USA Sentencing Recommendation For Jeremy Johnson

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 1 of 31
JOHN W. HUBER, United States Attorney (#7227)

ROBERT C. LUNNEN, Assistant United States Attorney (#4620)
JASON BURT, Assistant United States Attorney (#11200)
MICHAEL KENNEDY, Assistant United States Attorney (#8759)
KARIN M. FOJTIK, Assistant United States Attorney (#7527)
Attorneys for the United States of America
185 South State Street, Suite 300
Salt Lake City, Utah 84111
Telephone: (801) 524-5682
________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
UNITED STATES OF AMERICA,
2:11-CR-501 DN
Plaintiff,
SENTENCING MEMORANDUM
DISCUSSING RELEVANT
GUIDELINE APPLICATIONS
vs.
JEREMY JOHNSON and RYAN
RIDDLE,
Judge David O. Nuffer

Magistrate Paul M. Warner
Defendants.
The United States, through the undersigned Assistant United States Attorney, files
this memorandum pursuant to the Courts Notice of Briefing Schedule and Hearing dated
April 1, 2016 (Doc. 1430). The United States requests the Court consider this
memorandum and any additional information or evidence it may present prior to or at the
sentencing hearing; that the Court find defendant Johnsons sentencing guideline range is
324 - 405 months; and that defendant Riddles guideline range is 188 235 months. The
1
United States will make recommendations that the Court order a downward departure
from these guideline ranges. However, the United States requests that it be permitted to
reserve its final sentencing recommendation until after the completion of the PreSentence Report at the time of the sentencing hearing.
Background
On March 25, 2016, a jury found defendant Johnson guilty of Counts 2 through 9
of the Indictment and defendant Riddle guilty of Counts 2 through 7. (Doc. 1399).
Theses counts are violations of Title 18 United States Code, Section 1014, making false
statements to a bank. Each conviction of 1014 imposes a maximum penalty of up to 30
years imprisonment and a $1,000,000.00 fine. The Court has set the sentencing hearing
for the defendants on June 20, 2016. (Doc. 1402). A hearing to consider the applicable
guidelines is set for May 20. (Doc. 1430.) All of the counts of conviction are directly
based on merchant account applications defendants submitted by defendants to Wells
Fargo Bank through the ISO, Cardflex. Each application and others relevant applications
were submitted to Cardflex containing false and misleading information. Defendants did
so with the intention of and for the purpose of concealing from the bank iWorks true
ownership and control of the accounts.
In the Notice of Briefing Schedule dated April 1, 2016, the Court ordered the
parties brief the application and effect of the sentencing guidelines, including
enhancements and mitigations. (Doc. 1430). The Court specifically instructed the
parties to address United States Sentencing Guideline Sections 2B1.1- larceny (offenses
2
involving fraud); 3B1.1 Aggravating Role (leader and organizer); and 3C1.1Obstructing or Impeding the Administration of Justice. Id. The following memorandum
discusses these applications and other relevant sentencing guideline provisions to be
considered by the Court at the sentencing hearing and to impose a final disposition of
sentence.
Application of Relevant Sentencing Guidelines
Section 2B1.1
Section 2B1.1 of the United States Sentencing Guidelines applies to a variety of
federal crimes, including 18 U.S.C. 1014. Under U.S.S.G. 2B1.1 the base offense
level 7 applies, where the defendant is convicted of an offense that has a statutory
maximum term of imprisonment of 20 years or more. 18 U.S.C. 1014 has a statutory
maximum of 30 years, meeting the application requirements of Section 2B1.1(a) (1).
Therefore, Johnson and Riddles base offense level under this provision begins at a level
7.
Section 2B1.1 further increases the level of an offense beyond the base offense
level 7, depending on certain characteristics outlined in this guideline provision.
Subsection (b) of the guideline increases in the offense level based on graduating
amounts of monetary loss listed as (A) through (P), beginning at $5,000 or less (A),
adding 2 points to the base offense level, and ending with a loss of more than
$400,000,000 (P), adding 30 points to the base offense level. Calculating the amount of
loss to apply to this provision is within the discretion of the sentencing Court.
3
Calculating Loss Amounts

