Locke Lord QuickStudy: DOJ Brings First COVID-19 (Coronavirus) Fraud Case — Warns Public More to Come

This weekend the Department of Justice (“DOJ”) brought its first action to stop COVID-19 (“Coronavirus”) related fraud.  Coronavirusmedicalkit.com purported to deliver free “vaccine kits” from the World Health Organization (“WHO”), if consumers would pay the nominal fee of $4.95 for shipping.  The WHO, however, offers no such program, nor has the medical community successfully developed a Coronavirus vaccine.  

The website’s “false and fraudulent” claims prompted the U.S. Attorney’s Office for the Western District of Texas (“W.D. Tex.”) to seek a temporary restraining order and permanent injunction of the website as a “wire fraud scheme.”  This new enforcement action foreshadows the potential abuses that are likely to ensue over the life of the COVID-19 virus, while also setting the tone for the level of enforcement priority the government has assigned to this global pandemic.  Now more than ever, businesses and the public alike should be on the alert for Coronavirus-related fraud and aware of what to do when you encounter it.

CoronavirusMedicalKit.com
An FBI supervisory special agent first saw the website last Thursday, March 19, 2020.  By Saturday, U.S. Attorney for the W.D. Tex., John F. Bash, filed suit in the Western District’s Austin Division against a “John Doe,’ also known as the website “coronavirusmedicalkit.com.”  The Government’s Complaint seeks to restrain and enjoin the website under the federal injunctions against fraud statute, 18 U.S.C. § 1345 (2018).

As the Complaint illustrates, Coronavirusmedicalkit.com offered consumers a chance to order one of the purported “vaccine kits” that the WHO was “giving away.”  The only catch?  A mere $4.95 for FedEx Express Two-Day shipping.  

By clicking the order button, the website shows unwary and vulnerable consumers a Fedex logo and place to input their credit card information.  In actuality, the Complaint reveals “[t]he purpose of the website is to induce victims to pay Doe and those working in concert with him or her $4.95 for such non-existent kits, and/or to obtain credit card and other personal information from victims for purposes of engaging in fraudulent purchases and identity theft.”

The homepage further instructed prospective customers, “[y]ou just need to add water, and the drugs and vaccines are ready to be administered.  There are two parts to the kit: one holds pellets containing the chemical machinery that synthesizes the end product, and the other holds pellets containing instructions that tell the drug which compound to create. Mix two parts together in a chosen combination, add water, and the treatment is ready.”

Although top experts at the WHO estimate at least a year before a COVID-19 vaccine will be available¹, the website provided uncertain Internet window shoppers fictitious reviews from seemingly welcoming faces like “Mitch and Stacey.”

One day after the Government brought suit, the Court granted the DOJ’s Motion for Temporary Restraining Order until at least Saturday, April 4, 2020, and issued an Order to show cause why a preliminary injunction should not be granted on Tuesday, March 31, 2020.
The Court also ordered that the website’s domain name registrar “take such steps as are necessary to prevent the public from accessing Defendant Doe’s ‘coronavirusmedicalkit.com’ website . . . .”

The website went offline Monday, March 23, 2020.

More Fraud to Come
This is not the first time unscrupulous actors have sought to take advantage of public fear and anxiety during a pandemic.  The Centers for Disease Control and Prevention (“CDC”) similarly issued public warnings about H1N1 (“Swine Flu”) scams in December 2009.²

Reports of fraudulent activity also increase dramatically during economic recessions.³

Accordingly, the public and American businesses should be on the lookout for at least the following types of fraudulent activity:

• Federal Stimulus Relief Scams — fictitious federal employees requesting sensitive information as a precondition for federal money.
• Fake Cures and Treatments — similar to coronavirusmedicalkits.com, these schemes sell bogus COVID-19 cures or treatments, or offer investment in the development of the same.
• Supply Scams — fake online stores purporting to sell high-demand medical supplies (e.g., gloves, masks, etc.), only to take your money and never deliver the supplies.
• Work-From-Home Scams — at-home employment opportunities, business ventures, or sweepstakes sold as fast ways to make money during massive unemployment.
• Investment Scams — “pump and dump” schemes or other fraudulent investment vehicles purporting to be safer than the stock market, but involving fake private placements, certificates of deposit, promissory notes, non-publicly traded real estate deals, or research reports.
• Sham Charity Scams — fabricated charities that falsely claim to help victims of the virus.
• Embezzlement — misuse, theft, or misappropriation of an organization’s funds through dummy vendors, false accounting entries, employee expense reimbursements, etc.
• Healthcare Fraud — obtaining a patient’s sensitive information for COVID-19 testing or treatment, but then using that information to fraudulently bill health insurance programs for other tests or procedures.
• Provider Scams — people purporting to be doctors and hospitals demanding payment for treating a loved one for COVID-19.

