- California firm sues SBA, US Treasury based on updated guidance surrounding PPP
- Company argues PPP money vital to survival despite having access to additional liquidity
- Lawsuit comes as the first of many expected to be filed by businesses across the US
A California based firm became the first company to sue the SBA and the US Treasury Department based additional guidance issued by the agencies regarding the Paycheck Protection Program (PPP). Zumasys Inc., a San Clemente-based software company, filed a lawsuit in federal court on May 4th in the wake of both agencies telling business owners that companies who have access to other sources of liquidity might not be able to prove the PPP loan money was necessary. Pursuant to the self-certifications made by all PPP applicants, any company that receives PPP money who did not necessarily need it would see these funds turned into a loan, rather than a forgivable grant, and potentially be subject to criminal actions.
According to Mona Hanna of Michelman & Robinson, attorneys for Zumasys, the Company, who received $750,000 from the PPP, was rightly entitled to the funds under the original terms of the PPP. Had these updated guidelines relating to outside liquidity been in effect prior to receiving these funds, the Company would have elected not to accept the PPP funding and take on additional debt, choosing, rather, to terminate more workers or shut down completely, according to the Company. The funds received to date have been used to keep 70 employees on the payroll. The SBA and Treasury Department issued additional guidelines and outlined the harsh penalties instore for companies who accept PPP funds that did not need them after a host of large companies, ranging from the Los Angeles Lakers to Shake Shack, received PPP funding as other small businesses did not. The government has set a May 14th deadline for all companies who received these funds that does not need them to return the money. Counsel for Zumasys has asked the judge presiding over the case to prevent the government from enforcing this directive.
This lawsuit is the first of what is expected to be many filed against the government for allegedly “moving the goal posts” on who is eligible to receive PPP funding and who is not. Given the harsh penalties promised for business owners who fraudulently receive these funds, the outcome of these lawsuits will carry high stakes results and set precedent for similar matters as the Coronavirus pandemic continues to play out across the US and the globe.
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Chief Business Officer, Disaster Relief Consultant
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