SEC targets fuel company in bailout aid investigation

The US Securities and Exchange Commission is investigating a fuel cell company over its use of government rescue funds, according to the first public company disclosure of such a probe, which comes amid growing regulatory interest in the recipients of government bailouts.

FuelCell Energy, a maker of electricity generators, said the SEC’s enforcement division asked for information last month about the company’s application for a loan from the Paycheck Protection Program. FuelCell said in April that it had taken a $6.5m loan.

The PPP, a $650bn fund for keeping small businesses afloat during the economic shutdown because of the coronavirus outbreak, offered companies up to $10m or more to help with payroll costs. The funds can be written off in a couple of months if companies can prove they spent it on allowable expenses such as pay and rent.

In general, companies needed to certify they cannot obtain credit elsewhere to apply for a PPP loan.

Connecticut-based FuelCell said the SEC’s information request was voluntary and that the company intends to co-operate. The disclosure came in a previously unreported regulatory filing on June 12.

Also in the filing, the lossmaking company reported its revenues increased 105 per cent in the three months to April 30. The company said on June 16 that it was planning to sell up to $75m of new shares.

The SEC and FuelCell declined to comment.

The PPP was created in March under federal stimulus legislation known as the Cares Act and advertised as a lifeline for small businesses. Some public companies that initially took PPP loans returned them after an outcry. Shake Shack and Ruth’s Chris Steak House returned loans of $10m and $20m respectively in April.

The SEC has launched investigations into disclosures made by public companies that took PPP loans, attorneys representing the businesses said without disclosing their clients. Claimed financial hardship in the PPP application may contrast with the most recent quarterly filings with the SEC, the attorneys said.

“The SEC [staff] are scratching their heads: ‘We see you are the epitome of financial health in your SEC filings, how did you qualify and why are you taking money from the Cares Act?’” said Tom Sporkin, a former SEC enforcement official now at the law firm Buckley LLP in Washington. “My belief is that this is an industry sweep.”

The US Department of Justice has also taken an interest in the use of PPP funds and announced charges in recent weeks against people who have allegedly filed fraudulent bank loan applications under the programme.

The PPP investigations come as lawmakers are increasingly calling for information about which companies received loans under the programme. Treasury secretary Steven Mnuchin said this week he would work with Congress on PPP loan oversight. Congressional Democrats have pushed for information about which businesses have received loans.