There are three legal questions that are at issue in calculating loss under 2B1.1 in
this case. First, who is a victim for purposes of calculating loss? Second, when, if ever,
is it appropriate to look at a defendants gain as a measure of loss under 2B1.1? And
third, is it proper to consider acquitted or other conduct occurring during the time the
crimes were committed?
As set forth next, the definition of victim goes well beyond just Wells Fargo Bank
and must include all the players affected by the defendants crimes. Second, if actual or
intended loss cannot reasonably be calculated, the Court is authorized to look at
defendants gain as a substitute for loss. And third, the Court may look to acquitted
conduct as relevant conduct so long as facts established the acquitted conduct beyond a
preponderance of the evidence, as with all other relevant conduct. Given these three legal
realities, the loss the Court should find here is great.
First, who are the victims of defendants conduct? The term victim is defined in
2B1.1, Application Note 1, as (A) any person who sustained any part of the actual
loss determined under subsection (b)(1); (Emphasis Added). The United States
asserts that it would be unreasonable and arbitrary to limit the scope of defendants
pecuniary harm and victims solely to Wells Fargo Bank. Doing so would be contrary to
the intent of the sentencing guidelines, that is, to measure the magnitude of the crime at
the time it was committed. United States v. Nichols, 229 F. 3d 975, 979 (10th Cir. 2000).
On the other hand, it is logical and fair for the Court to consider other victims as any
4
person who sustained any part of the loss, as suggested by 2B1.1, Application Note 1.
Defendants crimes in this case affected far more than just Well Fargo Bank.
During the trial, Martin Elliot, Ofer Yitzhaki and others testified that issuing banks
often have threshold amounts that they set to determine whether to incur the monetary
costs required to dispute the chargeback or to pay the chargeback amount out of their
own pocket. It is highly likely, considering the number of chargebacks caused by
defendants fraud and the common amounts of the iWorks recurring charges, ($29.95,
$39.95 and other lesser recurring charges) that many issuing banks chose to refund to
their customer/cardholder without seeking redress and reimbursement through the credit
card dispute system. Determining the amount of loss incurred by issuing banks who
reimbursed cardholders directly rather than dispute the chargeback through credit card
network would be difficult if not impossible. The United States would be required to
identify each cardholder who elected to charge back their iWorks purchase and then
identify the issuing bank of each of those cardholders. Each issuing bank would have to
provide records indicating the amount the either the direct payment made to their
cardholder or the amount obtained through the dispute system, less the cost incurred to
employ the dispute system. Determining the total amount of this foreseeable pecuniary
loss to the issuing banks is a monumental task and there is no reasonable method to
obtain this information. None the less, it cannot be reasonably disputed that losses
occurred to issuing banks of thousands of cardholders.
It is also reasonably foreseeable that defendants fraud would cause numerous

cards to be cancelled and reissued. Martin Elliot testified that as a result of the excessive
chargebacks caused by defendants, thousands of cards had to be reissued to cardholders,
thereby causing an additional cost and loss to the issuing banks from reissuing those
cards. To be fair, the United States acknowledges, and it was established at trial that a
portion of the fees assessed to Wells Fargo Bank, paid as a result of the excessive
chargebacks caused by iWorks, were filtered down by Visa to cover the some of the costs
incurred by the issuing banks. Determining whether those costs completely covered
losses incurred by the issuing banks is again difficult if not impossible and there is no
reasonable or timely method to obtain this information. The important point to
underscore is that defendants fraud and relevant conduct undoubtedly caused pecuniary
loss across the credit card and merchant banking system, and that Wells Fargo Bank was
not the only victim in this case monetarily affected by defendants criminal conduct.
Another example of pecuniary loss caused by defendants fraudulent conduct is
Cardflex. Andy Phillips, Will Swaim and Kelly Berg all testified regarding defendants
false statements, and that Riddle and Johnson represented to Cardflex that the numerous
owners listed on the merchant applications were legitimate third party business owners,
and that Johnson and iWorks were providing back end support or customer service to
these third party owners. Phillips testified that as a result of his belief and confidence in
Johnsons explanation, and his companys subsequent approval the nominee merchant
accounts, he was terminated by Wells Fargo Bank and lost a significant portion of his
6
business. He indicated that Wells Fargos termination of his business relationship with
the Bank, cost him millions of dollars in business revenue and a significant loss of
reputation in the payment processing industry. In addition, both Cardflex and Mach 1
(Blaze Processing) were sued by the Federal Trade Commission, directly as a result of
their business dealings with iWorks and their alleged negligence or failure to recognize
iWorks fraudulent applications and conduct during the underwriting process of approving
their merchant accounts.
Some of the nominee owners were victims of defendants fraud. Several
nominees testified that they did not sign any of the documents used by defendants to
obtain merchant accounts in their names and that their identities were used without their
knowledge or permission. Some of the nominee owners names were placed on the
match list as the result of iWorks and the defendants processing credit card sales and
incurring excessive chargeback in their names. Several banking and card network
witnesses testified at trial that once a persons name is placed on the match list, it is never
removed. It is unclear whether or not this will affect the nominees and their credit, or
whether it will affect any future decisions they may make to conduct their own business
and to obtain a merchant account. Although, any loss to these nominees is very
speculative at best, it is another example of how defendants self-serving interests took
priority above any potential damage their conduct and actions would cause to others.
The magnitude of defendants actions and fraudulent conduct has directly affected
numerous victims and has caused pecuniary loss. This loss was reasonably foreseeable or
7
they should have known would reasonably result from their actions. 1 Defendants
demonstrated a singular interest in obtaining monetary benefit without regard to any of
the negative consequences caused to the people and entities they used to perpetrate their
fraud. The United States plans to present witness testimony on May 20 of various parties
affected by the defendants crimes to provide the Court further evidentiary basis to
support finding that there was pecuniary harms to victims resulting from defendants
crimes.
Second, when if ever is it appropriate to looks at gain as a measure of loss under
2B1.1? Loss under 2B1.1(b)(1), may be determined by three different methods. The
general rule is that the loss amount used to calculate the enhancement shall be the greater
of the actual loss or the intended loss caused by the theft or fraud. 2 Where the court finds
there is no actual loss, the court may look to intended loss. Under circumstances where
the court finds that a loss did occur (actual or intended), but is unable to find a reasonable
method to calculate the actual or intended loss, the sentencing court may use gain as an
alternative method of determining the applicable loss amount. 3 If the court finds no
evidence of either actual or intended loss, the amount of defendants gain may not be
USSG 2B1.1 n. 3(A)(iv).
Cmt., n. 3(A).
USSG 2B1.1 Application Note 3(B).

