one year for each offense.

The violations of the DPA that this task force primarily investigates are violations of
Section 102 of the DPA. A willful violation of Section 102 requires proof of at least three
elements in addition to the elements set forth above: first, that the defendant accumulated
materials; second, accumulation of at least some of the materials took place after the materials
were designated in the Federal Register as scarce and important to the national defense; and
third, that the defendant accumulated the materials either (a) in excess of his or her reasonable
needs of business, personal, or home consumption; or (b) for the purpose of resale at prices in
excess of prevailing market prices.

Any charging decisions the Department makes under the DPA will take into account the
larger context of the current public health crisis. The decisions the Department makes to open

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investigations or to bring charges are intended to help the public health response, not hinder it.
This means that, as a practical matter, the task force is focused on profiteering. We recognize
that many established manufacturers and distributors of PPE have not meaningfully increased
their prices since the start of the pandemic. We understand this because some of their prices are
publicly available. 3M, for example, has published a price list for the many different models of
N95 masks it manufactures.3 According to 3M, most of their N95 respirators should cost an end-
user less than $2.

There are resellers out there, however, who are charging substantially higher prices than
these traditional market participants. When the task force sees substantially higher prices, it
inquires whether the legitimate costs of the reseller are high. If, in order to turn any profit or
simply break even, the reseller must set a high resale price, even a price much higher than other
transactions in the market, the fact that the reseller is not profiteering is important for us to
consider. It is likewise important if the reseller’s costs are not particularly higher than the costs a
traditional distributor incurs, but the reseller nevertheless demands a resale price substantially
higher than the traditional price for the same goods. The purpose or effect of such a price is to
allow that reseller to capture a profit margin that is substantially higher than what resellers
generally earned prior to crisis, or are even generally earning now.

The Department’s efforts have already yielded substantial results. On April 2, 2020, the
Department announced the distribution of hoarded personal protective equipment (PPE),
including hundreds of thousands of N95 respirator masks, to those on the frontline of the
COVID-19 response in New York and New Jersey. The FBI discovered the supplies on March
30, 2020, during an investigation coordinated by the task force. The task force alerted HHS,
which used its authority under the DPA to order that the supplies be sold to the U.S. In addition
to the N95 respirator masks, the Department was seized a cache of hundreds of thousands of
medical-grade-gloves, surgical masks, gowns, and other medical supplies. We understand that
HHS was able to immediately collect that PPE and redistribute it to state and local authorities for
further distribution to front line healthcare providers.

Just two weeks ago, the Department announced hoarding and price gouging charges
against a man in New Jersey who allegedly attempted to defraud New York City into paying him
approximately $45 million for PPE masks at excessive prices that he did not possess and was not
authorized to sell, and also brought similar charges against a licensed pharmacist in New York
who allegedly sold N95 respirators to customers for up to 50% more than he paid to acquire
them. These case both involved other criminal charges, including wire fraud and health care
fraud.

In addition to hoarding and price gouging, the task force also is focused on identifying
counterfeit and misbranded PPE imported into the U.S. from abroad. The task force has been
coordinating with the FDA and the Consumer Protection Branch of the Department’s Civil
Division when such situations present themselves.

3
Available at https://multimedia.3m.com/mws/media/1803670O/fraudulent-activity-price-gouging-and-counterfeit-
products.pdf.

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Combatting Fraud and Abuse

In addition to the work of the task force, U.S. Attorneys’ Offices and many Department
components, including the Criminal Division and the Civil Division, are combatting fraud
relating to COVID-19.

On March 16, 2020, the Attorney General issued a memorandum directing every U.S.
Attorney’s Office “to prioritize the detection, investigation, and prosecution of all criminal
conduct related to the current pandemic.” Within days, each of the 94 U.S. Attorneys’ Offices
identified and appointed one prosecutor to serve as the office’s Coronavirus Coordinator to
ensure that those cases were given the highest priority.

Assistant United States Attorneys across the nation are committed to the mission of
combatting fraud relating to COVID-19, and they work with lawyers throughout the Department
to bring to bear all the criminal and civil tools necessary to investigate, prevent, and prosecute
sales of fraudulent PPE and COVID-19 treatments, cures, and tests; the use of stolen identities to
obtain health care, Economic Impact Payment, unemployment, or other government benefits; and
loan fraud, bank fraud, money laundering, and aggravated identity theft relating to CARES Act
funds. The U.S Attorneys’ Offices work with every major law enforcement agency to
investigate and prosecute the fraud arising out of the pandemic; they often pair with the Criminal
Division and the Civil Division to ensure that they are using every tool available to prevent and
prosecute the fraud. They also have leveraged and have further strengthened relationships with
State and local law enforcement counterparts in their districts, leading to more effective
enforcement and more successful prosecutions.

