Although the response to the COVID-19 pandemic has significantly disrupted the courts and US prosecutors and regulators, that disruption will not last indefinitely. As government prosecutors and regulators adjust to these new challenges, white-collar investigations and other enforcement efforts will return to full strength. To be sure, government enforcement efforts are not immune from the realities of a COVID-19 world, and the pace and scope of some investigations have been and will be affected. Courts have begun to adjourn jury trials. Social distancing and other measures will require changes in witness interviews and certain types of evidence collection. And near-term pandemic-related responses may take precedence over certain longer-term investigations.
But while some investigations may temporarily be hindered by pandemic-related challenges, as a general matter companies should be prepared for continued engagement from prosecutors and government investigators, and renewed enforcement efforts after the immediate crisis response has ended. Although precise predictions are not possible, government enforcement efforts post-pandemic, operating in a significantly weakened economy supported by massive government stimulus programs, are likely to be substantial and aggressive.
1. In the near term, government efforts are likely to focus on COVID-19-related conduct and aiding the battle against the disease.
- The Department of Justice (DOJ) has already taken multiple steps in response to the pandemic. On March 24, the Attorney General announced the creation of a national task force to combat COVID-19-related crime, including hoarding and price-gouging of critical supplies needed to meet the urgent demands of the crisis response. See March 24, 2020 Memorandum from the Attorney General. Prior to that, DOJ directed all US Attorneys across the country to prioritize investigating and prosecuting COVID-19-related crime and solicited the public’s help in reporting related fraud. See March 16, 2020 Memorandum from the Attorney General.
- The Securities and Exchange Commission (SEC) has indicated it is similarly focused and has already suspended trading in the securities of multiple thinly traded companies based on their statements relating to COVID-19. See SEC Coronavirus (COVID-19) Response. Moreover, the pandemic will likely make the SEC and other agencies pay even more attention to the business continuity plans of key financial institutions, with a focus on incorporating lessons learned from COVID-19 disruptions.
- Reflecting an assertive approach, the Deputy Attorney General recently warned that threats or attempts to infect someone with COVID-19 deliberately could be prosecuted under terrorism-related statutes because the virus appears to meet the statutory definition of a “biological agent.” See March 24, 2020 Memorandum from the Deputy Attorney General. DOJ has also shown procedural flexibility where appropriate as it recently announced, along with the Federal Trade Commission, an expedited antitrust review process for companies working jointly to fight the disease. See March 24, 2020 Joint Antitrust Statement Regarding COVID-19.
2. Postcrisis response, a weakened economy and government stimulus plans will generate substantial white-collar investigations and enforcement actions.
- The post-pandemic environment is likely to feature active government enforcement efforts. From the savings and loan crisis to the burst of the dot-com bubble to the 2008 financial crisis, the enforcement community has learned that a weakened economy and related disruption lead to additional vigilance and active enforcement efforts. And the distribution of an unprecedented amount of government stimulus funds in the months ahead will only reinforce this approach.
- The $2 trillion stimulus package passed last week as part of the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) established an Office of Special Inspector General for Pandemic Recovery (SIGPR). In the aftermath of the 2008 financial crisis, Congress created a similar investigation agency, the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in connection with the 2008 relief package. In the years that followed, SIGTARP aggressively conducted investigations that led to 380 defendants being convicted or paying civil fines and 24 enforcement actions against companies by DOJ, the SEC and other agencies. See Financial Institution Crimes & Fines Database. SIGTARP is still operating today.
- Notably, SIGTARP’s history demonstrates that enforcement actions may come quickly. A defendant was first convicted in one of these cases a mere seven months after the agency was created. Similarly, companies should expect that SIGPR will actively conduct investigations that could lead to numerous enforcement actions. In particular, pursuing False Claims Act cases based on alleged fraud in the receipt of government funds will likely be a SIGPR focus. In addition, on April 2, House Speaker Nancy Pelosi announced the creation of a new House select committee that, if approved, would focus on detecting and preventing waste, fraud and abuse in the allocation of federal pandemic response funding. See April 2, 2020 “Pelosi forms new select committee to oversee $2 trillion coronavirus relief package.”
3. Investigations are proceeding, despite disruptions to court operations.
- The current crisis has greatly disrupted court operations across the nation. On March 27, the chief judge of the Southern District of New York suspended all jury trials until June 1, 2020, concluding, among things, that “the calling and processing of jurors cannot be accomplished remotely.” Many other courts have suspended jury trials or issued other guidance relating to court business and operating status. See Court Orders and Updates During COVID-19 Pandemic. Additional information is available from WilmerHale’s database that tracks COVID-19-related court closures.
- Despite these disruptions, prosecutors and regulators still have virtually all their investigative tools available to them. From subpoenas, civil investigative demands and document requests to email search warrants and electronic surveillance to cooperation with foreign counterparts, various forms of evidence collection can proceed without the need for personal contact. Moreover, some courts, including the Southern District of New York, are permitting grand jury proceedings to be conducted by videoconference. See March 13, 2020 Standing Order M10-468.
- But while these developments are affecting court operations, investigations remain active and ongoing. If anything, government attorneys appear to be using the time they would have been spending in court to devote more attention and resources to existing and new investigations. For example, Attorney General William Barr recently said that he hopes to bring DOJ’s ongoing antitrust inquiries into the tech industry to “fruition” by “early summer.” See March 23, 2020 “Barr Strives to Keep Justice Moving Amid Coronavirus Crisis.” And state attorneys general have already expressed their intention to utilize their enforcement powers to prosecute COVID-19-related fraud. New York Attorney General Letitia James has been warning companies that register domain names to be more wary of cyber scams. See April 5, 2020 “Another Thing to Fear Out There: Coronavirus Scammers.” Florida Attorney General Ashley Moody is investigating allegedly misleading statements from Norwegian Cruise Line to potential customers about COVID-19. See March 25, 2020 “Florida AG investigating allegations Norwegian Cruise Line misled customers about coronavirus.”
- Travel restrictions, the challenges of conducting witness interviews and attorney meetings remotely, and the likelihood that subpoena recipients will be delayed in responding to document demands will impact and slow the speed of some investigations. Document-intensive investigations, in particular, may be hampered because third-party recipients may be too overwhelmed by COVID-19-related challenges to provide timely responses, and the ability of investigators to review large quantities of documents remotely may be limited.
- Consequently, the government may be more likely to ask for tolling agreements in certain cases. Even in the absence of a pandemic, it has been difficult for a cooperating company to refuse such a request. Whether an individual should agree to extend the limitations period is a more nuanced question and requires careful consideration, though the government’s arguments during this period may be more difficult to overcome.
- Like the private sector, government counsel are actively adjusting to current conditions. We have already seen instances where the government has permitted counsel to make presentations and advocate remotely by phone or videoconference. While videoconferences and phone calls with clients and key individuals are less effective than in-person meetings for fact development and responding to client concerns, they appear to be the only option right now.
- When clients are in suddenly hard-to-reach locations, government requests for interviews by videoconference or phone must be carefully considered. Such interviews often run greater risks of misunderstandings, an unclear record and disputed facts. In addition, counsel representing a new client may have to decide whether to make a client available for an interview without having met the client in person. One possible solution to these challenges may be increased reliance on attorney proffers, in which counsel conveys client information to the government, rather than make clients directly available.
- A final new challenge for companies and counsel is document review in jurisdictions with data privacy restrictions. Because it is not currently feasible for attorneys to travel abroad to review the materials locally, law firms and their clients must carefully consider the implications of this limitation and develop a strategy to communicate with the government where appropriate.