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Client Alert

PPP Loan Forgiveness Application: A Discussion of Recent Developments and Implications for Lenders

May 28, 2020

by Kenneth Logsdon, Steven T. Waterman, and Joseph Lynyak

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Due to economic uncertainty caused by COVID-19, Congress created the Paycheck Protection Program (the “PPP”) under sections 1102 and 1106 of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).  The PPP is administered by the Small Business Administration (the “SBA”) and provides that loans guaranteed by the SBA may be fully forgiven if borrowers use the proceeds to maintain their payrolls and pay certain specified eligible non-payroll expenses.

A significant amount of guidance has been provided by the SBA in respect of the PPP generally and on May 15, 2020, the SBA released the long-awaited Paycheck Protection Program Forgiveness Application, accompanied by detailed instructions (collectively, the “Application”).    Though the Application provides guidance to PPP loan borrowers on the details of loan forgiveness, the SBA indicates that it will continue to issue additional regulations and guidance to further assist borrowers as they complete their Applications, and provide lenders with guidance on their responsibilities in connection with the same. 

The following highlight some of the common questions and complexities regarding the forgiveness process that are answered by the Application and recent rules, together with a discussion of the implications and practical considerations for PPP lenders.

Time Period for Forgiveness 

PPP loan borrowers may be eligible to have loans forgiven if the proceeds are used for eligible expenses over the eight-week period commencing when the loan was first disbursed (the “Covered Period”).  For administrative convenience, the Application also provides an option for borrowers to calculate payroll costs using an “Alternative Payroll Covered Period” that aligns with a borrower’s regular payroll cycles in lieu of using the Covered Period.  The Alternative Payroll Covered Period is the eight-week period starting on the first day of the pay period immediately following loan disbursement.

When are Payroll and Non-Payroll Costs “Paid and Incurred”?

Under the CARES Act, PPP loan borrowers are generally eligible for forgiveness of payroll costs “paid and incurred during” the Covered Period (or Alternative Payroll Covered Period).  The Application addresses the ambiguity under the CARES Act regarding the timing of payroll  payments and incurrences.  Specifically, payroll costs are considered paid on the day that paychecks are distributed or funds are deposited into an employee’s account.  Payroll costs are considered “incurred” on the day that an employee’s pay is earned.  Payroll costs incurred but not paid during a borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.  Eligible non-payroll costs must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.  Note that eligible non-payroll costs must be tied to the Covered Period and not the Alternative Payroll Covered Period.  Finally, both payroll and non-payroll costs that are both paid and incurred can be counted only once.

Costs Eligible for Forgiveness 

Eligible payroll costs are the key factor to maximizing PPP loan forgiveness. No less than 75% of all eligible costs for forgiveness spent during the Covered Period/Alternative Payroll Covered Period must be eligible payroll costs.  For purposes of calculating forgiveness, compensation under “payroll costs” includes “gross salary, gross wages, gross tips, gross commissions, paid leave (vacation, family, medical or sick leave not including leave covered by the Families First Coronavirus Response Act), and allowances for dismissal or separation paid or incurred during the Covered Period (or the Alternative Payroll Covered Period).”

The SBA has determined that the CARES Act’s definition of the term “payroll costs” should be interpreted broadly to include compensation in the form of salary, wages, commission payments to furloughed employees, bonuses, hazard pay or similar compensation. If a borrower pays furloughed employees their salary, wages, or commissions during the Covered Period/Alternative Payroll Covered Period (even if those employees are not able to perform their day-to-day duties), then those payments are eligible for forgiveness.  Importantly, for purposes of calculating compensation for each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the selected Covered Period or Alternative Payroll Covered Period.

Eligible non-payroll costs, per the Application consist of the following:

(a) Business mortgage interest payments (not including payment of principal and not including any advance payment of interest) during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020;
(b) Business rent or lease payments during the Covered Period pursuant to lease agreements for real or personal property in force before February 15, 2020; and
(c) Business utility payments during the Covered Period for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access,  which service began before February 15, 2020.

Loan Forgiveness Reductions and Safe Harbors

A PPP loan borrower’s forgiveness amount can be reduced if: (i) the borrower has on average fewer “full-time-equivalent” (“FTE”) employees during the Covered Period/Alternative Payroll Covered Period as compared to the borrower’s chosen reference period (either (a) February 15, 2019 to June 30, 2019 or (b) January 1, 2020 to February 29, 2020) (the “FTE Reduction”); or (ii) any salary or hourly reductions (the “Salary/Hourly Reduction”) for specified employees (employees making less than $100,000 at an annualized rate during 2019) during the Covered Period/Alternative Payroll Covered Period by more than 25% compared to the calendar quarter ending March 31, 2020.

  • FTE Reduction and Exemptions and Exceptions

The FTE Reduction is calculated by dividing the Average FTE employees during the Covered Period/Alternative Payroll Covered Period by the Average FTE employees during the borrower’s chosen reference period (either: (i) February 15, 2019 to June 30, 2019; or (ii) January 1, 2020 to February 29, 2020).  Once the FTE Reduction is determined (which cannot be greater than 1), the borrower must then multiply that ratio by the total of all eligible costs paid/incurred during the Covered Period (or Alternative Payroll Covered Period).  However, a borrower is exempt from application of the FTE Reduction if both of the following conditions are met: (a) the borrower reduced its average FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and (b) the borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the borrower’s pay period that included February 15, 2020.

For purposes of calculating the FTE Reduction, a borrower will not be required to include any employees in two circumstances. The first is the situation in which:  (a) the borrower made a good-faith, written offer to rehire an employee during the Covered Period (or the Alternative Payroll Covered Period) which was rejected by the employee; (b) the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours; (c) the borrower has maintained records documenting the offer and its rejection; and (d) the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

The second situation is that instance in which any employee who during the Covered Period (or the Alternative Payroll Covered Period): (a) was fired for cause; (b) voluntarily resigned; or (c) voluntarily requested and received a reduction of their hours.  If a borrower wishes not to include employees in the preceding sentence for purposes of calculating the FTE Reduction, then records must be maintained demonstrating that each such employee was fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction.

