PPP Fraud Through Shell Companies: Federal Prosecution Trends

Thanks for visiting Spodek Law Group – a second-generation law firm managed by Todd Spodek, with over 40 years of combined experience defending federal fraud cases. Shell company PPP fraud is among the most serious pandemic fraud schemes prosecutors pursue. If you used shell companies to obtain multiple PPP loans, or if you’re accused of doing so, you’re facing decades in federal prison. These cases involve sophisticated fraud allegations, multiple felony counts, and aggressive prosecution.

We defend complex PPP fraud cases involving business structures that prosecutors call “shell companies.” Sometimes they’re right – the businesses were fake vehicles for fraud. Sometimes they’re wrong – legitimate business entities that prosecutors misunderstand. Our team includes former federal prosecutors who know how these cases get built and where the defenses are.

What Prosecutors Mean by Shell Companies

A shell company in the PPP fraud context is a business entity that exists on paper but has no real operations. It was created specifically to apply for PPP loans, or it existed but was dormant and got revived just for PPP purposes.

Prosecutors identify shell companies through missing operational evidence. No business premises, no employees on payroll before the pandemic, no revenue reported on prior tax returns, no business licenses, no websites or online presence. The business entity exists in state records but doesn’t actually do anything.

Some shell company schemes involve creating multiple entities. Defendant forms 10 LLCs in different states, applies for PPP loans through each, provides fabricated tax documents showing payroll and revenue for each business. None of the businesses are real. The defendant collects 10 loans totaling millions, deposits them into accounts they control, spends the money on personal expenses.

Other schemes involve purchasing existing entities. Defendant buys dormant companies that have been inactive for years. Those companies have prior tax returns and business history. Defendant files PPP applications claiming the businesses were operating and affected by COVID. The prior existence of the companies makes the fraud less obvious.

Related-party shells are common. Defendant creates multiple LLCs with different names but common ownership. Each LLC applies for a PPP loan. If the entities are legitimately separate businesses, that might be legal. If they’re shams created just for PPP loans, that’s fraud.

Recent Federal Prosecution Trends in 2025

The DOJ is still actively prosecuting shell company PPP cases in 2025. Recent arrests include defendants who allegedly created fake businesses to obtain COVID relief funds. One defendant allegedly submitted fake tax documents for six shell companies and obtained multiple loans. Another allegedly created dormant companies and revived them solely to apply for PPP loans.

Prosecutors are using data analytics to identify shell company schemes. The SBA and DOJ can search for patterns: multiple companies sharing the same address, same phone number, same bank account for loan disbursements. Applications submitted within days of business formation. Tax documents that don’t match IRS records.

The extended ten-year statute of limitations means these prosecutions will continue through 2030 or later. Prosecutors aren’t rushing – they’re building comprehensive cases with extensive evidence. They’re tracing money flows, interviewing witnesses, analyzing business records, proving the companies were shams.

Sentencing in shell company cases is harsh. Loss amounts are high – defendants often obtained multiple loans totaling hundreds of thousands or millions. Federal sentencing guidelines increase sentences based on loss amount. A million-dollar fraud typically results in 5-7 years before enhancements. Add sophisticated means, multiple victims, leadership role – defendants face 10-15 years.

Recent cases show cooperation is common. Defendants in shell company schemes often worked with others – accountants who prepared false tax documents, notaries who authenticated fake forms, family members who opened bank accounts. Those co-conspirators often cooperate with prosecutors, providing testimony against the primary defendant.

How Prosecutors Prove Shell Company Fraud

The lack of business operations is primary evidence. Prosecutors investigate whether the business actually existed. Did it have a physical location? Did it have employees? Did it generate revenue? Did it pay taxes before the pandemic?

State business registration records show when the company was formed. If it was formed in March 2020 right before PPP applications opened, that’s suspicious. If it existed for years but filed no tax returns and had no activity, that’s suspicious. Prosecutors compare formation dates to application dates looking for timing patterns.

Tax return analysis catches fabricated documents. Defendants submit IRS Forms 941 or Schedule C showing business payroll and revenue. Prosecutors subpoena IRS records to verify those forms were actually filed. If the defendant submitted a Form 941 with their PPP application but never filed it with the IRS, that’s fabricated documentation.

Bank records show no legitimate business activity. Prosecutors subpoena bank accounts for the alleged businesses. Real businesses have transaction patterns – payments to suppliers, payroll deposits, utility payments, rent payments. Shell companies have no transactions before the PPP loan or only personal expenses.

The use of loan proceeds proves intent. If the company was legitimate, loan funds should go to business expenses. In shell company cases, funds go directly to personal accounts or personal expenses. Money hits the business account and immediately transfers out to the defendant’s personal account, then gets spent on luxury items.

Witness testimony fills gaps. Prosecutors interview people listed as employees on PPP applications. Those witnesses say they never worked for the company, or they worked for a different company owned by the defendant, or they’re related to the defendant and were listed as employees fraudulently.

Sophisticated Means Enhancement

Federal sentencing guidelines include an enhancement for sophisticated means – using complex schemes to commit fraud. Shell company cases often receive this enhancement, which adds 2 levels to the offense level, significantly increasing the sentence.

What makes shell company fraud sophisticated? Creating multiple entities, fabricating tax documents, using different addresses or registered agents to conceal common ownership, timing applications to avoid detection, using nominee bank accounts, layering money through multiple transfers.

