FEDERAL CRIMINAL LAWYERS

PPP Fraud When the Business Didn’t Exist

Welcome to Spodek Law Group. We handle federal criminal defense matters, and we’ve represented clients who made a calculation that seemed logical at the time: if there’s nothing to find, there’s nothing to prove. They created businesses on paper. Filed applications with fabricated payroll. Claimed employees who never existed. And assumed that prosecutors would have nothing to investigate because there was nothing there.

Here’s the reality that destroys that assumption: fake businesses are easier to prosecute than real ones. Real businesses create ambiguity. Maybe those expenses were legitimate. Maybe that employee worked part-time. Maybe the payroll figures were estimates based on projections. Prosecutors have to prove specific misuse, specific fraud, specific intent. That takes years of investigation and armies of forensic accountants.

Fake businesses have no ambiguity at all. The IRS has no 941 forms because you never filed any. The state has no wage records because you never paid anyone. The National Directory of New Hires has no employee registrations because nobody was ever hired. Every database prosecutors check returns nothing – and nothing IS the evidence. The absence of everything proves the fraud. That’s not a six-month investigation. That’s a five-minute database query.

Why “Nothing There” Is Actually Everything

Prosecutors approaching a real business fraud case face enormous complexity. They need to subpoena years of bank records. Interview current and former employees. Analyze payroll data line by line. Determine which expenses were legitmate business costs and which were personal. Calculate exactly how much payroll was inflated. Prove that the defendant knew each specific figure was false when they certified it.

Heres the counterintuitive truth about fake business fraud: all that complexity disappears. When the business doesnt exist, theres nothing to analyze. No employees to interview because there were no employees. No payroll records to scrutinize because there was no payroll. No expenses to categorize because there were no operations. The entire investigation becomes a documentation exercise. Did this business exist? Database says no. Case closed.

The prosecution paradigm flips completly. Instead of proving fraud, prosecutors prove absence. Instead of building a complex narrative about misuse, they build a simple timeline of fabrication. They dont need forensic accountants. They need database administrators who can pull records showing that your business never filed a single tax document, never registered a single employee, never paid a single dollar in wages.

This is why fake business cases move faster and result in longer sentences. Theres no defense strategy that works when the entire business was fiction. You cant argue confusion about PPP rules when you invented the business specifically to exploit those rules. You cant claim good faith when your faith was in a company that existed only in your application.

The Texas couple who used one active business and three dormant entities learned this reality the hard way. They submitted six PPP applications for businesses that werent operating, claimed employees that didnt exist, requested payroll support for wages that were never paid. Combined sentence: 32 years in federal prison. The prosecution didnt have to prove they misused the money. They just proved the businesses werent real.

The Five-Minute Database Check

Heres how investigators verify weather your business actually existed: they query exactly four databases. IRS quarterly payroll records. State business registration. National Directory of New Hires. Your actual bank account activity. If your business was real, it appears in all four. If your business was fabricated, it appears in none.

The IRS Form 941 is the killer. Every employer in America files this form quartely. It reports how much you paid in wages, how much you withheld in taxes, how many employees you had. Real businesses have 941s going back years. Your fake business has zero 941s because you never filed one. There isnt a more clear indicator of fraud then claiming $200,000 in annual payroll when the IRS has no record you ever paid a single employee.

The National Directory of New Hires tracks every employee in America within 20 days of being hired. States report this data to the federal goverment as part of child support enforcement, but investigators use it for fraud detection too. You claimed 15 employees on your PPP application? NDNH shows zero wage records for your EIN. No employees were ever registered. No wages were ever reported. The database proves your employees were fiction.

State registration tells its own story. Investigators pull your business formation date. If you incorporated in March 2020 and filed a PPP application in April 2020 claiming years of operating history and established payroll – thats fraud documented by the timestamp of your own registration. You cant claim you had employees in 2019 when your business didnt exist until 2020.

Heres what makes this devistating: all of this happens automaticaly. The Pandemic Analytics Center of Excellence – PACE – cross-references these databases without human intervention. Your application claimed certain facts. The databases contradict those facts. Flag raised. Investigation opened. The algorithm didnt miss you because it was overwhelmed. The algorithm flagged you precisley because the discrepancies were so clear.

The Paper Trail You Didnt Create

Most defendants think about the evidence they did create. The application. The bank deposits. The purchases they made with the money. What they dont realize is that the evidence they didnt create is far more damaging.

No 941s filed means you never reported payroll taxes. Thats not a minor oversight. Thats proof that no employees existed. Real businesses file 941s every quarter without fail because the IRS penalizes them if they dont. Your absence from the 941 database means you werent running a business – you were filling out an application.