“Average FTE” during the Covered Period or Alternative Payroll Covered Period is calculated by taking the average number of hours worked per week divided by 40 (rounded to the nearest tenth). The maximum for each employee is capped at 1.0 and the Application allows for a borrower to use a simplified method that assigns a “1.0” for employees who work 40 hours or more per week and a “0.5” for employees who work fewer than 40 hours per week. Note that this is not the same formulation used by the IRS, which is a 30-hour week standard.)

  • Salary/Hourly Reduction

In addition to the FTE Reduction criteria described above, the Application includes a salary and hourly component pursuant to which the amount of loan forgiveness will be reduced, dollar for dollar, in an amount equal to the reduction of the salary or hourly wages of certain employees during the Covered Period (or the Alternative Payroll Covered Period) as compared to the calendar quarter ending March 31, 2020.  The Salary/Hourly Reduction calculation is performed on a per employee basis, not in the aggregate.  Nonetheless, the Salary/Hourly Reduction will not apply if: (i) the annual salary or hourly wage of an employee as of February 15, 2020 is greater than the average annual salary or hourly wage between February 15, 2020 and April 26, 2020; and (ii) the average annual salary or hourly wage of such employee as of June 30, 2020 is equal to or greater than the annual salary or hourly wage as of February 15, 2020.  In addition, the SBA has determined that, in order to ensure that a PPP borrower is not doubly penalized under the Salary/Hourly Reduction and the FTE Reduction, the Salary/Hourly Reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE Reduction. In other words, if a borrower merely reduces the hours of a full-time employee to below 40 hours per week, but does not reduce the hourly wage, then the reduction in the employee’s total wages is entirely attributable to the FTE Reduction. Therefore, the borrower is not required to conduct a Salary/Hourly Reduction calculation for such employee.

Documentation and Review Process

  • Documentation

The Application states that certain documentation must be submitted and retained by borrower. Specifically, with its Application a borrower must submit documentation supporting payroll and FTE employee and non-payroll calculations.  Furthermore, a borrower must maintain for a period of not less than six years after the date the loan is forgiven or repaid in full, the following:

a. PPP Schedule A Worksheet or its equivalent and the following:

i) Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
ii) Documentation supporting the listing of each individual employee in PPP Schedule A Worksheet Table 2, specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
iii) Documentation regarding any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
iv) Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”.

b. All records relating to a borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting such borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support a borrower’s loan forgiveness application, and documentation demonstrating a Borrower’s material compliance with PPP requirements.

PPP borrowers are required to make certain representations and certifications in the Application as to the information provided in the Application and supporting documentations.  For example, a borrower is required to attest that information provided in the Application and the information provided in all supporting documents is true and correct in all material respects, and a certification that the tax documents submitted to the lender are consistent with those the borrower has submitted/will submit to the IRS and/or state tax or workforce agency.  Lenders administering Applications are allowed to rely on a borrower’s certifications.  Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower. Nonetheless, lenders are expected to perform a good-faith review, in a reasonable time, of a borrower’s calculations and supporting documents concerning amounts eligible for loan forgiveness, which may create legal risk to the PPP lender if deemed unacceptable to the SBA (discussed further below).

Lenders must also comply with applicable SBA requirements for records retention, which for federally regulated lenders means compliance with the requirements of their federal financial institution regulator.

  • Application Review

If loan documentation submitted to the SBA by the lender or any other information indicates that the PPP borrower may be ineligible for a PPP loan or may be ineligible to receive loan forgiveness, the SBA will require the lender to contact the borrower in writing to request additional information. The SBA may also request information directly from the borrower, and the lender must provide to the SBA any additional information it receives from the borrower. The SBA will consider all information provided by the borrower in response to an inquiry. Failure to respond to the SBA’s inquiry may result in a determination that the borrower was ineligible for a PPP loan or loan forgiveness. If the SBA determines that a borrower is ineligible for the PPP loan or loan forgiveness, the SBA may (i) direct the lender to deny the loan forgiveness application in whole or in part, as appropriate or (ii) seek repayment of the outstanding PPP loan balance or pursue other available remedies.  The SBA intends to issue a separate interim final rule addressing a borrower’s right to appeal a determination that borrower was ineligible for a PPP loan or loan forgiveness. 

Implications for PPP Lenders

  • Review of Loan Forgiveness Applications

For the meantime, PPP lenders need to be prepared to review and make decisions regarding loan forgiveness and therefore should implement appropriate policies and procedures.  First, upon receipt of an Application, a lender will have 60 days to issue a decision to the SBA. That decision may take the form of an approval (in whole or in part), denial or (if directed by the SBA) a denial without prejudice due to a pending SBA review of the loan for which forgiveness is sought.  Unless the SBA determines that the borrower was ineligible for a PPP loan and in the case of a denial without prejudice, the borrower may subsequently request that the lender reconsider its Application for loan forgiveness.

If a PPP lender determines that a borrower is entitled to forgiveness, then the lender must request payment from the SBA at the time the lender issues its decision to the SBA. When the lender issues its decision to the SBA approving an Application (in whole or in part), it must include the calculation form, PPP Schedule A to the Application and the (optional) PPP Borrower Demographic Information Form (if submitted to lender).  The SBA, not later than 90 days after the lender issues its decision to SBA and subject to any SBA review of the loan or loan application, will remit the appropriate forgiveness amount to the PPP lender, plus any interest accrued through the date of payment, but deducting any EIDL advance (if applicable) [Note: the SBA has stated that it will issue additional procedures on the process for advance purchases of PPP loans].

If a PPP lender determines that a borrower is not entitled to forgiveness, then the lender must provide the SBA with the reason for its denial along with the calculation form, PPP Schedule A to the Application and the (optional) PPP Borrower Demographic Information Form (if submitted to lender).  The lender must also notify the borrower in writing that the lender has issued a decision to the SBA denying the loan forgiveness application. The SBA reserves the right to review the lender’s decision in its sole discretion. Within 30 days of notice from the lender, a borrower may request that the SBA review the lender’s decision.

