Orange County of counsel Anne Brody is the co-author of “Ten Years Post-Therasense: Closing the Gap Between Walker Process Fraud and Inequitable Conduct,” [PDF] published by The Journal of the Antitrust and Unfair Competition Law Section of the California Lawyers Association in its Fall 2021, Vol. 31, No. 2. issue.
New York of counsel Karin Portlock and associate Jabari Julien are the authors of “In Internal Investigations, Diverse Teams Are Better,” [PDF] published by Global Investigations Review on November 12, 2021.
Los Angeles partners James Zelenay Jr. and Eric Vandevelde and associate Tim Biché are the authors of “DOJ turns to familiar tool to address cybersecurity threats” [PDF] published by the Daily Journal on November 1, 2021.
New York partner David Feldman and Los Angeles partner Michael Neumeister are the authors of “Sale toggles in Chapter 11 plan processes” [PDF] published by Financier Worldwide in its November 2021 issue.
Washington, D.C. partner David Burns and associate Brian Williamson are the authors of “Should companies cooperate with law enforcement during ransomware attacks?” [PDF] published by Global Investigations Review on October 8, 2021.
New York partner Lindsey Schmidt and London associates Besma Grifat-Spackman and Rose Naing are the authors of “Protecting Your Foreign Investment,” [PDF] published by Corporate Disputes Magazine in its October-December 2021 issue.
Washington, D.C. partner David Fotouhi is the author of “9th Circ. Chromium Ruling May Expand Water System Liability,” [PDF] published by Law360 on October 14, 2021.
Munich partner Michael Walther and associate Richard Roeder are the co-authors of the “Germany” [PDF] chapter of International Comparative Legal Guides’ Sanctions 2022, 3rd Edition published in October 2021.
The U.S. Department of Justice’s increased focus on the private equity sector in recent years has coincided with that sector’s growing investment in the highly regulated healthcare and life sciences industries. That increased focus has been further fueled by the CARES Act and its Paycheck Protection Program, which was in operation from April 2020 through May 31, 2021. In March 2021, the DOJ announced new enforcement priorities focusing on CARES Act fraud. Chief among the potential targets are private equity-backed companies. While private equity firms were ineligible for PPP loans, their portfolio companies may have been eligible, and it is likely that prosecutors and private plaintiffs will seek to hold private equity firms liable under the False Claims Act for a portfolio company’s actions with respect to PPP.
The Small Business Administration released data on the companies that received PPP loans and analysis of this data revealed that over 8,100 privately backed companies were approved for PPP loans of $150,000 or more. Of these, 2,528 were private equity-backed companies. Under the CARES Act, businesses were eligible to receive PPP loans issued by private lenders and credit unions but backed by the SBA. PPP loans were to be used for select purposes including: funding payroll and benefits paying mortgage interest, rent, or utilities; and other worker protection costs related to COVID-19. In April 2020, due to confusion about private equity firms’ eligibility for the loans, the SBA issued an interim final rule stating that private equity firms were ineligible for PPP loans.
Portfolio companies, however, would continue to qualify for the loans if they met special size requirements under the SBA’s affiliation rules. The affiliation analysis under the SBA’s rules involves six different bases for affiliation, including ownership, stock options, control, management, identity of interest, and the existence of franchise and license agreements. While this is a fact-specific analysis, for the purposes of the PPP, a private equity firm was likely to be considered an “affiliate” of a portfolio company, and portfolio companies controlled by the same private equity firm were likely to be “affiliates” of each other. Under the rules, if the aggregate number of employees at the borrower and its affiliates exceeded a certain size, the borrower was ineligible for PPP loans. In addition, upon application, borrowers were required to certify in good faith that the loan was necessary, that they satisfied the affiliation rules for size and eligibility, and that they agreed to use the funds appropriately. If these certification requirements are determined to have not been met, the SBA will seek immediate repayment of the loan.
Originally published by the Daily Journal on September 17, 2021.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s False Claims Act or Private Equity groups, or the authors in San Francisco:
Winston Y. Chan (+1 415-393-8362, [email protected])
Trisha Parikh (+1 415-393-8314, [email protected])
Please also feel free to contact the following practice leaders and members:
Private Equity Group:
Richard J. Birns – New York (+1 212-351-4032, [email protected])
Scott Jalowayski – Hong Kong (+852 2214 3727, [email protected])
Ari Lanin – Los Angeles (+1 310-552-8581, [email protected])
False Claims Act/Qui Tam Defense Group:
San Francisco
Winston Y. Chan – Co-Chair (+1 415-393-8362, [email protected])
Charles J. Stevens (+1 415-393-8391, [email protected])
Washington, D.C.
Jonathan M. Phillips – Co-Chair (+1 202-887-3546, [email protected]),
F. Joseph Warin (+1 202-887-3609, [email protected])
Joseph D. West (+1 202-955-8658, [email protected])
Robert K. Hur (+1 202-887-3674, [email protected])
Geoffrey M. Sigler (+1 202-887-3752, [email protected])
New York
Reed Brodsky (+1 212-351-5334, [email protected])
Mylan Denerstein (+1 212-351-3850, [email protected])
Alexander H. Southwell (+1 212-351-3981, [email protected])
Casey Kyung-Se Lee (+1 212-351-2419, [email protected])
Denver
Robert C. Blume (+1 303-298-5758, [email protected])
Monica K. Loseman (+1 303-298-5784, [email protected])
John D.W. Partridge (+1 303-298-5931, [email protected])
Ryan T. Bergsieker (+1 303-298-5774, [email protected])
Dallas
Robert C. Walters (+1 214-698-3114, [email protected])
Andrew LeGrand (+1 214-698-3405, [email protected])
Los Angeles
Nicola T. Hanna (+1 213-229-7269, [email protected])
Timothy J. Hatch (+1 213-229-7368, [email protected])
Deborah L. Stein (+1 213-229-7164, [email protected])
James L. Zelenay Jr. (+1 213-229-7449, [email protected])
Palo Alto
Benjamin Wagner (+1 650-849-5395, [email protected])
© 2021 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
New York partner Eric Stock, Washington, D.C. partner Michael Perry, and Orange County associate Matthew Parrott are the authors of “Pharma Cos. Should Prepare For New Drug-Rebate Scrutiny,” [PDF] published by Law360 on September 13, 2021.
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