The pandemic might be easing—but now comes the fraud and litigation
Four attorneys give their views on how fraud-related litigation can often spike during a downturn in the U.S. economy.
Economic downturns bring large spikes in fraud-related litigation.
And there’s no better example than when government offers assistance programs, such as the Paycheck Protection Program, or PPP, experts said.
Some attorneys caution that disasters can bring out the worst instincts, and lead to an influx of fraud-related lawsuits.
“People are more vulnerable and desperate during economic downturns,” said Amy Rubin, a partner with Fox Rothschild in West Palm Beach, Florida, who handles complex commercial litigation. “They often have false hopes and expectations, and hear that a pot of gold is at the end of the rainbow, and are willing to take a gamble.”
Connecticut lawyer Steven Bourtin has seen the phenomenon during his 17-year career, including seven years as head of The Boyd Law Group.
“There are two types of fraud that typically occur in a very abnormal economic downturn,” he said.
The first stems from private sector-related initiatives to lure victims into investments. And the second involves government assistance meant to bolster a recovery.
“These programs are rushed out there, and because of that, you will always have fraud and bad actors,” said Bourtin, who handles commercial litigation and employment law issues. “That happened with Katrina relief, the BP oil spill and now with PPP.”
‘Hard to prove’
Red Bank, New Jersey, attorney Timothy Anderson of Tim Anderson Law said he has no doubt the government will have a good chance of victory “on the easy cases, like when someone creates a $10 million company out of whole cloth.”
“That is the low-hanging fruit,” he said.
But other cases of PPP abuse will be much harder to prove, Anderson said.
“The ones where it’s embellishing and there is a real company that kept employees on, but where they might have pushed the envelope a bit, those will be tougher cases to prove,” Anderson said Monday.
One reason why it could be tough to prove cases of PPP fraud is because “one of the questions they ask you on the application is if COVID impacted you,” Anderson said. “That’s a very broad question. I predict investigations into PPP fraud will go on for years. I believe there will be a lot of heavy-duty investigations, but they will be hard to prove once you get past the more obvious fraud cases.”
Dallas lawyer and former U.S. Attorney Patrick McLain agreed.
“Fraud, in the case of PPPs and programs like it, will not be easy to prove by the government,” he said. “These programs and legislation were often implemented hastily.”
Connecticut litigator Bourtin said he wouldn’t be surprised to see more workers getting involved in litigation.
“I’d expect an increase in public-sector fraud. I’d expect to see people blowing the whistle on their employers, who might be cooking the books in order to qualify for some kind of COVID assistance,” he said.
‘It was all a Ponzi scheme’
Meanwhile, Florida litigator Rubin foresees an uptick in get-rich-quick scams.
“They typically promise huge returns on money,” she said. “In one case here in Florida, people thought they were buying gold and silver, but it was all a Ponzi scheme.”
Rubin said Ponzi schemes were prevalent during the 2008 economic slide, but it was sometimes years before investors discovered the crime.
“It would often take awhile for those cases to go to trial,” she said. “You’d see many lawsuits filed in 2010 and 2011 from the activities in 2008. … There are some good salesmen out there. You have to be a good salesman to convince people to give their life savings to you.”
Scammers also now have new tools that perhaps weren’t available in the last downturn.
“Fraud is different today, and it really has to do with the cyber world we live in,” Rubin said. “What we see a lot of now is people intercepting wires all the time. You see it in real estate transactions when, for example, a bad person will intercept an email and change wire instructions to another bank. It’s now a hot part of litigation. … Intercepting wires is more prevalent than people think.”
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