Jeremy Johnson trial: A fraud with no money lost?

The question of whether entities allegedly defrauded by St. George businessman Jeremy Johnson and his online marketing company actually lost money came in through the back door on Friday at his federal court trial — and the handle was turned by the prosecution's own witness.

Loyd Johnston, a former manager at Johnson's I Works company who had once been a defendant in the case, told a U.S. District Court jury that banks and credit card processors kept wanting to work with I Works after others closed down its accounts because they all made money by doing so.

U.S. District Judge David Nuffer has barred the defense from introducing evidence on whether Wells Fargo Bank and card processors CardFlex and Mach 1 had suffered no losses in dealing with I Works. After admitting earlier in the case that Wells Fargo Bank had not suffered any losses because of its I Works accounts, prosecutors argued that during the trial, monetary loss, or even the potential risk of loss, were not necessary to prove bank fraud under federal law.

But the defendants complained that Nuffer's order siding with the government violated their constitutional rights and that such evidence would show they never intended to cause losses.

In the first three weeks of the trial, Nuffer has been shooting down questions by defendants that touched on those subjects.

But Johnston was asked during cross-examination by co-defendant Ryan Riddle, who is acting as his own attorney, why the banks and companies continued to work with I Works even after it had been placed on lists of companies with high rates of consumer chargebacks and some of its bank accounts closed.

"There was a lot of money made off the I Works accounts, by Cardflex, by the banks, by Mach 1, by Visa — everyone in the line," Johnston said. "Everyone made money."

Johnston first took the witness stand on Monday as a government witness. He had been indicted in 2013 in the case that has grown to 86 charges related to alleged bank fraud. He was presented email after email by lead prosecutor Robert Lunnen and asked to read key parts of them in order to bolster the government's case that alleges the high chargebacks led Johnson, Riddle and co-defendant Scott Leavitt to cook up a scheme to defraud Wells Fargo by using false information on applications from "shell companies."

But Johnston also said under cross-examination that there was no intent to hide from the banks or processors the involvement of I Works or Johnson in the newly created companies and that some of the paperwork for the bank accounts actually had been filled out by the processors.

"There was never any reason to hide anything," Johnston said. "They were on board with what we were doing."

Johnston also agreed with Riddle that I Works problems were initially due to a steep drop in sales that then made the chargeback rate higher in relation to sales, triggering the alarms of the credit card companies.

Johnston was dismissed from the case after his attorney, Elizabeth Hunt, argued that the government had once extended immunity to him when he first talked to investigators and then indicted him anyway.

Another government witness, former Visa USA Inc. official Robin Leidenthal, said under questioning from prosecutors that Visa had told Johnson after the chargeback problem occurred that he had to be "transparent" about I Works' issues with any new bank where he wanted to open new accounts.

The lack of documentation about who really owned a company was "concerning" because it made it difficult for Visa to monitor chargeback rates, Leidenthal said.

"It needs to be a real business, a real owner," she said.

But under questioning from attorney Marcus Mumford, who represents Leavitt, Leidenthal said that no rules prohibited banks or processors from opening new accounts for companies like I Works that had excessive chargeback rates.

She admitted the banks and not Visa controlled their relationship with companies such as i Works.

tharvey@sltrib.com