Coronavirus loans: Securities regulator asks public companies to prove they qualified for PPP

Request signals regulators’ crackdown on potential misuse of PPP funds

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The U.S. securities regulator has asked public companies that received emergency government loans to prove they qualified for the funds and made consistent representations to investors about their need for the aid, two people with knowledge of the request told Reuters.

The information request by the Securities and Exchange Commission (SEC) is the latest sign that federal regulators are cracking down on potential misuse of the $660 billion Paycheck Protection Program intended to help small businesses weather the economic slump caused by the novel coronavirus crisis.

The program, which allows small businesses hurt by the pandemic to apply for government-guaranteed forgivable loans, has sparked controversy after hundreds of public companies, which typically have a range of ways to raise cash, took loans.

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U.S. Treasury Secretary Steven Mnuchin has said the program was not designed for public companies if they had liquidity, and that companies found to have lied to secure the aid could face criminal liability.

The U.S. Justice Department this month brought its first criminal charges against borrowers it accused of defrauding the program by lying about the state of their businesses and the number of employees.

In recent weeks, the SEC has written to public companies seeking proof they qualified for the funds they received, the two sources with knowledge of the information requests said.

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The agency also asked companies to demonstrate that the information they provided to lenders and the government when seeking the loans was consistent with the statements they had made to investors, one of the sources said. The second source said the SEC’s requests for information was “voluntary.”

A "Covid kills businesses too" sign outside Euro Treasures Antiques Friday, May 8, 2020, in Salt Lake City, Utah. (AP Photo/Rick Bowmer)

Making representations to investors that prove false or misleading is a breach of U.S. securities law.

The sources declined to be named because the SEC inquiries are confidential. A spokeswoman for the SEC declined to comment.

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Reuters could not ascertain how many companies were contacted by the SEC. A Reuters examination this month showed that 41 publicly traded companies that received the emergency aid had enough cash on hand to cover basic expenses for two months or more when they applied for the funds. Some issued rosy outlooks even as they were seeking the loans.

Additional scrutiny has come from New York’s attorney general, Letitia James, who has written to 11 major U.S. banks seeking clarity on how they disbursed the funds, Reuters reported this month.

The Massachusetts attorney general has also asked banks for information relating to the program, the Boston Globe reported last month.

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