In connection with the review of each Application, a lender must confirm:

(i) Receipt of the borrower certifications contained in the Application;
(ii) Receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the Application;
(iii) The borrower’s calculations on the Application, including the dollar amount of the cash compensation, non-cash compensation, and compensation to owners claimed on Lines 1, 4, 6, 7, 8, and 9 on PPP Schedule A of the Application and business mortgage interest payments, business rent or lease payments, and business utility payments claimed on Lines 2, 3, and 4 on the calculation form submitted with the Application; and 
(iv) That the borrower made the calculations on Line 10 of such calculation form correctly, by dividing the borrower’s eligible payroll costs claimed on Line 1 by 0.75.

As noted above, lenders are expected to perform a good-faith review, in a reasonable time, of a borrower’s supporting documents. While the SBA has indicated that a lender does not need to independently verify a borrower’s reported information if the borrower submits documentation supporting its request for loan forgiveness and attests that it accurately verified the payments for eligible costs, if the lender identifies errors in the borrower’s calculations or material lack of substantiation in the borrower’s supporting documents, then the lender should work with the borrower to remedy the issue.

If the SBA determines that a borrower was ineligible for the PPP loan, then the loan will not be eligible for loan forgiveness. If only a portion of the loan is forgiven, or if the forgiveness request is denied, then any remaining balance due on the loan must be repaid by the borrower on or before the two-year maturity of the loan.  If the amount remitted by the SBA to the lender exceeds the remaining principal balance of the PPP loan (because the borrower made scheduled payments on the loan after the initial deferment period), then the lender must remit the excess amount, including accrued interest, to the borrower. Importantly, the general loan forgiveness process described above applies only to loan forgiveness Applications that are not reviewed by the SBA prior to the lender’s decision on the forgiveness application.  In other words, the above is inapplicable to independent reviews of PPP loans by the SBA, which it may undertake at any time in its sole discretion.

  • Notice of Review by SBA

If a lender receives notice that the SBA is reviewing a loan, then the lender must notify the PPP borrower in writing within five business days of receipt and, within such time period, transmit to the SBA electronic copies of the following:

(a) The Borrower Application Form (SBA Form 2483 or lender’s equivalent form) and all supporting documentation provided by the borrower;
(b) The Application (SBA Form 3508 or lender’s equivalent form), and all supporting documentation provided by the borrower (if the lender has received such Application);
(c) Schedule A Worksheet to the Application;
(d) A signed and certified transcript of account;
(e) A copy of the executed note evidencing the PPP loan; and 
(f) Any other documents related to the loan requested by the SBA.

If the SBA has notified the lender that the SBA has commenced a loan review, then the lender shall not approve any Application for loan forgiveness for that loan until the SBA notifies the lender in writing that the SBA has completed its review.

  • Lender Fees

If the SBA conducts a loan review and determines that the borrower was ineligible for a PPP loan, then the lender is not eligible for a processing fee and any such fee that has been paid is subject to the SBA’s claimed clawback right. Specifically, if within one year after a PPP loan was disbursed the SBA determines that a borrower was ineligible for a PPP loan, then the SBA will seek repayment of the lender processing fee from the lender.

Importantly, however, the SBA’s determination of borrower eligibility will have no effect on the SBA’s guaranty of a loan if the lender has complied with its obligations and the document collection and retention requirements described in the lender application form (SBA Form 2484). Furthermore, if a PPP lender fails to satisfy the requirements applicable to lenders or the document collection and retention requirements described in the lender application form (SBA Form 2484), the SBA will seek repayment of the lender processing fee and may determine that the loan is not eligible for a guaranty.

In light of the above, lenders participating in the PPP and administering the review and processing of Applications should be sure to implement safeguards. Specifically, lenders should revisit their respective quality control guidelines to determine whether those guidelines should be updated or revised to encompass training for staff, procedures for spotting and handling clear errors or obvious misstatement of facts, a unique escalation process specific to PPP loan forgiveness related matters and a PPP loan forgiveness application checklist.

 

