On May 13, 2020, reality TV star Maurice “Mo” Fayne was arrested and charged with federal bank fraud by the U.S. Department of Justice in connection with his alleged misuse of loan proceeds obtained through the Paycheck Protection Program (PPP). Fayne submitted his PPP application in April, on which he claimed his company, Flame Trucking, had 107 employees and a monthly payroll of about $1.5 million. Fayne obtained over $2 million in funding from the program under the pretense of using the funds to support his trucking company. Instead, Fayne allegedly spent the money on $85,000 in jewelry, including a Rolex Presidential watch, a Rolls-Royce Wraith, and $40,000 in child support.

The PPP, enacted as part of the historic $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, was intended to help small and midsize businesses retain employees and otherwise keep the lights on during the economic downturn caused by the COVID-19 pandemic. To accomplish this goal, the PPP provides low-interest loans to eligible business; furthermore, PPP loans are eligible for tax-free loan forgiveness if they are used for certain qualifying expenses. Businesses applying for a PPP loan must certify that the funds will be used to retain workers and maintain payroll, and to make mortgage interest payments, lease payments, and utility payments. Businesses must also acknowledge that knowingly using the funds for unauthorized purposes may result in legal liability, including fraud charges.

Fayne’s attorney cited the confusing and constantly changing laws surrounding the PPP as justification for Fayne’s alleged misuse of the loan proceeds. It is true that Congress pushed the PPP out very quickly and left the Department of Treasury and the Small Business Administration to fill in the gaps. Consequently, Treasury has continuously published additional guidance in an effort to resolve the PPP’s many lingering ambiguities. Additional guidance for the PPP was published as recently as May 14 (and we expect more will follow after this article is posted). The constantly shifting goalposts have been a headache for both lenders and borrowers looking to remain compliant with the PPP’s various requirements.

The confusing regulatory landscape and shifting requirements may have contributed to many businesses returning their PPP loans, including Shake Shack, Ruth’s Hospitality Group, and the Los Angeles Lakers. Motivations for returning the loans are varied; in addition to avoiding the scrutiny of regulators, some businesses may find that they no longer qualify for loan forgiveness as a result of new guidance and may instead opt for the Employee Retention Credit, which is not available to any businesses that receive a PPP loan. Borrowers that have already received PPP funds may return the funds by May 18 and avoid further scrutiny or other consequences (although this deadline has been extended twice already and is subject to change).

While misuse of funds in some cases may rise to the level of fraud, inadvertent missteps could easily happen with continuous regulatory flux. While staying abreast of PPP compliance is important for all businesses during these turbulent times, it is especially true for high-profile clients who must maintain their image in the Hollywood spotlight and stay away from Department of Justice and media scrutiny. Venable stands ready to assist and counsel businesses on complying with the PPP.

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Photo of Lee S. Brenner Lee S. Brenner

Lee Brenner, chair of Venable’s Entertainment and Media Litigation Group, is a trial attorney and business litigator. With numerous published decisions throughout his career, Lee has deep experience in the media and entertainment industry, particularly in the areas of defamation, copyright law, idea…

Lee Brenner, chair of Venable’s Entertainment and Media Litigation Group, is a trial attorney and business litigator. With numerous published decisions throughout his career, Lee has deep experience in the media and entertainment industry, particularly in the areas of defamation, copyright law, idea theft, credit disputes, privacy, intellectual property, and right of publicity. A recognized leader among his peers, Lee is also co-editor of Communications Lawyer, the American Bar Association’s publication on media and First Amendment law.

Lee’s legal achievements have been recognized by numerous leading industry associations and publications. He was named a Leader in Law nominee by the Los Angeles Business Journal; an Intellectual Property Trailblazer by the National Law Journal; and a Local Litigation Star by Benchmark Litigation. Lee has also been listed in Chambers USA, in The Best Lawyers in America, as a Top Intellectual Property Lawyer in the Daily Journal, and as 2020’s Entertainment Lawyer of the Year by the Century City Bar Association.