First, sorry for the long post, but I just want to be as clear as possible.

I am really confused about an unemployment benefits issue after talking with a friend and he has me freaked out. Here is the situation and maybe you can shed some light for me, and potentially others with a similar situation. But my friend has me thinking that I have potentially done something illegal and I have no idea what he is talking about, and need some advice.

From Mar 08 - Aug 08 I was unemployed. I left my employer, I was not fired. I left to try other things, but did not have a job lined up. I took a part time job (30 hours a week) in Aug 08. During that time I also had a sole proprietorship doing language tutoring on the side. In January 09, I dropped the sole proprietorship and started an LLC for the language tutoring just to protect me against any potential liability. I'm working a few hours a week with this LLC, but it's not generating much revenue.

At the end of Jan 09, the company that I work part time for (30 hours a week) lays off all staff because it shuts down the operation. I lose my part time job. In Feb 09, I naturally apply for unemployment because I was laid off due to no fault of my own. I have never applied for unemployment before, so I'm new to it. I give all accurate and truthful data on the application and on the phone interview ask a bunch of questions and make it clear to interviewer that I am constantly looking for part time work as a sole proprietor, and soon to be an approved LLC, as a tutor, but that I am still looking for full time work (which I definitely was: I was on career builder and even a paid membership to ladders.com). During the interview, I lay it out all on the table, make sure she knows that I was not laid off from my previous employer that I left in Mar 08, but that clearly I was laid off by the more recent part time employer in Jan 09. She approves my benefits, so I'm confidant that I did everything by the book. I start receiving unemployment stubs in the mail, and I am extremely diligent about reporting ALL earnings from the tutoring LLC on the form, and list MY LLC NAME and my own personal address under where you are supposed to put part time employer info, so its pretty clear that I am trying to find part time work through my LLC. Any money I do receive from unemployment is reduced by the amounts I report.

In September I stopped sending in the unemployment stubs and stop receiving unemployment because I decide to go full steam ahead on this language tutoring thing, and actually spend all of my time trying to develop it into a full time thing, and I stop looking for a full time job because I have had absolutely no luck at all.

I then talk to my friend and he says it was "illegal" to collect unemployment while also operating an LLC. I almost threw up. Did I do something wrong? Is what I did not legit? I reported all earnings, the interviewer got all correct information, and approved me. Am I still at fault for something? I'm totally confused and worried, and need advice. I don't want to get in any trouble, and I think the unemployment I received over those 8 or 9 months only amounted to probably like $7k or so because I was earning a decent amount from the LLC doing part time evening work, but other months I didn't earn a dime.

Any advice would be helpful. I'm extremely confused and worried and just want to do everything by the book. If I somehow did something wrong, I would be more than willing to pay back the unemployment I received to make things right, I have enough savings to cover it. SO CONFUSED RIGHT NOW! Sorry for the long post.