In the spring of 2020, many Investment Advisors chose to participate in the Paycheck Protection Program, accepting loans designed to support employee retention. At the time, Oyster received a lot of questions from clients and others asking if a firm’s participation in this program should be disclosed and whether this disclosure should be treated as “material.” We published a blog last May that asked these very questions, and our answer at that time can best be summarized as “we don’t know for certain, but we strongly recommend that you disclose.” You lose nothing by disclosing what is already public information, and you win nothing by withholding it.
Whether you are talking about PPP loans or other disclosure challenges, when the question is “Should I disclose…?” the answer is probably “yes.” The standards for what should be disclosed and what form that disclosure should continually lean towards more and clearer. The SEC’s 2019 Standard of Conduct for Registered Investment Advisers is very clear- you have a duty to give your client enough information to provide “informed consent” to your services. At Oyster we frequently see regulatory issues stemming from advisory practices at firms of all sizes which would have been otherwise unobjectionable, if they had been “more clearly disclosed”.
If you took a PPP loan, fulfilled the terms by either repaying it or having it forgiven, and if you would have remained healthy and solvent even without the benefit of PPP, there is a reasonable argument to be made that it was not “material,” and that you did not need to disclose it. We ask ourselves routinely if we have made the right choices, and we believe that focusing on clear, thorough disclosure will always be the right answer.