Fallout from Washakie fraud could cost polygamous Kingston Group members their businesses and homes

(Francisco Kjolseth | The Salt Lake Tribune) Federal prosecutors have given notice they want to seize homes and businesses belonging to rank-and-file members of the polygamous Davis County Cooperative Society, also known as the Kingston Group. Prosecutors also have filed notice of intent to seize property from the sect's incorporated church, the Latter Day Church of Christ. Included on the list is gun-maker Desert Tech, 1995 W. Alexander St., West Valley City.

In early 2013, Carla Peterson was a 62-year-old widow who was tired of renting but had no credit.

Like a lot of Utahns, she sought the advice of someone in her church. That elder, Peterson said in a recent interview, directed her to a lender called Alliance Investments. In May 2013, according to public records, Alliance lent Peterson $164,050 toward a home in West Valley City.

Federal prosecutors this month filed a notice the government may seize Peterson’s home. Peterson says she is a member of the Latter Day Church of Christ, which is synonymous with the polygamous Davis County Cooperative Society, or the Kingston Group. Days after the seizure notice, other sect members admitted to defrauding a federal biofuel program and laundering money through Alliance and other businesses.

There is no allegation Peterson participated in the fraud. She said she didn’t ask where Alliance received its money.

“I never really thought about it, to tell you the truth,” Peterson said. “I just was taking out a loan. If you were taking out a loan, would you ask where they’re getting their money?”

Documents and interviews show how money flowed from the company at the heart of the fraud, Washakie Renewable Energy, to firms and properties with ties to the Kingston Group, which some former and current members also call “The Order.” In unwrapping the scheme, federal law enforcement also painted a mosaic of life and finances in the Kingston Group.

Followers practice an old Mormon concept of living what’s called a “United Order.” Company proceeds and employee paychecks go into accounts controlled by the sect, which then supports other businesses and sometimes individuals — like Peterson.

(Weber County Sheriff's Office | AP Photo) These undated file photos released by the Weber County Sheriff's Office show Jacob Kingston, left, and Isaiah Kingston. Two Salt Lake City biodiesel executives linked to a polygamous group will stay in jail after prosecutors argued they could flee to Turkey if released ahead of trial in an alleged $511 million tax credit scheme. The men have access private jets, millions of dollars stashed abroad and an unidentified federal law-enforcement contact who apparently tipped them off ahead of a raid, special assistant U.S. Attorney Leslie Goemaat said at a hearing on Wednesday, Aug. 29, 2018. Kingston's attorney said the prosecutor's allegations are false hearsay.

That religious and financial system means the Washakie fraud could breed long tentacles, ensnaring other businesses and even homeowners. The two primary defendants, Washakie CEO Jacob Kingston and his brother Isaiah Kingston, the chief financial officer, have agreed to help law enforcement trace what happened to $511 million taken from a federal biofuel program.

[Click here for a look at some of the homes and properties the government wants to seize.]

Many people within the Kingston Group rely on that system for financing, said former plural wife Shirley Hansen, because they have no credit and cannot build good credit because most banking is routed through the sect.

Financing through a Kingston Group lender also helps ensure properties stay in the sect if borrowers default or die, Hansen said. Property tax payments often go through a sect entity, too, to strengthen the group’s claims in the event of an estate dispute.

That leads Hansen and other former Kingston Group members to argue that homes in the sect belong to individuals only on paper.

“It’s not going to belong to an individual,” Hansen said. “It will belong to one of The Order companies."

The Kingston Group has thousands of members — a spokesman for the Davis County Cooperative Society declined to disclose a precise number — spread across the West. Four members have been charged and pleaded guilty in the Washakie fraud: the two brothers and their mother, Rachel Ann Kingston, and Jacob’s wife, Sally Kingston.

(Rick Egan | The Salt Lake Tribune) Rachel Ann Kingston, mother of Isaiah Kingston, leaves the federal court house after a hearing for defendants, Jacob and Isaiah Kingston Wednesday, Aug. 29, 2018.

(Rick Egan | The Salt Lake Tribune) Sally Kingston, the wife of Jacob Kingston, leaves the federal courthouse, after a hearing for Jacob and Isaiah Kingston Wednesday, Aug. 29, 2018.

The U.S. Department of Justice also has announced plans to seize the energy company’s plant in northern Utah, as well as assets in other states and countries along with the defendants’ personal portfolios. Prosecutors have given notice of their intent to use “asset forfeiture” to take properties like Peterson’s — real estate or belongings whose ties are at least one step removed from the fraud.

A building on the list belongs to one of the Kingston Group’s marquee ventures: Standard Restaurant Supply. Jacob and Isaiah Kingston have said that’s one of the companies where they sent money. The Justice Department wants to take Standard’s retail building in Mesa, Ariz. So far, there’s no indication it wants to seize the store in South Salt Lake, too.

There’s potential for the list of forfeited assets to grow. As part of their plea deals, Jacob and Isaiah Kingston agreed to help law enforcement trace the $511 million they took from the biofuels program.

Kent Johnson, a spokesman for the Davis County Cooperative Society, issued a statement after the guilty pleas saying the defendants “broke from DCCS tradition in many ways and that DCCS members as a whole find the actions charged to be repugnant, immoral and that they go completely against what we stand for.”

The statement also criticized the effort to seize so many properties.

“It is apparent that there are many properties listed in the government action that clearly have nothing to do with [Washakie] or the defendants in this case,” the statement said. “We support the judicial system and encourage property owners to fight any unfair targeting of their properties through lawful orders of the court.”

