The last few months have given rise to a whole new world in many ways and with that comes new attempts by criminals to take advantage of consumers. COVID-19 scams are now one of the primary concerns of US regulators. In many cases, these scams have come to light due to the efforts of whistleblowers.
One of the main has been companies claiming to offer cures for the novel coronavirus. Scams related to federal financial aid has also been a concern.
According to the US Securities and Exchange Commission (SEC), there have been more than 4000 reports filed with the agency from mid-March when shutdown measures began through mid-May. This is a 35 percent increase compared to that same period in 2019.
Many of these tips have come in via whistleblower reports. Under the SEC’s bounty program, anyone who files a tip is eligible to receive a reward if that tip results in penalties of $1 million or more. Though not all of the tips have panned out, the SEC has already begun working with many of the tipsters that have been in contact.
According to the SEC, fraudsters tend to be opportunists. It didn’t take wrongdoers long to realize there was a lot to take advantage of during the COVID-19 outbreak. It’s a new and difficult situation and people are scared. There are few situations in which manipulating consumers into parting with their money are as good as this one.
In this case, with COVID-19, there seem to be two factors driving the increase in tips:
One, the scale of the crisis. It’s affected everyone across the nation and around the world and has led to numerous accusations of misconduct in all areas monitored by the SEC.
Two, people who have lost their jobs because of the virus who were previously concerned about employer retaliation no longer have that issue. They are reporting with they know without fear because they now have nothing to lose – and financial rewards to gain. Lawyers working with tipsters say many of these people were recently laid off and are more eager than ever to help identify issues.
Law firms specializing in whistleblower protection anticipate this is only the beginning of the spike. Most agree that the next few months will bring a huge uptick in reports.
So far, firms that work with whistleblowers report receiving information about issues related to:
- Loan fraud
- Price gouging
- Healthcare fraud
- Substandard or counterfeit medical products
Relying on the public for tips is nothing new for the SEC. But now, the agency is preparing for even more reports. It has created a new group designed to closely monitor the market and look for potential COVID-19 abuses. That group already took action when it suspended trading of more than 30 “penny stocks” claiming to offer COVID-19 cures, treatments, tests, and medical supplies.
Two of the companies, Turbo Global Partners, Inc., and Applied BioSciences Corp, were accused of publishing misleading information regarding the status of their COVID-19 screening tools.
Additionally, the SEC has been scrutinizing companies that accepted emergency federal aid. There are concerns about disclosure issues and some believe the companies should not have received the money.
Finally, there is expected to be a surge in claims of insider trading, boiler room stock scams, and Ponzi schemes coming soon.
It probably surprises nobody to learn that many of the tips have been related to small, private companies, but some tips have also come in regarding larger, “essential” firms. This includes meat-packing plants.
Many firms have been forced to be discerning about how many whistleblower reports they follow through with. Lawyers are focusing on cases that the SEC tends to penalize most harshly, which includes disclosure violations and companies padding earnings to entice investors.
Despite the potentially overwhelming windfall of reports that is expected, the agency welcomes all reports of anything that interferes with the free market operating freely.