8
used to calculate the amount of loss for purposes of the guideline calculations. Gain may
not act as an enhancement on its own. 4
Actual loss is defined as the reasonably foreseeable pecuniary harm that resulted
from the offense. 5 Pecuniary harm requires the harm be monetary, or that the harm is
otherwise readily measurable in money. 6 Reasonably foreseeable means the defendants
knew, or reasonably should have known that the loss was a potential result of their
conduct and the offense. 7 Court decisions emphasize that the sentencing court need only
make a reasonable estimation of loss; the sentencing court is not required to be exact and
should look to the scope and duration of the offense and revenues generated by similar
operations. 8 For example, similar operations in this case would include defendants use
of nominee owners to open other merchant accounts not charged in the indictment,
including banks other than Wells Fargo, during the same time frame and with similar
intent and purpose.
Intended loss is defined in 2B1.1 as the pecuniary harm that was intended to
result from the offense, and includes intended pecuniary harm that would have been
impossible or unlikely to occur. Id. 2B1.1, cmt., n.3(A) (ii). Intended loss can be used
as the method to determine the loss enhancement even if significantly greater than actual
4
Id.
USSG 2B1.1., cmt. n. 3(A)(i).
USSG 2B1.1 n. 3(A)(iii).
USSG 2B1.1 n. 3(A)(iv).
USSG 2B1.1 n. 3(C)(vi).

