Coronavirus Bailout Funds: Eligibility & Oversight

As the coronavirus crisis continues, the U.S. government has authorized unprecedented financial relief packages for businesses, creating massive opportunities for waste, fraud, and abuse. Learning from history will be important for preventing this waste, fraud and abuse.

In 2008, as a global economic downturn worsened, the U.S. government intervened with various bailout programs to stabilize Wall Street and corporate America. While working Americans suffered lingering consequences, corporate profits quickly rose to pre-crisis levels. The bailouts were criticized heavily for huge spending with little accountability.

Now, barely a decade later, the United States is once again facing the prospect of massive corporate bailouts as the impacts of Covid-19 ravage the economy. Since early March of 2020, five bills have been signed into law in response to the coronavirus crisis. The total economic aid from these packages is over $3 trillion, more than doubling the stimulus act passed during the previous financial crisis.

While the first two bills centered around public health effort and individual benefits, the third bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act (Public Law 116-136), provided an unprecedented $2.2 trillion of emergency appropriations for businesses of all sizes and tax relief for individuals and businesses. It was signed into law on March 27, 2020.

The CARES Act established several sources of business funding, including the Paycheck Protection Program (“PPP”). $349 billion was appropriated for the program, which was set to terminate on June 30, 2020. However, money ran out quickly.

The Paycheck Protection Program and Health Care Enhancement Act was signed into law on April 24, 2020. It provided an additional $484 billion in funding to replenish and supplement key CARES Act programs, including $321 billion for the PPP and $60 billion for small business disaster loans and grants.

Months later, the 2021 Consolidated Appropriations Act (CAA) was signed into law at the end of December. The bipartisan legislation included another round of COVID-19 stimulus funding as well as further relief for taxpayers affected by the pandemic. The CAA included $284 billion in funding to reopen the Paycheck Protection Program (PPP) to new qualifying borrowers of PPP loans, provide opportunities for certain borrowers of existing PPP loans to increase their first loan loan, and create an opportunity for certain businesses to obtain a second, separate PPP loan

As the amount of bailout funding increases, so do opportunities for waste, fraud, and abuse. Overstretched oversight programs only magnify this possibility. That’s why the National Whistleblower Center is working to provide whistleblowers with the information and tools they need to report fraud during the Covid-19 crisis, including access to qualified legal counsel.

Below, we lay out the eligibility requirements for the current and past bailout programs, the oversight measures in place, and the resources available for whistleblowers.

Current Economic Assistance Programs & Eligibility Requirements

Paycheck Protection Program (“PPP”)

The Paycheck Protection Program is a loan program administered by the Small Business Administration (SBA) that provides relief for “small businesses” under Section 7(a) of the Small Business Act.

First Draw Loans

Eligible small businesses can obtain 2.5 times their average monthly payroll costs, up to $10 million, to cover “qualified expenses” such as payroll, mortgages, rent, and utilities for eight or twenty-four weeks, depending on when the application was submitted. The government will forgive the debt if the business demonstrates this money has gone towards these qualified expenses. Under current stipulations, 75% must go towards payroll.

Second Draw Loans

In general, a borrower is eligible for second PPP loan if it has 300 or fewer employees and experienced a revenue reduction of 25 percent or greater in 2020 relative to 2019. It is important to note that the borrower must also have received a first draw PPP loan and used the full amount on authorized uses. In general, the maximum amount for these second draw loans will be the lesser of 1) 2.5 times the borrower’s average monthly payroll costs or 2) $2 million.

CARES Act Loans, Loan Guarantees, and Other Investments

The CARES Act provided the Treasury with up to $500 billion to be used in its Exchange Stabilization Fund (ESF) to support loans, loan guarantees, and investments that bail out businesses affected by COVID-19.

The Treasury was authorized make loans and loan guarantees directly to companies in three industries that have incurred, or are expected to incur, “covered losses”: (1) up to $25 billion to passenger air travel; (2) up to $4 billion to cargo air carriers; and (3) up to $17 billion to businesses critical to national security. “Covered losses” are losses incurred directly or indirectly due to the many impacts of Covid-19.

There were multiple restrictions attached to this funding:

  • Eligible companies must exchange equity to take advantage of the loan, and the loans cannot be forgiven
  • Participating companies are prohibited from share buybacks, paying dividends, or making capital contributions
  • There are restrictions on executive pay, including limited increases in pay and severance
  • Issuance of loan cannot be contingent on negotiations with certified bargaining representative or class of employees
  • Employment levels must remain at March 24, 2020 levels to extent practicable, and companies are prohibited from reducing employment levels by more than 10% from then until September 30, 2020
  • Eligible businesses must have been founded or organized in the U.S. or have majority of employees based in the U.S.

Additionally, “businesses critical to national security” applied to only a small subset of the defense sector. Businesses that were eligible must be performing under a DX-priority rated contract or order under the Defense Priorities and Allocations System, or operating under a valid top-secret facility security clearance under the national Industrial Security Program regulations.

The remaining $454 billion was available through the Treasury to support “facilities” established by the Federal Reserve to provide liquidity to businesses, states, and municipalities up until December 31, 2020.

