By Danielle Nichole Smith

Law360 (April 3, 2020, 8:11 PM EDT) -- Congress has set aside $500 billion in the CARES Act to help certain hard-hit businesses during the coronavirus pandemic, but those funds come with a newly created special inspector general whose oversight could result in an increase in enforcement and litigation similar to that seen in the aftermath of the 2008 financial crisis.

Of the $500 billion in relief, $29 million was carved out for passenger and cargo air carriers, and another $17 million was designated for businesses critical to national security. The remaining $454 million was set aside for providing loans, guarantees and other investments to aid certain eligible businesses and state and local governments.

However, those funds come with a number of conditions. Depending on the type of relief they're seeking, employers may have to agree to remain neutral in any unionizing efforts during the terms of the loans, keep their jobs in the U.S. for a certain amount of time, and use the money to retain 90% of their workforce through September, among other things.

The CARES Act also introduced several modes of oversight for the relief package, including a Special Inspector General for Pandemic Relief, or SIGPR, with a $25 million budget, and the U.S. Department of the Treasury is likely to release even more requirements for employers looking to receive these funds in the coming days.

"With all of the relief measures coming out and so much information coming at us from every possible direction, this really seems to be a perfect storm, so to speak, for enforcement efforts," said Kristina V. Arianina, an attorney at Squire Patton Boggs LLP.

Adam R. Tarosky, a Nixon Peabody LLP partner who used to work in the U.S. Department of Justice's Civil Fraud Section, noted that applicants could run into compliance issues not only in the process of securing loans, but also in following through with any commitments made to the government.

In light of the many requirements that come with the loans, employers will probably have to make certain certifications to the government and provide financial statements supporting their claims when applying, and those applications will likely be scrutinized by the SIGPR, Tarosky said.

Additionally, the SIGPR is also prone to look at whether employers follow through on their forward-looking certifications. While a failure to fulfill those promises could simply be seen as a breach of agreement, it could also be deemed fraud if the government is able to show the applicant never intended to honor those commitments, according to Tarosky.

In many ways, the relief — which falls under the portion of the CARES Act known as the Coronavirus Economic Stabilization Act — is similar to the $700 billion in relief for banks and other financial institutions under the Troubled Asset Relief Program created by the Emergency Economic Stabilization Act of 2008.

A special inspector general was also established by Congress for TARP, commonly referred to as SIGTARP, and that office is still active today. According to SIGTARP's first-quarter report for 2020, courts so far have convicted 381 defendants investigated by the office, a 96% conviction rate, and $11 billion has been recovered.

Nicole H. Sprinzen, the vice chair of Cozen O'Connor's white collar defense and investigations practice, said there are similarities between the programs, as those applying for TARP relief also had to make representations that the money would be used in the way it was intended.

"There are a lot of institutions that got themselves into subsequent investigations and sometimes trouble because the funds didn't end up getting used for those purposes," said Sprinzen, who has prosecuted and defended cases stemming from the grant of TARP funds.

The large amount of money being pushed into the economy, the subsequent guidance and the obligations placed on applicants were a "recipe for later enforcement," Sprinzen said, noting that similarly, with the CARES Act, Congress was already thinking ahead to what enforcement might look like with the creation of the SIGPR position.

"For our white collar practice, and I'm sure for a lot of other white collar practices, we anticipate that there will be increased enforcement in these areas," Sprinzen said.

And the $500 billion relief package is also likely to bring the False Claims Act into play, as companies make representations to the government in order to receive funds. According to Tarosky, there's a lot of precedent for FCA lawsuits in areas covered by the CARES Act.

"Applicants need to be very careful about what they're telling the government and what documents they're submitting to the government, because those are statements for purposes of the False Claims Act, and false statements that lead to the receipt of funds can expose an applicant to liability," Tarosky said.

Arianina pointed out that even without the additional money poured into the economy from the CARES Act, the DOJ announced that it recovered $3 billion last year from settlements and judgments under the FCA.

Elizabeth Moeller, the leader of Pillsbury Winthrop Shaw Pittman LLP's public policy group, said the firm has been advising clients to start with compliance first, invoking the age-old saying, "The best defense is a good offense." Companies should act as if they are being investigated or accused of violating the FCA, Moeller said.

Additionally, since the Treasury Department is likely to issue more guidance and could potentially do so on a rolling basis, it's also important for employers to stay on top of new regulations and requirements that arise. As Sprinzen noted, there's a lot of language to interpret in the statute, but not a lot of guidance yet.

"The bill is so big that I'm not sure we can even conceive of all the compliance issues or enforcement issues that could evolve down the road," Sprinzen said.

--Editing by Philip Shea and Marygrace Murphy.

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