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U.S. unemployment claims, which have surged during the coronavirus pandemic, are amplifying a compliance risk for financial institutions: unemployment insurance fraud, the Wall Street Journal reported. The Treasury Department’s Financial Crimes Enforcement Network issued an advisory yesterday, alerting banks to red flags that could indicate illicit activity, including emerging schemes exploiting vulnerabilities created by the pandemic. In particular, U.S. authorities and financial institutions have spotted instances of fraud related to unemployment payments, according to FinCEN. Unemployment insurance is a prime target for fraudsters, given the high volume of people who have lost their jobs due to the pandemic, according to Raymond Dookhie, a managing director at compliance advisory firm K2 Intelligence LLC. “The financial systems that are set up to monitor fraud in this current environment are being overloaded,” he said. Smaller financial institutions, which often have less sophisticated monitoring systems or fewer resources to investigate suspicious activity, are particularly vulnerable, Dookhie said. Pandemic-related unemployment fraud could include the use of fake or stolen identities, misrepresentation of income, false claims of having worked for a legitimate company or, in some cases, for a fictitious one, using falsified employee and wage records, FinCEN said.

The world’s largest movie-theater company may run out of cash by year’s end if it doesn’t raise additional funds or get more people back to theaters following pandemic shutdowns that have disrupted businesses dependent on consumers gathering in public spaces, the Wall Street Journal reported. AMC Entertainment Holdings Inc. said yesterday that it has reopened 83 percent of its U.S. theaters, but that attendance is down about 85 percent at those theaters from the year before. At the company’s current cash-burn rate, its reserves would be depleted by the end of this year or early next year, Kansas-based AMC said. Read more. (Subscription required.) 

In related news, AMC Entertainment Holdings Inc. Chief Executive Adam Aron talked with WSJ Pro Bankruptcy about the impact of the coronavirus pandemic on the movie-theater industry and on his company, the sector’s largest. One of the main issues, he said, is that New York state and certain major metropolitan areas in California such as Los Angeles haven’t allowed cinemas to reopen, prompting studios to delay major releases. A spokeswoman for New York Gov. Andrew Cuomo, a Democrat, said yesterday that the state is concerned about movie theaters because they involve large groups spending extended time together indoors, as well as lobby congestion when customers arrive and leave. "Movie studios cannot afford to open movies in the U.S. if they cannot also open them in New York," Aron said. "As a result of that, the entire movie industry is waiting for New York to bless the reopening of theaters, and understandably so." AMC yesterday warned that it could run out of cash by year’s end if it doesn’t raise additional funds or get more people back to theaters. "We’ve been going through $100 million a month, waiting for the movie industry to recover, which can only happen when New York reopens," Aron said. Read more.

A Haynes and Boone report said that bankruptcies in the North American energy industry surged in the third quarter as companies struggled with weak fuel demand due to the COVID-19 pandemic, lower crude prices and a dearth of available credit, Reuters reported. In the three months to September, 17 oil producers sought bankruptcy protection, fueling a 21 percent jump in such filings in the first nine months of 2020 from a year earlier, the report said on yesterday. As producers halted or scaled back exploration and drilling to rein in expenses, oilfield service providers have been hit even harder. There were 26 new bankruptcy filings from service companies in the third quarter, compared with 11 in the year-ago period, the report notes. The pain is set to worsen as lenders undertake the bi-annual redetermination of how much credit should be available to producers. Available credit is expected to drop 15.7 percent after the fall redetermination season, a Haynes and Boone survey shows. Tens of billions of dollars in borrowing power was wiped out during the spring redeterminations. Read more.

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Lenders to high-end gym chain Equinox Holdings Inc. have organized and hired a law firm to help protect their holdings as the company seeks to shore up its finances amid the pandemic, Bloomberg News reported. Investors holding close to a majority of Equinox’s roughly $1 billion loan brought in legal advisers from Akin Gump Strauss Hauer & Feld and are in the process of adding more lenders to the group. The New York-based gym operator is facing a February 2021 deadline to repurchase certain debt tied to its SoulCycle spin studio chain. It’s also been hampered by lockdowns and social distancing measures that place limits on visitors and operating hours at certain locations. SoulCycle has been allowed to resume operations in some cities and is conducting outdoor classes elsewhere. In May, Equinox received an amendment allowing it to delay repurchasing some of SoulCycle’s debt until next year, according to S&P Global Ratings. Equinox had guaranteed the SoulCycle borrowings in a deal that normally required it to buy back the obligations when the spin studios’ debt relative to earnings exceeded certain thresholds. HPS Investment Partners is the SoulCycle lender and provided the forbearance. S&P said that it viewed the amendment as tantamount to default. In February, Equinox will have to buy back enough debt to reduce SoulCycle’s debt relative to earnings to below five times, the credit grader said in a June report. Equinox has been burning cash and is expected to have elevated debt relative to earnings after it was forced to close locations to help stem the spread of Covid-19, S&P said. In June, the gym chain took on a new $150 million loan that ranks equal with its $1 billion obligation in line for repayment.

