Some Public Companies Took Out PPP Loans Then Paid Dividends And Bought Back Shares

Some publicly traded companies that received loans under the Paycheck Protection Program Flexibility Act, or PPP, subsequently bought shares of their own stock and paid out dividends, raising questions about whether such loans were even needed by some firms.

The Washington Post reported that while the practice is not prohibited, the taxpayer-backed, low-interest forgivable small business loans were mostly designed to pay employees during the early stages of the COVID-19 pandemic. Under the rules of the Small Business Administration, PPP loans could also be used to pay mortgage interest, leases or utility bills. (PPP rules did not specifically ban loan recipients from paying investors as long as they were paid from separate funds).

Still, some large financially viable companies were able to access the loans that were meant for small firms with less than 500 workers.

For example CRH Medical Corp. (CRHM), a Canadian-based medical supply company with American subsidiaries, received a $2.9 million PPP loan in mid-April to support 124 U.S. employees.

“Given the economic uncertainties that CRH and the healthcare industry were facing in March and April when CRH’s loan was applied for and used, these funds were necessary to support the ongoing operations of CRH, to retain or rehire its employees as contemplated by the loan program,” a company spokesman told the Post.

However, since that time CRH has made five acquisitions and bought back almost $230,000 of its shares in the second quarter.

The CRH spokesman said the stock repurchases were a previously planned automatic stock buyback that had been postponed in the early weeks of the pandemic.

Another company, RCI Hospitality Holdings (RICK), which operates nightclubs and adult entertainment centers, received a $4.2 million PPP loan. But it has since paid out $273,000 in dividends.

“RCI believes that it has followed all rules and guidance provided by the Small Business Administration regarding the Paycheck Protection Program,” said Steve Anreder, an RCI spokesman. “Of RCI’s businesses, only subsidiaries in its restaurant division, shared service entity and lounge received loans under the Paycheck Protection Program, and all such funds were used toward employee payroll and other eligible expenses in those entities.”

Some lawyers and advocacy groups complain that companies that can afford to shell out millions of dollars in dividends and stock buybacks should not have been allowed access to any PPP loans in the first place.

“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,” said Kyle Herrig, president of Accountable.US, an advocacy group. “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.”

Concerns about undeserving companies – including well-heeled publicly traded firms – receiving PPP loans had arisen as early as April. At that time the SBA said that companies with access to other funding sources were “unlikely” to qualify for PPP loans. Some firms returned the money, but some did not.

Franklin Turner, a government contracts attorney at McCarter & English, a Washington D.C.-based law firm, told the Post that stock buybacks and dividends “would certainly be something that any government regulator would likely consider” in future loan programs.

“The requirement was not that companies be flat broke when they apply … the requirement was ‘can you make a reasonable good faith determination that you need this [money],’” Turner added.

Back in July, advocacy groups and government watchdogs raised questions about the issuance of PPP loans and urged that future loan programs have increased transparency.

“It’s clear that the Paycheck Protection Program has not been administered in a way that prioritizes those who are likely hit hardest by the coronavirus,” said Liz Hempowicz, director of public policy at Project on Government Oversight. “The administration should have been working to ensure that the banks issuing these forgivable loans had adequate guidance to responsibly spend hundreds of billions of public dollars.”

Herrig said at the time: “With next to no accountability or transparency measures in place, the public has been shut out of this process and left in the dark about where our taxpayer dollars are going. This is unacceptable.”