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Federal Enforcers Mount Coordinated Attack on Coronavirus Scams

May 6, 2020, 6:05 PM

Federal agencies are mounting a multifront attack on scams and quack cures in the wake of the coronavirus crisis, an unprecedented coordinated effort that could continue for years to come.

The Justice Department has filed charges against more than half a dozen people accused of pushing silver products and other fake treatments for Covid-19. The Federal Trade Commission has gotten the marketer of a Vitamin C supplement to stop claiming it can treat the virus. And the FTC and FDA have been sending dozens of joint warning letters to companies for touting unapproved treatments or preventatives.

The enforcement actions spotlight the agencies’ ability to step up their level of collaboration as they continue fighting the pandemic, attorneys say.

“There’s a laser focus right now that is bringing the agencies together and an overlapping of their areas of authority,” said Kimberly Culp, director at Carr McClellan PC in Burlingame, Calif., whose practice focuses on advertising and marketing. “There’s always been some level of cooperation and interaction, but this amount of coordinated action is obviously new.”

Covid-19, for which there is neither a sure treatment nor vaccine, has created a perfect storm for fraudsters interested in preying on people who are vulnerable, frightened, and isolated. Their scams employ typical tactics of the fraudster’s trade: empty promises of protection against a sometimes fatal disease.

Fraudsters face a range of possible penalties and sanctions, including prison terms and fines under criminal statutes and fines and court orders under civil statutes.

Alleged scammers violating Section 5 of the FTC Act could face permanent injunctions barring them from selling their products. They could also face fines of up to $43,000 for violating a commission order, an agency spokesman said.

Unprecedented Response

The FDA has created a cross-agency task force dedicated to monitoring for fake Covid-19 treatment claims and has worked with retailers to remove product listings online.

Cooperation also has been increasing between the DOJ and state attorneys general and between U.S. attorneys’ offices and local law enforcement, according to Jaime L.M. Jones, a partner at Sidney Austin LLP in Chicago who co-leads the firm’s health-care practice and serves on its Covid-19 task force.

The magnitude of the response from federal authorities has mirrored the magnitude of the crisis, said Michael Elliott, a partner with Elliott Sauter PLLC in Dallas and a former federal prosecutor.

“One effect of the crisis is that agents aren’t working their normal cases,” he said. “So the directive has gone out to all the districts to investigate and stop coronavirus-related fraud.”

For the DOJ, that can mean a wide range of fraudulent activity, including misuse of federal stimulus funds, he said. But for the FTC and the FDA, the focus is on false claims about treatments and cures.

The fact that Covid-19 treatment scams affect public health gives the agencies an additional impetus behind their enforcement efforts, Jones said.

“When companies or people are taking advantage of patients and customers in a way that is detrimental to health and safety, that’s a primary motivator,” she said. “These agencies will act with extreme intensity to protect the public from this kind of threat.”

That intensity is shown by how quickly the agencies are taking cases to court and asking for orders to stop the fraudsters, said Andrew B. Lustigman, a partner at Olshan Frome Wolosky LLP in New York who chairs the firm’s advertising, marketing, and promotions group.

Quick Fix

Coronavirus scams have been on the rise as fraudsters take advantage of terrified consumers who are looking for a quick fix, said Allison Fitzpatrick, an advertising attorney and partner with Davis & Gilbert LLP in New York. “They’re stuck in their homes, getting most of their information from the Internet and social media,” she said.

“It’s easy to take advantage of the desperate and isolated in circumstances like these,” she said.

The DOJ in late March arrested a man in Southern California who allegedly orchestrated an investment scheme involving a bogus injectable cure for Covid-19. A week later, the DOJ filed charges against a man whose treatment allegedly involved a combination of Vitamin C, bee pollen, hydrogen peroxide, and prayer.

New criminal cases were filed in April against a Michigan doctor accused of pushing Vitamin C injections as a treatment, and a former “naturopathic” physician accused of peddling a “dynamic duo” of substances on Facebook that he claimed could kill the virus.

Counsel for the physician marketing the “dynamic duo” product declined to comment. An attorney for the Southern California man couldn’t be reached for comment. Counsel for the other defendants didn’t immediately respond to requests for comment.

The DOJ also has filed at least four civil lawsuits against people who were allegedly selling fraudulent coronavirus cures or treatments, and it has obtained temporary restraining orders against the defendants in three of those cases.

Meanwhile, the FDA and FTC have been sending warning letters to sellers of unapproved virus treatments, and to multi-level marketing companies whose independent distributors have allegedly made unsubstantiated coronavirus-related claims about their products.

The companies’ products include everything from a bundle of supplements called an “ANTI-VIRUS KIT” to “Sonic Silicone Face Brushes” to intravenous “therapies” with Vitamin C, according to the FTC. The sellers of those products didn’t immediately respond to requests for comment.

The FDA has sent out warning letters to at least 37 companies hawking a variety of products including essential oils, herbal products, homeopathic drugs, cannabidiol products, and products containing silver.

Likely to Last

The coronavirus crisis and the agencies’ work to fight fraud could “reverberate for years,” Elliott said.

“I think back to the Hurricane Katrina crisis in New Orleans and the Gulf Coast. The focus on fraud in that situation lasted three or four years. And that wasn’t nationwide,” he said.

The underlying issue is whether the disease can be prevented, treated, and cured, Culp said.

“If there’s a vaccine tomorrow and it’s legitimate and approved, the opportunities for fraud and scams start to disappear,” she said. “If complaints about fraud start to decline, then the need for a task force goes away, too.”

But as long as the FDA and the FTC are receiving complaints, the focus will persist.

“Because that’s very close to the heart of their mission to protect consumers,” Culp said.

To contact the reporter on this story: Christopher Brown in St. Louis at ChrisBrown@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Alexis Kramer at akramer@bloomberglaw.com

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