It has been a turbulent few weeks for businesses assessing whether to apply for funds under the Paycheck Protection Program (“PPP”), and if they have received funds, whether to keep them.
After the controversy arising over businesses like Shake Shack receiving a PPP loan, the Department of Treasury published additional guidance (see “Frequently Asked Questions” (‘FAQs’)) indicating that companies should consider whether they should be applying if they have alternative sources of funding.
Then, just last week, the government issued additional guidance (also through the FAQs) stating that borrowers who received less than $2 million in PPP funding will be “deemed to have made the required certification concerning the necessity of the loan request in good faith.” This recent guidance was welcome news to many businesses who borrowed less than $2 million, but still leaves open questions.
It is important to remain vigilant
If you have obtained or plan to apply for federal funding. First, if your loan is greater than $2 million, the Small Business Administration (“SBA”) will review it (per FAQ number 39). Second, just because the SBA will not be reviewing those loans that are under the $2 million threshold does not mean that other agencies or private parties will not do so. And finally, the necessity certification is just one piece of the application, which also involves several other certifications, such as those pertaining to size and whether payroll was properly calculated. Importantly, PPP borrowers must make additional certifications when they apply to turn the loans into grants (set forth in the SBA’s newly issued application), including certifications about how much of the money was spent on payroll and what properly is covered by the statutory definition of “eligible payroll costs.”
Given these certifications, and the amount of money at stake, law enforcement agencies will actively scrutinize who took the funds and how they spent it, for years to come.
It is wise to take steps now
To best position your business in the event of any future investigation. We continue to recommend that companies remain mindful of what messages they send to employees about compliance, maintain good records, and assign someone (or a group of people) to be responsible for following the inevitable future developments, maintaining the files, reviewing submissions to the government and the public, etc.
No matter how unlikely a future investigation is, taking these steps now, while everyone is focused on these matters, will help to ensure that you are in the best possible position to defend yourself.
For more information regarding strategy involving government investigations, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Ellen London.
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