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EPA estimates that the proposal would result in approximately $45 billion in savings, while preserving what the agency considers appropriate methane emission controls. EPA’s proposal was published in the Federal Register on October 29, 2026. Comments must be received on or before December 16, 2026.  Significantly, EPA is not using this rulemaking to reconsider its general authority to regulate methane emissions from the oil and natural gas sector. Rather, the agency is addressing specific requirements adopted in the 2024 methane rule, while broader questions concerning greenhouse gas regulation are being addressed in separate proceedings. The present proposal therefore focuses on the appropriate design and scope of particular methane regulations, rather than resolving the threshold question of whether methane may be regulated under the Clean Air Act at all. I.    EPA Proposes to Eliminate the Super Emitter Program Among the proposal’s most consequential changes is the complete elimination of the Super Emitter Program. Adopted in 2024, the program created a regulatory framework under which EPA-certified third parties could identify large methane releases using approved remote-sensing technologies. Upon receiving a qualifying notification from EPA, owners and operators were required to investigate the reported emissions event, report findings to EPA, and take corrective action where necessary. EPA now proposes to repeal the Super Emitter Program in its entirety. The agency questions the program’s legal and policy foundations, including the role of third parties in identifying emissions events and triggering regulatory obligations. 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The 2024 rule determined that the best system of emission reduction (“BSER”) generally required operators to capture and beneficially use associated gas by routing it to a sales line, using it onsite, or reinjecting it, rather than routinely flaring it. Although EPA provided certain transition periods and compliance flexibilities, particularly for wells facing infrastructure constraints, the rule ultimately established a framework strongly favoring capture and utilization over flaring. Since promulgation, EPA has received significant feedback regarding gathering-system limitations, gas quality issues, and other practical barriers operators face in securing outlets for associated gas. In response, EPA proposes to replace the existing capture-focused approach with a substantially more flexible standard. 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Moreover, EPA stated in the preamble to the 2024 rule that any identified emissions would constitute a deviation of the emissions limitation, resulting in a framework under which the observation of emissions could itself establish noncompliance. EPA now proposes to separate the requirements into distinct design and operational components and to fundamentally alter how compliance with the operational NIE requirement is evaluated. EPA proposes to distinguish between deviations of the design requirements and deviations of the operational NIE requirements. Under the proposed approach, failure to repair an identified emission or defect within 24 hours would constitute a deviation of the design requirement, although not necessarily an underlying violation. Separately, operators could demonstrate compliance with the operational NIE requirement by making repairs as soon as practicable, with an initial repair attempt within five days and final repair within 30 days, or by qualifying for the existing delay-of-repair provisions. A deviation of the operational requirement would occur if the applicable repair deadlines are not met and the delay-of-repair provisions do not apply. The proposal also establishes a new framework for addressing recurring or “chronic” emissions events. After the third emissions event or defect from the same cover or CVS within a year, the owner or operator would be required to conduct an investigative analysis within 10 days to determine whether the underlying cause relates to equipment design, operation, maintenance, or prior repair efforts. The results of that investigation would have important compliance implications. If recurring emissions are attributable to a design flaw, EPA would treat the issue as a deviation of the design requirements. If the emissions result from inadequate prior repairs, the deviation would be attributed to the repair requirements. If operations, maintenance, or other site practices are responsible, the deviation would be classified under the operational requirements. EPA would also require implementation of corrective measures identified through the analysis, including design modifications within 90 days and operational or maintenance-related corrective actions within 30 days. Taken together, these revisions would shift the NIE standard away from a framework in which the mere presence of emissions may establish noncompliance and toward one that focuses on whether operators identify emissions, complete timely repairs, investigate recurring problems, and address the root causes of repeated emissions events. IV.    Solicitation of Comment on “Legally and Practicably Enforceable” Standard EPA is also soliciting comment on the definition of “legally and practicably enforceable” (“LPE”), which industry has identified as one of the more problematic existing requirements. Under the 2024 rule, EPA adopted an interpretation of LPE that many commenters argued effectively disqualifies numerous state regulatory programs, permits, and other federally enforceable mechanisms from serving as the basis for remaining below applicable Subpart OOOOb storage tank thresholds. In particular, stakeholders have asserted that the current LPE framework makes it difficult for state air permitting programs and other state regulatory requirements to satisfy EPA's criteria, thereby causing more storage tanks and other emission units to remain subject to Subpart OOOOb requirements than would otherwise be the case. EPA now requests comment on whether its current interpretation of LPE is overly restrictive and whether alternative approaches would better account for the manner in which state permitting and regulatory programs are administered and enforced. The request is significant because a broader interpretation of LPE could allow a wider range of federally enforceable state permits and regulatory requirements to satisfy exemption criteria under OOOOb, potentially reducing the number of storage tanks and other sources subject to direct NSPS regulation. As a result, the LPE issue has implications that extend beyond compliance mechanics and could materially affect the scope of sources regulated under the federal methane program. V.    Revised Requirements for Marginal Wells EPA is also proposing significant revisions to the treatment of lower-producing wells under Subparts OOOOb and OOOOc. The agency notes that marginal wells constitute a substantial portion of the nation’s producing well inventory but account for a relatively small share of overall production. At the same time, EPA discusses studies estimating that marginal wells contribute a disproportionate share of methane emissions from oil and natural gas production. The agency is evaluating whether the 2024 rule appropriately accounts for the operational characteristics, emissions profiles, and compliance costs associated with these wells. To address those concerns, EPA is proposing two alternative approaches to well-site subcategorization. Under the first option, EPA would distinguish between marginal and non-marginal well sites. EPA proposes to define a marginal well as a well that produced no more than 15 barrels of oil equivalent (“BOE”) per day over the prior 12-month period and a marginal well site as a site consisting exclusively of marginal wells with total site-wide production of no more than 15 BOE per day over the same period. EPA is also soliciting comment on whether marginal wells should be further subdivided based on production levels, including a potential distinction between sites producing 6 BOE per day or less and sites producing more than 6 BOE but no more than 15 BOE per day, which could result in additional regulatory flexibility for the lowest-producing wells. Under the second option, EPA would distinguish between conventional and unconventional well sites and tailor requirements based on that classification, including reduced requirements for conventional wells. The agency is seeking comment on which framework better reflects the operational and emissions characteristics of different well sites, as well as whether additional subcategories should be established within the marginal-well population and the extent to which compliance requirements should differ among categories. VI.    LDAR, Pneumatic Controllers, Control Device Monitoring, and Facility Modifications EPA's proposal also includes several targeted revisions to the 2024 rule's leak detection and repair (“LDAR”) requirements. Most notably, EPA proposes additional flexibility in the use of advanced monitoring technologies and seeks to move away from compliance frameworks that rely heavily on a single detection method. The agency is proposing changes intended to facilitate the use of multiple monitoring technologies, including optical gas imaging and other alternative detection approaches, and is seeking comment on whether technology-neutral compliance options can achieve equivalent emissions reductions at lower cost. EPA also proposes revisions for components and equipment that are particularly difficult to monitor using conventional LDAR methods, reflecting concerns that certain 2024 requirements may not be practical or cost-effective in the field. More broadly, EPA questions whether some of the monitoring frequencies adopted in 2024 appropriately balance compliance burdens and emissions-reduction benefits and seeks comment on additional opportunities to tailor LDAR obligations based on emissions risk and source characteristics. EPA also proposes technical revisions to requirements governing control devices and related equipment. These include changes addressing continuous pilot-flame requirements, flame-monitoring data deviations, control-device alerts, visible-emissions test conditions, temporary or backup control devices, temporary process controllers, and control-device categories. The agency’s stated objective is to provide additional compliance flexibility while maintaining appropriate emissions controls. The practical effect will depend on the final requirements and the equipment and circumstances to which each amendment applies. The proposal also addresses pneumatic controllers and equipment leaks at gas processing plants. For certain high-pressure process controllers at transmission compressor stations, EPA proposes a separate regulatory approach based on its reassessment of technical feasibility and cost. The proposal should not be read as establishing a general exemption for pneumatic controllers across the industry. EPA also proposes changes to other equipment-specific requirements, including requirements applicable to pumps, storage vessels, and equipment leaks at gas plants, in response to concerns raised following promulgation of the 2024 rule. Finally, EPA proposes changes to certain requirements governing liquids unloading and other well-site operations, as well as technical corrections and clarifications to the existing regulatory text. These provisions form part of EPA’s broader effort to address implementation concerns and reassess the costs and expected emissions reductions associated with selected requirements in the 2024 rule. Operators should evaluate the specific proposed amendments applicable to their facilities rather than assume that the proposal would provide across-the-board relief from existing monitoring, equipment, or control-device obligations. VII.    Implications for States and Future Congressional or Administrative Action EPA’s proposal would substantially revise several consequential elements of the 2024 methane rule, but it would not eliminate regulation of existing oil and natural gas sources under Clean Air Act § 111(d). As a result, states remain subject to the existing obligation to develop and submit plans for existing sources. If the proposed revisions are finalized, states currently developing those plans may need to reevaluate key program elements, including requirements relating to associated gas, well-site subcategories, the Super Emitter Program, and other compliance obligations. The proposal does not itself extend the January 22, 2027 deadline for state-plan submissions established under the existing framework. The Congressional Review Act (“CRA”) remains a potential source of uncertainty. Depending on when EPA submits a final rule to Congress and the applicable congressional-session timing, a future Congress and President could seek to disapprove the rule under the CRA. A successful disapproval would invalidate the rule and generally restrict the agency from issuing a rule in substantially the same form absent subsequent statutory authorization. The CRA’s lookback provisions can affect the period during which a rule remains subject to congressional review, so the risk cannot be assessed solely by reference to the calendar year in which the rule is finalized. The timing of finalization and submission to Congress, together with the applicable congressional calendar, will determine the extent of that exposure. Finally, unlike the CRA, which can nullify a recently promulgated rule through legislative action, a future administration seeking to unwind this rule would generally need to proceed through a new notice-and-comment rulemaking. EPA would need to revisit the underlying BSER determinations, cost analyses, technical feasibility findings, and enforceability conclusions that support the final rule. Because this proposal is grounded heavily in findings regarding achievability, legal and practical enforceability, and cost-effectiveness, a future administration would need to develop a sufficient record supporting different conclusions before reinstating more stringent requirements. Consequently, the final rule may prove more durable than prior pendulum swings, even if it remains politically controversial.

