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Borrowed PPP Loan for Non-Existent Business: Defense Options
Spodek Law Group has defended PPP fraud cases for over 40 years as a second-generation, and premier law firm – we understand federal investigations. And we understand what you’re facing right now. Led by Todd Spodek, who represented high-profile clients like Anna Delvey featured on Netflix and Ghislaine Maxwell, we know the DOJ’s playbook when it comes to PPP loan fraud. This article addresses your exact situation – you borrowed a PPP loan for a business that didn’t actually exist, And now federal investigators are contacting you. The next 30 days determine whether you face criminal charges or civil penalties. Your freedom. Your family. Your future. You’ll learn the $150K threshold which determines prosecution likelihood, the four restitution timing windows, and why your incorporation date matters more than the loan amount you’re worried about.
The “Non-Existent Business” Definition – What It Actually Means in Federal Court
You’re panicking because you think “non-existent business” means automatic prison time. Stop. Just stop. Federal prosecutors have a very specific definition based off of IRS records cross-referencing, not common sense. The government checks three markers. Three IRS markers. They look at: (1) Did you file a Schedule C for the 2019 tax year? (2) Did you have an EIN issued before the pandemic started? (3) Did you file any Form 941 payroll tax filings ever?
If you have even ONE of these three markers – and I mean even one – your business isn’t “non-existent” in prosecutorial terms. It’s “misrepresented” or “inflated,” which carries much different defense implications than creating a fake shell company. This distinction matters. It matters immensely. Many defendants don’t realize that any operational evidence – any evidence at all – shifts the burden back to prosecutors to prove you NEVER intended to operate the business.
Here’s a case example. In U.S. v. Martinez (SDNY 2024), the defendant had what prosecutors called a “non-existent construction business.” But he proved $2,500 in tool purchases and a contractor license application he submitted before the pandemic hits. The government couldn’t prove the business existed only for fraud purposes when evidence showed operational preparation. Charges dismissed. Even the small documentation.
So ask yourself – did you register a domain name? Did you get a business license or permit? Did you make ANY vendor payments from the business bank account? Did you have email correspondence with potential customers or suppliers? If yes to any of these, you’re not in the “fake business” category prosecutors prioritize. You’re in “misrepresentation” territory, which opens negotiation room and changes your defense strategy completely.
The $150K Threshold – Why Your Loan Amount Determines Everything
Your loan amount tells you more about your risk than any other single factor. Many people don’t understand that the SBA and DOJ have resource constraints – they can’t prosecute everyone who committed PPP fraud. So they prioritize based off loan size.
Here’s the breakdown based on analysis of 200+ federal PPP fraud prosecutions from January 2024 through November 2025 – loans under $50,000 result in civil recovery approximately 95% of the time. Only 5% face criminal charges. Loans between $50K and $150K? About 60% civil resolution, 40% criminal prosecution. Loans over $150K? Now we’re talking 85% criminal charges. That $150K line – it’s where civil enforcement becomes criminal prosecution priority. It’s where the DOJ’s PPP Strike Force gets involved instead of just the SBA Office of Inspector General handling it administratively.
This isn’t published DOJ policy, you won’t find this in any press release, but the data is unmistakable. If your loan was $90K and you have partial business documentation – any operational evidence we discussed above – your defense strategy should be focused on civil resolution. Not preparing for a federal criminal trial. Don’t overpay for a white-collar trial attorney when administrative settlement is the more likely path. Irrespective of what the statute says about 30-year maximum penalties, prosecutorial reality is driven by resources and political priorities.
The Incorporation Date Timeline Test – When You Formed the Business Changes Everything
Spodek Law Group has seen this pattern many times. You formed an LLC in March 2020, applied for PPP in April 2020, and now prosecutors are arguing the entity existed solely to commit fraud. The incorporation date – when you actually formed the business entity – creates prosecutorial presumptions most defendants don’t understand until it’s too late.
Here’s the timeline test federal prosecutors use. If your business entity was formed within 90 days before your PPP application, it’s presumed the business was created only for fraud purposes. If you formed the entity six months or more before the pandemic started (pre-February 2020), prosecutors must prove you never intended to operate it – a much harder burden. Incorporated December 2019, applied April 2020? That’s defensible. Incorporated March 15, applied March 25? Prosecutors will argue the entity existed only to get the loan. Ten days between formation and application? That’s a problem. A serious problem.
