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Jeremy Johnson case may force regulators to show their hand
(Paul Fraughton | Tribune file photo) Jeremy Johnson, left, leaves the federal court building in Salt Lake City with his lawyer Nathan Crane on Friday, January 11, 2013.
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Jeremy Johnson case may force regulators to show their hand
Courts » Defense attorneys dispute Federal Trade Commission’s evidence, tactics in I Works lawsuit.
By Tom Harvey
| The Salt Lake Tribune
Just as their lawsuit against Jeremy Johnson reaches a critical stage, federal regulators are being challenged on the evidence and tactics they used to shut down the St. George businessman’s online-marketing machine and seize most of his assets.
In the first evidence-laden response to a Federal Trade Commission lawsuit filed more than three years ago, attorneys for Johnson’s I Works company and his family say the agency ignored or lost evidence potentially unfavorable to its case. Regulators have few witnesses who can support their allegations, which are refuted by evidence gathered in the case, the attorneys argue.
Beyond allegations specific to the I Works case being heard in Las Vegas, lawyers say they have uncovered a strategy that FTC attorneys use against online marketers that are smaller than giants such as Amazon.com but still have substantial assets. The strategy calls for swooping in to deprive these targets of resources for attorneys, so regulators then can quickly win the case with little challenge to the evidence.
In addition the FTC lawsuit, Johnson — who is at the center of a scandal that forced former Utah Attorney General John Swallow from office — and four other I Works employees face 86 criminal charges in Salt Lake City’s federal court related to I Works, a case separate from the civil suit but reliant on some of the same evidence.
The FTC sued Johnson, I Works and others in December 2010, alleging they bilked consumers out of hundreds of millions of dollars by getting them to bite on "free" offers of information about how to obtain government grants and make money while working at home as well as other products. Consumers’ credit cards or bank accounts then were assessed large monthly or one-time fees that weren’t adequately disclosed, the agency asserts.
Shortly after the lawsuit’s filing, the FTC persuaded a federal judge to order the seizure of the assets of Johnson, I Works and other defendants.
Now federal attorneys have asked U.S. District Judge Miranda Du to rule in their favor without a trial. FTC attorneys argue the evidence of wrongdoing the agency gathered is substantial and without adequate challenge. They want the defendants held liable for $280 million in restitution.
"Defendants’ violations of [federal laws] are documented in voluminous irrefutable evidence," the FTC argued, "including defendants’ pleadings, discovery responses, deposition testimony, business records and the testimony of defendants’ former employees."
Not so fast, counter Salt Lake City attorney Karra Porter and other lawyers who represent I Works, Johnson’s wife and parents and other related businesses. (Jeremy Johnson is acting as his own counsel in the FTC suit because he said he cannot afford one after the feds seized his assets).
"We would like to go to trial," Porter said. "We think there are issues on just about everything the FTC has raised."
Jeremy Johnson declined to comment for this story, saying he would like to address the issues but a gag order in the criminal case prevents him from doing so. He filed his own opposition to the FTC’s motion and asked for a trial.
The FTC also declined to comment, noting the lawsuit is still pending.
The judge has yet to set a date for a hearing on the FTC motion and counterarguments.
Johnson had been waging an online war with the agency by creating websites and gathering evidence he maintained showed the agency bullied witnesses and doctored their statements.
For her part, Porter takes exception to FTC statements such as the evidence "unequivocally demonstrates" I Works was defrauding consumers out of millions of dollars.
"To a great extent, the FTC conflates hyperbole with undisputed evidence," her memo to the court said. "Dismissive pronouncements that the defendants ‘bilked’ or ‘duped’ consumers add nothing to the debate."
Agency investigators acknowledged in depositions they were selective in their evidence, Porter’s memo says, "the main criterion appearing to be whether it supported the FTC’s allegations."
In one instance, investigators digitally recorded "undercover" online buys of I Works products, but didn’t disclose the effort until recently. They then conceded the recordings were lost, the memo says.
Investigators also used software to capture I Works Web pages that substantially reduced their size, making them appear more faded and harder to read when printed out.
