By Gretchen Morgenson -
NBC News
In late June, Sharps Compliance, a Houston-based medical waste management company, posted spectacular financial results.
The launch of the COVID-19 vaccines had increased demand for the company's services, according to Sharps, and its profits had more than quadrupled.
The company's board of directors awarded its top three executives double the compensation they had received a year earlier based on results.
The trio shared out nearly $ 1 million more than they had received in fiscal 2020, Securities and Exchange Commission files show.
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As the publicly traded Sharps posted the enviable results, it also petitioned the federal government.
Last year, the company had turned to taxpayers through a lender for a $ 2.2 million loan under the Check Protection Program (PPP), an aid measure for companies. small businesses experiencing financial difficulties due to the coronavirus crisis.
A year later, Sharps wanted that loan forgiven.
On June 15, Sharps got his wish, regulatory files show.
In the terrifying early days of the pandemic, the federal government was quick to support businesses and consumers harmed by the pandemic shutdowns.
One of the most important efforts was the Check Protection Program, a forgivable loan operation for small businesses.
Overseen by the Small Business Administration (SBA) it disbursed nearly $ 800 billion in total from April 2020 to May 2021, when it ended.
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Now many PPP borrowers, like Sharps, are asking for their loans to be forgiven.
And as of Nov. 7, about $ 610 billion in forgiveness had been granted, according to the data.
For small businesses, the APP was “the lifeline they needed to survive during a unique economic crisis of its kind,” according to SBA Administrator Isabella Casillas Guzmán.
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But an investigation by our sister network NBC News reveals that the operations of some companies that received loan forgiveness, such as Sharps, appeared to prosper during the pandemic.
And while those companies could not have anticipated their remarkable results when they applied for PPP loans, their loan forgiveness requests came long after the benefits were apparent.
Under the program, PPP loans can be forgiven if beneficiaries keep employee and compensation levels at the same levels as before COVID-19 and if at least 60% of loan proceeds go to payroll expenses. and the rest to other eligible expenses, such as the payment of rent or public services.
There is no evidence that Sharps and the other companies identified by NBC News have broken any laws or improperly obtained loan forgiveness.
A record year
When the government launched the PPP, there were few regulations.
The idea was to get the money to the companies quickly.
The government made it clear at the time that borrowers would be entitled to forgiveness if they met certain requirements.
Initially, borrowers had to certify "in good faith" that financing was necessary when applying for loans, taking into account "their current business activity" and their ability to access other sources of capital to support their operations, such as the market for loans. securities or investors with a lot of money.
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"It is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith," the SBA said.
However, some companies whose loans of more than $ 1 million have been forgiven had access to equity financing both when they took the taxpayers' money and when they received the forgiveness, NBC News found.
In the early days of the pandemic, the stock market was crashing, but since then it has repeatedly hit new highs.
Senator Angus King places a sign alongside a bipartisan group of Democratic and Republican congressmen as they announce a COVID-19 relief bill on Capitol Hill on December 1, 2020. Tasos Katopodis / Getty Images
Some 157 companies with access to the stock market obtained around 300 million dollars of the 610,000 million that had been forgiven in mid-October, that is, less than 0.1% of the total.
For example, Sharps' market value was about $ 100 million when it obtained the PPP loan, and shortly after its discharge, the company raised $ 17 million by issuing new shares, regulatory records show.
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In addition, NBC News determined, more than $ 120 million in loan forgiveness has gone to companies that posted higher revenues and profits during the pandemic than before.
Sharps couldn't be clearer about the impact of the pandemic.
In its annual report to shareholders, published two months after its loan was forgiven, it said: "To date, the company has not identified any adverse impact during the pandemic on its financial position and results of operations."
Nell Minow is a Corporate Governance Expert and Vice President of ValueEdge Advisors, an institutional investor advisory firm.
She criticizes companies that accepted taxpayer money when, according to her, they didn't need it, and directors of companies that gave higher salaries to their CEOs while receiving federal loan forgiveness.
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"Once again, company directors and CEOs are the true queens of wellness, exploiting the loopholes in botched emergency legislation," Minow said.
"This is a scandal," he added.
NBC News asked Sharps to respond to the criticism and explain why it had requested loan forgiveness from taxpayers during such a prosperous year.
A Sharps spokesperson declined to respond, but said the company had met the SBA's criteria for loan forgiveness.
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"Sharps is a relatively small company and its dedicated employees were mobilized at a time of great uncertainty and risk, to play a vital role in the safe collection and disposal of medical waste related to COVID-19," the spokesperson said.
"This loan played an important role in allowing Sharps to confidently execute this plan, protect employees and assist clients in their fight against the pandemic."
In a regulatory filing, Sharps said it must keep records of its $ 2.2 million loan for six years in case the SBA decides to audit the company's eligibility for the loan.
"To the extent that eligibility is questioned, the company may have to repay all or part of the PPP loan," the filing says.
Acme United, a manufacturer of sharpening tools and medicine cabinets, is another example.
The Shelton, Connecticut-based company approached taxpayers for a $ 3.5 million PPP loan in May 2020 and received the forgiveness in June of this year.
In the nine months ending Sept. 30, Acme earned 87% more than the same period last year, according to its statements.
And for 2020, the company recorded that revenue increased 15%, while profits advanced 47%.
Its top three executives shared an additional $ 1.1 million in total compensation last year, a 43% increase from 2019.
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In awarding the pay, Acme United's board of directors cited the company's milestones and achievements, including a large increase in e-commerce sales and a $ 9.3 million acquisition of a Florida-based manufacturer of antiseptic pads and wipes. .
The company "has been able to continue meeting the needs of its customers in 2020 without interruption," he clarified.
Walter Johnsen, president and CEO of Acme United, said in a phone call that the company was fortunate to be able to pivot toward Internet sales during the pandemic.
The company "worked very carefully with the SBA, responding honestly to numerous requests," he said.
"We met all of their requirements and responded as fully and honestly as possible, and concluded that the loan would be forgiven."
A third public company to receive loan forgiveness amid stellar performance is Enzo Biochem, a New York-based clinical laboratory and diagnostic company.
It received a $ 7 million loan from the PPP last year, which was forgiven in June, regulatory records show.
The SBA granted the waiver when Enzo was experiencing a record year, generating a 55% increase in sales.
According to the company, Enzo's FY2021 results were due to his COVID-19 tests, for which he received emergency use authorizations and extensions from the Food and Drug Administration (FDA).
Enzo posted a profit of nearly $ 8 million for the year, up from a loss of $ 28.5 million in fiscal 2020.
It was "a wonderful and worthwhile year for Enzo," said Barry Weiner, president of the company.
Enzo will release executive compensation figures for 2021 this month.
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Like other companies in the healthcare sector, Enzo obtained a series of government grants during the pandemic.
When asked about the loan forgiveness by taxpayers during its breakout year, an Enzo spokeswoman said: “Our PPP loan did exactly the service it was supposed to do - a lifeline to avoid having to lay off people and the possible closure of divisions of our company- and we meet all the criteria to qualify for the forgiveness of the loan ":
Like Sharps and Acme United, Enzo had access to equity financing for its operations during the pandemic.
His market value at the time he got the loan was $ 108 million.
Now it is 170 million dollars.