 Federal Reserve System

 The Federal Reserve System (“Fed”) is offering a number of ongoing programs under its emergency powers to deploy COVID-19 financial assistance in concert with the Treasury Department.  Because the Fed expects borrowers to pay back the loans, it was able to leverage the $454 billion allotted under the CARES Act into trillions in lending.

Multiple emergency lending programs and other measures were rolled out rapidly by the Fed, including lending programs focused on corporate debt issuers and short-term business loans.

One of the Fed’s first initiatives was a program called the Main Street Lending Program (MSLP), originally announced in early April. The MSLP is designed to support small and medium sized businesses that are unable to access the PPP or require additional support beyond the PPP. Unlike in the PPP, these loans are not forgivable. It has three components: Main Street New Loan Facility, Main Street Expanded Loan Facility, and the Main Street Priority Loan Facility.

Businesses that were established prior to March 13th, 2020, based in the U.S. or have majority of employees based in the U.S., and have no more than 15,000 employees or had no more than $5 billion in revenue in 2019 are eligible. Businesses cannot have also received support under the air travel, air cargo carriers, or national security loan program.

The loans under each of the facilities provide similar terms; the differences between them relate primarily to the maximum amounts that can be borrowed. Borrowers can only participate in one of the facilities.

In July 2020, the Main Street Lending Program was expanded to nonprofits, including hospitals, schools, and social service organizations. Borrowers were required to have at least 10 employees and endowments of no more than $3 billion, among other conditions. The loans were for five years, but payment of principal is deferred for the first two years.

The nonprofit addition lapsed with the rest of the Main Street program on December 31st, as per the CARES Act stipulations.

The Fed has also undertaken measures that include lending directly to major corporate employments, cutting its target for federal funds rate, lowering interest rates, purchasing massive amounts of securities, offering low interest rate loans for up to 90 days to large financial lenders, backstopping money market mutual funds, and more.

Businesses and Individual Tax Provisions

In addition to the financial assistance programs extended to businesses, the CARES Act and the 2021 Consolidated Appropriations Act also included multiple provisions aimed at providing tax relief to both individuals and businesses.

The CARES Act provided immediate rebates of $1,200 per eligible individual, $2,400 for eligible couples filing a joint return and $500 per qualifying child for individuals making less than $75,000.

The Consolidated Appropriations Act provided immediate rebates of $600 per eligible individual, $1,200 for eligible couples filing a joint return and $600 per qualifying child for individuals making less than $75,000.

Additionally, the CARES Act included a “millionaire tax cut” for individuals making $1 million annually. Due to this provision, approximately 43,000 taxpayers will gain 82 percent of the benefits of tax change. Those who will benefit the most from this cut will be hedge fund investors and real estate professionals, including developers.

The CARES Act also changed rules for business losses and now allows for losses to be carried back for 5 years and 100 percent of business losses can now be deducted, up from 80 percent.

Oversight Mechanisms in Place

In addition to the traditional oversight measures in place for federal funding, the CARES Act created substantial new authorities for federal oversight given the unprecedented amount of taxpayer funds entering the economy.


Congress is one of the key traditional oversight authorities. As part of this role, the U.S. House of Representatives has established the oversight panel as a select subcommittee of the House Committee on Oversight and Reform. The subcommittee is currently chaired by House Majority Whip James Clyburn (D-S.C.) and is expected to be active in investigating a wide range of coronavirus-related matters. The chairman has been given the authority to unilaterally issue subpoenas for records and testimony as well as obtain information from other House committees.

Subcommittee counsel will have the authority to conduct depositions without a subcommittee member present. The subcommittee will also issue interim reports on its investigations and provide a final report to the House at the conclusion of its investigations.

The CARES Act also created the COVID-19 Congressional Oversight Commission (COC), which is a bicameral congressional consisting of five members, with the Speaker of the House, House Minority Leader, Senate Majority Leader and Senate Minority Leader all having the authority to select one member. The fifth member, the chairperson, is selected jointly by the Speaker of the House and Senate Majority Leader, in consultation with the minority leaders. Currently, Rep. French Hill (R-AR), Rep. Donna Shalala (D-FL), and Senator Pat Toomey (R-PA) have been named to the COC. A Chairperson has not yet been appointed.

The Commission is empowered to hold hearings and secure information from federal departments related to programs and spending in response to the COVID-19 pandemic. The commission will terminate in 2025

Inspectors General

The CARES Act also created two new authorities related to Inspectors General.

The first is a new inspector general position: the Special Inspector General for Pandemic Recovery (SIGPR), similar to the special inspector general position created in the wake of the 2008 financial crisis. The SIGPR will conduct audits and investigations of the making, purchase, management and sale of loans, loan guarantees and other investments made as part of the federal assistance programs created in response to Covid-19. Brian D. Miller was confirmed to this position in June 2020.

