Skip to main content

FINRA Says Receipt of PPP Loan May Not Require Form U-4 Disclosure

In its online forum regarding COVID-19/Coronavirus, FINRA stated that a loan received pursuant to the Paycheck Protection Program (PPP) does not necessarily trigger a disclosure on the Form U-4.  The issue arose when registered representatives and certain financial services professionals applied for PPP loans, on behalf of themselves or businesses they owned.  The PPP loans, which are a provision of the Coronavirus Aid, Relief and Economic Security Act (CARES Act), are eligible for forgiveness, provided that the specific terms of any loan forgiveness are satisfied by the borrower. 

The issue then became, if a registered representative received proceeds pursuant to a PPP loan, and the loan provided forgiveness of any part of the loan, would that require disclosure under question 14K of the Form U-4.  Question 14K asks, among other things, “have you made a compromise with creditors” in the last ten years.  In response, FINRA set forth that it would not require a disclosure as long as the loan “is forgiven consistent with the original terms of the loan”.  

FINRA states that “because a PPP loan contemplates forgiveness of some or all of the loan as part of the original terms of the loan, such forgiveness will not involve a new agreement by the creditor, but will be an event consistent with the loan’s original terms”.  FINRA opines that in those circumstances, the forgiveness of a PPP loan will not be a “compromise with creditors”.  However, FINRA warns that any forgiveness beyond the original terms of the loan would be considered a “compromise with creditors” and would require disclosure on the Form U-4.

Subscribe To Viewpoints

Author

David L. Ward is a Mintz attorney whose practice includes financial services regulatory matters, internal investigations, and securities-related litigation in state and federal courts. He represents financial services clients before the US Department of Justice, SEC, FINRA, and other regulators.