Skip to content

Paycheck Protection Program Loan Borrowers Beware: SEC Turns Attention to Public Borrowers

Paycheck Protection Program Loan Borrowers Beware: SEC Turns Attention to Public Borrowers Background Decorative Image

Scrutiny into Paycheck Protection Program Loans Intensifies — Attracts SEC Attention

Public companies applying for Paycheck Protection Program (“PPP”) loan funds have been under increasing political and media scrutiny. Now, the U.S. Securities and Exchange Commission (“SEC”) has taken notice, too. Unlike past inquiries however, simply returning PPP funds may not be enough to avoid an SEC investigation.

Reportedly, the SEC has now launched investigations into multiple public companies that have borrowed PPP funds.1 The SEC is looking to verify whether public companies were indeed eligible to receive PPP loans, including whether companies were sufficiently harmed by the COVID-19 pandemic, and the SEC will be flyspecking certifications to determine if they contradict public disclosure statements concerning access to capital and liquidity, among other things. How aggressively the SEC will pursue such investigations remains an open question, though it has been reported that some public companies have already received subpoenas and requests for information.

Recent public statements from the SEC suggest that the PPP inquiries may be just one component of a broader effort to use COVID-19-related disclosures to spot prior inconsistencies in public filings. Earlier this month, Steven Peikin, co-director of the SEC’s Enforcement Division, announced that the SEC had established a Coronavirus Steering Committee soon after a national emergency was declared in March.2 He stated that the “Steering Committee has developed a systematic process to review public filings from issuers in highly-impacted industries, with a focus on identifying disclosures that appear to be significantly out of step with others in the same industry” and is “looking for disclosures, impairments, or valuations that may attempt to disguise previously undisclosed problems or weaknesses as coronavirus-related.”3

While the U.S. Department of Justice (“DOJ”) has already brought fraud charges against individuals who allegedly lied to obtain PPP loans,4 SEC enforcement actions against companies are very likely to follow. In addition, given the hundreds of billions of dollars in relief aid that has been made available, there should be a significant uptick in False Claims Act cases as well.5 Magnifying the potential risks for PPP borrowers is the confusing, and at times contradictory, guidance on PPP loans set out by the Small Business Administration (“SBA”) and the U.S. Department of Treasury, including last week’s addition of FAQ 46, which purports to create a safe harbor for loans totaling under $2 million within an affiliate family, while also recognizing that the SBA could still review such loans “as appropriate.”6 The SBA reinforced this point late last week in an interim final rule: “For a PPP loan of any size, SBA may undertake a review at any time in SBA’s discretion.”7

Why This Matters for You

PPP loan borrowers should prepare to handle after-the-fact scrutiny from the DOJ and the SEC, in addition to other agencies. It is now more essential than ever to document business decisions, including why your company needs PPP or other relief funds, and to ensure that your requests are fully consistent with public statements, especially statements that have been made since the onset of the pandemic. The SEC’s recent issuance of subpoenas and other requests for information to public companies that have accepted PPP funds makes clear that enforcement in this space is a priority for the government. Moving forward, you should carefully vet all public filings and requests for PPP, and do not hesitate to seek the advice of counsel when it comes to applying for funds and responding to any government inquiries on the subject.

Please visit our Coronavirus: Preparation & Response series for additional resources we hope will be helpful.

1 See Melanie Waddell, SEC Launches PPP Loan Sweep of Public Companies, ThinkAdvisor (May 14, 2020),

2 See Steven Peikin, Co-Director, Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Keynote Address at Securities Enforcement Forum West 2020 (May 12, 2020),

3 Id.

4 See e.g., Press Release, U.S. Dep’t of Justice, Texas Man Charged with $5 Million COVID-Relief Fraud (May 19, 2020),; Mitigating DOJ Enforcement Risk for Participants in COVID-19 Relief Programs, Vinson & Elkins Insight (June 2, 2020), available at

5 See Ephraim (Fry) Wernick, Branden Stein & Michael C. Hoosier, How COVID-19 Is Affecting the Enforcement of White Collar Crime, The V&E Report (Apr. 9. 2020), For an international outlook on the pandemic’s impact on criminal enforcement, see Ephraim (Fry) Wernick & Peter T. Thomas, How COVID-19 Is Affecting International Corruption and Financial Crime, The V&E Report (May 6, 2020),

6 See U.S. Dep’t of Treasury, Paycheck Protection Program Loans: Frequently Asked Questions (FAQs) (May 19, 2020),; see also Caroline Blitzer Phillips, Adrianne L. Goins, Robert Seber, Brittany A. Sakowitz, Daniel P. Graham & Brian L. Howard II, New Guidance on SBA Review of Certification of Necessity under Paycheck Protection Program, Vinson & Elkins (May 14, 2020),

7 U.S. Small Bus. Admin., Interim Final Rule: Business Loan Program Temporary Changes; Paycheck Protection Program – SBA Loan Review Procedures and Related Borrower and Lender Responsibilities (May 22, 2020), (emphasis added).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.