Category: Alerts

SEC Conducts Reviews of PPP Borrowers

The Paycheck Protection Program (the “PPP”) is a major part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Not surprisingly, a PPP loan comes with a level of scrutiny. Not only must PPP participants comply with rules and regulations issued by the SBA and Treasury, but they also must contend with the SEC, if applicable.

Who This Impacts

Initially, the SEC focused on Registered Investment Advisors (“RIA”) that borrow under the PPP. The SEC’s Investment Management Division (“IM”) indicated that an RIA taking PPP loans must disclose such information on its Form ADV if the circumstances leading the RIA to apply for a PPP loan constitute “material facts” relating to the RIA’s relationship with clients.1 While the IM does not elaborate on the definition of “material facts,” it indicted that RIAs “should provide disclosure of, for example, the nature, amounts and effects of such assistance [i.e. a PPP loan].”2

Lately the SEC’s Division of Enforcement is reportedly conducting reviews of certain public companies that received PPP loans. There has been no public statement issued by the SEC on this matter, however, such reviews are consistent with the SEC’s stated commitment of “substantial resources” to investigate COVID-19 related fraud.3 Through the inquiry, presumably titled In the Matter of Certain Paycheck Protection Program Loan Recipients, the SEC has issued voluntary information requests.4 These requests are likely focused on a comparison of a company’s PPP application (particularly certifications concerning their business and the effect that COVID-19 has had on their operations) with the company’s public disclosures (e.g., Recent 10-Qs). Inconsistencies between a company’s PPP application and its public disclosures will likely face intense SEC scrutiny.

What To Do

While these reviews are currently limited to public companies, all regulated entities that received PPP loans should take this opportunity to check their recent public disclosures concerning financial performance and liquidity and compare such statements to those contained in their PPP applications regarding eligibility and need for the funds.

What To Know About Alaric Compliance

With over 275 years of cumulative financial services compliance expertise, Alaric has managed over 100 regulatory examinations while serving as chief compliance officer. Leveraging this experience, our team of former regulators, lawyers, and in-house chief compliance officers can help your firm keep your compliance program healthy.

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1 Division of Investment Management Coronavirus (COVID-19) Response FAQs, April 27, 2020,
2 Id. at Question II.4.
3 Statement from Stephanie Avakian and Steven Peikin, Co-Directors of the SEC’s Division of Enforcement, Regarding Market Integrity (March 23, 2020),
4 Melanie Waddell, SEC Launches PPP Loan Sweep of Public Companies, ThinkAdvisor, May 14, 2020,
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