9
loss to measure the magnitude of the crime at the time it was committed. Nichols at
979.
The false statements made by Johnson and Riddle found the merchant account
applications caused Wells Fargo Bank to open and operate numerous merchant bank
accounts. But for defendants false statements, Wells Fargo would not have opened and
operated the accounts. Without access to the merchant banking system and credit card
network, defendants would he been unable to accept credit card payments, would not
have received any of the pecuniary gain; would not have caused the excessive volume
of chargebacks and the cancelation of thousands of credit cards; would not have caused
the significant disruption to the merchant banking system and credit card networks
described by the banking and network officials during the trial; and would not have
caused costs and loss to issuing banks and card holders.
By fraudulently obtaining access to merchant banking system, the defendants were
allowed to continue their credit card sales the names of nominee owners, knowing full
well that the same iWorks products would incur known and historically excessive
chargebacks. Defendants knew that their consistent chargebacks violated credit card
association rules and that the nominee merchant accounts would either be terminated by
Wells Fargo Bank, closed for excessive chargebacks or shut down by the defendants
themselves before the bank or card association actions were imposed, which is precisely
what the evidence at trial showed as defendants burned and churned through nominee
merchant accounts.
10
Although it was established at trial that the chargebacks and fines were protected
to some extend by reserve accounts established by Cardflex, and that Cardflex set aside a
percentage of iWorks credit card sales proceeds, the reserve accounts only guaranteed
Cardflex would have no loss from chargebacks, if and as long as those chargebacks did
not exceed the amount set aside in the reserve account. It was also established at trial that
had defendants chargebacks exceeded the reserve accounts, Wells Fargo Bank would
have been ultimately liable to iWorks consumers for repayment of the chargeback
amounts. Emails submitted into evidence and testimony demonstrated that iWorks knew
they would continue to have the same level of chargebacks using the nominee merchant
accounts as they did using prior accounts opened in iWorks and Johnson names.
Evidence established that as a result of this knowledge, Johnson and the defendants
purposely set up numerous merchant accounts for the purpose of having back up
accounts to move to when account were closed or terminated due to excessive
chargebacks. Emails admitted at trial indicate that the Johnson wanted back up
accounts set up not only through Cardflex at Wells Fargo Bank, but at other Banks as
well. Testimony and evidence further showed that the defendants followed this strategy
of moving credit card processing to new accounts when existing accounts were closed or
terminated by banks for excessive chargebacks. This intentional strategy was further
corroborated by the evidence introduced and testimony at trial showing that a number or
the nominee accounts were matched, closed or terminated. The majority of these
accounts were used to sell the same three iWorks products, Google, Grant, and a Fitness
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program. The point is that defendants knew there would be excessive chargeback and
knew or should have known that pecuniary loss to others was a potential result of their
conduct and that the loss would not be limited to Cardflex or Wells Fargo Bank.
The problem faced here is that is it not reasonably possible to quantify the loss that
the victims incurred. Adequate banking records for all the issuing banks, consumers, etc.
do not likely exist. Nor is it possible to quantify when issuing banks ate the
chargebacks or contested them with Wells Fargo Bank. The costs to the credit card
system resulting from high chargebacks that numerous witnesses at trial testified to are
also not possible to quantify. Given these realities, it is appropriate in this case to look to
the defendants gain under 2B1.1.
Using Defendants Gain as an Alternative Measure of Loss
Due to the difficulty of determining the actual or intended loss that exists as a
result of the defendants fraud and that there is no reasonably determinable method of
calculating the actual or intended loss caused to the victims in this case, the Court is
entitled to use the alternative method estimating defendants gain as the amount of loss to
support the loss enhancement. U.S.S. G. 2B1.1, cmt. N. 3 (B), see United States v.
Washington, 634 F. 3d 1180 (10th Cir. 2011) and United States v. James, 592 F. 3d 1109
(10th Cir. 2010).
Exhibit 1 demonstrates the amount of gain obtained by the defendants solely
through the false merchant accounts for which they were convicted. If the court were to
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restrict the loss to this amount only, 14 points should be added to increase the defendants
over all base office level related to loss from 7 to 21.
Exhibit 2 provides a list of four nominee merchant accounts used by defendants
for the purpose of processing credit card sales of iWorks and Johnsons products. The
use of other nominee owners to process credit card transactions and sell iWorks products
through other banks is the kind of similar conduct or operations that the Court should
consider when evaluating relevant conduct and intended loss and is appropriately
recommended by 2B1.1 n. 3(C)(vi).
The first line of Exhibit 2 shows credit card sales made by iWorks through
Diamond J. Media, a company incorporated in the name of Ryan Riddle. Evidence
presented at trial showed that there were no physical offices for Diamond J. Media; that
Ryan Riddle did not operate a separate entity under that name; that he did not control or
collect any of the revenue from Diamond J. Media and that all of the products sold to
Diamond J. Media where iWorks products. Many of the actions taken to disguise the true
nature of the nominee corporations and the 281 merchant accounts set up in their names
are similar to how Diamond J. Media was set up and utilized by iWorks. Witness Kelly
Berg (Cardflex) testified that she wrote Johnsons name on the Diamond J. Media
merchant application after she learned that it was associated or related to iWorks
business operation. This is not inconsistent with what all the Cardflex witnesses were
told about the character of the nominee owners and their relationship to iWorks and
Johnson. Riddle was listed on the application as a 100% owner of Diamond J. Media.
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The amount of $9,654,181.40 dollars of iWorks credit card sales through a Harris Bank
merchant account open in the name of Ryan Riddle as 100% owner. Yet, all of the funds
processed were from iWorks sales and were for the sole benefit of iWorks and Johnson.
The second line of Exhibit 2 lists the merchant account established in the name of
Scott Leavitt as a nominee owner for iWorks. Leavitt testified that owned Employee Plus
and that business of this company was to lease employees to iWorks. Leavitt omitted any
mention during his direct examination that Employee Plus had other business operations.
Yet on cross-examination he admitted that Employee Plus opened a merchant account
and processed over 30 million dollars of credit card sales, all for the benefit of iWorks.
All of this money was gain solely attributable to the sales of iWorks products. Leavitt
stated that he charged Johnson a 2% fee to use the Employee plus name to process
iWorks credit card sales and he knew little if anything about the products being sold by
iWorks through the merchant account.
The third line lists the company Xcel Processing. Xcel processing was formed in
the name of Andy Johnson, defendants brother and later changed its ownership to Loyd
Johnston. Johnston testified that he did not operate or control any of the sales from the
shell companies formed in his name and that all of the products sold through nominee
corporations and merchants accounts in his name were controlled by and for the sole
benefit of iWorks. It is unknown at this time what if any testimony Andy Johnson
offered regarding his involvement in Xcel Processing. Trial transcripts may show
14
relevant testimony on this issue or the United States may call Andy Johnson to testify at
the sentencing hearing.
The fourth line of the chart lists the name of Funding Search Success. Margaret
Lacy Holm testified that she had no knowledge of the business transactions and sales of
Funding Search Success and was not aware of the amounts processed through a merchant
account bearing her name. $5,650,069.39 was processed in her name through this
merchant account. She testified she was shocked to learn about defendants use of her
name, the amount of money processed and reported in tax returns.
The fifth line in the chart merely repeats the amount of money processed through
the merchant accounts that were presented at trial, totaling a gain of $9,307,912.70.
(Trial Exhibit #934) If the Court were to restrict its calculation of loss to the defendants
direct gain through these nominee merchant accounts, 20 additional points would be
added as the loss enhancement, and would raise defendant Johnsons level from 7 to 27.
This amount is included on the list of Exhibit 2 to assist the Court in understanding the
total amount of gain received by iWorks and the defendants in relation to their criminal
conduct charge in the indictment and like or similar operations as contemplated by the
provisions of sentencing guideline 2B1.1. Exhibit 2 shows a total of $58,468,991.30
having been processed by iWorks through nominee owners and merchant accounts that
were presented at trial and/or accounts that defendants used to process credit card sales
under similar or identical circumstances. Using this amount as the gain attributable to
loss the base offense level of 7 would be increased by 24 points for a total of 31.
15
These calculations do not include other enhancements discussed below, including