The second is a Pandemic Response Accountability Committee (PRAC) within the Council of the Inspectors General on Integrity and Efficiency (CIGIE). The PRAC is charged with promoting transparency and conducting oversight of any coronavirus-related funds to “prevent and detect fraud, waste, abuse, and mismanagement” and “mitigate major risks that cut across program and agency boundaries.” The PRAC is managed by Executive Director Robert A. Westbrooks and Deputy Executive Director Linda S. Miller, who were appointed by the acting chair Michael Horowitz in consultation with congressional leadership.

The PRAC is required to submit public reports to Congress and the president, as well as maintain a public website on its findings and recommendations. Similar to the Congressional oversight committee, it will terminate in 2025.

Finally, the CARES Act also provides significant additional funding for several offices of inspector general to carry out oversight related to COVID-19 relief programs. The CARES Act appropriated $25 million for the SBA Office of Inspector General to carry out oversight functions, including the Paycheck Protection Program (PPP) and other SBA loans

The Importance of Whistleblowers

The federal COVID-19 financial relief programs discussed here are the largest in modern history, more than doubling the stimulus act passed during the 2008-9 financial crisis. These programs create massive opportunities for fraud, abuse and waste by companies of all sizes and across all sectors, particularly those that were financially struggling prior to COVID-19.

Already, bad actors have taken advantage of these opportunities. Since the pandemic began, the National Center for Disaster Fraud has received more than 76,000 tips concerning Covid-19 related fraud and the Department of Justice (DOJ) charged its first fraud case on March 25, 2020. As of October 15th, the DOJ reported it had:

  • filed criminal charges in 33 cases across the country involving scam vaccines, treatments, or testing or price gouging in the sale of scarce medical supplies;
  • initiated civil actions in 11 cases to enjoin fraudulent coronavirus schemes targeting consumers, including cases against defendants marketing ozone gas, silver-ion solution, and bleach-based solution as treatments; and
  • charged 65 defendants in 50 separate cases to date that relate to the Paycheck Protection Program (PPP).  The total intended loss to the PPP in those cases is more than $227 million.

Congress and the past and current Administrations are aware of these risks and have taken some measures to mitigate them. But despite all of the existing and new oversight measures that the CARES Act and other bills provided, the success or failure of federal oversight relies on receiving relevant information from individuals as funds are distributed to companies based upon representations they make to the federal government.

While the SBA, Treasury and Federal Reserve System are required to issue scheduled reports to Congress and on-line indicating how the respective funds are implemented, this is dependent in large part on information provided by companies participating in the program.

This is why whistleblowers will prove so critical during this new financial crisis, much like they were in 2008. Whistleblowers are one of the most powerful weapons in the law enforcement arsenal for the U.S. government, and at a time when government resources will be strained to capacity given the sheer scope of spending, whistleblowers with inside knowledge on fraud will be more important than ever.

Often times, only company insiders know the extent to which fraudulent activities and misrepresentations have taken place. In the case of COVID-19 financial relief programs, these can be found in program applications and representations made by companies to the federal government or lenders, in documentation detailing a company’s need for funds, how a company meets eligibility requirements and the maintenance of records of how funds are used.

Public company’s disclosure and other securities law obligations with respect to COVID-19 and related business and market disruptions are also sources of potential fraud and misrepresentation. Numerous Securities and Exchange Commission rules require company disclosures about the known or reasonably likely effect of, and the types of risks presented by COVID-19. Companies must also provide forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding COVID-19 of the securities laws.

Company insiders with information on these types of activities have more rights than they may think. In recent years, a powerful suite of whistleblower laws has been enacted in the United States to enable private sector whistleblowers to report wrongdoing confidentially and to receive financial rewards for contributing to successful prosecutions.

Among the most important whistleblower laws is the Dodd-Frank Act, covering securities and commodities fraud, passed following the financial crisis of 2008-09. Since this law was enacted, the Securities and Exchange Commission and Commodities Future Trading Commission have awarded hundreds of millions to whistleblowers who exposed fraud in securities and commodities trading.

Another critically important whistleblower law is the False Claims Act (FCA), which regulates fraud in connection with those receiving compensation or other benefits from the government – including loans and financial assistance. In 2019 alone, whistleblowers helped to recover $2.2 billion in monetary sanctions for U.S. taxpayers, with whistleblowers receiving $271 million for their contributions to these successes in 2019.

Importantly, these programs allow for confidential reporting. The vast majority of whistleblowers choose to keep their identity confidential, and agencies make every effort to protect the identity of the whistleblower so that they can report fraud – and still keep their job.

Corporate whistleblowers also enjoy broad public support. A Whistleblower News Network poll released in October 2020 shows that the American public considers corporate fraud a national priority and wants to help whistleblowers who expose it. When asked if passing stronger laws that protect employees who report corporate fraud should be a priority for Congress, 82 percent of those surveyed agreed, with 29 percent stating that it should be an immediate priority.

When reporting fraud, it’s important to follow the designated channels. By going straight to the media or bypassing procedures for disclosure to government authorities, whistleblowers may potentially forfeit their rights. NWC always recommends retaining a whistleblower lawyer to help navigate the complex set of rules and regulations. Learn more about our Legal Assistance Program here.

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