The Criminal Division Fraud Section, working closely with the FBI and the Small
Business Administration (SBA), has been focusing meaningful investigative efforts on fraud
relating to the CARES Act’s Paycheck Protection Program (PPP). The PPP authorizes up to
$659 billion in forgivable loans of up to $10 million each to small businesses, nonprofits,
veterans organizations, and tribal business concerns to cover employee paychecks and certain
non-payroll costs during the crisis. As of June 3, 2020, the Department’s prosecutors have
already brought six cases charging fraud in connection with PPP loan applications:

U.S. v. Yates (Eastern District of Texas)

 Yates was charged with wire fraud, bank fraud and false statements for two fraudulent
applications seeking over 5 million dollars in PPP loans from two different lenders.
Falsely claiming to have hundreds of employees when in fact he had none, Yates
allegedly used a publicly available random-name generator on the Internet to create lists
of purported employees, and submitted them along with forged tax documents.

U.S. v. Fayne (Northern District of Georgia)

 Fayne was charged with bank fraud stemming from a PPP loan he obtained in the name
of Flame Trucking with claims that he had 107 employees and an average monthly
payroll of $1,490,200. Fayne allegedly obtained a PPP loan over $2 million and then

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used over $1.5 million of the proceeds to purchase $85,000 in jewelry, including a Rolex
Presidential watch, a diamond bracelet, and a 5.73 carat diamond ring, and to pay
$40,000 for child support.

U.S. v. Benjamin Hayford (Northern District of Oklahoma)

 Hayford was charged with wire fraud, bank fraud, false statements to a financial
institution, and false statements to the SBA, in connection with allegedly fraudulently
applications submitted to multiple banks seeking about $4.4 million in PPP loans. As
alleged, while Hayford certified that his company was in operation as of February 15,
2020, the company received its IRS Employer Identification Number on March 30, 2020
and registered with State of Texas on April 1, 2020. In addition, while the loan
applications allegedly represented an average monthly payroll of approximately $1.7
million for 247 employees, the supporting documentation allegedly lacked any employee
information aside from internal employee numbers, and also changed representations as
to whether they were contract employees or W-2 employees.

U.S. v. Rai (Eastern District of Texas)

 Rai was charged with wire fraud, bank fraud, false statements to a financial institution,
and false statements to the SBA for fraudulently seeking more than $10 million in PPP
loans from two banks. In his applications, Rai fraudulently claimed to have hundreds of
employees, when there were no records of Rai or his purported business paying employee
wages or records of revenues from the relevant time period.

U.S. v. Staveley & Butziger (District of Rhode Island)

 Staveley and Butziger were charged with conspiring to seek over $530,000 in PPP loans,
falsely claiming to have dozens of employees earning wages at four business entities.
Staveley allegedly claimed he had dozens of employees at three restaurants, two of which
were not open at the time, and one of which Staveley had no role in or ownership.
Butziger allegedly sought a PPP loan as the owner of an unincorporated entity named
Dock Wireless with false claims that he had seven employees on Dock Wireless’ payroll.

U.S. v. Sadleir (Central District of California)

 Sadleir was charged with fraudulently filing bank loan applications for a film production
company that sought more than $1.7 million dollars in forgivable PPP loans. Sadleir
allegedly obtained the forgivable loans by falsely representing that the funds would be
used to support payroll expenses, when, in fact, Sadleir intended to use and did use a
significant portion of the funds for personal and non-business-related expenses.

In addition, the Criminal Division has also engaged in outreach to agencies tasked with
implementing and overseeing CARES Act funds to design programs to detect and deter
fraudulent conduct in the first instance. They are also coordinating with investigative agencies to
identify key indicia of COVID-19/CARES Act related fraud schemes and to make sure

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information about emerging patterns and practices of fraudsters are shared across the relevant
law enforcement community. Moreover, the Criminal Division is working closely with General
Services Administration OIG, Department of Defense OIG, and Department of Homeland
Security OIG, to ensure that taxpayers are not defrauded as the government seeks to procure
large quantities of necessary equipment and services on an urgent timeframe.

