A recent study investigates the level of misconduct by registered investment advisers who applied to the federal Paycheck Protection Program, according to the InvestmentNews. The loan program earmarked financial assistance for struggling small businesses to help keep their workforce employed during the Covid-19 pandemic.
The study, written by William C. Beggs of the University of San Diego and Thuong N. Harvison of the University of Arizona, is titled, “Fraud and Abuse in the Paycheck Protection Program? Evidence from Investment Advisory Firms.”
The authors found that nearly 3,000 advisory firms–nearly a quarter of those eligible for assistance–received PPP loans of over $590 million when the program began in the spring of 2020, and that $36 million of the funds received violated federal loan limits. “We estimate that more than 6% of the $590 million in PPP funds received by companies in the investment management industry consisted of statutory overallocations to firms abusing the program,” the study concluded.
One indication of fraud involved RIAs who took in what were deemed “abnormal” PPP loans, amounting to more than the size of their payrolls dictated, according to the study.
It also found that advisers who abused the program were much more likely to disclose a history of past fraud and other legal or regulatory misconduct.
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