April 2020

The unfortunate counterpart to system and personal vulnerabilities are those looking to exploit them for gain.  The current circumstances surrounding the current coronavirus (COVID-19) are no different.

The US Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) have issued numerous warnings regarding fraudulent activities related to COVID-19.  U.S. Attorneys’ offices countrywide have been processing numerous reports of individuals and businesses engaging in a host of fraudulent and criminal behaviors, including:

  • Robocalls with fraudulent offers to sell respiratory masks with no intent of delivery
  • Social media scams fraudulently seeking donations or claiming to provide stimulus funds if the recipient enters his or her bank account information
  • Phishing email schemes asking for personal information or containing links and attachments that contain viruses or other malware in order to obtain access to financial relief
  • Sales of counterfeit or fake testing kits, cures, ‘immunity’ pills, and protective equipment
  • Fraudulent offers for free COVID-19 testing to obtain Medicare beneficiary information that is used to submit false medical claims for unrelated, unnecessary, or fictitious testing or services
  • Seeking donations fraudulently for illegitimate or non-existent charitable organizations
  • Medical providers obtaining patient information for COVID-19 testing and then using that information to fraudulently bill for other tests and procedures

While these fraudsters often prey on individuals, businesses are also at risk.  Recently, the U.S. Attorney’s Office in Pittsburgh investigated and revealed the circumstances surrounding an attempted fake sale of medical grade masks to Kaiser Permanente.  If consummated, the scheme to sell non-existent equipment could have cost the company millions and diverted funds from critically needed resources.

The allegations of fraud involve an international broker purportedly representing a foreign company who claimed to have a stockpile of approximately 39 million of 3M’s N95 masks.  The domestic broker representing Kaiser in the matter appears to have also been a victim of the scam rather than a co-conspirator.

The investigation was commenced based on a tip to the FBI of attempts to broker this large volume of essential supplies.  Emergency powers to investigate hoarding and price gouging currently allow investigators to either seize hoarded materials or purchase them at fair market value for distribution.  Although that was the likely intent of the original investigation, the result was that the supplies did not actually exist.

Investigatory techniques and due diligence including corroboration against other sources of information, online research, testing inventory existence and inquiries regarding original supplier data and pricing prevented this fraudulent transaction.  Information available from 3M provided indicia of fraud and price gouging.  3M only produces 20 million of these masks per year, making a stockpile of 39 million available through one company highly improbable.  Further the base price per unit on the initial 2 million units offered to Kaiser was significantly higher than the quoted price from 3M.  3M’s website includes a warning about price-gouging and fraud that provides the list price for its N95 masks as ranging from $0.68 to $3.40 per unit.  The supplier also wanted a large up-front deposit and was evasive regarding requests to verify and inspect the shipment, raising additional red flags which prevented consummation of the deal and any payment.  However, time and resources diverted in pursuit of these critically needed items that did not exist is not without real cost and consequence to the lives of those in jeopardy.

One can expect these types of opportunistic frauds to extend beyond the current health crisis and continue throughout the worldwide efforts to recover from the long-reaching economic ramifications of this pandemic.  Longer term interruptions in the supply chain and changes in consumer behavior which may continue to affect many industries and political tensions arising out of the different countries’ responses and impacts suffered will create additional opportunities, incentives and rationalizations that commonly lead to increased motivation towards fraudulent behavior.

Fulcrum Inquiry performs investigations of fraud, price-gouging and related damages calculations as part of its forensic accounting and financial investigations practice.