The Criminal Division has also assumed a leadership role in identifying and combating
health care fraud trends emerging during the crisis, including by chairing a working group with
FBI, HHS Office of Inspector General, and other law enforcement partners. Additionally, the
Fraud Section has assigned 25 prosecutors to prosecute COVID-19 cases across the country,
directed its Data Analytics Group to prioritize analysis of COVID-19-related billing schemes,
and retained forensic accounting and other experts that will assist in investigations and
prosecutions. These efforts have already led to prosecutions, including charges against a
defendant in the Middle District of Florida, who, among other offenses, conspired to be paid
kickbacks on a per-test basis for COVID-19 tests, provided that those tests were bundled with
Respiratory Pathogen Panel tests, which reimburse at a far higher rate than COVID-19 tests.

Since February, criminal and nation-state cyber actors have been increasingly targeting
U.S. pharmaceutical, medical, and biological research facilities to acquire or manipulate
sensitive information, to include COVID-19 vaccine and treatment research amid the evolving
global pandemic. We have also seen various forms of fraudulent activity seeking to capitalize on
the attention and concern that the pandemic demands and creates, including scam websites that
are designed to look like legitimate charities, government agencies, healthcare organizations, or
COVID-related information sources, but which fraudulently solicit donations, trick users into
revealing passwords or other personal information, or distribute malicious code. The Criminal
Division’s Computer Crime and Intellectual Property Section and the National Security Division
are working with investigative agencies and U.S. Attorneys’ Offices to combat COVID-related
cybercrime and intellectual property violations, particularly those that affect the healthcare
sector.

The Department has identified a variety of ongoing or potential fraudulent schemes.
These include:

 Medicare beneficiaries receiving fraudulent calls, texts, and emails seeking to have the
recipients disclose their personally identifiable information (PII) (e.g., social security
numbers, dates of birth, and bank account routing and account numbers) under the
auspices of confirming eligibility for COVID-19 tests, and then using that PII to bill
health insurance programs for medically unnecessary, or not provided, services or
equipment.

 Medical professionals offering free COVID-19 testing to obtain Medicare beneficiary
information that can then be used to submit medical claims for unrelated and medically
unnecessary – and far more expensive – tests or services, as well as the payment of
kickbacks for referrals for such testing.

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 Social media scams fraudulently seeking donations or claiming to provide COVID-19
relief funds if the recipient enters his or her bank account information.

 Scammers representing that they are acting on behalf of government agencies, including
the SBA, U.S. Treasury, and other entities, in order to obtain money from individuals.

 Robocalls making fraudulent offers to sell respiratory masks with no intent of delivery.

 Sales of counterfeit or fake testing kits, cures, “immunity” pills, and protective
equipment.

 Seeking donations fraudulently for illegitimate or non-existent charitable organizations.

Federal prosecutors around the nation have undertaken investigations and have brought,
or anticipate bringing, charges in connection with all of these fraud schemes.

In addition, Department attorneys are focused on CARES Act fraud schemes connected
to the Economic Impact Payments (EIP) program and state-sponsored unemployment benefit
payments. The Department has received complaints of aggravated identity theft by perpetrators,
including those overseas, who file false claims for EIP and unemployment benefits. The money
is often routed through bank accounts and debit cards of third parties here in the U.S. From
there, the proceeds are transferred to the perpetrators, many of whom are overseas.

The Department’s investigations into this conduct involve multiple law enforcement
agency partners. To date, federal law enforcement has flagged payments and recovered millions
of dollars before the money has left the country, and we and federal investigative agencies are
working toward pursuing all the perpetrators, including those overseas. In order to prosecute
perpetrators of these schemes, we can charge wire fraud, aggravated identity theft, and money
laundering, among other crimes.

Consumer Protection

The Consumer Protection Branch of the Civil Division has taken action in federal court to
combat fraud related to the COVID-19 pandemic by seeking to enjoin activity under Section
1345 of Title 18 of the United States Code to prevent harm to potential victims of fraudulent
scams. For instance, on March 21, 2020, the Department filed suit in the Western District of
Texas seeking to enjoin the operations of a website fraudulently claiming to sell COVID-19
vaccine kits purported to be from the World Health Organization. As there unfortunately is not
yet a COVID-19 vaccine, the court promptly granted the Department’s request and issued a
temporary restraining order requiring that the registrar of the fraudulent website immediately
take action to block the public from accessing it.

