RIAs are unlikely to disclose PPP loan forgiveness

The door is open for RIAs who took government-backed Paycheck Protection Program (PPP) loans to seek forgiveness, but don’t expect to find out which firms decided to do so.

Compliance experts told Citywire that the SEC’s PPP loan guidance for RIAs only goes so far as to suggest they may be required to disclose the existence of the loan, not its ultimate outcome. 

‘Generally speaking, it doesn’t seem that forgiveness would be the determining factor as to whether or not disclosure is required,’ said Chris DiTata, general counsel at RIA compliance software firm RIA in a Box. ‘What’s going to trigger disclosure is whether there’s a material financial condition that impacts the ability to meet client commitments.’ 

The SEC’s April guidance to RIAs indicated that firms ‘should provide disclosure of, for example, the nature, amounts and effects of such assistance” if the circumstances that led them to seek the loan constituted ‘material facts relating to your advisory relationship with clients.’ 

But even with that guidance in place, it took until July, when the Small Business Administration (SBA) released the name of every borrower who received more than $150k, to learn the identities of many large RIAs which accessed the funds. 

The SEC’s guidance makes no explicit mention of forgiveness, which means it will likely be up to RIAs themselves to decide whether they should disclose their decision without any prior obligation to do so. 

‘Look, all things being equal, if you think it’s not a disclosable event, you’re not going to disclose it,’ said Larry Stadulis, co-chair of the fiduciary governance practice at Stradley Ronon Stevens & Young LLP. ‘I think they’d be reluctant to disclose it because of the perceived stigma that might be attached.’ 

The SBA’s guidelines for forgiveness encompass a wide range of borrowers. All of the proceeds used for payroll, rent, mortgages and utilities can be forgiven so long as the borrower did not lay off any employees or reduce their salaries in the 24-week span after the loan was made and at least 60% of the loan went towards payroll.  

Companies can apply for forgiveness at any time until the maturity date of the loan, which is either two years or five years after the loan was first made. 

Numerous RIAs contacted by Citywire which took PPP funds either did not respond to a request for comment on whether they applied for forgiveness or declined to comment.  

One of the few RIAs to have addressed the issue in its regulatory filings is $1.3bn Ritholtz Wealth Management, which paid back the loan in full in June. The firm’s chief executive, Josh Brown, told the Wall Street Journal he regretted taking out the loan

‘There is perception risk. For those out there who think the SBA program was not well-considered or well-founded, they might hold it against firms who participated in that program,’ DiTata said. 

This article originally appeared on CityWire.


More Articles