Photo by Mick Haupt on Unsplash
Among the many news stories about the novel coronavirus that causes COVID-19 are reports of stores or individual sellers engaging in “price gouging.” There are numerous complaints from would-be buyers about this practice. While this time may appear to be a great opportunity for you to make a profit off of items in short supply to which you have access, think twice before setting your prices.
From the man in Virginia who bought up truckloads of hand sanitizer to resell to the couple buying cases of Clorox wipes from Costco every day with plans to sell them online, news outlets and everyday citizens are reacting with disgust to those who are seen not as free market users capitalizing on supply and demand, but as greedy persons taking advantage of a national crisis.
The future loss of sales from this negative publicity could easily outweigh the quick profit you make today. However, more than your reputation is at stake.
RELATED ARTICLE: BUSINESS INSURANCE COVERAGE: NOW IS A CRITICAL TIME
This is because price gouging can carry serious legal penalties. In fact, it is now a federal offense. Moreover, you can be sure that agencies are already starting their investigations into the practice, and prosecutions in this area are already starting to rise. Many US attorneys have announced their plans to immediately begin prosecuting these cases after receiving guidance to do so from Attorney General William Barr.
Dr. Nick Oberheiden is a federal defense attorney who represents clients who are facing allegations of price gouging or other forms of illegal competition in investigations conducted by the Attorney General, the Federal Bureau of Investigation (FBI), the U.S. Justice Department (DOJ,) and other federal agencies in cases across the United States. If you have been accused of price gouging, consider reaching out to him for help.
Q. What is “Price Gouging”?
A. Many states have long had laws against charging “unconscionable” prices in the period before or after an emergency, such as a hurricane or other major weather event. The federal government does not have a general law against price gouging, despite repeated efforts by some legislators to have such a bill passed.
However, the federal government does in fact have the power to prevent hoarding and price gouging in certain situations to protect the national defense.
Now Is an Extraordinary Time
Only recently, President Trump activated the Defense Production Act. That law allows the President to, among other things, designate certain items as scarce materials or materials the supply of which would be threatened by accumulation.
Such items then may not be accumulated “(1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices.”
You can read the full executive order here.
Q. But Can’t I Sell Items at Any Price If Someone Is Willing to Pay for It?
A. Normally, that’s true in the United States. People in the US generally take pride in capitalism. What’s more, they frown on government interference in private transactions. However, the free market is never truly “free.”
Right now, many items cannot be found for purchase at all. For example, such items as N95 masks and other PPE are desperately needed by medical personnel as they diagnose and treat patients who are infected with COVID-19. Suppliers simply cannot keep up with the demand. Often, price gouging is at the root of this dilemma.
Moreover, the problem has been getting worse as more people come to fear price gouging in the future. Medical providers, private citizens, and potential resellers alike try to buy all of these products they can as soon as they are restocked. This is because they fear being unable to get those items later.
Q. What Should I Do If I Am Being Accused of Price Gouging?
A. If you receive an inquiry, subpoena, or Civil Investigative Demand (“CID”) from the government accusing you of price gouging, you should consult with an attorney as soon as possible.
In particular, it is crucial that you involve a criminal defense attorney who has experience in complex investigations and prosecutions at the federal level. This is true even if the initial inquiry is civil in nature, as civil investigations often turn criminal without advance notice.
RELATED ARTICLE: REVIEW: HOW TO BRING YOUR SMALL BUSINESS ONLINE WITH VCITA
In the meantime, make sure you have records of your regular costs to purchase products as well as any increase in those costs from your suppliers. It is equally important to keep records of your prices over time.
This is because one of the questions in price gouging cases is what constitutes resale “in excess of prevailing market prices.” If you can show that your prices normally increase by a set amount per year or that your costs to procure the products have increased and that your price increase is only a reaction to increased costs, you will have a better chance to convince the government of your lack of wrongdoing. Moreover, if you can show both, even better.
Q. What Are the Penalties for Price Gouging?
At least thirty states have their own laws against price gouging, which are enforced by state attorneys general. However, we expect that the majority of the prosecutions will be federal in nature during this outbreak.
Moreover, many companies and individuals have already received a Civil Investigative Demand (CID) from the federal government. That means the Federal Bureau of Investigation (FBI) and the U.S. Department of Justice are leading the prosecutions. Additionally, this is often in connection with investigators from the Customs and Border Patrol and other agencies.
Importantly, the penalties for violating the Defense Production Act are up to one year in prison, a $10,000 fine, or both. Moreover, this penalty is for each violation of price gouging.
Additionally, most of these prosecutions will likely include charges of mail fraud, wire fraud, and/or health care fraud. All of these charges carry greater punishments.
Don’t Expect to Receive Parole
For example, a conviction for fraud on the federal level carries a maximum penalty of twenty years in prison, a $250,000 fine or both. Keep in mind also that penalties for federal crimes are not only severe, but also, if you are incarcerated for a federal crime, there is no parole.
In other words, if a federal judge orders you to ten years in federal prison for price gouging, you can’t expect to be released after five or seven years. Parole simply does not exist under federal law. Typically, in the federal justice system, if you are sentenced to ten years, you should expect to serve ten years.
In addition to prison time and fines, you could also be ordered to pay civil penalties or restitution. Moreover, if you supply items to the federal government, your contract to do so is likely to be rescinded—and you will not receive another one.
The Bottom Line
Your best defense against price gouging is not to engage in such practices. However, it is understandable that your costs of doing business are rising during this time. Therefore, you will need to raise your prices accordingly.
So it might happen that one or more of your customers could accuse you of price gouging, despite your best efforts to avoid engaging in such tactics. If the worst should happen, be sure to engage a federal defense attorney who specializes in such cases right away.