Businesses Should Be Aware of the Public Disclosure Requirements in the CARES Act before Seeking Relief under its Provisions

On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act (the CARES Act or Act). The CARES Act provides economic relief to individuals and businesses facing hardship due to the COVID-19 crisis, including extensive financial assistance for businesses under Title IV of the Act. These benefits, however, are tied to public disclosure requirements, which may expose businesses to an increased risk of regulatory scrutiny and enforcement activity, as well as to suits from the plaintiffs’ bar. Businesses should weigh the risks of possible disclosure of their participation and/or sensitive business information against the benefits of receiving relief. This Sidley Update provides an overview of those public disclosure requirements, focusing on the two aspects of available relief under Title IV.¹

First, under Section 4003 of the Act, U.S. business or nonprofit organizations that employ between 500 and 10,000 employees and meet other specified conditions are eligible for emergency relief. This relief consists of $500 billion of funding for loans, loan guarantees and other investments in support of eligible businesses, states and municipalities, with $454 billion reserved for businesses not involved in the air transportation industry and not critical to national security. However, this relief is tied to public disclosure requirements under Sections 4018 and 4026 of the Act.

Specifically, under Section 4018, the Special Inspector General must keep Congress informed through quarterly reports, which shall include detailed statements of all loans, loan guarantees, and other transactions associated with the financial assistance provided under Section 4003.

Moreover, under Section 4026, for all loans, guarantees, and investments provided under Section 4003 to air transportation-related businesses and to businesses critical to national security, the Secretary of Treasury must publish on Treasury’s website reports disclosing descriptions of the transaction including date of application, date of approval, identities of parties, amount, interest rate, conditions, and other material terms, and a copy of a term sheet within 72 hours of the transaction. For these loans, the Secretary must also provide a report related to the transaction to Congress no later than 7 days after the transaction, which shall include information related to the recipient’s repayment activities, delinquencies, and defaults on the loans and guarantees, and must publish this report on Treasury’s website. The Secretary must publish a report on Treasury’s website every 30 days providing an update on each transaction.

Also under Section 4026, for all loans, guarantees, and investments provided under Section 4003 to any other eligible business (i.e., not related to air transportation or critical to national security), the Board of Governors of the Federal Reserve must issue to Congress and publish on its website reports 7 days after the transaction, and issue 30-day reports as to the status of those transactions. The information in the reports should be similar to that included in the reports generated by Treasury.

Finally under Section 4026, not later than 9 months after March 27, 2020, and annually thereafter until the last year for financial assistance provided under Section 4003 remains outstanding, the Comptroller General must issue a report to Congress on all loans, loan guarantees, and other investments made under Section 4003.

Second, under Section 4112 of the Act, Congress made available $32 billion in financial assistance for the continuation of payment of employee wages, salaries, and benefits of air carrier industry workers. These benefits are also tied to public disclosure requirements under Section 4118 of the Act.

Specifically, under Section 4118, the Secretary of Treasury must submit a report on all financial assistance provided under Section 4112 to Congress no later than November 1, 2020. An update to the report must be provided to Congress no later than March 28, 2021. These reports must include a description of the financial assistance provided.

These reports will serve as a clearinghouse for financial assistance provided under these sections, and may be used by regulators and enforcers to target their activities. This public information may also be used by the plaintiffs’ bar as a source for generating private law suits such as suits under the False Claims Act.

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In sum, businesses seeking relief under Title IV of the CARES Act should be aware that their participation and/or sensitive business information will likely become public pursuant to the public disclosure requirements in Title IV. Such businesses should weigh the costs of possible public disclosure against the benefits of the available relief before seeking assistance under Title IV.

¹ Title I of the Act also makes available “Paycheck Protection Program” loans and related assistance to eligible small businesses. Section 1107 of the Act requires the Small Business Administration to report to Congress its “expenditure plan” in this regard within 180 days of March 27, 2020. While it seems unlikely such a report would reveal particular participation or sensitive business information of small businesses seeking relief under Title I, such small businesses should be aware of the possibility that their seeking relief under Title I may become public through other means such as required filings with the Securities and Exchange Commission or requests under the Freedom of Information Act.

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