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Observations on the SEC’s 2027 Examination Priorities

The SEC’s Division of Examinations (the “Division”) recently announced its examination priorities (“Exam Priorities”) for fiscal year 2027.1 Although many of the Division’s core areas of focus remain consistent with fiscal year 2026, the 2027 Exam Priorities include notable changes and refinements, which we discuss below, along with other key 2027 examination priorities. Dorsey Observations Renewed focus on economic conflicts of interest. After certain economic-incentive topics received less emphasis in the 2026 Exam Priorities2, the Division has again expressly identified economic conflicts as an examination focus. The 2027 Exam Priorities indicate that the Division will prioritize reviewing advisers’ fiduciary obligations relating to economic conflicts of interest raised by fee rebates, fee and expense calculations, cash management, quid pro quo arrangements, and deposits and withdrawals. Greater emphasis on private-fund practices. Building on the private-fund items in the 2026 Exam Priorities, the 2027 Exam Priorities indicate that the Division will assess private-fund disclosures and controls relating to investment allocations, leverage, affiliated service providers, and fees and expenses. The Division also identified investments in private companies through special purpose vehicles (“SPVs”) and loans provided by private funds and business development companies (“BDCs”) as products the Division will scrutinize. Advisers, particularly private-fund advisers, should evaluate whether their disclosures and compliance programs address these areas. Expanded focus on AI-related cybersecurity risks. While the 2026 Exam Priorities focused on advisers’ use of and representations regarding artificial intelligence (“AI”), the 2027 Exam Priorities specifically highlight AI-enabled cybersecurity threats, including AI-generated phishing and synthetic or “deepfake” voice and video used for social engineering. The shift signals that registrants should consider whether their cybersecurity policies and controls adequately address these evolving threats. New focus on proxy advisory firms. The 2027 Exam Priorities state that the Division will examine advisers that rely on proxy advisory firms, including how those advisers evaluate the firms’ recommendations, assess the bases for those recommendations, identify potential conflicts of interest, and determine whether that reliance satisfies applicable legal obligations. Advisers that rely on proxy advisory firms may wish to consider whether their compliance programs address these areas. Updated focus on Regulation S-P and Regulation S-ID. The 2026 Exam Priorities stated that the Division would engage firms during examinations regarding their progress in preparing incident response programs ahead of the compliance dates for the amendments to Regulation S-P and would examine compliance with the amended rule after those dates. The 2027 Exam Priorities indicate that examinations will focus on whether firms have developed, implemented, and maintained reasonably designed policies and procedures addressing administrative, technical, and physical safeguards to protect customer information and that, in accordance with the amended rule, staff will evaluate response program policies and procedures for unauthorized access to or use of customer information, including customer notification procedures and oversight of service providers. With respect to Regulation S-ID, the 2027 Exam Priorities indicate that examiners will assess whether firms are updating their Identity Theft Prevention Program to address emerging risks, such as those related to AI and stolen credentials. Advisers may wish to consider whether their compliance programs address these areas, as applicable. Summary of Other 2027 Examination Priorities Beyond the developments discussed above, many of the Division’s core examination priorities remain consistent with fiscal year 2026. These include investment adviser fiduciary obligations and compliance programs, examinations of never-examined and recently registered advisers, and cybersecurity and operational resiliency. The Exam Priorities are not exhaustive, and examinations will vary based on each registrant’s business, activities and risks. Advisers should consider the 2027 Exam Priorities in reviewing their compliance programs and preparing for potential examinations, including by: Reviewing risk disclosures and controls. The Division states that, when examining advisers to private funds, it will assess whether investment-related risk disclosures are consistent with fiduciary standards and whether compliance policies, procedures, and controls are designed to address both fund-level and investment-level risks. Reviewing disclosures on allocations, leverage, and affiliated service providers. The 2027 Exam Priorities identify disclosures related to certain investments and allocations, the use of debt and fund-level lines of credit, and the use of affiliated service providers as examples. Confirming the accuracy of fee and expense calculations. The Division states that it will assess the accuracy of fee and expense calculations at both the fund and investment levels, and it identifies fee rebates, cash management, quid pro quo arrangements, deposits, and withdrawals as areas in which economic conflicts of interest may affect the impartiality of advice. Reviewing recommendations of illiquid or hard-to-trade products. The Division states that it will prioritize advisers that recommend products that are difficult to trade, have unusual features, or are illiquid, including loans provided by private funds or BDCs and investments in private companies through SPVs. Confirming that the compliance program is implemented and reviewed. The Division states that it will review compliance program components such as marketing, valuation, and custody, as appropriate, and will typically analyze the annual compliance review. It will also focus on compliance practices when advisers have started advising new asset classes or clients or grown through mergers or acquisitions. 1 SEC Division of Examinations 2027 Examination Priorities. 2 See Dorsey’s Client Alert on the SEC’s fiscal year 2026 exam priorities.

