Resurrecting the Monster? Protecting the Market from Unfettered COVID-19 Fraud Enforcement

Abstract

COVID-19 spread like a wildfire across the globe, and its effects have spread beyond public health and into all facets of society. The pandemic highlighted significant supply chain vulnerabilities in almost every market, especially those for critical health care supplies. The United States has spent trillions of dollars in response to the pandemic, and that spending has already invited significant fraud. The False Claims Act (FCA) will play a major role in combatting this fraud, and the Department of Justice (DOJ) will lead the charge. However, history indicates that aggressive FCA enforcement during and after a crisis risks producing unintended, negative market consequences. The impact of aggressive mortgage fraud enforcement following the subprime mortgage crisis illustrates this risk. Those efforts dramatically shifted the Federal Housing Administration (FHA) lending market, contributing to a large exodus of established financial institutions. Today’s market for critical health care supplies is even more vulnerable and susceptible to this enforcement impact. Therefore, the DOJ must develop an evaluation framework for COVID-related fraud that considers market impact.This article will outline the federal spending response to COVID-19 and the enforcement framework in which COVID-related fraud will be addressed. It will discuss the impact of enforcement on markets, using the impact of mortgage fraud enforcement on the FHA lending market as a historical example. It will conclude by identifying the need for an evaluation framework that considers market impact and will propose evaluation factors and implementation mechanisms to assist in this effort.