Client Alert: CARES Act Compliance Issues
Soon, an unprecedented number of large and small businesses will apply for and receive more than a trillion dollars in government funds as part of the Coronavirus Aid, Relief, and Economic Security Act, known as the CARES Act. Business applicants must meet certain eligibility criteria, and funding is contingent on an applicant's certification of particular facts and future conduct.
The CARES Act created several new entities to assure compliance with its requirements, including the Pandemic Response Accountability Committee (made up of various Inspectors General), the Special Inspector General for Pandemic Recovery, and the Congressional Oversight Commission. These bodies stand alongside the host of traditional enforcement mechanisms, including FBI/DOJ investigations and DOJ and whistleblower lawsuits under the False Claims Act.
The CARES Act requirements present the types of risk already encountered in connection with government enforcement mechanisms targeting fraud. Many honest and well-run companies already find themselves on the wrong side of fraud investigations and enforcement actions. [GK principal David Chizewer recently spoke to this subject at a conference in New York City]
Herd mentality, misguided advice and competitive pressures are typical contributors. In the case of the CARES Act, the conditions that typically cause missteps will be magnified by the urgency of the pandemic and the scale of the economic distress it has caused. Mid to large sized businesses should be particularly aware of the specific CARES Act eligibility and compliance requirements for loan requests, including:
Furthermore, a business that receives a CARES Act loan or loan guarantee is subject to limits on employee compensation. An officer or employee of the eligible business whose total compensation exceeded $425,000 in calendar year 2019 may not, in the year following the loan,:
And, no officer or employee of the eligible business whose total compensation exceeded $3,000,000 in calendar year 2019 may receive during the following 12 consecutive months total compensation in excess of the sum of:
The CARES Act is intended to provide critical help to US businesses in the wake of the economic devastation of the global pandemic, and businesses which qualify should be able to take advantage of this support. If not handled correctly, however, the CARES Act's requirements could create significant problems down the road. Goldberg Kohn can apply its extensive experience with government fraud investigations to assist businesses hoping to seek the government's help under the CARES Act rescue legislation.
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The material in this client alert is based on information existing at that time. It should not be construed as legal advice or legal opinions based on any specific set of facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, an attorney-client relationship.
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