The Trump administration was very lax on white-collar crime, reducing fines and prosecutions in that field. With Biden’s 100th day in office slowly approaching, the president and his team seem determined to return these policy changes to Obama-era ways.
“The political pendulum is swinging back,” says Attorney David Benowitz of Price Benowitz LLP. “We just need to keep up with its changing tides.”
Here is a closer look into what this plan entails explicitly, the laws they are using to get it done, and how effective this plan may be.
COVID-19 and medical fraud
During the COVID-19 pandemic of 2020, several fraud cases involved stimulus checks and relief payments. Attorney General and former D.C. Circuit Judge Merrick Garland have listed COVID-19 related fraud schemes as a top priority for the Department of Justice (DOJ).
Gary Gensler, the previous head of the Commodities Futures Trading Commission, also increased enforcement on these schemes and is expected to carry that track record into his role as Chairman of the Securities and Exchange Commission (SEC).
The Biden Administration has also spoken out against financial and corporate fraud, planning to use the CARES Act and the False Claims Act to prosecute these violations. The Coronavirus Aid, Relief, and Economic Security (CARES) Act specifically focused on addressing issues caused at the onset of the pandemic. It was continued as the Consolidated Appropriations Act in December of 2020 so that relief payments alongside crackdowns on COVID-19 related fraud could be managed.
The False Claims Act was more prominently abused in the health care sector. This Act makes it illegal for any person or organization to make false claims to a federal health care program knowingly. Violations include billing for unprovided services or billing for the same service multiple times. These violations increased during the pandemic as hospitals were being swarmed with patients and paperwork.
Alongside these false claims are other forms of healthcare fraud and their associated violations. For example, there are two ways that hospitals can manipulate bills to increase their payments called unbundling and upcoding.
Unbundling involves requesting payment for procedures that are integral to other procedures performed on the same day. For example, suppose someone comes into a major surgery, instead of charging for the surgery as an individual expense, a hospital will charge for the individual tools, machines, and medications used to perform the surgery. This unbundling of the procedure makes the bill look longer and therefore worth more.
Upcoding is another form of healthcare fraud where hospitals will simply request higher payments for correctly billed services at a lower rate. By doing this, their paper trail shows the correct price while the government pays more than the bill properly costs.
White-collar crime
Besides health care fraud, white-collar crimes like money laundering, various types of fraud, and stock market manipulations have seen significant upticks during the pandemic.
To tackle money laundering, the Biden Administration enacted the National Defense Authorization Act of 2021, which mandates that shell companies disclose their true owners. This Act expands government authority, allowing the federal government to demand information and records from non-U.S. banks with accounts in the United States.
There has also been heightened scrutiny against Special Purpose Acquisition Companies (SPACs) that have seen recent spikes in popularity. Simply put, a SPAC is when a shell company transitions from private to public ownership on the stock market. Shell companies do not have an underlying operating business, instead of holding all assets as cash and a few limited investments, including proceeds from initial public offerings (IPOs). By shifting around money, shell company owners can become much more prosperous. However, forcing the companies to disclose their owners and beneficiaries helps keep them accountable for their fraudulent actions without hindering those genuinely interested in shifting from private to public ownership.
However, SPACs are not the only stock market scam the Biden administration is investigating. Their financial team monitors stock trading price volatility, specifically watching for “meme stock” investing.
This is likely in response to the GameStop and AMC stock crashes in March of 2021. During that time, a new app called Robinhood allowed users to trade stocks without commission payments. Its wide availability and ease of use led Reddit forums like r/wallstreetbets to soar in membership, filling with people curious about the stock market and how to make it rich.
During this time, hedge funds were short-selling stock in the video game retailer GameStop and the movie theater brand AMC, as both saw significant declines during the pandemic. Seeing this, some decided they wanted to mess with hedge fund companies and buy many GameStop and AMC stocks.
Some joined the bet to purposefully hurt hedge fund managers and owners, while others joined simply to be part of the meme. This led to a “meme stock” concept, where a group of people decides to mess with the stock market “for the meme” rather than to genuinely support a company’s product and business.
By buying large amounts of the stock, Redditors sharply increased the price, forcing hedge funds to pay out large amounts of money. The stock plummeted back to its original place a few weeks later.
This sudden volatility led to many speculations and fears about what a stunt like this means for the stock market’s future. This incident likely led to the Biden Administration’s increased interest in meme stock prevention and management.
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