Feds move to sell assets of Utah business, gambling figure
This may be the last Memorial Day weekend that Utah businessman and Las Vegas gambling figure Jeremy Johnson and his family enjoy one of their million-dollar houseboats on Lake Powell.
That’s because a receiver in a massive fraud lawsuit in Las Vegas wants to take the boats away.
Johnson, of St. George, Utah, and scores of associated companies and individuals were sued by the Federal Trade Commission in Las Vegas last year in what the FTC called a nationwide scheme that operated online for years and that cost consumers $275 million.
The FTC claims Johnson and nine associates operated a "far-reaching Internet enterprise" including I Works Inc. and 60 more companies that "deceptively enrolled unwitting consumers into memberships for products or services and then repeatedly charged their credit cards or debited their bank accounts without consumers’ knowledge or authorization."
Johnson and his codefendants have denied defrauding anyone, but a federal judge in Las Vegas nevertheless appointed a receiver to take control of the assets of Johnson.
The receiver, Robb Evans, reported to the court in February that his initial investigation found I Works, which was incorporated in 2000, had generated revenue of $332.5 million through January of this year – and a profit of $50.4 million for Johnson and his affiliates.
Attorneys for Johnson this month asked the federal court to order the release of some of the funds held by the receiver to cover Johnson’s living expenses and legal costs.
An injunction freezing the assets of Johnson and his company "has placed a strangle hold on Jeremy Johnson and the corporate defendants’ ability to retain competent counsel to defend this action and has made it impossible for Johnson to meet even the most basic living expenses such as utilities and housing," his attorneys wrote in their filing.
Johnson’s attorneys said the FTC has provided evidence of not more than $1,200 of actual damages sustained by consumers.
"Despite this fact, the FTC asserted the need to freeze the assets of Johnson and the corporate defendants, not necessarily to compensate wronged customers – because no evidence of wronged customers had been forthcoming – but to disgorge all profits from Johnson and the corporate defendants based on the contention that all of their profits arose from deceptive practices – an allegation the FTC has yet to prove," Johnson’s court filing said.
Attorneys for Evans, the receiver, filed court papers Thursday challenging Johnson’s assertion that he needs money for attorneys and living expenses.
His attorneys noted "serious concerns" that Johnson has not complied with a court-ordered asset freeze and that "over a longer period of time, Mr. Johnson has created a web of companies and used a host of friends and family to secret assets and make them unavailable to the FTC for potential consumer redress."
The receiver’s attorneys complained that Johnson has been using rental revenue from his mansion in Santa Monica, Calif. – money that should be going to the receiver. They alleged that one of Johnson’s helicopters is in Costa Rica, being rented out for tours, yet that rental income hasn’t been turned over to the receiver.
(Johnson is known in Utah as a philanthropist who uses his aircraft fleet for humanitarian and rescue missions).
The receiver challenged Johnson’s assertions he needs money to pay the mortgage and expenses for a home in St. George, as the receiver has learned Johnson and his family have moved to Costa Rica.
The receiver also reported one of Johnson’s attorneys "asked for permission for Johnson and his family to use their houseboat over the Memorial Day weekend, valued well in excess of a million dollars, and docked at Lake Powell, Ariz."
"How can Johnson and his family have funds to travel (either from Costa Rica or St. George) to Lake Powell, expend the funds necessary to outfit and use their luxurious houseboat for a weekend getaway, and then return to Costa Rica, or St. George, when all of their non-receivership assets have purportedly been `depleted?’," the filing said.
The receiver said the court should not approve Johnson’s monthly mortgage payment of $16,644 to SunFirst Bank in St. George for a Johnson home in St. George, as it’s not Johnson’s primary residence and the value of the home is less than what it owed.
Johnson had extensive business dealings with SunFirst and the "receiver believes that the lien to SunFirst Bank is avoidable as a fraudulent conveyance" in light of the circumstances.
