Unlike the more notorious Aryan Brotherhood (AB) and Nazi Low Riders (NLR), Public Enemy Number 1 (PENI) is not technically a prison gang according to California Department of Corrections guidelines.  A prison gang is defined as a group that developed in prison and exists for the most part only behind bars, although it may in fact have counterparts on the outside.  Prison gang members can automatically be assigned a Secure Housing Unit (SHU) sentence and segregated from the rest of the population; a regular inmate can only be sentenced to a SHU if he is a threat to institutional security or has been rigorously proven to be an associate of a prison gang (Donald Mazza, Nick Rizzo and Devlin Stringfellow, three top PENI leaders, were all given SHU sentences in this way).  However, PENI members play an important role in California's prison gang structure, thanks in large part to the Aryan Brotherhood.

By the late 1970s, California prison officials attempted to limit the growing problem of the Aryan Brotherhood by subjecting it to increasingly closer scrutiny and locking its members in the SHU.  In reaction, the AB reached out to NLR members to serve as middlemen for the Brotherhood's various criminal enterprises. At the same time, NLR filled a vacuum left by the AB by attracting white inmates who had previously turned to the AB for protection or who did not want to be documented as associates of prison gang members and confined in the SHU.  The NLR's membership and criminal reputation grew tremendously after AB members were isolated in secure housing.  However, in 1999, California prison authorities officially recognized NLR as a prison gang; as a result, members are now given automatic SHU sentences and segregated from the rest of the prison population.  The NLR now suffered from many of the same limitations that the AB did.

During this period, an increasing number of NLR members dropped out of the gang and some joined PENI.  Most known PENI members entering prison are placed initially in the "mainline" or general population, where they have relative freedom to congregate and associate with other inmates and can more easily conduct criminal business without being monitored as closely as validated prison gang members.

Given the limitations placed on their members' movements, the AB and NLR were forced to forge alliances with smaller groups that could help them maintain their position in the drug trade.  The Aryan Brotherhood, in particular, realized PENI's potential and inducted the group's members into its criminal operations both in and out of the prison, including drug trafficking (primarily the methamphetamine trade), property crimes, identity theft and murder.  This was not without controversy; some NLR members were resentful that AB essentially gave the "keys" or control of the streets to PENI.  In an unsuccessful attempt to be independent of AB, a few NLR members broke away and formed another group.  Most NLR members, however, maintained their allegiance to Aryan Brotherhood.  NLR members may work on an individual basis with PENI, but overall cooperation between the two groups has been limited.