Delta Air Lines Inc. offered cautious optimism that demand for travel is starting to return but said its losses were mounting, as the coronavirus pandemic looks likely to continue weighing on travel for years, the Wall Street Journal reported. “The virus has had a much broader impact over the course of the year than any of us were suspecting,” said Delta Chief Executive Ed Bastian. Delta had hoped it would be able to stop bleeding cash by the end of the year. Now the airline anticipates such a scenario won’t happen until spring, even while slashing costs. Delta ended September burning through $18 million in cash a day but expects to cut that to $10 million a day by the end of the year. Delta has taken a further blow because of its emphasis on business travel, which has all but halted and has been slower to resume than travel for leisure. Delta has built a war chest that it has said should help it survive a long downturn. The airline ended the quarter with close to $22 billion in liquidity and said it has slashed costs. It is also deferring new aircraft orders—a move it said would save $5 billion through 2022—and retiring older jets. Delta had spent years paying down debt before the pandemic hit, putting the airline in a better position than some rivals.

The White House again pivoted its approach to stimulus negotiations on Sunday, with the president’s aides pushing for immediate action on a narrow measure after the administration’s $1.8 trillion proposal was rebuffed by members of both parties, the Washington Post reported. In a letter to Congress sent Sunday, White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin asked lawmakers to first pass legislation allowing the Trump administration to redirect about $130 billion in unused funding from the Paycheck Protection Program intended for small businesses while negotiations continue on a broader relief effort. The administration’s latest request is unlikely to advance in the House, where Speaker Nancy Pelosi (D-Calif.) has rejected stand-alone legislation in favor of a comprehensive package to address the economic and health consequences of the coronavirus pandemic. The administration’s $1.8 trillion stimulus proposal on Friday came under heavy criticism from lawmakers in both parties over the weekend, making its chances of passing appear remote. White House officials will request that Congress approve legislation allowing firms demonstrating a decline in revenue to apply for a second round of PPP funding, which they are not allowed to do under existing law, according to one person familiar with the plans who spoke on the condition of anonymity to discuss the administration’s internal planning.

When the federal government began the Paycheck Protection Program in April, one rule was clear to small-business owners bedeviled by its chaotic and messy start: If most of the loan money was used to pay employees, the debt would be forgiven. But as the program enters its loan-forgiveness phase, those owners — and their lenders — are finding out that although the principle may have been simple, its execution is anything but, the New York Times reported. Many lenders have yet to start accepting applications from borrowers to have the loans forgiven. They are waiting to see whether Congress will pass a proposal to automatically forgive debt of less than $150,000, the bulk of the loans made under the program. Read more. 

In related news, the Small Business Administration (SBA) and Treasury Department announced that they are simplifying the loan-forgiveness application for Paycheck Protection Program (PPP) loans under $50,000, The Hill reported. “We are committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds," Treasury Secretary Steven Mnuchin said on Thursday, calling for additional simplification through legislation. The simpler, two-page form businesses can fill out to have their PPP loans forgiven is meant to ease burdens on struggling small businesses. Read more. 

An oversight panel responsible for monitoring $500 billion in federal aid has become stymied by disagreements about a program to prop up struggling state and local governments and has failed to send a legally mandated report to Congress for weeks, the New York Times reported. The standoff over the Municipal Lending Facility, which is operated by the Federal Reserve and supported by the Treasury Department, comes as talks between Congress and the Trump administration over additional stimulus have stalled. Those talks have run aground largely because lawmakers disagree about whether the federal government ought to provide more money to states and municipalities, with Democrats arguing for it and Republicans against it. The $2.2 trillion stimulus law passed in March created a Congressional Oversight Commission, which includes two Republicans and two Democrats, to keep tabs on some of that spending. By law, it must issue a report to Congress each month. While the passage of the stimulus legislation was overwhelmingly bipartisan, the oversight commission’s work has become politically charged. A Democrat on the commission recently accused his Republican colleagues of stonewalling its work. The dispute centers on whether the Fed’s lending program could be doing more to help lower borrowing costs for states, cities and other local governments. “The commission has a legal obligation to issue monthly reports,” said Bharat Ramamurti, the Democratic commissioner and a former aide to Sen. Elizabeth Warren (D-Mass.). The Fed announced in early April that it would set up a program to buy municipal debt using its emergency lending powers, and the Treasury Department agreed to insure the program against defaults. The central bank hired Kent Hiteshew, an expert on municipal debt, to help devise the program, which is run on a day-to-day basis by the Federal Reserve Bank of New York. The program was set up as a last-ditch option for local governments that could not borrow money as they usually do by selling bonds. While it has been expanded several times to make more borrowers eligible, the program offers loans at relatively high interest rates, making it an expensive option for all but the hardest-hit states and localities. So far, only Illinois and the Metropolitan Transportation Authority, which operates New York City’s subway system, have used it, borrowing a total of $1.65 billion.

The bankrupt operator of New York Sports Clubs and Lucille Roberts gyms has received court approval to conduct a speedy chapter 11 sale process, positioning the company to sell itself by next month to a group of lenders and a private-equity firm, WSJ Pro Bankruptcy reported. The lenders and Tacit Capital LLC last month agreed to serve as the lead bidder, or stalking horse, to acquire assets of Town Sports International Holdings Inc., valuing their deal at about $85 million, the minimum price for other bidders to beat. Judge Christopher Sontchi of the U.S. Bankruptcy Court in Wilmington, Del., said Friday he would approve the bidding rules that will subject the Tacit-led offer to other bids. “I’m perfectly happy to approve the bid procedures order as modified and as consensual and uncontested,” Judge Sontchi said during a hearing held by phone and video. The deadline to submit qualified bids is Oct. 26, followed by an auction, if necessary. The company is targeting early November to get the sale approved given liquidity concerns, Town Sports lawyer Joshua Altman said.