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

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.