Borrowers and guns

(Francisco Kjolseth | The Salt Lake Tribune) Federal prosecutors have given notice they want to seize homes and businesses belonging to rank-and-file members of the polygamous Davis County Cooperative Society, also known as the Kingston Group. Prosecutors also have filed notice of intent to seize property from the sect's incorporated church, the Latter-Day Church of Christ. Included on the list is a medical building at 4400 S. 700 East in Millcreek.

The Salt Lake Tribune reviewed documents at the Salt Lake County Recorder’s Office concerning 23 properties with no direct ties to Washakie but that prosecutors have said they intend to seize. All but two properties or its owner received a loan from Alliance or another company that Jacob and Isaiah Kingston admitted to funneling money through.

For those properties with loans in question, the borrowing happened between 2011 — when Washakie began what it said was the production of biofuel that allowed the Kingston brothers to collect a federal tax credit — and August 2018, when the first indictments were issued.

Of the two properties with no such loans on file with the recorder’s office, one is the office of Desert Tech, a West Valley City gun manufacturer, whose buyers include foreign militaries.

When Desert Tech owner Nick Young spoke to The Tribune in a telephone interview Monday, he said neither he nor his company has had anything to do with Washakie and never took any money from it or the defendants.

“Jacob is my cousin,” Young said. “But just because he’s my cousin means I do business the way he does? I absolutely do not.”

Asked why he thought the feds wanted to seize the building, Young replied: “The only reason, I can assume, is to discriminate against who we are.”

He said Desert Tech leases its space from the building owner. A review of those ownership records shows the building belongs to a limited liability company for which Young was once listed as the manager. The LLC was transferred in 2016 to one of Young’s family members who had offices listed in another building prosecutors say was connected to the fraud.

There’s no public record accusing Desert Tech of wrongdoing. Young said his company received a federal subpoena to supply financial records and did so, but that subpoena contained no allegations. Young said he didn’t know the government wanted to take the building until news reports coinciding with the guilty pleas.

“I showed up to work this morning,” Young said Monday, “and my employees and staff are all scared. ‘Are they going to kick us out of our building? Are we going to get raided? Will I still have a job?’ ”

Even if the government takes the building and leaves the rest of Desert Tech intact, Young said that would be a hardship on the company. Young said Desert Tech has heavy machinery and other gun-making equipment, and moving to a new production facility with an adequate power supply likely could cost about $500,000.

Young argued Desert Tech has been a law-abiding business. It won an award from the U.S. State Department for helping catch terrorists seeking to buy firearms.

(Francisco Kjolseth | The Salt Lake Tribune) Federal prosecutors have given notice they want to seize homes and businesses belonging to rank-and-file members of the polygamous Davis County Cooperative Society, also known as the Kingston Group. Prosecutors also have filed notice of intent to seize property from the sect's incorporated church, the Latter-Day Church of Christ. Included on the list is the Rocky Mountain Eye Center at 4400 S. 700 East Millcreek, UT.

The only other Salt Lake County property on the prosecutors’ tally and without a Washakie-connected loan on file with the recorder’s office is a home in Magna. It is listed as belonging to a husband and wife. It was unclear why that home was on the seizure list. The owners did not return messages seeking comment.

Good faith defense

Prosecutors have gigabytes of electronic documents seized from Washakie, related companies and the sect. Only fractions have been made public. Other documents might be released only if needed to show cause to seize assets or in the trial of the last defendant in the case: Lev Aslan Dermen. He is not a member of the Kingston Group. Prosecutors allege he had ties to businesses in California and Turkey that were used to facilitate the fraud.

A docket says Dermen’s trial has been “tentatively reset” to begin Aug. 19 in federal court in Salt Lake City.

Eric Benson, a former federal prosecutor who is now in private practice at the Salt Lake City firm of Ray Quinney & Nebeker, said the burden will be on property owners to show why their assets shouldn’t be seized.

There are two basic defenses in asset forfeiture cases, Benson said: The assets can’t be traced to the crime, or the owner acquired them in good faith.

“It can be a somewhat procedural, complex mess,” Benson said, “but that’s the general way this works.”

There have been cases, Benson said, in which the government seized property because the owner should have known the assets were connected to a crime. That could be an argument for prosecutors pursuing the Washakie proceeds.

Former Kingston Group members who reviewed the owners of the properties said they include wives of sect leader Paul E. Kingston. Young’s mother is one of Paul Kingston’s full siblings.

Andrea Brewer, a star of the TV series “Escaping Polygamy,” told The Tribune earlier this month that many Kingston Group members bore some culpability if only for not reporting what they knew about the frauds.

“It’s not like some normal church where people who don’t know each other come to church on Sunday,” Brewer said. “It’s not like that [at] all. This is an organized operation.”

(Nate Carlisle | The Salt Lake Tribune) Shirley Hansen, seen here July 21, 2018, stands along 2100 South near State Street in Salt Lake City. Two of Hansen's daughters legally married when they were under the age of 18 to young men in the Kingston Group.

But Hansen said most members are kept in the dark about larger financial ties within the Kingston Group. Hansen, who was a plural wife to Jacob and Isaiah Kingston’s father, worked in the credit department at Washakie for about three years beginning in 2012. Yet she said her husband wouldn’t allow her to work at the sect’s headquarters.

“Basically, what I was told was I could not be there,” Hansen said, “because they could not trust me with operations.”

Hansen, who left the Kingston Group about the same time she left the energy company, wants the feds to seize the property on a case-by-case basis. The deciding factor could be what the owners knew or whether they would cooperate now.

“If they’re willing to cooperate, work with them,” Hansen said, “but if they think they’re so much better than the law, slam it on them.”

Peterson said Thursday she didn’t know what she would do if the government follows through and takes her home. She had not spoken to an attorney nor had she been served any papers.

“I have not talked to anyone,” she said. “You’re the first person to call.”