The National Attorneys General Training & Research Institute
CEPI Newsletter May 2020
This monthly compendium of news reports about corruption and ethics issues is brought to you by the Center for Ethics and Public Integrity (CEPI). Neither the National Association of Attorneys General nor the National Attorneys General Training & Research Institute express a view as to the accuracy of news accounts or affirm any position taken by the authors of the hyperlinked articles.
This month's CEPI Newsletter is primarily devoted to COVID-19 related issues.
Public Service Announcement
Lawyer Uses Plastic Covers on Legal Documents to Make Face Shields for Hospitals: California lawyer Steven E. McDonald has donated plastic deposition covers to the COVID-19 response cause. The covers are being converted into face masks. Other lawyers have joined in, and, as “Saving Face,” the group converting the covers into face masks remarked, “This isn’t rocket science to assemble these. … Even lawyers can do it.”
Task Forces Update
Task forces addressing COVID-19-related crimes have formed around the country. They include state-federal partnerships in Arizona, the District of Columbia, Florida, Georgia, Iowa, Kansas, Kentucky, Minnesota, New Jersey, Oklahoma, Pennsylvania, South Carolina, and West Virginia. Federal-only task forces have been formed in Louisiana and Virginia, and a state-only task force has been formed in Louisiana.
State and Federal Enforcement
Miami Prosecutors Stop Firm’s Sale of Coronavirus ‘Cure,’ Calling It a Fraud Scheme: A Florida firm that brands itself as a church has been enjoined from selling its “Miracle Mineral Solution,” a bleach-based concoction that it claimed would cure COVID-19, Alzheimer’s disease, and autism, among other things. The Genesis II Church of Health and Healing had been previously warned by the Food and Drug Administration (FDA) and Federal Trade Commission, but persisted in selling the dangerous product.
Department of Justice, States, SEC Pursue COVID-19 Enforcement Actions: An article by private sector attorneys details some early COVID-19-related scams and enforcement actions—including by the New Jersey Attorney General’s Office, New York Attorney General’s Office, and federal and local prosecutors. The writers correctly observe that “the clear message from federal and state law enforcement is that crooks and swindlers taking illegal advantage of others during the COVID-19 crisis will face certain investigation and prosecution.”
Feds in Pa. Break Up Fake Sale of COVID-19 Masks to Kaiser: Federal prosecutors in Pennsylvania have broken up a fake sale of medical masks after learning that a claim of access to 39 million masks was false. The U.S. Attorney noted that his office and the Pennsylvania Attorney General’s Office are continuing to work closely together to investigate COVID-19 related crimes and scams.
Tennessee Brothers Who Hoarded Hand Sanitizer Settle to Avoid Price-Gouging Fine: The Tennessee Attorney General’s Office has agreed not to prosecute two brothers who stockpiled 17,700 bottles of hand sanitizer after the brothers donated the supplies to their church, which reported it distributed them to local emergency responders in Tennessee and Kentucky. The brothers were criticized after The New York Times published a piece about them going to dollar stores and other retailers in those two states, buying all of the hand sanitizer and antibacterial wipes on the shelves, and selling them for high prices on Amazon.
Holistic Health Center Claimed Toxic Gas Could Kill Coronavirus, Texas Prosecutors Say: Purity Health and Wellness Centers in Dallas, Texas have been enjoined from promoting ozone therapy as a safe and effective treatment for COVID-19. The centers’ owner claimed that ozone increased oxygen in the blood, “making it impossible for viruses to manifest;” the FDA, on the other hand, describes it as “a toxic gas with no known useful medical application.”
COVID-19 and the Coming Corruption Pandemic: A former acting chief of the FBI’s Public Corruption Unit looks to the past to predict the future (and perhaps present) wave of corruption related to COVID-19, which often rely upon “the exploitation of fear, suffering, and a sense of urgency.” Quick responses to emergency situations rarely allow for thoughtful compliance and oversight, permitting bad actors within and without the government to engage in improper behavior. The writer uses Hurricane Katrina as an example, noting that the Government Accountability Office estimated approximately $1 billion of recovery money was improperly distributed and potentially fraudulently obtained.
Why We Desperately Need Oversight of the Coronavirus Stimulus Spending: Former Special Inspector General for the Troubled Assets Relief Program Neil Barofsky, recommends Congress ensure sufficient oversight over the $2 trillion that has been authorized through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
Guest Post: Measures to Counter Corruption in the Coronavirus Pandemic Response: A global health expert offers four possible solutions to mitigate some corruption risks associated with the current pandemic. The Global Anticorruption Blog includes a list of other opinion pieces.
Prepare for the Coronavirus Scams: Learning from Post-9/11 Fraud: A former prosecutor writes about post-9/11 fraud prosecutions of individuals who falsely claimed to be eligible for disaster relief funds. He writes, “If there’s one constant in this world, it’s that pots of money attract thieves,” details some of the active and predicted scams, and notes that state authorities will play an important role in investigating and prosecuting COVID-19-related crimes.
How to Prepare Clients for Ponzi Schemes Amid COVID-19: Private sector attorneys predict that the stock market falling will reveal Ponzi schemes and other frauds, noting that Bernard Madoff’s scheme was exposed as a result of the 2008 economic crash, and make recommendations to other private sector attorneys about how to interact with enforcers.
Coronavirus: State Attorneys General and the New COVID-19 Stimulus: Former California Deputy Attorney General Jeff Tsai looks at lessons learned from the 2009 Recovery Act and the Troubled Asset Relief Program to predict likely fraud, waste, and abuse issues coming from the CARES Act.
