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Hoarders, Price Gougers During Pandemic Will Draw Justice Ire

March 27, 2020, 10:05 AM

The federal government is ratcheting up pressure on companies and individuals who are stashing critical medical supplies or charging exorbitant prices as the coronavirus pandemic rages on.

An order from the Department of Health and Human Services (HHS), released Wednesday, designates 15 types of materials, including masks and other protective gear, as “scarce or threatened,” a move that lets it report on bad actors suspected of driving up prices for those products or limiting their availability.

The Justice Department is stepping in to enforce the order, and the private sector is reporting to the government on pricing changes for medical supplies. A national task force, led by New Jersey U.S. Attorney Craig Carpenito, will investigate Covid-19-related market manipulation, hoarding, and price gouging and potentially bring charges against suspected violators.

“If you are sitting on a warehouse full of masks, you will be getting a knock at your door,” Attorney General William Barr warned at a news conference this week.

The task force builds on the efforts of federal and state law enforcement officials who are policing fraud, such as investment scams, during the public health crisis.

There are no dedicated federal laws to ban price gouging or hoarding, meaning state law enforcement officials are likely to be on the front lines of this new push, one former U.S. attorney told Bloomberg Law.

“What you’re hoping to see is that assistant U.S. attorneys will do a better job of going out and working more closely with state and local law enforcement,” they said, speaking on condition of anonymity. “This signals to them that they have the resources of federal prosecutors and the federal government.”

It’s unclear who will be targeted at first, former prosecutors say, although prior task forces have typically started with the most egregious and glaring activity and expanded from there.

Even so, the effort sends a strong message that actions like price gouging in the middle of the deadly Covid-19 contagion won’t be tolerated.

After Barr spoke, John Bash, the U.S. attorney for the Western District of Texas, took to Twitter to pledge support—complete with a GIF from the TV show “Breaking Bad.”

“For anyone in Central or West Texas hoarding critical medical supplies during a GLOBAL PANDEMIC — guess what? I am the one who knocks,” Bash tweeted. His office, like those for all other U.S. attorneys, has been instructed to dedicate a prosecutor to lead anti-gouging and anti-hoarding efforts in their districts.

“What you’re going to see is them trying to get some notches in their belt,” said a former U.S. attorney who asked not to be identified, citing client conflicts. “They want to get that signal out their to the public, which is important.”

Reports From the Field

HHS and the Federal Emergency Management Agency are working with Premier Inc., an alliance of hospitals and health systems that collects data on medical supplies, to monitor what hospitals are paying for high-demand items like respirators, gloves, and ventilators.

The group is being asked to send pricing data to the government and could be leaned upon to determine when a hospital is being gouged, according to Soumi Saha, Premier’s senior director of advocacy.

Right now, Saha said, prices for protective gear for health-care providers have increased significantly but may not be considered price gouging.

N95 masks that typically cost around 30 cents each are selling for as much as $3 to $15 each, and face shields that once cost $1 each are selling for more than $12 apiece, she said.

“Hospitals right now are so desperate for PPE they’re willing to pay almost any price,” Saha said, referring to personal protective equipment.

Both demand and the cost of expanding production of such supplies are pushing up prices, she added.

Some companies are converting their factories to start making medical supplies, but new producers won’t be able to turn out gloves or masks as cheaply as legacy manufacturers.

“It’s honestly too early to tell what is the new normal,” Saha said.

Some lawmakers and former federal officials have argued that if the government used the Defense Production Act to effectively take control of the manufacturing and distribution of supplies, prices could be kept low. The law gives the government vast powers to direct industrial production in crises, but President Trump has said he’s reluctant to use it to direct the manufacture of specific medical products.

“Some of the price gouging we can expect to see will be on the goods that the president could be purchasing using the DPA and just isn’t,” Katrina Mulligan, a former director for preparedness and response in the National Security Division at Justice, said.

Katrina’s Wake

Attorneys have likened the focus on fraud during the pandemic to the enforcement activity seen following Hurricane Katrina’s devastating impact on New Orleans and the U.S. Gulf Coast in 2005.

In both cases, individuals and corporate actors attempted to take advantage of people suffering from a disaster, creating a spike in the number of fraud investigations and charges.

The National Center for Disaster Fraud, established after Katrina, creates a centralized system for handling public fraud complaints and for coordinating investigations. Over 1,000 people were prosecuted for disaster-related fraud after Katrina.

Justice’s work in Katrina’s aftermath could help speed its response to gouging and other illicit behavior this time around, said Sarah Hall, a partner at Thompson Hine LLP and a former federal prosecutor.

“They have the backbone in place,” Hall said. “This isn’t their first rodeo” and it’s obviously a top priority of the U.S. government.

Moving forward, the department is likely to prioritize cases that can be investigated and charged quickly, she added. And while most fraud investigations can be lengthy, those launched in the height of a disaster are often sped along.

“Time is of the essence, and they don’t have six months or more to do this things,” Hall said, adding that prosecutors are likely to start tracing the transactions of businesses they know had certain critical items before the crisis.

“You would want to go back to them and see who they have been selling to,” she said. “If a big manufacturer of masks holds a huge quantity and sells them to company X, then you would contact company X.”

Justice and the U.S. attorneys offices are also asking members of the public to report incidents of possible fraud, including price gouging.

—With assistance from Victoria Graham

To contact the reporters on this story: Jacob Rund in Washington at jrund@bloomberglaw.com; Alex Ruoff in Washington at aruoff@bgov.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com; Melissa B. Robinson at mrobinson@bloomberglaw.com

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