use of sophisticated means (2 points), receiving gross receipts of an amount greater than
$1,000,000.00 (2 points), Leader/Organizer (4 points) and Obstruction or Impeding the
Administration of Justice (2 point). A finding by the Court that all of these enhancements
apply would increase the base offense level form Johnson from 31 to 41. The United
States requests the court consider the following discussion in reaching its decision
whether to apply other enhancements enumerated above.
Relevant Conduct
The third legal question relevant to the loss calculation is whether the Court can
consider acquitted conduct as part of its relevant conduct analysis. The answer is yes.
Well-established Supreme Court and Tenth Circuit law allows the sentencing court to
consider acquitted conduct in determining relevant conduct. 9 The sentencing court may
look to the entire endeavor or enterprise undertaken by a defendant in concert with
others, and relevant conduct under the Sentencing Guidelines includes much more than
the offense of conviction and may include uncharged or even acquitted conduct. 10 Just
last year, the Tenth Circuit reaffirmed this principal:
In calculating loss under the Guidelines, the district court does not limit itself to
conduct underlying the offense of conviction, but rather may consider all of the
defendants relevant conduct. United States v. Griffith, 584 F.3d 1004, 1011
(10th Cir. 2009) (quoting U.S.S.G. 1B1.3). The Guidelines define relevant
9
See United States v. Watts, 519 U.S. 148, 156 (1997); United States v. Alisuretove, 788 F.3d
1247, 1254-44 (10th Cir. 2015).
10
Id. at 1012 (internal citations omitted).