The FTC case originally included statements from 16 out of 10 million customers, or 0.00016 percent, Porter and other attorneys note. Of those 16, three have since been dropped and three were discovered to have made their purchases from a non-I Works website. Fewer than half the remaining complainants said they were inadequately informed of the credit card or bank charges.
In the case of an I Works product that purports to show consumers how to make money online using Google AdWords, Porter said, the agency does not name any defrauded consumers.
"They don’t have a single consumer," she said, "who’s actually complaining about it."
By alleging all I Works products were fraudulent, Porter added, the FTC persuaded a judge to close the operation.
While some problems emerged early at I Works with improperly disclosed terms of sales, the defendants’ attorneys say, the company fixed the errors, especially after it began following the agency’s own guidelines spelled out at a 2007 conference attended by Johnson and others.
A main FTC complaint is that I Works advertised it could help consumers get government grants for personal expenses, none of which existed. But the memo argues the government relies on a narrow grant definition and ignores the availability of private grants that also were advertised.
Even so, defense attorneys argue, government grants are available for education, home improvements, rental assistance, car repairs, medical needs, phone bills, energy savings and more.
The defense memo also attempts to counter the FTC’s contention that Johnson directed others to create "shell companies" to continue to process consumer payments after credit card companies and banks began to cut off I Works because of high chargeback rates.
But Kelly Macfarlane, an attorney working with Porter, said Johnson’s involvement was fully disclosed as the guarantor of the accounts for those companies, the formation of which is standard practice for Internet sellers.
"There was not a single dollar lost [by banks]," Macfarlane said. "It was the largest fraud case in the history of the world that had no damages."
While Porter said defense attorneys were commenting only about the FTC lawsuit, the question of fraud involving banks is at the heart of the criminal case against Johnson and the four others.
If Porter succeeds against the government’s motion for summary judgment and the civil case goes to trial, it could be the first real challenge to the FTC’s litigation strategy, the memo says.
"This case," Porter wrote, "thus presents a rare instance in which the FTC’s evidence is actually being tested."
Jeremy Johnson cites conspiracy by feds, Swallow
Jeremy Johnson cites conspiracy by feds, Swallow
Lawsuit • Businessman alleges they trumped up a criminal charge to pressure him to settle a civil case.
By Tom Harvey The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Jeremy Johnson, who is at the center of a scandal that forced former Attorney General John Swallow from office, is alleging that Swallow and federal lawyers conspired to have him arrested and then used that criminal case to try to pressure the St. George businessman into settling a regulatory lawsuit.
Johnson, in a filing this week in the federal lawsuit he faces in Las Vegas, said Swallow, Federal Trade Commission attorney Collot Guerard and federal prosecutor Brent Ward worked together to arrest him on a trumped-up charge and made it appear he was fleeing to Costa Rica.
Guerard then used the criminal case, according to the filing, to try to pressure Johnson to settle a massive FTC lawsuit, which alleges he defrauded thousands of consumers.
Johnson is representing himself in the lawsuit since the court, in 2011, agreed to an FTC request that Johnson's assets and those of his I Works company be seized. As a result, Johnson says he has no money for attorneys.
Johnson and four others also face 86 criminal counts in Salt Lake City's federal court related to I Works. The embattled businessman, who is under a gag order not to discuss his case, has a court-appointed attorney, Ron Yengich, in the criminal matter.
The U.S. attorney's office is also restricted by a court order on what it can say about Johnson's criminal case. The FTC did not immediately respond to an email seeking comment on the filing.
But Swallow's attorney, Rod Snow, said Wednesday his client was not involved in any decision to arrest Johnson.
The filing provided no evidence of Swallow's involvement in the criminal case. Johnson previously asserted that Swallow told him Ward had been offered a job in the Utah attorney general's office and that the two were friends.
Ward has said he never sought a job from Swallow and would not have accepted one if offered. He also said he and Swallow were not friends.
Johnson's filing also alleges that, while in the Davis County Jail after his arrest in June 2011, he was called by Guerard, who sought to induce him to settle the FTC case. Prosecutors have acknowledged that contact was improper.