Past as Prologue: The Wave of Investigations to Follow the Pandemic Recovery and Actions that Companies Can Take Now to Prepare: Private sector attorneys recommend that companies follow five tips now to reduce the chance of missteps and later civil or criminal liability as companies seek financial assistance from the federal government. Another set of authors focuses on how to adjust compliance controls for COVID-19, noting potential issues including dealing with new vendors to address supply chain interruptions, new challenges complying with regulations, and potential adjustments to hiring new workers.
Compliance Alert: Covid-19-Related ‘Hoarding and Profiteering’ Are Now Federal Offenses: The FCPA Blog covers the U.S. Department of Justice’s new enforcement powers over hoarding and profiteering, which allows the Department to seize “scarce materials,” including personal protective equipment, in “excess of the reasonable demands of business, personal, or home consumption,” or accumulating them “for the purpose of resale at prices in excess of prevailing market prices.”
Lobbying During a Pandemic? How to Safely Manage Political Engagement: A writer from Transparency International argues that entities and individuals who appear to improperly take advantage of this pandemic will face the loss of their reputations, among other things. She suggests several steps: (1) that boards set the tone for responsible lobbying and oversee lobbying activities; (2) that entities review their controls to manage insider information; (3) that entities manage and declare conflicts of interest; and (4) that entities be transparent about their corporate political engagement.
Corruption Mars Bangladesh’s COVID-19 Relief Efforts: Authorities in Bangladesh have arrested dozens of party leaders and government officials for stealing food meant for the poor during the COVID-19 shutdown.
State bars around the country have issued informal or formal guidance to attorneys who continue representing clients during COVID-19. We recommend you consult the website for your own state bar to see if guidance has been issued. One general takeaway is that working from home does not reduce your ethical obligations—it only makes it more challenging to meet them.
FLMIC Offers COVID-19 Ethics Checklist for Florida Lawyers: The Florida Lawyers Mutual Insurance Company (FLMIC) created an ethics checklist for lawyers representing clients during a public health crisis. The checklist covers client communications; court calendars and scheduling; technology; fraud and cybercrime; attorneys’ duties if they themselves become ill; and other topics.
Ethical Considerations for Missouri Lawyers During COVID-19 Spread: The Missouri Bar has a short piece providing guidance to Missouri lawyers on ethically representing clients during COVID-19, including reminders about the obligations of confidentiality and client communication, as well as a suggestion to have a disaster recovery and lawyer succession plan.
State Bar Issues Ethics Guidance on Working from Home During COVID-19 Pandemic: The Pennsylvania State Bar’s Legal Ethics & Professional Responsibility Committee has issued Formal Opinion 2020-300, “Ethical Considerations for Attorneys Working Remotely.” The opinion says that the most important thing is for attorneys and staff to “consider the security and confidentiality of their client data, including the need to protect computer systems and physical files, and to ensure that telephone and other conversations and communications remain privileged.” The opinion cautions against speaking with clients when smart devices—like Alexa—are “listening.”
Non-COVID-19 Corruption News
Prosecutor Who Resigned Over Stone Sentencing Memo Joins DC Attorney General's Office: The DC Attorney General’s Office has announced that Jonathan Kravis has joined as special counsel for public corruption. Kravis was one of the lead prosecutors on the Roger Stone case. He resigned after the new D.C. U.S. Attorney filed a sentencing memo, in the wake of public statements about the case by the president, that withdrew the within-guidelines recommendations made by Kravis and the other prosecutors who investigated and tried Stone.
Former State Representative-Elect Laufton Ascencao Charged with Felony Embezzlement: The Rhode Island Attorney General’s Office has charged a former state representative with felony embezzlement. The charges allege that Laufton Ascencao diverted over $16,000 from the checking account of the Sierra Club’s Rhode Island chapter (for which he was treasurer) to pay for expenses associated with his 2018 campaign, and then failed to report campaign expenses in an effort to hide the source of those funds.
‘It’s Disturbing.’ U.S. Justice Department White-Collar Criminal Prosecutions Fall to Their Lowest Level on Record, Study Says: A report by Syracuse University’s Transactional Records Access Clearinghouse (TRAC) concludes that federal prosecutions of white collar offenders have reached an all-time low, and, if prosecutions continue at the same pace for the rest of 2020, are predicted to be about half the level of what they were at the 2011 peak. The data is a reminder of the important role state-level corruption enforcers can play in ensuring that white collar criminals are held accountable.
Corruption Risks in Infrastructure Projects Using Design-Build Contracts: A shift in procurement requirements in some states may unintentionally increase the risk of some forms of corruption. State and local governments have been moving away from “design-bid-build”— a system of contracting with Firm A to design a project, put out that design for bids, and contracting with Firm B for the building of the project. The new contracting method is simply “design-build”— allowing the same firm, after a competitive bidding process, to both design and build a project. While the design-build contracts offer some advantages, the author notes that governments had moved away from them because the unfettered discretion of procurement agencies to award design-build contracts made them vulnerable to kickbacks, favoritism, and other forms of corruption. The author suggests ways to structure design-build contracts to reduce the risk of corruption.
Amie Ely is the Director of the Center for Ethics & Public Integrity and the Editor of the CEPI Newsletter and may be reached at 202-326-6041. The CEPI Newsletter is a publication of the National Association of Attorneys General. Any use and/or copies of this newsletter in whole or part must include the customary bibliographic citation. NAAG retains copyright and all other intellectual property rights in the material presented in this publication. For content submissions or to contact the editor directly, please e-mail firstname.lastname@example.org.