16
conduct broadly to include, in the case of jointly undertaken criminal activity (a

criminal plan, scheme, endeavor, or enterprise undertaken by the defendant in
concert with others, whether or not charged in a conspiracy, all reasonably
foreseeable acts and omission of others in furtherance of the jointly undertaken
criminal activity. U.S.S.G. 1B1.3(a)(1)(B). Thus relevant conduct under the
Guidelines . . . comprises more, often much more, than the offense of conviction
itself, and may include uncharged and even acquitted conduct. Griffith, 584 F.3d
at 1012. 11
(Emphasis Added).
If the United States establishes by a preponderance of the evidence relevant
criminal conduct under the guidelines, the court is free to consider that conduct, including
acquitted conduct, in determining the appropriate guideline sentence.
As the Court explained in an analogous Sixth Circuit case, United States v.
Warshak, 12 the district court will be required to make specific findings as to any loss or
gain amounts at the time of sentencing, and the court may look to intended loss when
determining the appropriate loss amount at the time of sentencing. 13
In Warshak, the Sixth Circuit determined that the district court erred because it
merely determined the loss amount as the defendants net sales without further
explanation. 14 Here, the United States directs the Court to United States Trial Exhibit
#934 and Exhibit 2 attached to this memorandum as the initial consideration from which
the Court may determination loss. Exhibit #934 summarized the bank records admitted
11
Alisuretove, 788 F.3d at 1254-55.
12
631 F.3d 266, 328-30 (6th Cir. 2011).
13
See United States v. Warshak 631 F.3d 266, 328-30 (6th Cir. 2011),
14
631 F.3d at 329-330.

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into evidence, directly related to the 281 merchant account applications, all of which
contained the same false statements and fraudulent information contained in the merchant
accounts represented by Counts 2 through 9 of the Indictment. Again, but for the
fraudulent obtained merchant accounts, no credit card processing would have occurred,
and no revenue would have been deposited into iWorks bank accounts and then used for
direct benefit of Mr. Johnson and indirect benefit of Mr. Riddle.
Testimony at trial established during the 2007-08 time frame and as shown in
Exhibit 2 of this memorandum, iWorks processed much more than the $9 million dollars
in revenue. Because the $9 million received, deposited and used by defendants is directly
related to the defendants actions and intent to submit false and fraudulent merchant
account applications, this amount may appropriately represent the intended amount of
loss if the court restricts its consideration of loss only to the 281 merchant applications
admitted into evidence during the trial.
However, the United States asserts the amount of gain that should be used to
calculate defendants overall conduct, that more accurately demonstrates the magnitude
and measure of the defendants criminal behavior is the total amount of monetary gain
found in Exhibit 2, that is, $58,468,991.30.
Other Circuit Courts have upheld that an extension of credit from a bank or loan
proceeds from a scheme to defraud as appropriate measurements of loss under 2B1.1. In
United States v. Jenkins-Watts, the Eighth Circuit upheld the imposition of a loss
enhancement, where the defendant had lead a profitable credit card scheme that involved,
18
among other things, creating false drivers licenses to obtain fraudulent mortgages. 15 The
court upheld the determination of loss to include the proceeds from the loan scheme,
because the use of the false identification information was a part of the fraudulent loan
scheme. 16 Here, both Johnson and Riddle coordinated and helped direct the creation of
the straw businesses, addresses, phone numbers and nominee owners to create the illusion
that iWorks and Johnson, were not the applicants for the merchant bank accounts. The
nominee merchant accounts opened and operated by Wells Fargo Bank and other banks
allowed iWorks, Johnson and Riddle to continue to process credit card sales, providing
millions of dollars in revenue used for their exclusive benefit and control. These funds
are therefore reasonable and appropriate measurement of loss or gain under 2B1.1. 17
Testimony at trial supports the conclusion that Mr. Johnson intended to test the
chargeback limits of the merchant accounts he obtained, and accordingly he had the
necessary intent to cause the loss (or gain), at issue in this case. 18
The Court may also use the gain that resulted from the offense as an alternative
measure of loss only if there is a loss but it reasonably cannot be determined. 19 For
15
574 F.3d 950, 961 (8th Cir. 2009).
16
Id.
17
See United States v. Jenkins-Watts, 574 F.3d 950 (8th Cir. 2009).
18
See United States v. Manatau, 647 F.3d 1048, 1053-55 (10th Cir. 2011)
19
USSG 2b1.1 n. 3(B).

