Price Gouging Investigations: Yes, It Could Happen to Your Company

Reports of hoarding and price gouging of critical supplies (facemasks and other personal protective equipment, hand sanitizer, toilet paper, disinfectant wipes, etc.) have been widespread throughout the COVID-19 crisis. In a March 24 memorandum, Attorney General William Barr advised U.S. Attorneys that his department would “aggressively pursue bad actors” who were hoarding supplies and selling them at markup. He directed federal prosecutors nationwide to prioritize investigating and prosecuting these types of offenses. And it’s more than just the feds.

State attorney general’s offices have been flooded with complaints. The Washington Times reported that 6,247 price gouging complaints were filed with state offices in the week before Attorney General Barr’s memorandum alone. Pennsylvania saw 1,600 complaints in just that week. In March, the New York Times reported that Kentucky and Michigan’s Attorney Generals received 1,500 and 1,880 complaints, respectively. Some offices have assigned teams of special agents to investigate these complaints. New York City has already issued 500 violations.

One reason for the flood of new complaints? It is easier now than it has been in the past to make a complaint. The Department of Justice has created a website, email, and hotline for citizens to report price gouging and other fraud. Many states, including New York, Florida, Iowa, and Nevada, have opened state-specific hotlines for their citizens to make price gouging complaints.

Many well-meaning businesspeople, considering the nature of the COVID-19 pandemic, might assume they would never be subject to a price gouging investigation, particularly if their business is not involved in selling obviously crisis-critical supplies or statutorily defined “essential commodities” (typically, goods, services, and materials people need to use or consume in an emergency, like food, water, ice, gas, and lumber). Unfortunately, they would be wrong.

We have seen state attorney generals institute price gouging investigations during other emergencies (natural disasters, for example) relating to products and services that most reasonable people would not think qualify as a crisis-critical essential commodity. It is not just landlords who increase their rent or grocers who mark up the price of milk and toilet paper who might face price gouging investigations. Investigations are not limited only to the basics: food, shelter, clothing.

Instead, in every instance where the price of a good or service increases, a price gouging investigation might be around the corner. And no matter the reason. Did your company have to increase the price of its products to cover increased third-party hauler or shipper rates? Did you have to increase the price of a widget you sell because a key part of that widget is typically made in China and cannot be easily sourced? You still might face a price gouging investigation.

We can understand why government agencies are keen to aggressively prosecute price gouging, even for goods and services unrelated to the essential commodities affected by the crisis. States are losing millions of dollars of income from stay-at-home orders and spending millions more to equip front-line workers with the supplies they need. The cost of procuring the tests states need, aiding small businesses, and dealing with an unprecedented volume of unemployment applications is taxing most states. Price gouging fines (which average in the thousands of dollars per allegation) are one way for states to bring in revenue during these challenging times.

Businesses must appreciate the risk they face. If the products, goods, or services your business sells see an increase in price due to COVID-19, you might be subject to an investigation and served with an investigatory subpoena. We can help. Our experienced team, which includes former Assistant United States Attorneys and federal law clerks, can guide you through, and defend you in, any investigation you might face during and after the COVID-19 pandemic.

Jennifer Wright Schick is a Partner in our Maryland office.
Heather L. Williams is an Associate in our Maryland office.