Johnson alleges other improper conduct by government attorneys, as well, such as inducing witnesses to sign statements they later recanted. The filing cites testimony by Internal Revenue Service Agent Jamie Hipwell that no separate investigation was done before Johnson's arrest and that agents and prosecutors relied on evidence gathered by the FTC.
John Swallow's shadow surfaces at Jeremy Johnson hearing
John Swallow's shadow surfaces at Jeremy Johnson hearing
Courts • Feds deny claim that they erased hard drives in case involving St. George businessman.
By Tom Harvey The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2014, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Shadows of the investigations into former Utah Attorney General John Swallow crept Wednesday into the criminal case against Jeremy Johnson, the St. George businessmanwhose allegations sparked at least five probes of Swallow and others.
Johnson and four fellow defendants pleaded not guilty during a federal court hearing in Salt Lake City to a new indictment, the third in this case but one that makes only minor changes to some of the 86 charges connected to their operation of I Works, Johnson's massive online-marketing operation.
More than two years after the first indictment, the case is inching closer to trial. Magistrate Judge Paul Warner said he expects to schedule a trial date at the next hearing, set for March 12.
One of the biggest obstacles is delivering the millions of pages of possible evidence from I Works' computers to five defense attorneys in a form that allows them to search for specific information. A database expert hired by the court said much of that work should be completed within the next few weeks.
But Marcus Mumford, attorney for defendant Scott Leavitt, said he worries that several hard drives in the possession of the government may have had data deleted.
"There may be audio files in these things," said Mumford, adding that the hard drives apparently had been taken from I Works by the Federal Trade Commission, which sued the company, Johnson and others in December 2010 for allegedly defrauding consumers.
Assistant U.S. Attorney Robert Lunnen denied anything had been erased, and court-hired database expert Eric Wheeler said he also had found no such evidence.
"We haven't wiped clean any hard drives," said Lunnen, who recently replaced Brent Ward as lead prosecutor in the case.
Ward withdrew after he briefly became a candidate to replace Swallow, who announced his resignation in November in the wake of investigations into his conduct, including his ties to what Johnson described as an effort to stall the FTC's I Works inquiry.
Investigators hired by a special Utah House committee have said that nearly every electronic device Swallow used — cellphones, computers and hand-held units — had been wiped clean of data, starting in 2012 after Johnson pressed forward with a hardball campaign for the return of some of the monies his company and Leavitt had paid in the failed effort to derail the FTC investigation.
Recently released warrants show that investigators looking into the conduct of Swallow and predecessor, Mark Shurtleff, are interested in the relationship between Swallow and Ward and have sought emails between the two. Questions about Ward's relationship with Swallow also surfaced in the wake of a court hearing a year ago during which Johnson was poised to plead guilty but at which the deal fell apart.
As part of that hearing, Johnson produced two lists of people whom he claimed Ward had agreed not to prosecute in connection with the I Works investigation. Swallow's name appeared on one of the lists, which Ward agreed could be admitted into the official court record as part of the plea deal.
But U.S. Attorney for Utah David Barlow has denied the government agreed to immunity for Swallow.
In addition, Sen. Steve Urquhart has modified his earlier criticism of Ward's actions, saying he now believes Ward might not have intended to give Swallow immunity but rather was signaling in the hearing that the U.S. attorney's office had no intention to prosecute anyone else arising out of the investigation of Johnson's I Works company.
"It is plausible that Brent Ward intended with the plea deal to end all prosecutions related to I Works ... not that John Swallow's inclusion on the list had any particular significance," the St. George Republican wrote in a recent Facebook post. Urquhart did not return a phone call seeking further comment.
Twitter: @TomHarveySltrib
U.S. courts still open; feds seek delay in Jeremy Johnson civil case
U.S. courts still open; feds seek delay in Jeremy Johnson civil case
Justice • Criminal case against St. George businessman still proceeding.
By Brooke Adams The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
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While many federal government operations are shut down as a result of Congress' failure to pass a funding resolution, the good and the bad will continue to battle in court.
