The federal government’s $660 billion aid program for small businesses coping with the coronavirus pandemic threatens to leave hundreds of thousands of companies struggling to survive because of its limits on nonpayroll expenses, the Wall Street Journal reported. The Paycheck Protection Program requires that 75 percent of the funds go for employee salaries, and no more than 25 percent on rent, mortgage interest and utility payments. That is proving to be a deal breaker for many small businesses with modest payrolls and high rent costs, such as restaurants, salons and shops in urban areas including New York, Los Angeles and Chicago. Many of these businesses have been forced to close, and their owners said a more pressing need is for rent and other costs they must still pay. But to have their loans forgiven, the federal program requires the businesses to rehire workers they have already laid off and don’t currently need. Small-business advocacy groups are pushing for changes to the regulations and have won support from some members of Congress and even two conservative economists who helped craft the PPP plan. The 25 percent cap on nonpayroll expenses wasn’t stipulated in the legislation approved by Congress and signed by President Trump but was imposed in the regulations crafted by the Small Business Administration and the Treasury Department, they said. Read more. (Subscription required.)
In related news, the Justice Department has begun a preliminary inquiry into how taxpayer money was lent out under the Paycheck Protection Program and has already found possible fraud among businesses seeking relief, a top official said, Bloomberg News reported. Assistant Attorney General Brian Benczkowski, who runs the department’s criminal division, said that prosecutors have contacted 15 to 20 of the largest loan processors and the Small Business Administration, which oversees one relief program, as part of an effort to police the trillions of dollars in federal aid being pushed out hastily to blunt the economic impact of the coronavirus pandemic. The review has already turned up several red flags in the data prosecutors have examined over the past week, Benczkowski said yesterday. Issues were found in both approved and rejected applications. “Whenever there’s a trillion dollars out on the street that quickly, the fraudsters are going to come out of the woodwork in an attempt to get access to that money,” said Benczkowski, a former partner at Kirkland & Ellis LLP in Washington who has been running the criminal division for almost two years. He went on: “There are unfortunately businesses that are sending in loan applications for large amounts of money that are overstating their payroll costs, overstating the number of employees they’ve had, overstating the nature of their business.” The criminal division has tapped the fraud section’s market integrity unit to oversee PPP-related investigations and coordinate with various U.S. attorneys, Benczkowski said. That unit has been responsible for prosecuting Wall Street crime, most notably allegations of market rigging at major banks including JPMorgan Chase & Co. and Deutsche Bank AG. Prosecutors will also work closely with inspectors general and other monitors, he said. Read more.
