With just a hair over a hundred employees, Cinedigm, an entertainment company based in Los Angeles, has a relatively modest headcount. But it’s not your typical small business.
The publicly-traded company raked in more than $50 million in revenue last year, thanks in part to partnerships with streaming giants like Amazon and Netflix. Majority-owned by a Chinese private equity firm, Cinedigm has also accessed millions of dollars through loans from its parent company.
Now, a recent filing shows Cinedigm turned to the taxpayer-funded Paycheck Protection Program (PPP) for support during the coronavirus pandemic, taking out a potentially forgivable loan of $2,151,800.
The company did not respond to ABC News’ request for comment, but said in its filing that it “intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease and utility payments to support business continuity throughout the COVID-19 pandemic.”
Cinedigm is not the only public company to draw scrutiny for applying for PPP funding meant to support small businesses, but its subsidiary status to a Beijing-based asset manager draws attention to another question that has dogged the lending program since its inception: Do foreign-owned entities qualify for PPP loans?
Business owners and experts say a lack of guidance on the matter has led to uncertainty among applicants and lenders — shutting out some small businesses owned by immigrants that may qualify, while allowing other foreign-owned companies to cash in.
No clear answer
The trouble started before the PPP even began, says Matthew Moriarty, a partner with Koprince Law focused on government contract litigation.
In the days before the program officially launched, a draft application form was released, indicating that if more than 20% of the business was owned by a foreign individual or company, the application would be denied.
“I had a couple of calls from people asking me what to do about that because they didn’t know if that was accurate or not,” Moriarty said. He began to dig into it, but before the program opened, it seemed his question was at least partially answered. The form was updated to ask instead that applicants verify that the individuals on their payroll are U.S. citizens or permanent U.S. residents. Ownership by a foreign company was no longer listed as a disqualifier.
To Moriarty and others in his field, this seemed like something of a green light for foreign-owned businesses.
“Generally speaking, the rule in America is: If the law doesn’t say that you can’t, then you can. I don’t see anywhere where it says, ‘You have a foreign owner, you’re out,’” he said.
But now, nearly six weeks after lenders started accepting PPP applications, it seems the confusion persists. Moriarty says he still gets calls from businesses with foreign owners asking about their eligibility, and plenty more calls from applicants who say they were rejected or told not to apply by their bank because of their foreign ownership, even though they appear to satisfy the other requirements for the program.
“We went back to the law, looked through it, trying to find a reason why that might be. We dug deep, as far as we could go, and never found anything,” Moriarty said.
But it’s the lenders, not the lawyers, who ultimately determine who gets the stamp of approval.
“I can understand why banks might still be wary about this because they know, initially, that it looked like if you were owned by a foreign entity you were not going to be eligible,” Moriarty said, noting they would almost certainly be aware of the revision. “However, it was not the type of change that was made in a public way so that they would know for sure that the initial draft of the form just had that as an error.”
The CARES Act largely defers to the Small Business Administration (SBA) to determine eligibility for PPP loans. In the weeks since the program was signed into law, the SBA issued an interim ruling and updated its Frequently Asked Questions site without addressing the matter of foreign ownership and eligibility head-on. ABC News asked the SBA if foreign-owned companies that satisfy other all other stated terms could receive loans, but received no answer.
“The American dream”
Vittoria Lattanzio and her husband, Pasquale, thought they did have an answer.
“Our story begins as a dream, the American dream,” Lattanzio said. She said she and Pasquale visited the U.S. as tourists from Italy, and while in New York City, they realized that not many vendors were selling panzerotti — an Italian turnover they describe as a “half-moon-shaped pocket of dough filled with any number of sweet and savory ingredients.”