U.S. District Court in Utah has adequate funds to accept filings and hold hearings for about 10 business days. Then, it will reassess.
Several federal court-related agencies, such as the Federal Public Defender, had already implemented furloughs and reduced hours because of sequestration.
A memo outlining the Department of Justice's contingency plan in the event of a shutdown — which it assumes for planning purposes would last five days — says that many of its agencies are exempted from "antideficiency act" restrictions. Some activities operate on multi-year funds (such as the Bureau of Prisons), use appropriations that don't have to be renewed or are presidential appointees, such as U.S. Attorney for Utah David Barlow.
Of DOJ's 114,486 employees, a vast majority — 96,300 — fall in one of those categories.
According to the DOJ's contingency plan, priority No. 1 will be maintaining the safety and security of the United States: "The law enforcement capacity of the U.S. Government should not be impaired or perceived to be impaired. To do so could constitute an imminent threat to the safety of human life and the protection of property."
The DOJ says criminal litigation will "continue without interruption as an activity essential to the safety of human life and the protection of property." Meanwhile, civil litigation will be curtailed or postponed to the extent that it can be.
On Tuesday, for example, stays were filed in litigation over road designations in counties throughout Utah. And Federal Trade Commission attorneys have asked a federal judge in Nevada to suspend proceedings in their consumer-fraud lawsuit against St. George businessman Jeremy Johnson, saying they were barred from working even voluntarily because of the shutdown.
Johnson opposed the motion, according to the FTC filing. Karra Porter, the Salt Lake City attorney for Johnson's I Works company and others, also objected to the stay.
"The United States has elected to cease operation, voluntarily relinquishing prosecution of this matter (which it initiated) by depriving its attorneys of funding" and prohibiting them from working voluntarily, Porter said in her opposition to the stay.
Johnson's criminal case in Salt Lake City's federal court — where he and four former employees face 86 criminal counts — is proceeding, though nothing is scheduled until January.
Johnson is a central figure in the scandal enveloping Utah Attorney General John Swallow.
Other points of note in the DOJ plan:
• "New employees who are not in positions designated as 'emergency' should not start work during the lapse and should not be trained."
• "All FBI agents and support personnel in the field are considered excepted from furlough."
• "All agents in DEA field organizations are excepted from furlough because they support active counter-narcotics investigations."
• Grant programs, such as community-oriented policing services and the Office on Violence Against Women, are "no-year" appropriations and "these activities may continue during a lapse as long as sufficient carryover funds remain." A spokeswoman for the Utah Department of Human Services said Wednesday all its programs that receive federal funding, such as drug-treatment programs, would be unaffected for at least 90 days.
Tom Harvey contributed to this story.
Other points of note in DOJ plan
New employees who are not in positions designated as 'emergency' should not start work during the lapse and should not be trained.
All FBI agents and support personnel in the field are considered excepted from furlough.
All agents in DEA field organizations are excepted from furlough because they support active counter-narcotics investigations.
Grant programs, such as community-oriented policing services and the Office on Violence Against Women, are "no-year" appropriations and "these activities may continue during a lapse as long as sufficient carryover funds remain." A spokeswoman for the Utah Department of Human Services said Wednesday all its programs that receive federal funding, such as drug-treatment programs, would be unaffected for at least 90 days.
Nevada judge won't halt federal lawsuit against Jeremy Johnson
Nevada judge won't halt federal lawsuit against Jeremy Johnson
Ruling • Prosecutors had claimed Johnson was using Las Vegas suit to influence criminal case in Utah.
By Tom Harvey The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
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A federal court handed Jeremy Johnson a victory Wednesday.
U.S. District Judge Miranda Du refused a government request to halt a civil lawsuit in Nevada against the St. George businessman while prosecutors pursue a criminal case in Utah.
The U.S. attorney's office in Salt Lake City had argued Johnson, while acting as his own lawyer, was using the Las Vegas case to intimidate potential witnesses and influence the Utah proceedings, in which he and four others face 86 criminal counts related to alleged bank fraud.
But Du ruled that a stay in the Federal Trade Commission (FTC) lawsuit in Nevada against Johnson and others who worked at his I Works company would be "inappropriate under the circumstances" because it would further delay the case's outcome.
