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Enforcement Takeaways From State AGs’ COVID-19 Focus | #cyberfraud | #criminal | #cybersecurity | #informationsecurity



By Christopher Allen

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Law360 (June 26, 2020, 2:44 PM EDT) —

As the COVID-19 pandemic continues to sweep through the U.S., state attorneys general are updating their playbooks in an effort to deal with this unprecedented crisis.

They are wielding their legal, political and policy-making authority and increasing enforcement to protect consumers, enhance data privacy and security, eliminate price-gouging, and combat false claims for payment to state authorities.

In this article we look at how addressing the crisis has expanded attorneys general’s areas of focus and consider the implications for businesses.

Guardianship of Consumer Rights Will Continue

Attorneys general’s sweeping consumer protection authority was well established prior to the COVID-19 crisis and is underscored by their swift actions[1] in response to the pandemic.

  • Within days of fake treatments and cures for the virus being peddled, attorneys general, including New York Attorney General Letitia James[2] and Missouri Attorney General Eric Schmitt,[3] had issued cease-and-desist letters or sued under their broad state unfair and deceptive acts and practices laws to bring such misconduct to a halt.
  • Attorneys general across the country developed dedicated webpages, activated hotlines, issued frequent consumer alerts, and encouraged the public to report COVID-19-related scams and fraud, which ranged from fake treatments to impersonation of health care workers to stimulus check scams. 
  • Attorneys general broadened their focus on misleading advertising and marketing to include statements related to COVID-19. For example, Florida Attorney General Ashley Moody began an investigation[4] into cruise package marketing and disclosures related to the pandemic.

Attorneys general’s consumer protection actions in response to the health crisis have included new tactics to supplement the traditional approaches of investigations and lawsuits. Some attorneys general applied pressure on businesses like sports clubs, television providers and others to suspend or reduce fees and eliminate penalties, and many attorneys general themselves have temporarily suspended the collection by their offices of certain debt owed to the state.

A number of attorneys general empowered with rulemaking authority have promulgated temporary or emergency rules, such as Oregon Attorney General Ellen Rosenblum’s temporary rule[5] mandating adequate substantiation for alleged COVID-19 treatments, and Massachusetts Attorney General Maura Healey’s emergency regulation[6] — challenged in court — significantly curtailing private debt-collection activities in the state, including filing new lawsuits, repossessing cars and making unsolicited debt collection calls.

As life with COVID-19 becomes the status quo, attorneys general will undoubtedly continue to exercise their consumer protection authority to deter scammers. It is also foreseeable that well-meaning companies will come under scrutiny due to difficult choices they faced during the government-mandated shutdown — and the subsequent economic downturn — resulting in consumers not receiving the full benefits of paid-for goods or services, or being negatively impacted in other ways. Sectors that are likely to receive particular attention include:

  • Assisted living facilities and nursing homes that experienced high infection rates: Healey[7] and New Mexico Attorney General Hector Balderas,[8] among others, have begun investigating, establishing a road map for potential litigation.
  • Other businesses or organizations that could have served as vectors, like hotels, restaurants, gyms and conference organizers: Not only will these businesses need to be accountable for what they said and did prior to the shutdown, but they will now need to be concerned with any public claims they make about the procedures in place to safeguard consumers’ health and safety.
  • Businesses that disregarded executive orders and other regulations regarding the shutdown or reopening: Attorneys general will allege that such behavior represents unfair, misleading and deceptive conduct.

Time is on the attorneys general’s side, as the statute of limitations on an attorney general lawsuit may range from two to up to six years depending on the state — with attorneys general in some states not subject to a limitations period at all.

Evolving Technologies Create New Challenges

Data privacy and security is far from a new focus area for attorneys general — indeed, they are the de facto national regulators in this area in the absence of federal regulation. Attorneys general have long been leaders in policing the ways companies collect, transfer and use consumer data and what they tell consumers about those practices.

The COVID-19 pandemic has, however, raised new concerns around what data is collected and shared, and presents new opportunities for data thieves.

