Insights: Alerts SEC Issues Guidance for Investment Advisory Firms That Accepted PPP Loans
Please note: The below information may require updating, including additional clarification, as the COVID-19 pandemic continues to develop. Please monitor our main COVID-19 Task Force page and/or your email for updates.
Many registered investment advisers (“RIAs”) have obtained loans guaranteed by the U.S. Small Business Administration (SBA) under the Paycheck Protection Program (“PPP”).1 Applicants for PPP loans were required to make certain certifications to the SBA, including that “Current economic uncertainty makes [the] loan request necessary to support the ongoing operations of the Applicant.”2 RIAs who have received PPP loans, and made these certifications, need to be mindful of their obligation to make full and fair disclosure to clients. Further, Item 18 on Form ADV Part 2A requires RIAs to disclose any financial condition that is reasonably likely to impair your ability to meet contractual commitments to clients.
The Securities Exchange Commission (“SEC”) recently released guidance addressing the disclosure obligations of RIAs that received PPP loans.3 As part of this guidance, the SEC clarified that “[i]f the circumstances leading [a RIA] to seek a PPP loan or other type of financial assistance constitute material facts relating to [its] advisory relationship with clients, it is the [SEC’s] view that [the RIA] should provide disclosure of… the nature, amounts and effects [of the PPP loan].”4 As an example, the SEC specifically noted that if the assistance was used to pay the salaries of employees responsible for providing advisory functions, or if the RIA accepted a PPP loan because it is experiencing conditions that would likely impair its ability to meet contractual commitments to clients, then these material facts must be disclosed in the RIA’s Form ADV Part 2A.5 RIAs that obtained PPP Loans should consider whether the circumstances that gave rise to their need for the PPP loan also give rise to a disclosure obligation generally or under Item 18 on Form ADV Part 2A. RIAs should be mindful of the requirement to notify clients of material changes to Form ADV Part 2, even where the changes do not necessarily trigger the delivery of an interim amendment.
If you have any questions regarding your disclosure obligations of in light of PPP loans, or with respect to COVID-19 generally, please feel free to contact us.
Related People View All
While we are pleased to have you contact us by telephone, surface mail, electronic mail, or by facsimile transmission, contacting Kilpatrick Townsend & Stockton LLP or any of its attorneys does not create an attorney-client relationship. The formation of an attorney-client relationship requires consideration of multiple factors, including possible conflicts of interest. An attorney-client relationship is formed only when both you and the Firm have agreed to proceed with a defined engagement.
DO NOT CONVEY TO US ANY INFORMATION YOU REGARD AS CONFIDENTIAL UNTIL A FORMAL CLIENT-ATTORNEY RELATIONSHIP HAS BEEN ESTABLISHED.
If you do convey information, you recognize that we may review and disclose the information, and you agree that even if you regard the information as highly confidential and even if it is transmitted in a good faith effort to retain us, such a review does not preclude us from representing another client directly adverse to you, even in a matter where that information could be used against you.