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Insights

2027 IARD Renewal Program Deadlines

Event/Resource

Corporate Counsel Symposium 2026 Materials Hub

Materials Symposium Agenda Sessions 8:30 am - 9:30 am CT Session A: The Corporate Compass: Finding True North When Ethical Duties Conflict Philip Kaplan, Senior Legal Counsel, Howden Re Lucia Suljic, Vice President, Corporate Legal, Canon USA Nicole Stanton, Partner & Deputy General Counsel, Dorsey & Whitney LLP This panel addresses ethical obligations of in-house counsel, including balancing obligations and duties that may conflict with each other. How should a responsible in-house lawyer deal with those challenging situations? Rather than stick to an academic discussion, this panel will revolve around a series of practical scenarios that are designed to be realistic and timely, including situations where counsel is asked to represent both the company and an individual, how and when to disclose uncomfortable facts and inconvenient documents, issues involving changing firms and companies, and multijurisdictional practice. The panel will feature discussion from two experienced in-house lawyers and Dorsey’s Deputy General Counsel. Session B: Managing Rapid Regulatory Change in International Trade and Cross-Border Investment Nathan Brower, Executive Vice President, General Counsel, Nature’s Sunshine Greg Ogunsanya, Senior Vice President, General Counsel and Corporate Secretary, H.B. Fuller Kathryn Wood, Senior Vice President & General Counsel, DecoPac, Inc. Dave Townsend and Lawrence Ward, Dorsey & Whitney LLP This program is designed for attorneys advising on cross-border transactions, international trade, regulatory compliance, and corporate governance matters. Panelists will examine recent developments in U.S. trade and investment law and policy, as well as their impact on international collaborations, corporate compliance, and mergers and acquisitions. The discussion will explore how general counsel and in-house legal teams assess and manage evolving trade-related risks within their organizations. Particular focus will be given to developments during the first two years of the second Trump Administration, including changes in tariff policy, tariff refunds, export controls, economic sanctions, and national security reviews of foreign investment. Through a discussion of regulatory trends and practical case studies, attendees will gain a deeper understanding of the legal risks and compliance obligations associated with cross-border business activities, and hear about practical strategies for advising clients and managing compliance obligations in a rapidly changing trade and investment environment. 9:45 am - 10:45 am CT Session A: The Elon Musk Cases: What Tesla and Twitter Can Teach Your Board of Directors Loren Unterseher, Managing Partner, Oxbow Industries, LLC Shulamite White, Chief Legal Officer and Head of People, Motive Technologies Kirsten Schubert, Tom Swigert, and Jonathan Van Horn, Dorsey & Whitney LLP Recent cases involving Elon Musk and his businesses have had significant impact on principles governing board of directors’ fiduciary duties and corporate processes. This panel will examine recent litigation involving Elon Musk, Tesla, and Twitter, and its effects on the law governing the duties of directors and executives, including the executive compensation and director compensation processes, conflicts that may arise when a single executive has control over multiple businesses, and the ramifications of tweets or other public statements by an executive. Session B: All Eyes on DEI: Managing Diversity Efforts Amid Regulatory Scrutiny and Potential Litigation Maggie Dalton, Senior Commercial Attorney, Cargill; Board Co-Chair, Twin Cities Diversity in Practice Laura A. Vannelli, Legal Counsel, Mayo Clinic Susan Lorenc and Jack Sullivan, Dorsey & Whitney LLP The legal and regulatory landscape surrounding diversity, equity, and inclusion (DEI) initiatives has changed dramatically over the past two years. Law firms and legal departments are continuing to grapple with how to recruit, retain, and develop talent from a wide range of personal backgrounds, in a world where previously accepted recruiting and employment practices are facing increased scrutiny and litigation. This program will provide a practical overview of the current legal regime, including recent federal enforcement actions and litigation trends associated with DEI initiatives. Panelists will discuss practical ways in which organizations can pursue and retain legal talent and increase inclusion while minimizing legal, business, and reputational risk. 11:00 am - 12:00 pm CT Session A: Governance in an Age of Increasing Unpredictability James Chosy, Senior Executive Vice President and General Counsel, U.S. Bancorp Todd Hartman, Executive Vice President and Chief Legal and Risk Officer, Best Buy Co., Inc. Alan Rosselot, Associate General Counsel & Assistant Secretary, Delta Air Lines, Inc. Cam Hoang and Robert Rosenbaum, Dorsey & Whitney LLP More than ever, ensuring that boards are well-informed and forward-thinking is critical to a company’s success. Join our panel of corporate governance experts as they share their experiences advising boards through crisis and unpredictable events; capitalizing on, but also checking, disruptive technologies; and positioning the company to succeed in an environment of shifting government priorities. Session B: A Day in the Life of a Trademark, Copyright & Advertising Attorney: A Hypothetical Case Study Alexander Kim, Vice President and General Counsel, Binks Nate Whitaker, Chief Legal Officer and General Counsel, Crumbl Cathy Dahl and Tiffany Shimada, Dorsey & Whitney LLP What issues are companies facing daily while developing rights in intellectual property, protecting those rights, and staying in compliance with myriad potential issues related to advertising, social media, relationships with influencers, and environmental or governmental claims? This panel will feature two in-house counsel who are navigating these issues, utilizing a hypothetical case study, with the support of two Dorsey attorneys helping to develop a roadmap for meeting business objectives and minimizing the risk of claims. 12:00 pm - 1:15 pm CT Keynote Address Dr. Rebecca Heiss, Stress Physiologist Dr. Rebecca Heiss is a stress physiologist, author, and sought-after speaker who helps audiences transform fear and stress into fuel for greater performance and resilience. Her research has been recognized as “transformative” by the National Science Foundation, and she is the author of two books, Springboard and Instinct. Through her Fear(less) message, Rebecca inspires audiences with practical, science-based strategies to train our brains to work for us – not against us – and navigate change and uncertainty with greater confidence.