Such a suspension would impose a "heavy burden" on the defendants, who already have had assets seized and are under other restrictions, the judge said. It also would delay any return of funds to consumers. Du said any improper influence or intimidation of witnesses would violate court orders already in place and should be brought to her attention.
The judge lifted a temporary halt in the Nevada case and gave the parties a little more than a month to question possible witnesses and finish gathering evidence. Johnson has sought to depose Utah Attorney General John Swallow in the case.
Under a gag order in Utah's criminal case, Johnson declined to comment on Du's decision.
Karra Porter, a Salt Lake City attorney who represents Johnson's wife, parents, I Works and other related entities in the Nevada suit, welcomed the ruling.
"It means we get the discovery we need for our side of the case just like the government was previously able to do for its side of the case," Porter said. "It also means we won't have to wait years to get our day in court." The U.S. attorney's office for Utah declined to comment.
The FTC sued Johnson in December 2010, alleging he and fellow I Works officials defrauded consumers out of millions through unauthorized credit- or debit-card billings.
Johnson was arrested in June 2011 on a related mail-fraud charge and eventually indicted on 86 counts.
He and the others dispute the allegations in both cases. No trial dates have been set.
Judge slaps gag order on Jeremy Johnson, others in his criminal case
Judge slaps gag order on Jeremy Johnson, others in his criminal case
Courts • Indicted Utah businessman's gag order bars discussing case in media.
By Tom Harvey The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Jeremy Johnson certainly has caused a stir this year: headline-grabbing allegations about Utah Attorney General John Swallow and a vigorous media campaign against federal regulators and prosecutors.
Now he's been told to zip it.
A federal judge has signed a gag order to prevent the St. George businessman and others involved in his criminal case from making statements about it to the news media or on social media.
U.S. Magistrate Judge Paul Warner signed the order at the request of prosecutors, who say Johnson was using interviews with news reporters and comments on the Internet to try to influence the outcome of the case, which now involves 86 criminal charges. Johnson has set up websites and Facebook pages to allege that he is being wrongly sued and prosecuted and that federal officials have engaged in improper activities.
In January, when prosecutors initially sought the gag order, Johnson fired back at the effort to muzzle him.
"I find it ironic that the government, with their endless resources and teams of attorneys, are afraid of what I might say to the media or post on the Internet," Johnson said then in an statement. "... In an act of desperation they want to deprive me now of my First Amendment right to free speech."
The Utah Association of Criminal Defense Lawyers, citing free speech and other constitutional concerns, had filed a brief arguing the government had not provided evidence that a gag order was needed.
In time, Johnson's defense attorneys agreed to such an order. The sides, however, could not reach a final deal with prosecutors about the wording.
Under Warner's May 9 edict, Johnson, attorneys in the case and a handful of employees in the businessman's I Works company are prohibited from spreading statements or information that could influence jurors at a trial.
The order follows the guidelines of a federal rule in criminal cases that permits restricting statements and information outside the courtroom in highly publicized proceedings.
Johnson and four other I Works employees were indicted in March on charges relating to their operation of I Works. The counts center on allegations the five committed bank fraud by creating shell companies and using them to open merchant accounts at banks in order to process consumer credit and debit cards.
Johnson has alleged that Swallow helped broker payoffs to enlist the aid of Senate Majority Leader Harry Reid in derailing a Federal Trade Commission investigation of I Works. Swallow and Reid have denied the allegations. The Justice Department is investigating.
Legislative panel to tackle A.G. post
O On Wednesday, the Utah Legislature's Government Operations Interim Committee will discuss a proposal to study whether the state's attorney general should be elected or appointed.
The meeting begins at 9 a.m. in Room 445 at the Capitol.
Dueling court actions snarl criminal case against Jeremy Johnson
Dueling court actions snarl criminal case against Jeremy Johnson
Indictment • Co-defendants plead not guilty as sides scrap over witnesses for the Utah case and an FTC lawsuit.