Prosecutors argue shell company schemes by definition involve sophisticated means. Defendants counter that incorporating an LLC and applying for a loan isn’t sophisticated. This argument affects sentencing significantly – two levels can mean the difference between 3 years and 5 years.

Defenses That Can Work

Legitimate business operations is the primary defense. The companies weren’t shells – they were real businesses with actual operations. You have evidence of business activity: tax returns filed before the pandemic, business licenses, lease agreements, customer invoices, employee records.

We defended a client accused of using three shell companies to get PPP loans. Prosecutors claimed the companies were shams created for fraud. We proved all three were legitimate businesses operating before COVID: one was a consulting company with clients and invoiced revenue, one was rental property management with tenant leases and rental income, one was online retail with sales records and inventory. Charges were dismissed.

Affiliation rules confusion can be a defense. You created multiple entities thinking they were legitimately separate for PPP purposes. SBA affiliation rules are complex – common ownership doesn’t always create affiliation, and separate operations can make entities non-affiliated even with common ownership. If you reasonably believed your entities qualified separately, that supports good faith.

Reliance on professional advice helps. Your accountant or lawyer advised you that your business structure was appropriate for PPP applications. You relied on their expertise. This doesn’t guarantee avoiding conviction, but it supports lack of criminal intent.

Some entities appear to be shells but had legitimate purposes. You formed an LLC years ago for a business idea that didn’t pan out. The LLC stayed dormant. When COVID hit, you revived the business and applied for PPP. Prosecutors call it a shell revived for fraud. You argue it was a legitimate business restarted during the pandemic.

The key is proving the business was real. Tax returns showing activity, business expenses, attempts to generate revenue. Documents showing you intended to operate the business, not just collect a PPP loan.

The Conspiracy Element

Shell company PPP fraud cases often include conspiracy charges. If you worked with others – accountants who prepared false documents, family members who served as nominee owners, friends who opened bank accounts – that’s conspiracy under 18 U.S.C. § 371.

Conspiracy charges are powerful for prosecutors. They can charge everyone involved, then flip lower-level participants to testify against the organizers. Your accountant faces 20 years for wire fraud. Prosecutors offer a plea deal – testify against you and get 2 years. Your accountant takes the deal and becomes the government’s star witness.

Defending conspiracy requires attacking the agreement element. Did you actually agree with others to commit fraud, or did you independently commit acts that happened to involve the same people? If your accountant prepared tax returns and didn’t know the businesses were shams, there’s no conspiracy – they were an unwitting participant.

Withdrawal from conspiracy is a defense if you were involved initially but stopped before applications were submitted. You helped form the LLCs but realized the plan was fraudulent and withdrew. Withdrawal requires affirmative acts – telling co-conspirators you’re out, reporting the scheme to authorities, taking steps to prevent the fraud.

Conspiracy adds sentencing exposure. Five years on top of the substantive fraud counts. More importantly, under conspiracy law you’re responsible for all acts by all co-conspirators in furtherance of the conspiracy. If your partner defrauded 10 businesses and you only defrauded 2, you’re responsible for all 12 for sentencing purposes.

What to Do If You’re Under Investigation

Shell company PPP investigations usually begin with data analysis, not whistleblowers. The SBA flags multiple applications with common elements. The Office of Inspector General reviews the files and refers to DOJ. By the time you’re contacted, investigators have significant evidence.

Don’t talk to investigators without a lawyer. FBI agents are skilled at making interviews seem casual. They’ll say they’re “just trying to understand your business structure” or “clarify some information.” They’re building a criminal case. Everything you say will be analyzed for inconsistencies and used against you.

Don’t destroy records. When you know investigation is coming, the temptation is to get rid of incriminating documents. Don’t. Obstruction of justice is a separate federal crime carrying 20 years. It’s also powerful evidence of guilt – innocent people don’t destroy evidence.

Gather evidence your businesses were legitimate. Tax returns filed before the pandemic, business licenses, lease agreements, contracts with customers or vendors, emails showing business operations. The more evidence you have of real business activity, the stronger your defense.

Consider whether cooperation makes sense. If you were a low-level participant in someone else’s scheme, cooperating might reduce your sentence significantly. If you were the organizer, cooperation is less valuable to prosecutors. The decision to cooperate requires careful strategic analysis.

If the SBA audits you, respond carefully. Audits can escalate to criminal referrals if you provide false information or contradictory explanations. How you describe your business structure and operations in the audit response will be compared to your PPP applications and any later statements to investigators.

At Spodek Law Group, we defend complex PPP fraud cases involving multiple entities and business structures. Todd Spodek is a second-generation criminal defense lawyer with years of federal fraud experience. Our team includes former prosecutors who understand how shell company cases get built.

These prosecutions are aggressive, the evidence is often extensive, and the sentencing exposure is severe. But they’re defensible. Not every multiple-entity PPP case is fraud. Legitimate businesses use multiple entities for tax, liability, and operational reasons. Prosecutors sometimes misunderstand complex business structures and charge legitimate operators with fraud.

If you’re accused of shell company PPP fraud, call us. We’re available 24/7 and handle federal cases nationwide. The consultation is confidential and risk-free. Don’t wait until charges are filed – early intervention can make the difference between civil resolution and criminal prosecution.