The federal government’s stimulus programs were intended for businesses that truly needed the money to keep afloat. Unfortunately, many simply saw this support as a honeypot too tempting to resist.
Further motivating the greedy was a President visibly resisting the efforts of Congress to insure full transparency under these programs. Hey, maybe no one would find out.
This article will take a look at the unscrupulous, unprincipled and deceitful side of federal government programs during the coronavirus pandemic.
Paycheck Protection Program Misallocations
As reviewed in a prior article, the Paycheck Protection Program (PPP) was designed to provide grants to small businesses that needed the money to keep staff on the payroll. The program was so popular that Congress increased it from $349 billion to $669 billion by the end of April 2020.
Most of the funding has been used as intended, but not all of it. A key part of the CARES Act was the establishment of a Congressional Oversight Committee that can review all the businesses receiving money and take appropriate action as necessary. Thank heavens!
According to public SEC filings, at least 71 publically traded companies were able to get loans/grants under this program. Publically traded companies have shareholders who can invest more money and most have access to bank loans or the bond markets. Under these circumstances, the use of the Paycheck Protection Program ranges from careless, to unethical to fraudulent. In all these cases, there is greed.
Ruth Chris Steakhouse, owned by publically traded Ruth Hospitality Group, received loans of $20 million. Shake Shack, also a public company, received $10 million. Ashford Hospitality Trust, a public REIT, applied for $126 million of loans and received $76 million. The CEO of Ashford is Monty Bennet. Having furloughed 95% if his employees, he reduced his own pay from $950,00 to $800,000 and paid himself a $1.8 million bonus in March 2020! To help grease the skids in Washington, he donated to the Republican Party and hired lobbyist Jeffrey Miller, a Trump fundraiser, to advise and assist on the loan program. Each of these companies agreed to return the federal money after the loans were made public in the press.
In early May 2020, the House Oversight Committee wrote letters to a number of other public companies asking them to return the money as well. A number of elite private universities and boarding schools, all of which have major endowments, were also able to secure loans and the Treasury Department is now trying to claw back this money.
Unfortunately, Congress is finding it difficult to get the information it needs to monitor the Paycheck Protection Program from the White House, Small Business Administration and Treasury Department. Given the known abuses, they should continue to fight and fight hard. All the cases above were widely reported in the press. The concern is that these are just the tip of the iceberg.
In late June, the White House finally agreed to release the names of all PPP loan recipients with proceeds of $150,000 or more. Hopefully, they will do what they say.
With no federal coordination efforts whatsoever, all 50 states and every major city in the country are basically competing with one another to purchase critically needed Personal Protective Equipment (“PPE”) for health and social care workers. For some, all this chaos represents an opportunity.
On March 23, Blue Flame Medical was founded to supply PPE to state and local governments. The founders were two Republican operatives. Michael Gula was a major Republican fundraiser with several Senators as clients. John Thomas was a California political consultant working for Republican candidates in California. Neither of these men had any experience whatsoever in the medical supplies industry.
Through political contacts, Blue Flame first entered into a $12.5 million contract with the State of Maryland to supply urgently needed PPE, taking a $6.5 million deposit. Why the State of Maryland would enter into a contract with a company only one or two days old is a mystery. In any event, Blue Flame failed to meet delivery milestones and Maryland cancelled the contract. Hopefully, Maryland will get its money back.
In California, Blue Flame went for gold! They somehow managed to get California in enter into a contract with a $456 million deposit. As the money went out the door, the California Treasury Department received calls from bankers advising that the bank account Blue Flame was using to receive the funds had only been established three day before! California rescinded the wire transfer immediately and is now investigating how it happened to begin with.
Blue Flame is now the subject of a Justice Department investigation.