By Tom Harvey The Salt Lake Tribune
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Entanglements with a civil lawsuit in Las Vegas are threatening to throw a wrench into a criminal case in Salt Lake City involving St. George businessman Jeremy Johnson and four former coworkers at Johnson's online marketing company.
The dispute over shared witnesses in the Federal Trade Commission lawsuit in Nevada and the Utah case bubbled up in court Wednesday. At the hearing, Johnson and the codefendants pleaded not guilty to 86 criminal charges related to their operation of Johnson's I Works company.
Johnson, Bryce Payne, Scott Leavitt, Ryan Riddle and Loyd Johnston each answered "not guilty" when U.S. Magistrate Judge Paul Warner asked them how they pleaded to charges allegedly revolving around bank fraud that were handed up in a grand jury indictment last month.
Both sides said the complications of having two different cases running simultaneously in the two cities threatened to undermine the potential testimony of witnesses in the criminal case.
Johnson and his I Works company, along with the four associates and related entities, were sued by the Federal Trade Commission in the civil case in December 2010. The agency said they allegedly misled consumers to buy information on make-money schemes, stay-healthy programs and on how to obtain government and private grants for personal expenses.
Consumers who gave credit- or debit-card numbers for a minimal handling charge, usually $1.99, were then charged monthly fees of $59.95, and some faced a one-time fee of $189, according to the suit.
Hundreds of thousands of customers sought refunds from credit-card companies over the charges, the suit said. When Visa and MasterCard terminated I Works' merchant accounts, the complaint says Johnson and the others created dozens of shell companies in order to continue to accept card payments.
It's those shell companies that are a key part of the government's criminal case in Salt Lake City, which has been entwined from the beginning with the FTC lawsuit in Las Vegas.
On Wednesday, Johnson's criminal defense attorney, Ron Yengich, told Judge Warner that prosecutors from Salt Lake City were sitting in on depositions being conducted by FTC attorneys of witnesses in the civil lawsuit and consulting amongst themselves during breaks.
"It puts every one of these defendants in jeopardy," Yengich said.
Attorney Marcus Mumford, who represents Leavitt, complained that prosecutors had failed to meet a court-ordered deadline for turning over witness statements that Mumford said were important to his client who is also facing a deposition in the lawsuit and needs the information to prepare.
"He doesn't want to take the Fifth" and refuse to answer questions, Mumford said.
Prosecutors have asked Warner to back off his earlier decision to require the quick release of witness statements and said they now fear that Johnson, who represents himself in the lawsuit, is trying to use depositions to influence witnesses in the criminal case.
"There is a potential threat that witnesses will be improperly influenced," prosecutors told Warner in a motion.
But another attorney for Johnson, Chelsea Koch, shot back that "the government clearly wants a tactical advantage, making its claims of inappropriate conduct on the part of the defense absurd."
Warner in effect threw up his hands Wednesday and told both sides that he did not have jurisdiction over the lawsuit in Las Vegas. He suggested defense attorneys seek a stay of that case. He set the next hearing in the criminal case for June 13.
The criminal charges revolve around a series of what the government alleges were shell companies the five defendants set up in order to fool banks into creating new accounts so I Works could continue to charge consumers' credit and debit cards.
Johnson previously had been charged with one count of mail fraud connected to I Works, but the government sought the new indictment with additional defendants after Johnson changed his mind and declined to plead guilty as part of an agreement that could have gotten him 11 years in prison.
Johnson has previously said the FTC allegations and the initial criminal charge he faced were baseless.
Johnson in recent months also has made public copies of emails and a transcript of a 2010 meeting he had with then-Utah Chief Deputy Attorney General John Swallow that Johnson says details Swallow's involvement in a purported plan to bribe U.S. Senate Majority Leader Harry Reid to stifle the FTC investigation of I Works.
Swallow, who was elected attorney general in November, and Reid's office have denied any knowledge of such a plan. Swallow said he merely connected Johnson with payday loan entrepreneur Richard Rawle to use Rawle's experience to hire lobbyists who would help Johnson.
The U.S. Attorney's Office and the FBI are investigating Swallow on that and other matters.
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