The United States Department of Justice (DOJ) already has publicly charged almost 500 defendants with criminal offenses based on fraud schemes connected to the COVID-19 pandemic. Unfortunately, these prosecutions can have unintended consequences on unsuspecting businesses, as many of these accused individuals actually work as employees for uninvolved companies. As employees, they may have utilized their access to confidential employee or client information at work to create the allegedly fraudulent business applications to the government for COVID-19 relief. The unsuspecting, uninvolved victim companies may receive a subpoena or interview request from the government for additional investigative information against their accused employees. As a result, general counsel at companies need to balance the instinct to cooperate with the government against subjecting a company’s confidential business interests to further unnecessary intrusion.
On March 11, 2021, President Biden signed the American Rescue Plan Act into law. This new relief package provides additional pandemic support for legitimate businesses. As the payment of PPP loans and other COVID-19 relief from the government increases, the government is very likely to charge many more people for abusing the government programs’ funds. The DOJ already has developed key criminal and civil enforcement measures to combat PPP loan fraud in particular. In the event a company’s employee is accused of committing COVID-19 relief fraud, general counsel should consider now their response to the possibility of a government investigation. Specifically, general counsel at least need to be able to answer these three questions:
Consider the following hypothetical: The general counsel at Regions Corporation gets a late-night call from the company’s Human Resources Department. One of the company’s salespeople, Michael Henobetter, was just arrested for bank fraud by the FBI. The general counsel was astonished and worried. First, she knew Michael personally. He was an all-star salesperson at the company with great potential. Second, the general counsel knew that Michael had access to the personal information of the company’s clients as part of his work in the Sales Department, and the company’s confidential data could have been compromised in the alleged fraud.
Like most companies, Regions Corporation stores massive amounts of employee and client data on its computers, cloud-based servers, and internet applications. As a result, when a company’s employee is the target of a COVID-19 relief fraud investigation, in-house counsel must quickly assess whether any sensitive information for the company’s employees or clients was compromised. As a result, the company should forensically investigate any company-owned devices utilized by the accused employee. A company can access and retrieve employee data (i.e., emails, documents, text messages, etc.) stored on company systems and devices if the company establishes that the employer has common authority and access to such information. The United States Supreme Court, in City of Ontario v. Quon, upheld the search of an employee’s company-owned electronic device where there was “a legitimate work-related rationale” for the search by the employer. 560 U.S. 746, 761 (2010); see also Holmes v. Petrovich Dev. Co., LLC 191 Cal. App. 4th 1047, 1071 (2011) (employee’s email communications on her work computer to her personal attorney were not protected where company notified employee that company emails are monitored). However, in-house counsel should be mindful that accessing work-related information on an employee’s personal device without an employee’s consent is more difficult. But it is not impossible. This business correspondence (particularly emails and text messages from private cell phones and computers) also can be accessed by the company in certain situations.
At the same time that Regions Corporation is conducting its internal investigation, the general counsel receives a phone call from the FBI. The FBI notifies the general counsel that Michael Henobetter had a company-issued laptop and a personal phone in his possession during his arrest. The FBI agent asks the general counsel for Region Corporation’s voluntary consent to search the laptop. The general counsel, however, knows that the company’s laptops contain proprietary and confidential intellectual property information belonging to the company. The FBI agent also indicates that he will issue Regions a subpoena with responses due in two weeks. The FBI agent has a laundry list of categories that he wants Regions Corporation to search within its company for discovery related to the COVID fraud scheme. After the general counsel hangs up with the FBI agent, she immediately contacts her outside corporate counsel, Brian Formerausa.
Brian is a past federal prosecutor and knows that FBI agents often request a much broader array of information than they are entitled to seek. Brian immediately calls the federal prosecutor assigned to the case and narrows the scope of the inquiry by finding out the particulars of the alleged COVID fraud relief scheme (i.e., the names of the co-schemers, the limited timeframe at issue, and the specific COVID program at issue). Brian also knows that Regions Corporation legally could provide to the government the expansive access it requested. For example, the Ninth Circuit’s decision in United States v. Ziegler holds that an employee’s “interest may be subject to the possibility of an employer’s consent to a search of the premises which it owns.” 474 F.3d 1184, 1191 (9th Cir. 2007) (company can give valid consent to a search of the contents of an employee’s workplace computer even if the employee placed personal items in it). Nevertheless, Brian Formerausa requests that the government provide a subpoena and a search warrant limited in scope to probable cause, to protect the company’s interests. Brian negotiates the scope of those requests with the FBI agent and the corresponding federal prosecutor.
Immediately after the general counsel at Regions Corporation received notification that Michael Henobetter was arrested for alleged bank fraud for a PPP loan scheme, she placed him on paid administrative leave. She also received a phone call from Michael, where he swore that he had done nothing wrong and wanted to come back to work. The general counsel was very aware of the increased progressive climate at her company, and she did not want to overreact to the arrest. However, she also knew that Michael was an at-will employee and that she could terminate his employment even without cause. Ultimately, the general counsel knew that she had to do what was in the best interest of the company.
In summary, government investigations, especially those related to alleged PPP fraud involving employees, can be unsettling for a company and specifically for in-house counsels who are often at the forefront of the company’s response to the government.
This article was published by the Los Angeles and San Francisco Daily Journal and is reprinted here by permission. Click here to read the original publication.