19
example, the guidelines allow the Court to look to a defendants gain as a measure of the
defendants unlawful conduct at time of sentencing. 20
As stated above, the defendants victims included many more players than Wells
Fargo alone. And the losses incurred by these victims were substantial, including
Cardflex losing its entire Wells Fargo portfolio, chargeback expenses incurred by the
issuing and acquiring banks above and beyond reserve accounts, issuing banks eating
the chargebacks, consumers cancelling their credit cards when they were charged with
recurring, unknown fees, etc. Because it is not possible to calculate this loss, the Court
should look to defendants gain as the measurement of loss. In so doing, the Court may
consider acquitted conduct and that shows a gain of at least $9 million. Other relevant
conduct includes the amounts defendants gained from processing through other nominee
merchant accounts as outlined above.
As an alternative argument only, the United States offers the following discussion
for the Courts consideration in determining the appropriate guideline sentence in this
case. Even if the Court finds no loss in this case, which is should not, the lowest
possible base offense level under 2B1.1 is 24. The calculation without loss, if including
a finding of the other enhancement below would begin at a base level of 7 under 2B1.1
and then add 10 levels for enhancements discussed below, including use of sophisticated
means (2 points), receiving gross receipts of an amount greater than $1,000,000.00 (2
points), Leader/Organizer (4 points) and Obstruction or Impeding the Administration of
20
USSG 2B1.1 n.3(B).

20
Justice (2 point). This combination of enhancements would increase Johnsons guideline

calculation to 17. However, 2B1.1(b)(16)(D) provides that, If the resulting offense level
determined under subdivision (A) or (B) is less than level 24, increase to level 24.
Therefore, Johnsons guideline level even without calculating any loss, but applying the
other relevant enhancements would be 24 and a guideline range of 51 -63 months.
Sophisticated Means- USSG 2B1.1(b)(9)(C)
The commentary to 2B1.1(b)(9)(C) defines sophisticated means as especially
complex or especially intricate offense conduct pertaining to the execution or
concealment of an offense. 21 The Guidelines do not require that every step of the
defendants scheme to be particularly sophisticated, rather, the guidelines commentary
makes clear that the enhancement applies when the execution or concealment of the
scheme, viewed as a whole is especially complex or especially intricate. 22 Even if a
single step is not complicated, repetitive and coordinated conduct can amount to a
sophisticated scheme. 23 One of the examples of sophisticated means includes the use of
shell corporations in different jurisdictions. 2B1.1, cmt. 9 (B)
In United States v. Weiss, 24 the Tenth Circuit upheld the application of the twopoint enhancement in where the defendant had organized a scheme to obtain mortgage
21
USSG 2B1.1(b)(9)(C), cmt. n. 8(B).
22
Id.
23
United States v. Jenkins-Watts, 574 F.3d 950, 962 (9th Cir. 2009).
24
630 F.3d at 1263 (10th Cir. 2010).

21
loans for low-income housing. 25 The defendant had helped borrowers obtain subsidized
loans through the FHA, even though they were ineligible by providing lenders with false
information about the buyers. 26 Here, Mr. Johnson and Riddle planned for the merchant
account applications to mask the true ownership of the merchant accounts, and allowed
iWorks to continue processing its transactions, when it would have been ineligible to
conduct this processing due to its presence on the match list. By using fraudulent
entities, and false information to obtain merchant accounts, the defendants used a
sophisticated scheme that supports this two-point enhancement.
In United States v. Snow, the Tenth Circuit upheld the imposition of the
sophisticated means sentencing enhancement where the mortgage fraud scheme involved
over 40 different banks. 27 The Court looked to the lengths the defendant went to conceal
the scheme from the financial institution involved in upholding the enhancement. 28 The
defendant was able to deceive trained and experienced banking personnel into approving
a number of fraudulent loans by providing information sufficient to fool the professionals
reviewing the documentation. 29 Mr. Johnson and Mr. Riddle carefully insured the
merchant account applications contained just enough information to mask the true
identity of the account holder, iWorks. Because the defendants took careful steps to
25
Id. at 1267-68.
26
Id.
27
United States
28
Snow at 1164.
29
468 Fed.Appx. at 842-43.
v. Snow, 663 F.3d 1156 (10th Cir.2011).
22
create numerous corporations in different states, obtained separate phone numbers and
tax identification numbers to place on the applications, and listed a false number of
employees and a nominee owner as the bona fide applicant, the sophisticated means
enhancement should apply.
In United States v. Jackson, 30 the Second Circuit upheld the application of the
two-point enhancement for sophisticated means where the defendant used a scheme
where he obtained the personal information for individuals by making a number of calls
to obtain personal information of the victims to make purchases. 31 The court found that
the enhancement should apply because defendant had linked unelaborate steps in a
coordinated way to exploit the vulnerabilities of the banking system supported the
application of the enhancement. 32 Mr. Johnson and Mr. Riddle exploited the relationship
underwriting relationship of Cardflex to Wells Fargo and the delayed auditing conducted
by the Wells Fargo Bank in the submission of the 281 fraudulent merchant accounts.
While their use of UPS addresses, and disposable phones may not appear particularly
sophisticated, the coordinated manner in which they used these deceptions to hide iWorks
true activity, all support the application of the sophisticated means enhancement.
In United States v. Jenkins-Watts, the Eighth Circuit upheld the sophisticated
means enhancement where the defendant had used identity fraud to obtain credit cards to
30
346 F.3d 22, 25 (2d Cir. 2003); (cited in United States v. Weiss, 630 F.3d 1263 (10th Cir.
2010)).
31
346 F.3d 22 (2nd Cir. 2003).
32
Jackson 346 F.3d at 25.