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Dorsey & Whitney Advises Beijing Xunzhong on Two Consecutive H Share Placings Raising HK$418.5 Million

International law firm Dorsey & Whitney LLP acted as Hong Kong legal advisors to Beijing Xunzhong Communication Technology Co., Ltd. (“Xunzhong”) as to Hong Kong law in connection with two consecutive placings of new H shares under general mandate (the “First Placing” and the “Second Placing”, respectively, and together, the “Placings”). Xunzhong’s H shares are listed on the Main Board of the Hong Kong Stock Exchange (Stock Code: 2597). Winbull Securities International (Hong Kong) Limited acted as sole overall coordinator and placing agent on both Placings. The First Placing of 11,190,000 new H shares at HK$28.20 each was completed on September 17, 2026, followed by the Second Placing of 3,550,000 new H shares at HK$29.00 each on October 30, 2026. The Placings raised approximately HK$315.56 million and HK$102.95 million in gross proceeds, respectively, or approximately HK$418.51 million in aggregate (approximately HK$415.96 million in aggregate net proceeds). Both Placings were conducted under the same general mandate granted by shareholders at Xunzhong’s 2025 annual general meeting, and each was completed within one week of the signing of its placing agreement. Completing placings in consecutive months is relatively uncommon in the Hong Kong market, and doing so called on the technical depth of Dorsey’s Hong Kong Capital Markets team. Working closely with Xunzhong to understand its business needs and prepare the transaction documents, the team addressed in quick succession the remaining capacity under the general mandate, disclosure of the use of proceeds and the maintenance of Xunzhong’s public float, enabling both Placings to be completed seamlessly. “We are pleased to have advised Xunzhong on both Placings,” said Rachel Han, Partner and Co-Head of Dorsey’s Asia Capital Markets practice. “We appreciate the trust placed in our team and the close collaboration among all parties involved. We look forward to supporting Xunzhong as it continues to execute its growth strategy and pursue future capital markets opportunities.” Xunzhong is principally engaged in cloud-based communications services and enterprise digitalization services in the PRC. As disclosed in its announcements, the net proceeds of the First Placing are allocated to developing Xunzhong’s new computing power operation services business, while those of the Second Placing will be used to integrate model-as-a-service (MaaS) and AI agent capabilities into its existing cloud communications platform-as-a-service (PaaS) platform and software-as-a-service (SaaS) products. Approximately 55% of the net proceeds of the Second Placing will be used for computing power equipment upgrades for the MaaS system, approximately 35% for MaaS, PaaS and SaaS platform upgrades, and approximately 10% for working capital and general corporate purposes. With a single MaaS platform and shared computing power supporting its PaaS and SaaS offerings, Xunzhong intends for its MaaS, PaaS and SaaS capabilities to complement and reinforce one another, and to address customer needs from multiple angles, from embedding AI in customer communications and business workflows to maintaining stable performance at scale and keeping customer data within controlled environments. Partner and Co-Head of Dorsey’s Asia Capital Markets practice Rachel Han and Of Counsel in the Capital Markets and Corporate Compliance group Carlton Ng, along with Associate Kristy Ting, led the Dorsey Hong Kong Capital Markets & Corporate Compliance group in advising Xunzhong on both Placings.

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Minnesota Consumer-Fraud Enforcement: Disclaimers Won’t Cure Deception, and Penalties Can Add Up

