The COVID-19 crisis has spurred unprecedented government action on multiple fronts, including the passage of the Coronavirus Aid, Relief, and Economic Security legislation (the “CARES Act”). The legislation is multi-dimensional in scope and effect, delivering approximately $2 TRILLION in financial aid. The CARES Act implements integrity and oversight processes and protocols to prevent and investigate possible wrongdoing by those seeking to access these government funds.

It is very important that those applying for federal aid fully understand the application process now and in real-time, for failure to appreciate the consequences can lead to government inquiries in the future. These investigations can cause severe negative brand damage and be very costly to your business. Accuracy accompanied by an intent to fill out these forms truthfully and as designed is critical. The popular Paycheck Protection Program and the Economic Injury Disaster Loan (EIDL) segments of the CARES Act seek information related to the prior history of businesses and their principals, and widespread disclosures related to core, affiliate and subsidiary entities.

These disclosures are subject to certifications from the business applicants.  Failure to take care when preparing these applications can result in a headache in the future. It is common for government investigations to rely heavily on certifications when making the case of alleged wrongdoing by those participating in these substantial aid programs.

The CARES Act includes provisions permitting the President to appoint a Special Inspector General for Pandemic Recovery and Congressional Oversight, similar to the same position created as part of the Troubled Asset Relief Program (TARP) in 2009. The CARES Act also includes oversight through the Inspectors General for the Department of Labor and Department of Treasury, as well as the establishment of the Pandemic Response Accountability Committee.

In the wake of the expenditure of TARP monies as well as government funds to address the severe damage caused by Superstorm Sandy, New York and federal investigators were very active in seeking to root out and punish wrongdoing related to the aid programs. Expect the same to occur related to CARES Act funding.

In those cases, it was common to see collaboration between federal and state law enforcement agencies. In the area of TARP, banks and financial institutions and their leadership were subjected to investigations and prosecutions for alleged wrongdoing related to loans and financing. In cases arising in the wake of Superstorm Sandy, Those seeking to facilitate government expenditures by the creation of questionable appraisals and engineering reports required to access FEMA funds were scrutinized and prosecuted by the New York State Attorney General. Lengthy and expensive monitorships and corporate integrity agreements are common byproducts in these investigations.

In New York, the Attorney General also has the ability to trigger the potent Martin Act (see, General Business Law Article 23-A), a nearly 100-year-old state law that gives the AG expansive powers to investigate securities and commodities. Some of the most recognized financial institutions in New York have battled with the New York Attorney General in the Martin Act arena in the last 15 years, where civil penalties and fines reached in the billions of dollars.

If you have questions concerning accessing aid under the CARES Act, seek professional legal advice now to reduce the chances of facing a government inquiry in the future.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Long Island, New York City, Rochester, Saratoga Springs, Syracuse and White Plains, as well as New Haven, Connecticut and Newark, New Jersey.