COVID-19: A Resource Guide

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SEC reportedly investigating public company recipients of PPP funds

May 22, 2020

According to several sources, we understand that the SEC is reportedly investigating public companies that received funds under the Paycheck Protection Program (PPP). 

Established under the CARES Act in response to the coronavirus (COVID-19) pandemic, the PPP provided funding to eligible companies for payroll and other eligible costs, but the SEC is now reportedly investigating some of those very recipients and using their public disclosures to assess eligibility and need. Recent reports state that public companies that disclosed the receipt of PPP funds in public filings are receiving requests for information from the SEC’s Division of Enforcement.

At this time, the requested information generally concerns recipients’ certifications that the uncertainty of current economic conditions makes necessary the PPP loans, the financial impact on recipients of COVID-19 and government response, and recipients’ assessment of their viability, sources of liquidity and access to alternative funding.

According to a person familiar with the SEC’s letter regarding the probe, the investigations are part of a sweep styled In the Matter of Certain Paycheck Protection Program Loan Recipients, which involves determining whether certain recipients’ excessively positive or insufficiently negative statements in recent SEC filings may be inconsistent with certifications made in PPP loan applications regarding the necessity of funding.

Additionally, recent news reports indicate that the Department of Justice (DOJ) Fraud Section is investigating possible misconduct by PPP loan applicants and initial DOJ actions are focused on potential overstatement of payroll costs and employee headcount as well as misuse of PPP funds.

 At present, the SEC has not commented on the sweep; however, public companies that received PPP funds should proactively compare statements in their recent SEC filings concerning financial performance, liquidity and access to capital with statements in their PPP applications regarding the uncertainty of current economic conditions making necessary the PPP loans.

If you have any questions regarding this post, please contact any of the Related Professionals, any other member of Waller’s Capital Markets & Securities practice or your regular Waller contact at (615) 244-6380.

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