Misleading advertising claims can lead to costly consequences. In State of Minnesota ex rel. Ellison v. Wall & Associates, Inc., No. A25-2064, 2026 WL 3118291 (Minn. App. Oct. 19, 2026), the Minnesota Court of Appeals recently affirmed a bench trial verdict against a tax-relief company and two executives for violations of the Minnesota Consumer Fraud Act (“MCFA”) and the Minnesota Deceptive Trade Practices Act (“MDTPA”). The decision, which affirmed a substantial restitution and civil penalty judgment, underscores the broad power of the Minnesota Attorney General to act against deceptive sales practices. The decision also offers practical lessons for businesses seeking to reduce liability risks in consumer-facing communications. Background Wall & Associates (“W&A”), a Virginia-based tax-relief company, marketed assistance to taxpayers seeking relief from outstanding federal and state tax liabilities, often with offers in compromise—agreements to settle tax liabilities for less than the amount owed. In its extensive advertising campaigns, W&A represented that its average client received a 90% reduction in their tax debt, that it was a local company with Minnesota offices, that it provided legal services, and that it would “Solve ALL Tax Problems.” In reality, W&A’s promises bore little resemblance to what many clients received. Most of W&A’s clients saw just a 9.5% reduction in federal tax debt and 1.2% in state tax debt. W&A had no permanent Minnesota offices. And W&A provided neither legal representation nor assistance with filing tax returns—those services required referrals to separate firms for an additional fee. All the while, W&A clients paid upfront and recurring fees, including during periods when W&A did no work on their cases. Minnesota Attorney General Keith Ellison sued W&A, its founder and owner Ernest Kenneth Wall, and its president and CEO Patrick Mark Yates, alleging violations of, among other laws, the MCFA and the MDTPA. Following a 12-day bench trial, the district court determined that W&A violated the MCFA and MDTPA through its false and embellished advertising. The district court also held Wall and Yates individually liable for those violations because they directed, participated in, and acquiesced in the violations. The district court ordered injunctive relief, $2.7 million in restitution (with Wall and Yates jointly and severally liable for $1.3 million), and civil penalties of $786,517 against W&A, $415,500 against Wall, and $207,750 against Yates. The district court also awarded over $2.5 million in attorneys’ fees and costs to the state. W&A, Wall, and Yates appealed to the Minnesota Court of Appeals, which affirmed the district court’s decision on October 19, 2026. Although W&A, Wall, and Yates challenged the judgment on numerous grounds, several highlights of the decision provide important takeaways for consumer-facing businesses. Individual Reliance Is Not Required for Statutory Liability W&A argued that Attorney General Ellison had to prove a causal nexus between each violation of the MCFA and MDTPA and the injury to a particular consumer to establish liability. In W&A’s view, this required proof that each injured consumer had personally relied on W&A’s false representation. The Court of Appeals rejected this argument based on the MCFA’s and MDTPA’s plain language, which requires no proof of actual deception or confusion by consumers. The Court of Appeals finally pointed to the Minnesota Supreme Court’s decision in State v. Minnesota School of Business, Inc., which held that when a defendant’s misrepresentations are directed at and affected “a broad group of consumers, proof of direct individual reliance is not required to establish a causal nexus between MCFA violations and the harm suffered by consumers.” 935 N.W.2d 124, 135 (Minn. 2019). The Court of Appeals affirmed, however, that a causal nexus is necessary to support an award of damages under the MCFA and MDTPA. In making that determination, district courts look to various factors, including whether the misrepresentations were “longstanding, pervasive, and widespread in communications directed to consumers,” whether the seller intended and understood that consumers would rely on the misrepresentations, and whether the information was of a kind on which consumers would typically rely. The Court of Appeals’ decision continues Minnesota School of Business’s broad interpretation of liability under the MCFA and the MDTPA. Coordinated marketing campaigns to a “broad group of consumers” may expose businesses to MCFA and MDTPA liability without customer-by-customer proof of injury. That said, a causal nexus remains an element of an MCFA and MDTPA claim, and businesses involved in litigation should build a clear record at trial and on appeal showing how each of the relevant factors bears on the causal-nexus inquiry. Contractual Disclaimers Are Not an Automatic Defense to a Misleading Pitch W&A next argued that disclaimers in its client contracts prevented consumers from claiming they had been misled by its advertising. Reiterating that individual reliance is not required under the MCFA and MDTPA, the Court of Appeals held that a contractual disclaimer does not necessarily defeat a claim based on a conflicting oral representation. And on the facts of this case, the Court of Appeals agreed with the district court that W&A’s contractual disclaimers were insufficient given the extensive misrepresentations by W&A and the unequal bargaining power between it and its customers. This holding confirms that contractual disclaimers are not a cure-all for misleading advertising or sales practices. Businesses should review the entire customer journey, including pre-contract representations, as those representations may survive a contractual disclaimer to the contrary. And if faced with litigation, businesses should build a strong record, both at trial and on appeal, showing why any disclaimer is effective in context. The State Has Broad Authority to Seek Restitution W&A also challenged Attorney General Ellison’s authority to seek restitution under the state’s parens patriae authority to protect residents’ collective interests, arguing that injury to only 228 Minnesotans did not affect a sufficiently substantial segment of the population. The Court of Appeals rejected a simple headcount approach, instead explaining that the state had a legitimate interest in protecting residents’ economic well-being as a whole. In any event, the Court of Appeals held that if restitution was not appropriate under the state’s parens patriae authority, then it would still be appropriate under the Attorney General’s enforcement powers under Minn. Stat. § 8.31. The decision reinforces that the broader and more sustained the deceptive advertising, the stronger the case for restitution to protect Minnesotans’ economic interests. Civil Penalties Accrue Per Violation, Not Per Defendant The Court of Appeals finally rejected W&A’s claim that the Attorney General’s enforcement powers under Minn. Stat. § 8.31 permit only civil penalties of up to $25,000 for each defendant. Rather, the Court of Appeals explained that penalties are limited to $25,000 per violation. Multiple violations can therefore produce substantially greater penalties. The Court of Appeals also rejected the argument that restitution made penalties unnecessary: repaying consumers does not eliminate the need to address gains from deceptive conduct and deter future violations. Final Takeaways Align every consumer-facing communication. Broad and extensive marketing campaigns can expose businesses to stronger enforcement standards under the MCFA and MDTPA, making it critical that consumer communications remain accurate and consistent from the first advertisement through the final sale. Plan for layered enforcement exposure. Penalties under the MCFA and MDTPA can add up quickly: W&A, Wall, and Yates ultimately faced more than $6 million in civil penalties, restitution, and attorneys’ fees. The decision continues a line of Minnesota cases recognizing the Attorney General’s broad consumer-protection authority. Details matter. Although the Attorney General’s enforcement power is broad, it is not boundless. As the Court of Appeals explained, issues of causation, the effectiveness of contractual disclaimers, and the availability of restitution and civil penalties all turn on the specific facts of the case. Effective advocacy at trial and on appeal is critical to developing the facts relevant to liability and damages.

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Dorsey Celebrates Pro Bono Week and Honors Attorneys and Business Professionals for Impactful Pro Bono Work

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Partner Mark Churchman Recognized in Financier Worldwide’s Power Players: Private Equity 2026