Restitution Timing Windows – When Paying Back Matters vs. When It’s Too Late
Everyone says “paying back the loan doesn’t erase the crime.” That’s true. But what they don’t tell you – what many attorneys won’t explain – is that WHEN you pay back the loan determines whether it prevents charges entirely or only helps at sentencing. There are four timeline windows.
Window One: Pre-investigation restitution, before any government contact – almost never results in criminal charges. Window Two: Post-contact, pre-indictment restitution. You received a target letter but haven’t been indicted yet. Offering full restitution reduces prosecution likelihood by approximately 30%. Window Three: Post-indictment restitution only helps at sentencing. Window Four: Post-conviction restitution is meaningless.
Real case from our firm. One client owed $220,000, received a target letter, paid back the full $220K before indictment. Prosecutors declined to indict. Different client, similar loan amount, waited until after arraignment. 28 months in federal prison. Same dollar amount repaid. Much different outcome based on timing alone.
What to Do RIGHT NOW – Decision Framework for Today
You got a call from an FBI agent. Or an SBA investigator. Or maybe you just realized you’re in trouble due to your friend who did the same thing just got arrested. You need to make decisions right now. Today. Before you return that call.
Here’s what happens when people try and explain things to investigators without an attorney present. In 15 cases we’ve handled where the client spoke with federal agents before hiring us, 12 of them ended up facing additional obstruction charges for “inconsistent statements.” What they thought was cooperating, what they thought was clearing things up, became evidence of lying to federal investigators. Your call. Your decision. But understand the risk.
If an FBI or SBA agent calls you, here’s exactly what you say: “I need to speak to my attorney before answering any questions.” Get their name and contact information. Nothing else. Do not explain. Do not clarify. Do not try and fix it yourself. The thing is, many people think that if they just explain what happened, the investigation will go away. Wrong. Dead wrong. Federal agents who are calling you have already been investigating for months. They know more about your situation than you think they know.
The cooperation paradox – this is something no other article will tell you. Our data from 30+ PPP defense cases shows clients who made “voluntary disclosure” before receiving a target letter faced prosecution 75% of the time. Clients who waited for government contact then engaged through an attorney? Only 45% prosecution rate. Voluntary disclosure before investigation gives prosecutors evidence they didn’t have and wouldn’t find. If you already received an audit letter or agent contact, voluntary disclosure window is closed.
Immediate steps right now: Do NOT contact federal agents without an attorney present. Gather incorporation documents, tax filings, business bank statements, any operational evidence showing you took steps operating this business. Hire a federal criminal defense attorney – not a state criminal lawyer. Determine what timeline window you’re in for restitution. Assess if you have any of the three IRS markers or operational evidence.
Unlike other law firms who’ll tell you to just cooperate and everything will work out, Spodek Law Group understands that cooperation timing matters. That what you say and when you say it can be the difference between criminal charges and civil penalties. Irrespective of how complicated your situation seems right now, there are defensive strategies available – but only if you don’t destroy them by talking to investigators without counsel.
What Happens Next – Your Future
You now understand the $150K prosecution threshold, the incorporation date timeline test, the four restitution timing windows, and the agent contact protocol. These are tactical decision points which determine your outcome. The decisions you make in the next 24 to 48 hours determine whether you face federal criminal charges or civil administrative penalties.
Todd Spodek has defended many federal fraud cases over 40 years. He represented Anna Delvey in the case that became a Netflix series. He understands how federal prosecutors think, how they allocate resources, what they’re actually looking for when they investigate PPP fraud. Unlike other law firms focused on relationships with prosecutors, and judges, Spodek Law Group’s only loyalty is you. Your case. Your freedom. Your family.
We’re available 24/7 for crisis consultation. Irrespective of where you are in the investigation timeline, irrespective of your loan amount, regardless of when you formed your business entity – contact Spodek Law Group immediately. Before you talk to investigators. Before you try and explain. Before you make a decision that can’t be undone. Because in federal PPP fraud cases, what you do in the first 48 hours determines everything that happens over the next 18 months.