  • In the earliest days of the pandemic, attorneys general, such as Maryland’s Attorney General Brian Frosh and Virginia’s Attorney General Mark Herring, warned consumers[9] of phishing emails from scammers trying to steal personal information by posing as personnel from health organizations. 
  • In an effort to reduce deceptive advertising, phishing schemes and malware dissemination through coronavirus-related domains, James[10] requested that domain name registrars apprise her of the steps they were taking to protect consumers.
  • As stimulus checks started to roll out, cyber criminals initiated yet other scams, including claiming to be representatives[11] of the Internal Revenue Service or U.S. Department of the Treasury.
  • A number of attorneys general, including James,[12] Moody[13] and Connecticut Attorney General William Tong,[14] announced investigations into video conferencing platform Zoom, which experienced a massive surge in demand as offices closed down and workers went online. Their attention to the accuracy of Zoom Technologies Inc.’s consumer disclosures and other security measures resulted in the company announcing new practices and security protocols. 

Table 2

Technology is certain to be at the top of attorneys general’s minds as government-imposed lockdowns begin to be lifted. As consumers and businesses have become far more dependent on teleworking and receiving educational and other services remotely, they are increasingly at risk of phishing and privacy attacks by hackers capitalizing on vulnerabilities resulting from the explosion in demand. 

In addition, success in containing new COVID-19 outbreaks will depend on applications and tools that facilitate data collection to monitor social distancing.[15] More invasive tools are also in development that conduct digital contact tracing[16] by tracking the devices an individual smartphone has been near — generating more data that risks exposure, misuse or theft.

The response to the virus has and will continue to involve novel, untested collection, use and transfer of data on a previously inconceivable scale, and attorneys general can be expected to police these cutting-edge technologies vigorously.

Price-Gouging Is a Concern Up and Down the Supply Chain

Price-gouging laws have traditionally been invoked only in cases of short-term crisis, like hurricanes, floods or other natural disasters. It remains an open question how attorneys general will apply these laws in a state of emergency that will likely persist for many months, exposing companies at all levels of the supply chain as they struggle to cope with economic distress and global supply disruptions.

Before the current pandemic, declarations of emergency also typically did not involve the entire country at once. The national scale and unusually long duration of the current pandemic, however, is giving rise to novel issues and concerns as attorneys general have increasingly sought to enforce price-gouging laws.

  • Some attorneys general, like Arkansas Attorney General Leslie Rutledge[17] and Moody,[18] have publicly commended online retailers for steps they have taken to prevent price-gouging.
  • But attorneys general may come to call for further action, like the bipartisan group of 33 attorneys general who wrote to major retailers, including Wal-Mart Stores Inc.,[19] urging them to implement additional solutions and safeguards to protect consumers.

Table 3

The current climate of uncertainty makes it more critical than ever for companies to implement practices to protect them from price-gouging allegations. Many laws, such as those of California and Florida, contain exceptions if the seller can prove the price increase was the result of additional costs up the supply chain. Companies should document price increases and internal justifications for increases thoroughly.

AGs Will Actively Pursue False Claims

State False Claims Act enforcement potentially offers even more opportunities for increased attorney general involvement. Most states allow attorneys general to sue individuals and entities alleged to have submitted false claims for payment to the state, and the FCAs of 30 states and Washington, D.C., also permit private plaintiffs to file such lawsuits in the name of the state through so-called qui tam actions.

In the wake of the 2008 mortgage crisis FCA actions saw a significant uptick as governments committed billions of dollars to assist borrowers facing foreclosures. A similar uptick is even more likely following the COVID‑19 pandemic, given the state and local focus.

States, cities and counties have contracted for billions of dollars in health care and emergency response equipment, with more likely to be needed as their economies reopen and the demand for testing and monitoring skyrockets. Examples like New York state’s alleged payment of[20] more than $69 million for ventilators at the peak of the crisis likely represent the mere tip of the FCA iceberg.

With qui tam plaintiffs empowered to act on behalf of the state on their own, attorneys general will need to decide whether to intervene and pursue the case or let the private party continue. California’s attorney general has already sponsored legislation that is moving in the assembly to expand the scope of that state’s FCA.

Table 4

Companies contracting to provide government services or products should review their quality control, invoicing and record-keeping policies, and ensure they are in full compliance with any eligibility requirements imposed by government contracts, including qualifications for small business or minority-, woman- or veteran-owned status.

