Fraud and Abuse in the Paycheck Protection Program? Evidence from Investment Advisory Firms

51 Pages Posted: 10 Jul 2020 Last revised: 31 Mar 2022

See all articles by William Beggs

William Beggs

Knauss School of Business, University of San Diego

Thuong Harvison

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

Date Written: January 11, 2022

Abstract

This study investigates the nature and magnitude of abuse in the Paycheck Protection Program (PPP or the Program) using PPP loans made to 2,999 investment advisory firms registered with the U.S. Securities and Exchange Commission (SEC). The data suggest that PPP abuse was relatively widespread as approximately 25% of firms receiving PPP loans indicated they would retain more jobs in their loan application than the number of employees they disclosed on their most recent regulatory filing (Form ADV). We show an existing model of investment advisor fraud predicts the most egregious PPP loans at a rate similar to actual cases of fraud. Investment advisors abusing the Program were significantly more likely to disclose a history of past fraud and other legal and/or regulatory misconduct. Using a conservative approach, we estimate that more than 6% of the $590 million in PPP funds received by SEC registered investment advisors consisted of overallocations to firms abusing the Program. We test a variety of hypotheses to shed further light on the nature of PPP abuse.

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

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

Suggested Citation

Beggs, William and Harvison, Thuong, Fraud and Abuse in the Paycheck Protection Program? Evidence from Investment Advisory Firms (January 11, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3647606 or http://dx.doi.org/10.2139/ssrn.3647606

William Beggs (Contact Author)

Knauss School of Business, University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
417
Abstract Views
1,983
rank
96,837
PlumX Metrics