Nelson Mullins recently hosted a webinar covering the current regulatory situation and looking back to the Troubled Asset Relief Program (TARP) from 2008. The topics in this webinar included regulatory perspectives after the 2007-2009 recession, FCA actions relating to CARE/PPP applications, and litigation risk analysis.

As a reminder, to protect TARP funds from fraud during the last recession, lawmakers created a three-pronged approach to oversight, including the Financial Stability Oversight Board (FSOB), a congressional oversight committee, and a special inspector general for TARP funds.

Taking a page from the TARP Playbook, the CARES Act similarly provides for oversight through three regulatory bodies, which are a special inspector general for pandemic recovery, the Pandemic Response Accountability Committee, and a congressional oversight committee.

In addition to the oversight approach outlined in the CARES Act, the SEC’s Division of Enforcement is also conducting an investigation into “Certain Paycheck Protection Program Loan Recipients” to determine whether there have been violations of the federal securities laws. To that end, Enforcement is conducting a “fact-finding inquiry,” requesting that certain PPP loan recipients produce a variety of documents.

The False Claims Act (FCA) was enacted in 1863 as the primary civil remedy by the federal government for fraudulent or claims for payment. Potential criminal charges under the FCA include federal program fraud, which carries a maximum penalty of 10 years’ imprisonment and a $250,000 fine.

Precautionary measures that can be taken include, among others:

1. Designate a CARES Compliance Officer. Businesses should consider tasking a specific employee or group with overseeing all documentation and information regarding CARES Act funds.
2. Ensure oversight at the top levels of the company. These are material matters that should involve the senior officers of the company in preparing, evaluating, and reviewing the details of the application and certifications being submitted on behalf of a company. A company should ensure all major decisions are then presented by senior management to its board of directors for discussion and approved, including a careful review of certifications being made on behalf of the company.
3. Coach ‘em Up. Borrowers should conduct trainings on the compliance and oversight aspects of the CARES Act so that involved employees are aware of CARES requirements. Some Borrowers may want to establish hotlines or other complaint reporting mechanisms that can help them quickly identify any risks that arise.
4. Document Everything. All PPP borrowers should keep detailed records documenting, at minimum:
   • why the borrower applied for CARES Act funding;
   • the support for certifications the borrower made in its application; and
   • how the PPP funds were ultimately used.
5. Set up a separate account for PPP proceeds. In connection with the above documentation, borrowers may want to consider setting up a separate bank account for ease of documentation, and in order to avoid any questions of intermingling of funds.
6. Monitor for ongoing regulatory guidance and updates. In the months since the CARES Act was signed into law, the Treasury and the SBA have provided ongoing regulatory guidance in the form of Interim Final Rules and FAQs released by the agencies.

It is necessary to note that the regulatory situation surrounding the CARES Act continues to evolve on an almost daily basis. Consult outside counsel early and often, and keep counsel informed of any questions regarding the application, receipt, or use of bailout funds.

For more information on the webinar and to see the full PowerPoint, click here.