Those circumstances include the mortgage in 2010 being created to finance the acquisition of $3.4 million worth of bank stock in the name off Johnson’s father and his parents, the receiver said. Johnson has also testified in depositions that last year he bought $500,000 worth of SunFirst stock in his own name, borrowed the money for the acquisition from the bank and collateralized the acquisition with at least three of his aircraft.
In suggesting Johnson give up the home backing the $3.4 million mortgage, the receiver’s attorneys said Evans is seeking to dispose of several modest homes owned by Johnson and his companies in the St. George area.
"Perhaps Johnson and his family could relocate to one of those more modestly priced homes that do not have huge debt obligations and maintenance expenses," the receiver’s attorneys said.
"No funds should be released for living expenses or costs of defense until the receiver has been able to conclude his detailed forensic accounting to determine where all of the assets of the receivership estate are located and to satisfy himself and this court that Mr. Johnson has provided a full and complete disclosure of all assets he owns or controls," the receiver’s filing said, adding the IRS has presented a claim to the receiver against Johnson of more than $2.6 million.
The receiver separately filed papers seeking court authority to auction assets of Johnson and his companies including:
--Numerous residential and commercial properties in St. George, Beryl, Ephraim, Mendon, Manti and Richfield, Utah; Santa Monica, Calif.; and Belize City, Belize.
--Planes and helicopters include a 1978 Cessna P210N, a 2008 Robinson R44 Raven II helicopter, a 1968 Piper Navajo, a 2005 Robinson R44 Raven II helicopter, a 2009 Piper Malibu Mirage and a 1978 Beech C24R.
--A vintage auto collection including 1957 Chevrolet Belair Convertible, a 1972 Chevrolet Nova SS Clone, a 1952 Ford O Matic, a 1968 Oldsmobile and a 1972 Chevrolet Chevelle SS 454.
--A non-airworthy custom-made "snow plane" that looks like a plane and has a plane engine, but is designed to travel over snow.
--Two Skipperliner houseboats, one a 75-footer named "PEPS I" and another a 74-footer named "Animal House." Both are docked at Lake Powell.
--A dune buggy.
-Office furniture and equipment.
--Johnson’s interest in a private commodity pool investment known as Global Wealth Long/Short Commodity Futures Fund LLC managed by Marathon Investments Inc.
Court records, in the meantime, note Johnson and his companies have several ties to Las Vegas casinos as well as Internet casinos.
Wynn Las Vegas reported to the FTC that between June 17, 2006, and Jan. 21, 2011, Johnson lost $1.35 million gambling there, the FTC has disclosed in court papers.
An FTC investigator reported that between April and October of last year, Johnson lost another $1.536 million playing on the Full Tilt Poker site.
Johnson also said in the deposition that his companies had merchant account arrangements with online poker companies including Full Tilt and that he used -- with their permission -- some money belonging to the merchants to invest in oil-drilling ventures
Records in two federal lawsuits document extensive business dealings between Johnson and Las Vegas businessman Chad Elie, who was among those indicted April 15 in a federal crackdown on Internet poker operators and their payment processors.
One of the banks allegedly involved in processing gambling payments was SunFirst Bank in St. George, whose part owner and vice chairman, John Campos, was indicted along with Elie and the other defendants April 15.
SunFirst Bank has participated in the FTC lawsuit against Johnson as a creditor of Johnson’s.
One of Johnson’s companies, Elite Debit Inc. – a defendant in the FTC lawsuit – earlier was named by the Federal Deposit Insurance Corp. in an enforcement action against SunFirst.
In that Dec. 30 enforcement action, announced before the Internet poker indictments, the small Utah bank neither admitted nor denied allegations of unsafe or unsound banking practices.
It agreed to cease providing third-party payment processing -- unless approved by the FDIC -- to any third-party payment processor and specifically to "Triple Seven LLC, Mastery Merchant LLC, Powder Monkeys LLC, Elite Debit and its associated accountholders, customers, and clients."
Johnson is not a defendant in the federal Internet poker criminal case.
The federal judge presiding over the FTC lawsuit against Johnson and his companies hasn’t indicated when he may rule on Johnson’s requests for money for living expenses and his defense costs.