On May 13, the Wall street Journal reported that FEMA had to cancel a $55.5 million facemask contract for non-performance. The contract counterparty was a newly formed company called Panthera Worldwide. Like Blue Flame, this company had no medical industry experience or assets of any kind. Its owned by a company in bankruptcy proceedings. Why FEMA didn’t go straight to major US manufacturers (like 3M) instead of this fly-by-night broker is a mystery.
The Informed Vermonter fears there may be many more Blue Flames out there.
The COVID-19 Distraction
The Office of Inspector General was created to prevent inefficient and unlawful operations in government agencies by identifying, auditing and investigating fraud, waste, abuse, embezzlement and mismanagement of any kind. The first Inspector General was appointed by Congress to tackle Medicare/Medicaid fraud in 1976. There are now 78 Inspector General positions in the federal government.
The CARES Act created the largest economic stimulus programs in US history. With trillions of taxpayer dollars going out the doors, the need for Inspector Generals has never been more clear.
The Trump administration appears to be using the distraction of the COVID-19 pandemic to get rid of Inspector Generals.
Michael Atkinson was the first to be fired. He was the Inspector General for the Intelligence Community. His mistake was to obey the law and report the Ukraine whistleblower complaint to Congress. Firing Mr. Atkinson clearly sends a single to the rest of the Inspector General community.
Next to go was Glenn Fine, the Inspector General for the Pentagon. When the CARES Act was passed, Mr. Fine was selected to run oversight of the massive corporate stimulus programs by a panel of Inspector Generals. Mr. Fine’s problem was a solid reputation and the expectation that he would actually do a good job. The Informed Vermonter can only think of one reason why a President would fire a competent official selected to oversee the largest corporate loan program in history.
In early May, Christi Grimm, the Acting Inspector General of Health and Human Services, was fired by the White House. In March, Ms. Grimm has overseen a survey of 300 hospitals in the U.S. and then issued a report saying that testing and PPE were significant challenges across the country. President Trump wants everyone to believe there are no testing or PPE supply issues, so Ms. Grimm had to go.
Next came Steve Linick, the Inspector General of the State Department. He had evidently launched an investigation into certain action of Secretary Mike Pompeo, including non-authorized weapons sales to Saudi Arabia and the use of State Department employees for personal tasks.
Dr. Rick Bright, the head of the Biomedical Advanced Research Development Authority, was the key vaccine development official in the federal government. His early warnings about the COVID-19 illness were ignored within the Administration. He also was highly skeptical about the effectiveness of hydroxycloroquine, the malaria drug touted by President Trump as a cure. In April, he was fired from his position and reassigned. He has since filed a whistleblower complaint and will be speaking directly with Congress.
On April 13, President Trump claimed that he had total power to end any lockdowns imposed by governors around the country. This is, of course, wrong. Over the next few days, many governors publically disagreed with the President on this issue.
What does President Trump do? He has William Barr, the Attorney General, threaten to file lawsuits against state governments for their lockdown orders. Governor Phil Scott of Vermont must have been delighted to add this to his list of things to worry about in the middle of the biggest health emergency in 100 years!
The US has a long history of government mistakes, pork barrel, corruption and fraud. The Medicare and Medicaid programs have been troubled by mismanagement and fraud for many years. Tax evasion is a major industry.
The size and scope of the COVID-19 pandemic and the Federal Government’s legislative response are unprecedented. Unfortunately, the size, scope and audacity of the unscrupulous political and business responses appear equally unprecedented.
The large and rapid misuse of the Paycheck Protection Program suggests that there is a widespread ethical issue in the US corporate community.
Fly-by-night operators trying to profit on the shortage of PPE is not a victimless crime. Even if all the money is recovered, their false promises would certainly have delayed the delivery of PPE to front line health workers putting lives at risk.
Firing Inspector Generals and the at the very beginning of the largest stimulus programs in US history and politicizing COVID-19 by threatening to sue state governments makes the country look like a third world nation.
Firing the principal vaccine development official at the beginning of the largest pandemic in 100 years is simply unbelievable.
We should all watch these developments as carefully as we can.