Increased Political and Financial Pressure for AGs to Act

Attorneys general’s offices are feeling the same budgetary pressures as the private sector as the result of the economic crisis, as evidenced by Michigan Attorney General Dana Nessel’s decision to temporarily lay off 25% of her staff in late April.[21]

Therefore, in addition to their motivation to protect the citizens of their states, attorneys general will be under political and financial pressure to find new targets for investigations and litigation because many attorney general consumer protection offices are at least in part self-funded from the proceeds of settlements, litigation recoveries and enforcement penalties.

As state legislatures look to tighten belts, attorneys general will likely be compelled to find alternative sources of funding, just as they did in the wake of the 2008 mortgage crisis and subsequent recession. Litigation driven by attorneys general in that time resulted in some of the largest settlements in history, including the $25 billion mortgage servicing settlement and S&P Global Inc.’s $1.37 billion credit ratings settlement. The post-2008 activism by attorneys general is likely to repeat itself in 2020 and beyond.

Smart Businesses Will Engage With AGs Early and Often

Attorneys general’s expansive array of legal and policy tools, and broad enforcement authority and discretion, have propelled them into a leading role in responding to the COVID-19 crisis. Yet perhaps what has become most clear about attorneys general during this time, when everything is changing, is what has remained the same.

As they have done before, attorneys general will continue to quickly and effectively respond to new crises, and to shape state laws and how they are enforced. This presents new opportunities for businesses that proactively and positively engage with attorneys general — and challenges for those that fail to do so.


Christopher Allen is a partner at Cozen O’Connor.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.cozen.com/news-resources/publications/2020/ags-on-the-front-line-of-the-covid-19-consumer-protection-fight.

[2] https://ag.ny.gov/press-release/2020/attorney-general-james-takes-action-against-coronavirus-health-scams-issues.

[3] https://ago.mo.gov/home/news/2020/03/10/ag-schmitt-files-suit-against-jim-bakker-for-selling-fake-coronavirus-cure.

[4] http://www.myfloridalegal.com/newsrel.nsf/newsreleases/83EC

B3F9521E990E85258534006D9450?Open&.

[5] https://secure.sos.state.or.us/oard/viewReceiptPDF.action?filingRsn=44305.

[6] https://www.mass.gov/news/ags-office-issues-emergency-regulation-to-protect-consumers-from-harmful-debt-collection.

[7] https://www.masslive.com/news/2020/04/coronavirus-ag-maura-healey-launches-own-investigation-into-holyoke-soldiers-home.html.

[8] https://www.kob.com/albuquerque-news/nm-attorney-general-investigates-la-vida-llena-after-covid-19-outbreak/5698071/.

[9] https://www.fox43.com/article/news/verify/verify-beware-fake-cdc-who-phishing-emails-amid-coronavirus-attorneys-general-say/521-33a4995a-6772-4f33-9eb1-721183b859a4.

[10] https://ag.ny.gov/press-release/2020/attorney-general-james-asks-godaddy-and-other-online-registrars-halt-and-de-list.

[11] https://www.atg.wa.gov/news/news-releases/ag-ferguson-beware-scams-related-stimulus-checks.

[12] https://www.nytimes.com/2020/03/30/technology/new-york-attorney-general-zoom-privacy.html.

[13] http://www.myfloridalegal.com/newsrel.nsf/newsreleases/

FDD19DE555A167DF85258542004FD9CD?Open&.

[14] https://www.nbcconnecticut.com/news/local/attorney-general-says-his-call-was-zoombombed-urges-safe-video-conferencing/2249848/.

[15] https://www.wired.com/story/apple-google-social-distancing-maps-privacy/.

[16] https://www.vox.com/2020/4/22/21231443/coronavirus-contact-tracing-app-states.

[17] https://arkansasag.gov/media-center/news-releases/rutledge-sends-letters-to-amazon-ebay-and-walmart-amid-covid-19-price-gouging/.

[18] http://myfloridalegal.com/webfiles.nsf/WF/TDGT-BMZNBF/.

[19] https://www.doj.state.or.us/wp-content/uploads/2020/03/2020-03-25_ag_letter_to_walmart.pdf.

[20] https://www.foxbusiness.com/healthcare/new-york-coronavirus-ventilators-trump-twitter.

[21] https://www.usatoday.com/story/news/2020/04/21/michigan-attorney-general-temporary-layoffs-coronavirus/2997851001/.

For a reprint of this article, please contact reprints@law360.com.

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