Welcome to Federal Lawyers. 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.
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(212) 300-5196The 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.
Todd Spodek
Lead Attorney & Founder
Featured on Netflix's "Inventing Anna," Todd Spodek brings decades of high-stakes criminal defense experience. His aggressive approach has secured dismissals and acquittals in cases others deemed unwinnable.
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.
You helped a friend set up an LLC two weeks before the PPP application deadline, complete with a fabricated payroll history and fictitious employee records, to secure a $150,000 loan for a business that never actually operated. Now federal investigators have subpoenaed bank records showing no business activity prior to the loan application.
Can I really be charged with federal fraud if the business was technically registered as a legal entity?
Simply registering an LLC does not legitimize a fraudulent PPP application. Prosecutors under 18 U.S.C. § 1343 (wire fraud) and 18 U.S.C. § 1014 (false statements to a financial institution) will focus on whether the business had genuine operations, actual employees, and real payroll obligations at the time of the application. The SBA Office of Inspector General has aggressively pursued cases involving shell companies, and convictions routinely carry sentences of 20 years or more on wire fraud charges alone. Your best defense strategy involves immediately preserving all documentation and retaining counsel experienced in federal fraud cases before making any statements to investigators.
This is general information only. Contact us for advice specific to your situation.
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.
