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."
The young couple obtained visas, moved to the city, and set up their shop -- Panzerotti Bites -- on a bustling Brooklyn street in 2018. The journey, Lattanzio said, was not easy.
"We built our project all by ourselves," she said. "It took more than three years for us to figure everything out, from the business plan to the location, not to mention the fact that we had to leave everything behind us."
Lattanzio says she and Pasquale watched as their native country was ravaged by COVID-19, and were somewhat prepared for what would happen when the virus reached New York. But there was no time to brace for the impact on their business.
"Everything stopped suddenly," she said.
They evaluated their options and decided to apply for a PPP loan to pay some of their overhead costs and keep their four employees on the payroll. They read the initial form and were disheartened to see the SBA excluded foreign citizens from the program -- but once it was revised, they were relieved.
"They were no longer discriminating [against] businesses owned by a foreign citizen," Lattanzio said.
However, when they logged into Wells Fargo's application portal to apply, Lattanzio says it indicated that that foreign businesses were exempt from the program. They quickly wrote to their bank to tell them of the error. But, says Lattanzio, her banker replied that it was no mistake.
She says Wells Fargo later told her that foreign applicants would, in fact, be considered. But by then it was too late.
"They already closed the applications," Lattanzio said. They had missed out on the first round of funding entirely.
When Congress allocated a second tranche of funding to the PPP, they were able to apply. "As for today, we are still waiting for an answer," Lattanzio said. "Fingers crossed, it is not too late to receive it. Our business future relies on it."
Much larger foreign-owned businesses have also been rejected. Nando's, a restaurant chain headquartered in South Africa with more than 40 locations in the U.S., was rejected in the first round, the company's CEO for North America, John Fisher, said in an interview with Yahoo Finance. Nando's has well over the PPP's limit of 500 employees working in the U.S., but the CARES Act makes an exception to that requirement for restaurants.
Fisher said the company decided to forgo reapplying for a PPP loan, in part because of the backlash other public companies faced after they received funds from the program.
Nando’s declined ABC News' request for comment for this story, and it's unclear if another factor could have disqualified the company from receiving a loan, but other restaurant chains with foreign parent companies have been awarded large sums. Kura Revolving Sushi Bar -- a subsidiary of the Japanese chain Kura Sushi, Inc. -- has more than 20 locations in the U.S. and secured a loan for nearly $6 million before ultimately returning it.
A potential blind spot
Critics of the PPP have decried what they say is a lack of oversight, and lax regulations governing some foreign companies could compound that issue.
"A huge problem right now is that there is a lack of transparency, which is preventing oversight and accountability," said Dennis Kelleher, president and CEO of Better Markets, a nonprofit founded in the wake of the 2008 financial crisis that promotes tighter regulation on Wall Street.
Kelleher noted that much of the limited information available to the public about loan recipients has been revealed through SEC filings, as publicly traded companies are required to disclose their receipt of loans. Foreign issuers that list on the NYSE or NASDAQ follow the same rules and regulations as U.S. companies, although there are certain exceptions for companies that qualify as foreign private issuers.
But if a foreign-owned company operates in the U.S. without involving the country's major security markets?
"The duty to disclose is often next to nothing," Kelleher said.
So for the time being at least, there's no way to determine the extent to which large, foreign-backed enterprises may be benefiting from PPP funds.
"Without disclosure by the Treasury or the SBA of PPP loans to foreign-owned entities, the American taxpayer is left to wonder how much of their hard earned dollars are supporting foreign companies," Kelleher said.
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