Since March, the FBI’s Internet Crime Complaint Center (IC3) has received and
reviewed thousands of complaints related to COVID-19 scams, referring complaints relating to
websites or advertisements for fake COVID-19 vaccines and cures, fraudulent charities, and

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malware to the Consumer Protection Branch for review and, if warranted, action. As a result of
the ongoing cooperative efforts between federal, state, and local law enforcement, and a number
of private-sector companies, including multiple Internet domain providers and registrars, the FBI
Cyber Division’s Cyber Initiative and Resource Fusion Unit has sent notifications on 1,000
domain names related to COVID-19 fraud, and over 800 of these domain name registrations
have been suspended or otherwise mitigated. The Consumer Protection Branch, in coordination
with the Food and Drug Administration (FDA), has also filed several enforcement actions
seeking preliminary relief in order to protect consumers from illegal and potential harmful
products being offered to treat COVID-19. These enforcement actions seek to swiftly shut down
individuals and businesses selling unapproved products with misleading efficacy claims,
products that are not only potentially dangerous but also may prevent those suffering from
COVID-19 from receiving the healthcare they need. Federal district courts have agreed with the
Department about these predatory schemes and have enjoined the unlawful sale of potentially
dangerous products in several cases, including:

U.S. v. Genesis II Church of Health and Healing (Southern District of Florida)

 On April 8, 2020, the FDA and the Federal Trade Commission (FTC) issued a Warning
Letter to Genesis and its principals notifying them that, by selling a product called
Miracle Mineral Solution and claiming that it will cure, mitigate, treat, or prevent
COVID-19, Alzheimer’s, autism, brain cancer, HIV/AIDS, and multiple sclerosis, they
are violating federal law by, among other things, distributing unapproved new drugs and
misbranded drugs in interstate commerce. Despite this warning, Genesis continued to
sell this product and expressly stated that they would not take corrective action. As a
result, on April 17, 2020, the Department filed suit to enjoin Genesis from selling Miracle
Mineral Solution, and the U.S. District Court for the Southern District of Florida
promptly entered a temporary injunction halting its sale.

U.S. v. Purity Health and Wellness Center (Northern District of Texas)

 The Department filed suit to enjoin the Purity Health and Wellness Center (Purity) from
fraudulently touting its “ozone therapy” treatment as a COVID-19 treatment. Purity and
its principals agreed to be bound by a permanent injunction barring them from
representing that their “ozone therapy” could be used to treat or cure COVID-19.

United States v. Gordon Pedersen, My Doctor Suggests LLV, and GP Silver LLC (District of
Utah)

 The Department filed suit seeking to enjoin Pedersen, and his companies, from
continuing to make false and misleading claims that Alkaline Structured Silver products,
as sold by Pedersen, as a protection against and a treatment for COVID-19. The court
promptly entered an injunction halting the sale of the fraudulent COVID-19 treatment.

United States v. Xephyr LLC, d/b/a N-Ergetics (Eastern District of Oklahoma)

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 The Department filed suit seeking to enjoin N-Ergetics from selling an unapproved
colloidal silver product purporting to cure, mitigate, or treat COVID-19, as well as other
diseases including pneumonia, AIDS, and cancer. The district court entered a temporary
restraining order halting the unlawful sales, which prompted the defendants to
immediately take down their sales site. In addition, the defendants offered refunds to
customers in response to the enforcement action.

United States v. Parris (District of Columbia)

 The Consumer Protection Branch, working with the U.S. Attorney’s Office, charged a
Georgia man in federal court with fraud for attempting to sell millions of nonexistent
respirator masks to the Department of Veterans Affairs in exchange for large upfront
payments.

Antitrust Enforcement

The Department is also aware of the potential for firms to take advantage of the pandemic
to engage in anticompetitive conduct such as price fixing and bid rigging. The Department
issued a press release announcing its intention to hold accountable anyone who violates the
antitrust laws of the U.S. in connection with the manufacturing, distribution, or sale of public
health products such as face masks, respirators, and diagnostics. The Department is also
watchful for collusive practices in the sale of such products to federal, state, and local
agencies. In particular, the Department’s Procurement Collusion Strike Force (PCSF) is an
interagency partnership leading a coordinated national response to combat antitrust crimes and
related fraudulent schemes in government procurement, grant, and program funding at all levels
of government. Deterrence and early detection of misconduct will be the PCSF’s top priorities to
help these agencies safeguard their procurement, grant, and program funding processes from
collusion and corruption.

