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Government enforcement agencies are cracking down on COVID-19-related wrongdoing.<a href="#2">[1]</a> One focus of alleged wrongdoing is the industrial hoarding of supplies deemed essential in the fight against COVID-19. This type of enforcement comes after President Trump’s <a href="https://www.federalregister.gov/documents/2020/03/26/2020-06478/preventing-hoarding-of-health-and-medical-resources-to-respond-to-the-spread-of-covid-19">Executive Order</a> of March 23, 2020 delegating authority under the Defense Production Act (the “Act”) to the Secretary of Health and Human Services (“HHS”) concerning the prevention of hoarding of health and medical resources to respond to the spread of COVID-19. The day this Order was signed, the Department of Justice (“DOJ”) warned industrial-scale hoarders when Attorney General William Barr stated at a White House press conference: “[I]f you are sitting on a warehouse with masks, surgical masks, you will be hearing a knock on your door.”  <a href="https://www.law.cornell.edu/uscode/text/50/4512">Section 4512</a> of the Act prevents the accumulation of certain materials “in excess of the reasonable demands of business, personal, or home consumption” or “for the purpose of resale at prices in excess of prevailing market prices.” The Act allows the President, and now HHS, to designate certain items as “scarce materials” or “materials the supply of which would be threatened by such accumulation.” The goal of Section 4512 is to prevent hoarding and price gouging – conduct that may be prosecuted under the Act.  HHS published a <a href="https://www.federalregister.gov/documents/2020/03/30/2020-06641/notice-of-designation-of-scarce-materials-or-threatened-materials-subject-to-covid-19-hoarding">Notice</a> on March 30, 2020 – effective March 25, 2020 – designating certain COVID-19-related personal protective equipment (“PPE”) and other materials as “scarce” or threatened” and thus subject to the Act’s anti-hoarding provisions. An itemized list of 15 specific types of items is detailed in the Notice. Generally, the Notice applies to the following types of materials:  <ul> 	<li>N-95 Filtering Facepiece Respirators, and other types of respirators;</li> 	<li>Portable Ventilators;</li> 	<li>Drug products with active ingredient chloroquine phosphate or hydroxychloroquine HCI;</li> 	<li>Certain sterilization services;</li> 	<li>Certain disinfecting devices;</li> 	<li>Medical gowns or apparel and PPE coveralls; and</li> 	<li>PPE face masks, surgical masks, face shields, and gloves.</li> </ul>  Violation of the Act’s anti-hoarding provision can lead to penalties under <a href="https://www.law.cornell.edu/uscode/text/50/4513">Section 4513</a> consisting of fines up to $10,000 or imprisonment for up to one year, or both.  Attorney General Barr has created the COVID-19 Hoarding and Price Gouging Task Force to enforce the Act’s anti-hoarding provisions. The Task Force is led by Craig Carpenito, the United States Attorney in the District of New Jersey, with assistance from the Antitrust Division’s Criminal Program, and consists of a lead attorney from each United States Attorney’s Office. In a <a href="https://www.justice.gov/file/1262776/download">memo to U.S. Attorneys</a> concerning the Task Force, Attorney General Barr said: “[W]e will aggressively pursue bad actors who amass critical supplies either far beyond what they could use or for the purpose of profiteering. Scarce medical supplies need to be going to hospitals for immediate use in care, not to warehouses for later overcharging.” The memo also makes clear that the intent is not to go after individual “Americans stocking up on the necessities of daily life or business acquiring materials reasonably needed for their own use.”  The Task Force is fully active. On March 30, 2020 the Task Force executed an enforcement operation that is now resulting in approximately 192,000 N95 respirator masks and other supplies being delivered to healthcare workers in New York and New Jersey.<a href="#1">[2]</a>  To stay clear of any possible violation of the Act’s anti-hoarding provisions, it is imperative that companies do not stockpile, in excess of reasonable business demands, any item listed in the HHS Notice of March 30, 2020. Thus, companies should stockpile only what is reasonably needed for business operations. Further, stockpiling for the purpose of resale in excess of prevailing market prices is also a violation of the Act. To avoid any possible violation, companies should maintain a steady flow of designated items into the market at normal market prices.  It is likely that DOJ’s COVID-19 Hoarding and Price Gouging Task Force will remain focused on identifying violators of the Act throughout the duration of the COVID-19 crisis. Thus, it is best to implement a series of best practices to steer clear of any conduct that may potentially be seen as hoarding. <a href="https://www.bakerlaw.com/WhiteCollarInvestigationsSecuritiesEnforcementLitigation">BakerHostetler’s White Collar, Investigations and Securities Enforcement and Litigation team</a> is here to answer your questions and help you navigate these issues.  By Terry M. Brennan and Tera N. Coleman  <a id="1" name="1"></a>[1] See Cleveland, Dettelbach, Jackson, Rovenger, <a href="https://www.bakerlaw.com/alerts/covid19-update-ag-barr-issues-memo-focusing-enforcement-on-corona-related-fraud-and-crime">COVID19 Update: AG Barr Issues Memo Focusing Enforcement on Corona Related Fraud Crime</a> (March 19, 2020).  <a id="2" name="2"></a>[2] U.S. Department of Health and Human Services,<a href="https://www.hhs.gov/about/news/2020/04/02/doj-and-hhs-partner-to-distribute-more-than-half-a-million-medical-supplies-confiscated-from-price-gougers.html"> DOJ and HHS Partner to Distribute More Than Half A Million Medical Supplies Confiscated From Price Gougers</a> (April 2, 2020).

COVID19 Update: Anti-Hoarding Enforcement

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