As discussed in this PubCo post, in April, the Treasury Department issued a series of FAQs related to loans made under the Paycheck Protection Program provisions of the CARES Act, one of which was addressed to borrowers that are large companies and, particularly, public companies. The FAQ provides that, to be eligible for a PPP loan, a borrower must certify, in good faith, that the loan is necessary to support continuing operations. According to the FAQ, that may be difficult in some cases, contending that “it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith….” The FAQ provided a safe harbor, under which the SBA would deem the borrower to have made the required certification in good faith if the funds were repaid in full by May 14 (as extended in question 43). As reported here, Treasury Secretary Steven Mnuchin has warned that companies receiving loans over $2 million would be audited and could have potential criminal liability if their certifications were untrue. Now, a House oversight subcommittee has demanded that certain public companies return the funds.
In April, the House established the Select Subcommittee on the Coronavirus Crisis, chaired by Representative James E. Clyburn, modeled after the Truman Committee during World War II. The Subcommittee was charged with, among other things, investigation and oversight of the use of taxpayer funds and relief programs to address the coronavirus crisis. In its very first official action, the Subcommittee has announced that it has sent letters to public companies that met certain criteria demanding that they
“immediately return taxpayer funds that Congress intended for small businesses struggling to survive during the coronavirus crisis. ‘Since your company is a public entity with a substantial investor base and access to the capital markets, we ask that you return these funds immediately,’ the panel wrote. ‘Returning these funds will allow truly small businesses—which do not have access to alternative sources of capital—to obtain the emergency loans they need to avoid layoffs, stay in business, and weather the economic disruption caused by the coronavirus crisis.’”
The criteria for receipt of these letters were that the companies sought and received PPP loans of $10 million or more, were public with market caps over $25 million and had over 600 employees. In many cases, the letters also cited in support each company’s own press releases or other communications touting its leadership position in the industry.
The letters maintain that the bipartisan CARES Act was “intended to provide an invaluable lifeline for small businesses that otherwise might be forced to lay off employees or shut down entirely,” not for “large corporations that have a substantial investor base and access to capital markets.” Although a number of these large public companies that obtained PPP loans have
“returned these funds amid widespread public outrage[,] other companies—including yours—still have not returned these funds. This is an issue of significant bipartisan concern. As House Republican Leader Kevin McCarthy recently stated on national television, ‘I was on the phone with the President and the Secretary Mnuchin yesterday, making sure that that’s not gonna happen, that we will go after those big companies that cheat the system.’ Similarly, Treasury Secretary …Mnuchin called these actions ‘outrageous’ and added that he never would have expected such abuses ‘in a million years.’”
The letter asked the companies to inform the Subcommittee by May 11 if they will return the funds, and, if not, to produce a range of documents no later than May 15, including documents and communications with the SBA and Treasury relating to the PPP loan, as well as with any financial institution relating to the PPP loan. The press release identifies five companies that were recipients of these letters.