WASHINGTON–A new investigation has found some publicly traded companies that received Paycheck Protection Program loans to pay their employees during the early weeks of the coronavirus pandemic paid out millions to Wall Street investors in dividends and share buybacks.
According to a Washington Post analysis, “The findings reinforce long-standing concerns that the Paycheck Protection Program, an emergency stimulus fund offering low-interest, forgivable loans to businesses with fewer than 500 employees, was accessed by financially healthy companies that could have gone without a bailout.”
As the Post reminded, PPP loans were only to be used to meet payroll and pay mortgage interest, leases or utility bills. PPP loan recipients weren’t prohibited from paying investors with other funds, as long as the PPP funds were kept separate.
“The Trump administration wrote the PPP rules and sent billions of dollars to the well-resourced and well-connected rather than actual small businesses struggling during this public health and economic crisis,” Kyle Herrig, president of an advocacy group called Accountable.US, told the Post. “The fact that there was little transparency or accountability under this program amounted to an invitation for large companies to misuse tax dollars to their benefit.”
No Comment
An SBA spokesman did not respond to an emailed request for comment by the Post, and the Treasury Department also declined to comment on the record for the story.
“The issue of whether some undeserving businesses received PPP loans has arisen previously when it became known that scores of publicly traded companies received millions of dollars in loans, even though they had access to other sources of capital,” the Post reported. “The SBA’s initial rules allowed for businesses to self-certify that ‘current economic uncertainty’ made the loan ‘necessary to support the ongoing operations of the applicant.’”
But as the Post further reported in late April, after the news broke that many publicly traded companies had received loans, the SBA said firms with access to capital elsewhere were “unlikely” to qualify and asked that the loans be returned. Some returned the money, but many did not (SBA and Treasury officials have declined to say exactly how many did so).
“How dividend payments might factor into that conflict remains to be seen,” the Post reported. “Loans of $2 million or more are to be audited, the SBA has said, and large corporate expenditures could come under close scrutiny as the government evaluates whether a company’s qualified for a PPP loan.”
One Example
One company, CRH Medical Corporation, a Canadian medical supply company with U.S. subsidiaries, received a $2.9 million PPP loan on April 15 to support 124 employees, according to SBA records, the Post reported. The company has concluded five acquisitions since it accessed the PPP funds, according to company news releases.
It has also spent money buying back its own stock, a tactic that businesses often use to boost share prices. Between April 1 and June 30, the company purchased $228,559 worth of its own shares. A company representative did not return a request for comment, the Post reported.
In some cases, the Post added, a company’s need for federal help may have been eclipsed by a broader improvement in business conditions. One example: Crown Crafts, a Louisiana-based manufacturer of children’s products, received a $1.9 million PPP loan on April 19. Months later, on Aug. 12, it announced it would resume stock dividends due to its “strong performance and financial position,” the Post noted.
Still a ‘Success’
Some observers told the Post such a scenario indicates the PPP program was a success.
“Everybody needs to remember how scary it was when all these shutdown orders happened,” Scott Pearson, a corporate financial services lawyer with the D.C.-based firm Manatt, Phelps and Phillips, told the Washington Post. “I don’t think doing a stock buyback necessarily indicates they’ve done something wrong. It probably just means things turned out better down the road than they thought it would.”