This coronavirusmedicalkit.com case is, in fact, part of a larger effort by the DOJ to combat anticipated COVID-19 fraud.  Indeed, only a day before the government filed its case, Attorney General William P. Barr issued a public warning about COVID-19 fraud.⁴

Regional U.S. Attorneys’ Offices — like the Western District of Virginia — have even formed their own local COVID-19 fraud prosecution taskforces.⁵

Many State Attorneys’ General Offices have similarly issued COVID-19 fraud warnings to the public.⁶

Administrative agencies are also keeping an eye on enforcement.  On March 9, 2020, the U.S. Food and Drug Administration (“FDA”) and the Federal Trade Commission (“FTC”) issued warning letters to seven companies for selling fraudulent COVID-19 products.⁷

The cybersecurity industry, too, has sounded the alarm to increases in online threats like phishing and ransomware.⁸

Even industry and trade organizations, like the Better Business Bureau (“BBB”), have already flagged COVID-19 facemask scam websites as early February 2020.⁹

How to Avoid Fraud
The DOJ recommends the following precautionary tips to protect against COVID-19 fraud:

• Independently verify the identity of any company, charity, or individual that contacts you regarding COVID-19.
• Check the websites and email addresses offering information, products, or services related to COVID-19. Be aware that scammers often employ addresses that differ only slightly from those belonging to the entities they are impersonating. For example, they might use “cdc.com” or “cdc.org” instead of “cdc.gov.”
• Be wary of unsolicited emails offering information, supplies, or treatment for COVID-19 or requesting your personal information for medical purposes. Legitimate health authorities will not contact the general public this way.
• Do not click on links or open email attachments from unknown or unverified sources. Doing so could download a virus onto your computer or device.
• Make sure the anti-malware and anti-virus software on your computer is operating and up to date.
• Ignore offers for a COVID-19 vaccine, cure, or treatment. Remember, if a vaccine becomes available, you won’t hear about it for the first time through an email, online ad, or unsolicited sales pitch.
• Check online reviews of any company offering COVID-19 products or supplies. Avoid companies whose customers have complained about not receiving items.
• Research any charities or crowdfunding sites soliciting donations in connection with COVID-19 before giving any donation. Remember, an organization may not be legitimate even if it uses words like “CDC” or “government” in its name or has reputable looking seals or logos on its materials. For online resources on donating wisely, visit the FTC website.
• Be wary of any business, charity, or individual requesting payments or donations in cash, by wire transfer, gift card, or through the mail. Don’t send money through any of these channels.
• Be cautious of “investment opportunities” tied to COVID-19, especially those based on claims that a small company’s products or services can help stop the virus. If you decide to invest, carefully research the investment beforehand. For information on how to avoid investment fraud, visit the U.S. Securities and Exchange Commission (“SEC”) website.¹⁰

Who to Call if You’re Defrauded?
Victims of COVID-19 fraud should report the suspected schemes to law enforcement.  

The DOJ recommends contacting the National Center for Disaster Fraud (“NCDF”) hotline at 1-866-720-5721 or by e-mailing the NCDF at disaster@leo.gov to report COVID-19 fraud.

The FBI, additionally, encourages the public to report counterfeit medical products or COVID-19 cybercrime to the FBI’s Internet Crime Complaint Center at www.ic3.gov.

Victims should also check with their State Attorney’s General Office.  Texas’ Office of the Attorney General, for example, directs victims to a toll-free complaint line at 1-800-621-0508 or to file a complaint online.¹¹

In some instances, victims may benefit from the advice of attorneys well versed in fraud detection, or even an internal investigation to uncover illicit practices.

Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.

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_{1 Jackie Salo, Coronavirus vaccine at least a year away: WHO expert, N.Y. Post (Mar. 23, 2020), available here.
2 Ctr. for Disease Control and Prevention, Q and A: Fraud and Abuse Related to 2009 H1N1 Influenza Vaccine (Dec. 22, 2009), available here.
3 See Adam Smith, The Reasons Fraud Spikes in a Recession, Time Magazine (May 20, 2009), available here.
4 Dep’t of Justice, Attorney General William P. Barr Urges American Public to Report COVID-19 Fraud, No. 20-331 (Mar. 20, 2020).
5 Dep’t of Justice, COVID-19 Fraud The Virginia Coronavirus Fraud Task Force (Mar. 23, 2020), available here.
6 Tex. Att’y Gen., CONSUMER ALERT: AG Pax­ton Reminds Tex­ans to Be Aware of Cyber Scams Dur­ing Coro­n­avirus (COVID-19) Emergency (Mar. 17, 2020), available here.
7 U.S. Food & Drug Admin., Coronavirus Update: FDA and FTC Warn Seven Companies Selling Fraudulent Products that Claim to Treat or Prevent COVID-19 (Mar. 9, 2020), available here.
8 Eric Rosenbaum, Phishing scams, spam spike as hackers use coronavirus to prey on remote workers, stressed IT systems, CNBC (Mar. 20, 2020), available here.
9 Better Bus. Bureau, BBB Scam Alert: Preparing for Coronavirus? That Face Mask Could be a Con (Feb. 6, 2020), available here.
10 Dep’t of Justice, Justice Department Files Its First Enforcement Action Against COVID-19 Fraud (Mar. 22, 2020), available here.
11 Available here}.