Former defendant testifies against Johnson at I Works trial

A man who had been only a name but one mentioned repeatedly finally showed up in court Wednesday to testify in the federal court trial of St George businessman Jeremy Johnson and two top-level employees of his online marketing company.

Federal prosecutors used the testimony of Loyd Johnston, himself once a top manager at I Works, to press their allegations that Johnson and his two co-defendants created a bunch of shell companies in 2009 and 2010 for use in obtaining bank accounts that to continue to charge customers' credit cards after banks began canceled I Works' accounts because of large numbers of chargebacks.

Johnston's name has come up time and again in the trial as someone at the center of setting up those companies, who used false information on applications to obtain card processing accounts.

What was not said on Wednesday was that Johnston was once a defendant in the case. His charges were dismissed in October after his attorney, Elizabeth Hunt, argued that the government had violated an immunity agreement by charging Johnston after he had discussions with federal prosecutors and agents. They became frustrated with Johnston when his answers to their questions were not what they wanted to hear, Hunt wrote.

Prosecutors said they didn't believe that immunity had been expended but nevertheless said Johnston might have believed that and they did not oppose dismissal.

Assistant U.S. Attorney Robert Lunnen, the chief prosecutor in the case that involves 86 charges related to bank fraud allegations, showed email after email, which he had Johnston identify, to try to show how the remaining defendants — who include former I Works employees Ryan Riddle and Scott Leavitt — were involved in setting up the new accounts.

In one email, Johnson wrote Riddle to say he wanted different corporations set up "so all the processing is broken out in many places and I want the ability to put sh-- processing in one of those corps not tied to us at all knowing full well it will blow up in a few months."

The prosecution believes the email shows Johnson's intent to defraud banks by continuing to process credit cards despite the chargebacks, while the defense claims such emails open up an area of inquiry about the role of alleged fraud committed against I Works by affiliates, companies that contracted to advertise and sell I Works products.

The defendants have said that affiliate fraud caused them to set up the companies in order to isolate affiliates that were causing the chargeback problem, but U.S. District Judge David Nuffer issued an order forbidding that defense, saying it would confuse the jury.

And in court Wednesday, Riddle, who is representing himself, and attorney Marcus Mumford, who represents Leavitt, again commented that the emails introduced by the government open up areas of inquiry that Nuffer had previously forbidden them to raise as defenses. Another is the fact that Wells Fargo Bank didn't lose money as a result of I Works' actions.

One other issue that is percolating is the testimony of Lacy Holm, a former I Works employee whose name appears as the owner of several of the new companies and processing accounts that I Works created.

On Friday, Holm took the stand but then invoked her 5th Amendment right against self-incrimination when asked a question about her role in the new companies. That caused Mumford to file a motion for a mistrial, saying such an action could affect the jury's decision. Prosecutors have opposed the motion and Nuffer has been working on an instruction for the jury asking them to ignore Holm's response.

tharvey@sltrib.com