No W-2s issued means your “employees” never recieved wages. At the end of every year, real employers issue W-2 forms to their workers. Those W-2s get reported to the Social Security Administration. Your EIN has no W-2s attached to it because you never paid anyone. The SSA records prove your workers were imaginary.

No unemployment insurance payments means you never registered as an employer with your state. When you hire employees, you pay unemployment taxes. Your state tracks those payments. If you claimed 10 employees but never made a single unemployment insurance payment, the state records prove you had zero employees.

Heres the thing that kills most defenses: you cant create these records retroactivley. Some defendants think they can file 941s after the fact, claim they were just disorganized, argue the paperwork was late but the employees were real. Prosecutors see right through this. The timestamps on late filings become evidence of cover-up. Your attempt to create records proves you knew they should have existed.

The Fullerton couple tried to use dormant businesses – companies that had existed at some point but werent operating. The registration was real. The EIN was real. But the IRS showed no payroll activity for years. No 941s. No W-2s. Nothing. The dormant shell didnt create legitamacy. It created a documented history of non-operation that contradicted every claim they made.

Shell Companies and Dormant LLCs

Some defendants thought they were clever. Instead of creating brand new businesses, they purchased dormant LLCs or reactivated old shell companies. The logic seemed sound: these entities had real registration numbers, real history, real EINs. Surely that would make them harder to investigate.

The opposite is true. Dormant companies have documented periods of inactivity. The IRS can show exactly when your “business” stopped filing. State records show exactly when operations ceased. If you purchased a dormant LLC in March 2020 and submitted a PPP application claiming $400,000 in 2019 payroll, the goverment has years of records showing that company had zero activity. The dormancy is documented.

Mukund Mohan submitted applications for six shell companies he owned. The companies were real in the sense that they were registered. They were fake in the sense that they had no employees, no operations, no payroll. He fabricated tax filings – including fake Schedule Cs – to support his applications. He obtained $862,090 before investigators caught up with him. The shell company strategy didnt provide cover. It provided documentation of exactly how many fraudulent applications he submitted.

The Blaise brothers conspired to obtain PPP loans for companies that, according to court documents, “did not actualy exist.” They were tax preparers who understood how business entities worked. They understood how documentation worked. None of that knowlege protected them from prosecution. The absence of legitimate business activity in every single entity was obvious from the first database query.

Heres why buying old LLCs doesnt work: investigators dont just check if the company exists. They check if the company operates. A 10-year-old LLC with zero tax filings for the last 5 years isnt a business. Its a piece of paper. And when that piece of paper suddenly claims hundreds of thousands of dollars in payroll, the discrepancy screams fraud.

The Defense That Doesnt Exist

Every PPP defendant hopes for a viable defense strategy. Maybe the rules were confusing. Maybe the application was poorly worded. Maybe they genuinley believed they were eligible. These arguments sometimes work for defendants whose real businesses made honest mistakes.

For fake business defendants, no such defense exists. Good faith requires actualy believing what you certified was true. You certified your business had employees. You knew it had none. You certified payroll expenses. You knew there were none. The certification itself proves intent. Theres no version of events where you thought your non-existent employees were real.

The identity theft defense fails immediatley. Yes, criminals sometimes steal identities to create fake businesses. But when investigators trace the money, it went to YOUR bank account. When they trace the IP address, the application came from YOUR computer. When they analyze the fabricated documents, they were created on YOUR device. The identity theft argument collapses the moment prosecutors show where the funds actually went.

Some defendants try arguing they were just following instructions. Someone else told them to apply. Someone else prepared the documents. Someone else said it was legal. This argument might reduce your role from organizer to participant, but it doesnt eliminate liability. You still signed the certification. You still recieved the money. You still spent it. The conspiracy angle might shift some blame to co-conspirators, but it doesnt make you innocent.

Heres what defense attorneys know but dont advertise: fake business cases are virtually indefensible. The evidence is too clean. The databases are too clear. The absence of legitimate business activity is too obvious. These cases dont go to trial because theres nothing to argue. They result in plea agreements where the only negotiation is how long the prison sentence will be.

What Federal Prosecutors Actualy Charge

When you submit a PPP application for a non-existent business, you trigger multiple federal charges simultaneosly. Prosecutors stack these charges intentionaly. Each one carries its own penalties. Each one creates its own conviction exposure.

Wire fraud under 18 USC 1343 applies to every electronic transmission. You submitted your application online? Wire fraud. You recieved confirmation emails? Wire fraud. The bank deposited funds electronically? Wire fraud. Each transmission is a seperate count carrying up to 20 years – or 30 years if the fraud affected a financial institution.

