Fraud and Abuse in the PPP? Evidence from Investment Advisory Firms

24 Pages Posted: 10 Jul 2020

See all articles by William Beggs

William Beggs

University of San Diego

Thuong Harvison

University of Arizona, Eller College of Management, Department of Finance

Date Written: July 9, 2020

Abstract

This study investigates instances of potential fraud and abuse in the Paycheck Protection Program (PPP or the Program) by analyzing 1,104 large PPP loans made to investment advisory firms registered with the U.S. Securities and Exchange Commission (SEC). We first estimate a model for PPP loan allocations based on economic need using operational data disclosed on each firm’s Form ADV regulatory filings. We next examine loans in which the amount the firm received was far from the model prediction (abnormal loans). Abnormal loan allocations appear to be asymmetric in nature, i.e., smaller firms were more likely to procure outsized loan amounts rather than large firms gaining undue access to the PPP at the expense of smaller firms. We next test several explanations for abnormal loan allocations. Our results suggest investment advisors did not use affiliated banking relationships to gain greater access to the Program, but may have used political connections. The results are also consistent with misbehavior or potential fraud. We find that abnormal loan amounts are significantly related to overstated job loss impact by advisors on loan applications. We also show that several known predictors of investment manager fraud (i.e., Dimmock and Gerken 2012) are associated with the receipt of abnormal loan amounts. Of particular note, we find that firms receiving abnormal loan allocations are more likely to have a history of past legal and/or regulatory infractions.

Keywords: Paycheck Protection Program, investment advisors, fraud, COVID

JEL Classification: E61, E65, G21, G23, G38, H32, H81

Suggested Citation

Beggs, William and Harvison, Thuong, Fraud and Abuse in the PPP? Evidence from Investment Advisory Firms (July 9, 2020). Available at SSRN: https://ssrn.com/abstract=3647606 or http://dx.doi.org/10.2139/ssrn.3647606

William Beggs (Contact Author)

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110

HOME PAGE: http://wcbeggs.com

Thuong Harvison

University of Arizona, Eller College of Management, Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tuscon, AZ 85721
United States

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