Additionally, the Department recognizes the risk to workers from anticompetitive
conduct by employers. The Antitrust Division therefore issued a joint statement with the FTC
noting that the nation’s antitrust enforcers are closely monitoring employer collusion to
disadvantage workers during the pandemic. Specifically, the agencies announced that they will
protect competition for workers on the frontlines of the COVID-19 response by enforcing the
antitrust laws against those who seek to exploit the pandemic to suppress or eliminate
competition for compensation, benefits, hours worked, and other terms of employment.

Finally, the Department issued a joint statement with the FTC announcing an expedited
procedure for reviewing proposed conduct by industry aimed at addressing responses to COVID-
19 and determining whether they intend to take antitrust action in response. To date, the
Department has issued three letters reviewing proposed conduct: one addressing collaborative
efforts to increase the manufacturing and distribution of PPE; one aimed at increasing access to
pharmaceuticals to treat the coronavirus; and a third aimed at addressing challenges faced by hog
farmers.

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Child Exploitation

The COVID-19 pandemic has raised other problems beyond fraud and other economic
harms. The Department is gravely concerned that COVID-19 is leading to a higher incidence of
online child sexual exploitation, because both offenders and children are spending more time at
home and online, and because the use of videoconference platforms has increased.

The best signal we have of the growing threat is chatter we are seeing on the Dark Net,
where offenders are able to speak freely. The offenders clearly see COVID-19 as creating
opportunities for child exploitation. As one individual wrote on March 21, 2020, “is nobody
seeing the bright side of this pandemic?? Schools are closed so kids are at home bored … that
means way more livestreams and its very clear moderators aren’t working right now since I’ve
seen 3 hour streams go unbanned over the last few days where girls do whatever the f--- they
want. What a time to be alive.”

The FBI recently issued a warning about “Zoom disruptions,” where individuals enter
meetings taking place on videoconference platforms and broadcast child sexual abuse material.
According to the FBI, in the last three months they have received more than 300 reports of Zoom
disruptions throughout the U.S. and in other countries.

The Department is working with a variety of partners to try to mitigate the risk to
children. For example, the FBI, in conjunction with U.S. and international law enforcement
partners, has aggressively pursued leads relating to egregious child exploitation crimes, including
the arrest last month of a defendant accused of enticing nearly a dozen boys online to send him
sexually explicit imagery of themselves.

We have also strongly supported efforts to prevent these crimes from occurring in the first place.
The Department, along with our Five Eyes partners and the tech industry developed PSAs
targeted at caregivers and children to make them aware of the increased risk of child sexual
exploitation. In addition, the Department has a dedicated web page with information and
resources related to COVID-19 and online child sexual exploitation, including how to report
such crimes. The FBI is encouraging individuals to report Zoom disruptions, and has provided
guidance on how to prevent such attacks.

National Center for Disaster Fraud

The Department wants to catch perpetrators of COVID-19-related crimes as quickly as
possible, so we have set up a hotline and encouraged people to call if they believe they, or
someone they know, are victims of a COVID-19 scam. The hotline is set up within the
Department’s National Center for Disaster Fraud (NCDF). For approximately 15 years, the
NCDF has been dedicated to improving the detection, prevention, investigation, and prosecution
of criminal conduct related to natural and man-made disasters and other emergencies, such as
COVID-19. As a national coordinating agency within the Department of Justice, the NCDF has
the resources, training, and expertise to quickly and effectively ensure that all complaints are
appropriately disseminated to the relevant federal, state, or local agency for further investigation.

11
In the weeks since we announced the COVID-19 hotline, the Center has received
thousands of contacts, most of which were addressed and referred by the hotline’s automated
phone system. We will be updating the National Center for Disaster Fraud’s website to reflect
the number of COVID-19 contacts we have received.

Conclusion

Chairman Graham, Ranking Member Feinstein, and members of the Committee, we
would like to close by thanking you for this opportunity to share the good work of Department of
Justice personnel all over the country to uncover and prosecute crimes associated with the
COVID-19 pandemic. We look forward to answering your questions.

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