Bank fraud under 18 USC 1344 applies when you made false statements to obtain funds from a federaly insured bank. Every PPP loan was processed through banks. Every false application was bank fraud. This carries up to 30 years per count. If you submitted applications to multiple banks, you face multiple bank fraud counts.

Making false statements under 18 USC 1014 applies to the specific lies on your application. The fake payroll numbers. The invented employee count. The fabricated business purpose. Each false statement can be charged separatly. This also carries up to 30 years.

Conspiracy charges under 18 USC 371 or 18 USC 1349 apply if anyone helped you. The accountant who prepared fake documents. The friend who signed as a fake employee. The partner who submitted their own application for another shell company. Conspiracy multiplies your exposure because it connects you to everyone elses crimes.

Aggravated identity theft adds a manditory consecutive 2-year minimum if you used someone elses information. This sentence runs AFTER your other sentences, not concurrent with them.

The DenPro case illustrates how charges stack. The defendant fabricated $1.77 million in annual payroll for a business with “no payroll or employees and was not operating at all.” Made up everything. Every charge prosecutors could file, they did. The fake business didnt create fewer charges. It created the cleanest case for charging every single one.

The Sentancing Reality

Federal judges have lost patience with PPP fraud. In 2021, some defendants recieved probation. By 2024, prison time became nearly universal. By 2025, sentences averaging 40% longer than identical conduct in earlier years.

The Fullerton couple – the Texas pair who used dormant businesses – recieved combined sentences of 32 years. Michael Fullerton got 286 months. Tiffany Fullerton got 108 months. Both were ordered to pay over $3 million in restitution. The dormant business strategy didnt mitigate there sentences. It demonstrated the deliberateness of there fraud.

Stephanie Hockridge, a former news anchor involved in the Blueacorn scheme, recieved 10 years in federal prison. The scheme obtained over $65 million through fabricated applications. The judge ordered $64 million in restitution. The scale of fabrication resulted in scale of punishment.

Nathan Reis, Blueacorn co-founder, pled guilty to conspiracy to commit wire fraud. He co-founded the company specificaly to process fraudulent PPP applications. He knew the applications contained materially false information. The infrastructure he built to commit fraud became the evidence that convicted him.

Heres the pattern federal judges follow: when the entire business was fabricated, they view the entire loan amount as fraudulent. There is no legitimate portion to offset the fraud. The sentancing guidelines calculate your exposure based on total loss. A $500,000 loan for a fake business means $500,000 in loss. No reduction for “legitimate expenses” because nothing was legitimate.

The 10-year extended statute of limitations means defendants who think there safe are wrong. Your 2020 fabrication can be prosecuted through 2030. Investigators arent rushing. There building systematic cases. The prosecutions happening now used 4 years of database cross-referencing. The prosecutions in 2028 will use even more.

What To Do If You Applied for a Non-Existent Business

If your reading this because your worried about a PPP application you submitted for a business that wasnt real, heres what you need to understand: the window for quietly hoping nobody noticed closed years ago. The databases were cross-referenced. The discrepancies were flagged. The only question is weather your file has moved from “flagged” to “active investigation” yet.

First, do not talk to investigators without an attorney present. Period. The instinct to explain that you didnt understand the rules, that someone else told you to apply, that you planned to create a real business later – these explanations become evidence. Every word you say goes into an FBI 302 report. Any inconsistancy becomes a seperate false statements charge under 18 USC 1001.

Second, do not try to create records retroactivley. Dont file backdated 941s. Dont create fake W-2s. Dont fabricate bank statements. The timestamps will expose you. And now instead of PPP fraud, you also face obstruction and evidence tampering charges. Your attempt to fix the problem multiplies the problem.

Third, find a federal criminal defense attorney who handles PPP fraud cases specificaly. At Spodek Law Group, Todd Spodek and our team have represented clients facing exactly these charges. We understand how prosecutors build fake business cases, what evidence they rely on, and where – if any – viable defense strategies exist.

Fourth, understand that cooperation decisions are complex and must be made with counsel. Some defendants benefit from proactive cooperation. Others are harmed by it. The calculation depends on your specific exposure, who else is involved, what the goverment already knows, and what you can legitimatley provide. This is not a decision to make alone.

The GAO identified 3.7 million recipients with fraud indicators. They refered 669,000 potentially fraudulent loans for investigation. The SBA OIG has been systematicaly building cases for five years. If your application claimed employees that didnt exist for a business that wasnt operating, your file is probly in one of those stacks.

The difference between defendants who minimize there exposure and defendants who maximize it often comes down to when they got counsel – before investigators made contact, or after they already talked.

Call us at 212-300-5196 before that contact happens.