June 1, 2020
Update: The Small Business Administration (SBA) and Department of the Treasury released detailed Paycheck Protection Program (PPP) loan-level data to the public. For further discussion, please see our July 28, 2020, alert.
Many government entities have already begun review and enforcement actions related to the Coronavirus Aid, Relief, and Economic Security (CARES) Act Paycheck Protection Program (PPP) loans. The Small Business Administration (SBA) and its inspector general are already scrutinizing PPP loan eligibility certifications and necessity certifications, and the most recent interim final rules issued with respect to PPP loans indicate that SBA will review any PPP loan application or forgiveness application it chooses, including reviews of necessity and eligibility certifications, loan size and forgiveness amounts.
Separately, the U.S. Securities and Exchange Commission (SEC) and the U.S. House Select Subcommittee on the Coronavirus Crisis have sent letters of inquiry and requests for documents to PPP loan recipients based on review of public documents and SEC filings. These communications seek to verify recipient compliance with eligibility and spending requirements under the CARES Act. In addition, the Department of Justice Criminal Division, Fraud Section, began prosecuting recipients, in collaboration with the SBA and Internal Revenue Service.
Applicants received notice of SBA’s intention of rigorous enforcement through the application itself, which stated that SBA would enforce applicant certifications as well as release applicant information to other federal, state, local and foreign entities charged with investigation, enforcement and prosecution of violations. SBA guidance, including frequently asked question (FAQ) No. 46, reinforced SBA’s right and commitment to compliance.
Regardless of borrower size or other qualifications, it is vital for companies to proactively document PPP compliance and prepare for effective defense of their eligibility and necessity certifications, as well as loan and forgiveness calculations. Waiting to receive an inquiry to gather supporting documentation may be too late. Most inquiries provide 5-10 days for response. This is a very short timeframe for a company to research and gather supporting documentation. Applicants should consider seeking competent legal guidance related to collecting supporting materials and holding them in a central repository, contemporaneously as the events occur.
Applicants who receive government inquiries should anticipate the following types of requests for production as part of initial government communications.
Proactively preparing for the common inquiries outlined above will assist companies in completing submission of a timely and transparent response. This increases the likelihood of an expedited and successful audit or review.
In addition, executives should seek competent legal guidance to perform internal investigations and take appropriate and prompt remedial action where evidence exists to suggest inaccurate application submission.
McGuireWoods is prepared to assist your company every step of the way. If your company requires assistance in navigating these complex standards, please contact one of the authors of this alert or your regular McGuireWoods attorney. McGuireWoods has a robust COVID-19 compliance and defense team, including attorneys extensively experienced in government contracts, regulatory compliance, lending, internal investigations and white collar defense.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.