Clifford Chance

Why SEC-Regulated Firms May Not Yet Be Out of the Woods on Paycheck Protection Program-Related Enforcement

May 20, 2020

On May 13, 2020, the U.S. Small Business Administration and the U.S. Department of the Treasury released additional guidance relating to the Paycheck Protection Program, the small business loan program originally authorized by Title I of the CARES Act. This long-awaited guidance addresses the SBA's plans to review the certification required of PPP recipients that “[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant”. Specifically, the SBA advised that it will presume PPP recipients who received a loan of less than $2 million to have made the Necessity Certification in good faith, but that the SBA will review loans of $2 million or more to determine whether there was an “adequate basis” for the Necessity Certification. A recipient that pays back the loan, regardless of whether such recipient had an “adequate basis” for the original request, will not be subject to SBA enforcement or referral to another agency. Notwithstanding this assurance, we believe the U.S. Securities and Exchange Commission may independently examine firms subject to its jurisdiction that received PPP loans to ensure that such firms made proper disclosures to shareholders, investors and clients relating to their need for the loans. This briefing discusses disclosure considerations for publicly traded companies and registered investment advisers.

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