Now the federal government has joined a new high-stakes battle with St. George businessman Jeremy Johnson.
With a revised indictment on 86 charges — as opposed to the previous single charge — federal prosecutors have set the stage for a fresh round of legal skirmishes with the online sales entrepreneur.
Charges and sentences
Below are the charges and possible prison sentences facing Jeremy Johnson, Loyd Johnston, Bryce Payne, Ryan Riddle and Scott Leavitt. The sentences upon conviction likely would take into account federal sentencing guidelines.
Conspiracy » Five years
False statements to a bank » 30 years
Wire fraud » 20 years
Bank fraud » 30 years
Fraudulent banking activities » 30 years
Money laundering » 10 years.
The Swallow case
Indicted St. George businessman Jeremy Johnson has alleged that Utah’s new attorney general, John Swallow, helped broker payoffs to enlist the aid of Senate Majority Leader Harry Reid in derailing a Federal Trade Commission investigation of Johnson’s I Works business.
Swallow and Reid have vehemently denied the allegations. The U.S. Attorney’s Office has said it is investigating.
This time, though, Johnson has company — four of the men who helped him run his company called I Works, which was highly profitable until it was sunk by mounting problems with customers demanding their money back for charges some said were unauthorized.
The new indictment made public Wednesday essentially elaborates on the charges Johnson was set to plead guilty to in December when he sank a plea deal that would have netted him about 11 years in prison.
Now Johnson and the four I Works employees — Loyd Johnston, Bryce Payne, Ryan Riddle and Scott Leavitt — face up to 30 years in prison if convicted on charges of conspiracy, bank fraud and money laundering.
The indictment revolves around whether the five defrauded Wells Fargo Bank when things began to go sour at I Works, which had taken in $275 million from about 2000 to 2010, with Johnson’s take about $50 million, according to legal documents.
I Works sold various products over the Internet, the most popular being access to websites about how to obtain government grants for personal expenses, make money at home using Google, and lose weight and stay healthy.
According to the new indictment, beginning sometime around 2006, an increasing number of customers started reversing credit card charges from I Works and affiliates. Consumers were unaware that when they ordered a CD or another product for a shipping and handling fee of about $1.99 or so, they also had agreed to be billed monthly for charges of up to $60 for a complementary service or product.
Some also were "upsold" additional services and products without their knowledge, the Federal Trade Commission alleged in a 2010 lawsuit.
Johnson acknowledges disclosures of what’s known as upsells on early I Works websites could have been better, but he disputes that the consumers were largely unaware of the charges. He points to the 3 million or so people who called to cancel before they were actually billed, citing that as proof that disclosures were adequate.
Still, federal prosecutors say that in 2009, banks began cutting off I Works credit- and debit-card processing accounts after the company’s charge-backs began exceeding 1 percent of all its total charges, the maximum set by Visa and Mastercard.
That allegedly drove Johnson and the other four to start creating shell companies that disguised their relationship with Johnson and I Works. Otherwise they would not have been able to open new accounts and keep charging customers, prosecutors say.
According to the indictment, Johnson sent a text to Johnston on May 11, 2009, instructing him to set up new accounts "without my name on them."
It also cites other messages to Johnson about creating various companies using names other than Johnson’s, and he replies: "I am OK with this but I still want back up merchant accounts [even if we just use them a tiny bit to keep them open] and I want many different corps so all the processing is broken out in many places and I want the ability to put shit processing in one of those corps not tied to us at all knowing full well it will blow up in a few months."
Johnson or his employees are accused of preparing applications for merchant accounts that had straw owners, false business histories, used drop boxes for mailing addresses and referred to fake websites set up only for banks or underwriters to verify they were in compliance with regulations but through which no actual sales were ever conducted, the indictment says.
Johnson and his co-defendants’ story is at odds with that portrayal.
Johnson has said that I Works’ charge-back problem largely came about because it was the victim of fraud by other companies with which it had contracted. I Works was paying $40 or so to outside companies when those companies sold I Works products. Some used stolen credit cards to make a sale, received their commission and then did a charge-back, he said in interviews before a judge warned him not to talk to the media.
Some companies put up blogs with fake testimonials and drove sales that way, while making it difficult for I Works to trace the source of those sales, he said. Ultimately the fraud helped sink the company, Johnson claims.
By 2009, it was apparent the I Works business model wasn’t working. The company gradually ceased operations so that by end of the 2010, when the FTC sued, it was making no sales and barely functioning, Johnson said.
Now he and the other defendants are protesting loudly, saying they are the victims of a face-saving vendetta on the part of the U.S. Attorney’s Office that wouldn’t back down when it found it had no case. They based their protest on a previous indictment that named only Johnson on one count of mail fraud.
The U.S. Attorney’s Office declined to comment.Next Page >
Copyright 2013 The Salt Lake Tribune. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.