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SBA Extends PPP Loan Safe Harbor Date And DOJ Brings First PPP Fraud Charges

Wednesday, 06 May 2020 / Published in Coronavirus Covid-19, Litigation

SBA Extends PPP Loan Safe Harbor Date And DOJ Brings First PPP Fraud Charges

First DOJ Government Stimulus Fraud Case

As we noted here back on April 23rd the SBA published new guidance on the Paycheck Protection Program (“PPP”) around the certification that the “loan request [is] necessary to support the ongoing operations” of the borrower. Specifically in that guidance, the SBA noted that having access to other sources of sufficient liquidity would prevent a borrower from making this good faith certification.  Also at that time, the SBA provided a Safe Harbor until May 7th for companies to return any PPP funds or withdraw their applications in light of this new guidance.

Unfortunately, there was little information to determine what qualified as “sufficient liquidity” and what level of access would be deemed “detrimental to the business.”  Over the past few weeks we have been helping several clients navigate this issue – which is often unclear at best. This has left many companies with the Hobson’s choice of returning much needed PPP money or running the risk to be accused of a bad faith certification.

Fortunately today, the SBA announced that it is extending the Safe Harbor deadline from May 7th to May 14th. More importantly, the SBA indicated that further guidance on the certification issue will be released prior to the new Safe Harbor deadline.  Borrowers do not need to apply for this extension because it will be implemented through revisions to SBA’s interim final rule.

In our earlier guidance, we stressed just how risky this issue could be for companies.  Since that time, the Department of Treasury has stated that any company receiving more than a $2 million PPP loan will be audited. The Department of Justice has announced that it is undertaking a “broad search for fraud” in the PPP loan process and has already announced the first related criminal charges.

The risks of getting this wrong are significant. If you have applied for or received PPP money, you need to take a hard look at your finances and cash flow. Hopefully the next round of guidance will help clarify this issue for the thousands of companies in the middle of clearly needing the loan and clearly not needing it.

If you are one of those companies, please contact us for help navigating these risky waters.

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