ST. GEORGE — A Washington County man is one of nine defendants indicted in federal court, accused of playing a role in a $100 million scam involving the sale of nutritional and dietary supplements – a scheme that involved straw buyers, fake storefronts, thousands of transactions and hundreds of companies – all set up to deceive consumers and bilk millions from payment processing centers.
The United States Attorney’s Office District of Utah announced Wednesday that nine Utahns, including 44-year-old Dustin Garr, of St. George, are facing 18 federal charges that include six counts of wire fraud, five counts of aggravated identity theft, two counts of aggravated identity theft and one count each of wire fraud, bank fraud and money laundering.
The nine named in the indictment are accused of engaging in interrelated fraud and money laundering activities that netted the group more than $100 million from banks and payment processing centers – an operation that went on for more that six years starting in 2016 and continued through April of this year.
The remaining eight defendants include three out of Salt Lake County which are April Gren Bawden, 36, Chad Austin Bawden, 43, and 52-year-old Phillip Gannuscia. Four defendants were out of Utah County, including 39-year-old Makaio Lyman Crisler, Barbara Jo Jackson, 69, Brent Goldburn Knudson and Richard Scott Nemrow, both 42 years old, while another defendant resided in Washington State, 45-year-old Robert McKinley, of Spokane.
The scheme involved at least the nine listed in the indictment, as well as others that were not identified before the grand jury, and all are accused of engaging in interrelated fraud and money laundering activities that netted the group more than $100 million from banks and payment processing centers – an operation that went on for more that six years starting in 2016 and continued through April of this year.
The scheme worked something like this.
The defendants set up a number of companies designed to sell nutritional supplements and products to the public using a number of websites and a call center that was operating out of Utah. All sales were made using credit or debit card transactions that were billed using several payment processing centers.
The product line included nutritional aids, dietary supplements and CBD products that the company marketed using false claims that the products would be beneficial in treating a myriad of health conditions, including seizures, cancers, erectile dysfunction, weight loss and many others. The company used deceptive practices as to the effectiveness of the products – in addition to promoting the products using fake celebrity endorsements, the indictment says.
Federal prosecutors also allege that the company used deceptive practices to intentionally mislead consumers about the price of the products as well as the company’s return policy.
According to the indictment, the sale of CBD and nutraceutical products, which is any food-based substance that provides medical or health benefits and in the prevention and treatment of disease, is considered a high risk practice for payment processors due to the large number of chargebacks that are caused by false marketing claims, as well as having a greater potential for funding criminal activity.
The scheme allowed the defendants to obtain more than $100 million in money that was transferred and allegedly laundered through the fraudulent companies- monies used to cover overhead costs and to keep the scheme going. Federal investigators also determined that more than $64 million of the proceeds were transferred overseas.
The funds were also used to “fund the lifestyles of the defendants,” the indictment says.
Fraud and the use of merchant payment processing centers
The merchant payment processing centers are required to follow certain practices designed to protect consumers and to comply with anti-money laundering statutes, which in turn reduces the financial risks associated with fraud and charge backs, which is a refund back to the consumer that is charged back to their bank or credit card.
Among the rules these processing centers follow is a requirement that merchants or sellers provide truthful information to be used to determine whether or not to open a payment processing account for that particular company.
According to the indictment, the sale of CBD and nutraceutical products, which is any food-based substance that provides medical or health benefits and in the prevention and treatment of disease, is considered a high risk practice for payment processors due to the large number of chargebacks that are caused by false marketing claims, as well as having a greater potential for funding criminal activity.
As a result, merchant processors attempt to limit their risk and potential for liability with these types of high-risk companies by engaging in underwriting, which is a risk assessment many of these types of merchants undergoes before they can accept electronic payments – a process that was completed before and after the company accounts were opened. With high risk accounts, these processing centers also often limit the number of sales transactions that can be processed through a single merchant account.
To avoid these stringent merchant risk assessments the defendants set up hundreds of limited liability companies in the names of others, but were controlled by the defendants, who then set up websites and companies and hired hundreds of merchant processing accounts to process the payments. The defendants did this by recruiting individuals that provided their personal information to set up the companies and to open business bank and merchant processing accounts that were used to process the payments.
These “straw owners” were paid between $250-$350 per month as long as their merchant account remained open. These owners did nothing to operate the businesses, and not only were they not part of any decision making, they had little or no knowledge of the businesses.
The primary LLCs that were used in the scheme include Envision Wellbeing, also known as Pure Transformation Today, Divine Health, also known as Increased Wellness, Infinite Nutrasupp, also known as Infinite Improvement, as well as Target Fulfillment, Energia and Controlled Marketing, federal prosecutors allege.
Even after the merchant account is opened, the merchant’s sales transactions are monitored for any “atypical” volume of payments processed, as well as excessive chargebacks or fraud. These merchant processors also maintain a list of companies that have had their merchant accounts closed due to reports of fraud, money laundering and an excessive number of chargebacks.
It was these safety measures that federal prosecutors say the scheme was designed to circumvent by using misleading and deceptive marketing and sales practices that directly targeted consumers. The defendants also set up hundreds of websites that acted as “false storefronts” that did not contain the same misleading claims and advertising directed at consumers, but were designed solely to avoid detection during the underwriting process by making the same company appear legitimate.
Additionally, since higher chargeback rates were a red flag and resulted in payment processing accounts being shut down, the defendants manipulated thousands of sales transactions by using gift cards to complete the low-dollar transactions they termed as “friendlies” to keep the payment processing accounts open for as long as possible.
The defendants also set up multiple bank accounts used to transfer the funds from one account to another, making it more difficult to track the proceeds, the indictment said.
Furthering the scheme through the use of websites and a call center
The defendants also used online and phone solicitation techniques to market the sale of nutraceuticals and other dietary supplements under the guise the products would provide certain health benefits by using false or misleading claims regarding the effectiveness and safety of the products. The defendants also used celebrity endorsements that turned out to be fake as well.
According to prosecutors, the fraud also involved tactics designed to mislead consumers on the price of products, as well as the ability to return the items for a refund.
Additionally, the indictment says, consumers were enrolled in monthly subscriptions without their knowledge or consent, and buyers were also charged more for the products than the advertised price, as well as being sent and charged for more product than they ordered.
Consumers were also unable to obtain a refund or to return the product, and when consumers contacted the company to ask for their money back, instead of getting a refund, they were sold additional products and their money for the original order was never refunded.
These misleading and fraudulent practices also resulted in several million dollars in chargebacks when consumers disputed the fraudulent charges, in addition to a heightened risk of reputational and financial harm.
In all, more than $100 million in proceeds from the fake companies was then transferred between these “layering” accounts and was used to purchase homes, vehicles, a boat and cosmetic surgery. For example, a wire transfer in June 2020 for more than $150,000 was used to purchase a Porsche 911 convertible, and in July of the following year, a wire transfer of more than $367,000 was sent to buy a Lamborghini Urus.
The case was filed in U.S. District Court in Salt Lake City on Dec. 7, and a forfeiture order was included that would require that all property derived from the scene be turned over to the government.
This report is based on statements from court records, police or other responders and may not contain the full scope of findings. Persons arrested or charged are presumed innocent until found guilty in a court of law or as otherwise decided by a trier-of-fact.
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