23
use in false mortgage loan applications. 33 To submit the false applications Mr. Johnson
had to find a nominee owner, establish an out-of-state address, obtain an out-of-state
phone number, and submit the applications to the bank. The court found that the
defendants ability to exploit different vulnerabilities in different systems in a
coordinated manner, made what might be simple criminal conduct, sophisticated. 34
The defendants conduct, including the manipulations of the victims credit lines, and the
creation of billing addresses, as well as other conduct, the court found the defendants
conduct sophisticated, and noted that the guideline applied where the conduct was both
pertaining to the execution of the scheme, or the concealment of the scheme. 35 The
repetitive, coordinated conduct may establish the sophisticate nature of a scheme. The
defendant had taken number of steps to obtain fraudulent loans including checking the
nominee applicants credit scores, obtaining the nominees personal information, and then
at the defendants direction, a line of credit was obtained to further the scheme. 36
The enhancement for use of sophisticated means requires the Court find that
Johnson and Riddle used a complex or intricate method of committing the crime. To
submit the false applications Mr. Johnson had to find numerous nominee owners,
establish out-of-state addresses, obtain out-of-state phone numbers, and submit the
applications to the bank. This intricate method of establishing the necessary information
33
574 F. 3d 950, 962 (8th 2009).
34
346 F.3d at 24-25.
35
Id.
36
574 F.3d at 962.

24
to complete the applications supports this enhancement. And the Court has already found
at the detention hearing that it was a very large and sophisticated scheme. (Transcript,
57:12-13.)
Riddle
Mr. Riddle was the general manager, and supervised the merchant accounts
department. He was copied on many emails, and sent emails expressing his management
and control over these entities and his agreement with the overall plan to deceive Wells
Fargo Bank. Accordingly, this enhancement should apply to both Mr. Johnson and Mr.
Riddle.
Gross Receipts > $1 million
This application applies where over $1 million of the gross receipts of an offense
went directly to a defendant individually, rather than all participants. 37 Gross receipts
include all property, real or personal, tangible or intangible, which is obtained directly or
indirectly as a result of such offense. 38
Repeatedly at trial, the court heard testimony that Mr. Johnson was the sole owner
of iWorks, the $9 million in proceeds described in Exhibit 934 and other relevant conduct
demonstrating the same use of nominees to process millions of dollars, support
37
USSG 2B1.1, n. 12 (A) & (B).
38
USSG 2B1.1 n. 11, (A) & (B).

25
application of this enhancement. Notably the enhancement applies when the defendant
has received over this amount either directly or indirectly as a result of the offense. 39
USSG 3B1.1(a) - Leader/Organizer

If the defendant was the organizer or leader of criminal activity that involved five
or more participants or was otherwise extensive, the defendants guideline calculations
should be increased by four points. 40 In determining whether an organization is
otherwise extensive, all persons involved during the entire offense are to be
considered. 41 A fraud that may have involved only a few knowing participants, but used
the unknowing services of many outsiders may be considered extensive. 42 Factors the
Court should consider in determining the role of leader or organizer include the exercise
of decision-making authority, the nature of participation in the commission of the
offense, the recruitment of accomplices, the claimed right to a larger share of the fruits of
the crime, the degree of participation in planning or organizing the offense, the nature and
scope of the illegal activity, and the degree of control and authority exercised over
others. 43 There can also be more than one person who qualifies as a leader or organizer
39
Id.; see also United States v. Weidner, 209 Fed.Appx. 826 (10th Cir. 2006)(unpublished).
40
USSG 3B1.1(a).
41
USSG 3B1.1 n. 3.
42
USSG 3B1.1 n. 3.
43
USSG 3B1.1 n. 4.
26
of a criminal association. 44 The adjustment exists because it is likely that persons who
exercise a supervisory or managerial role is the commission of the offense, tend to profit
more from it and present a greater danger to the public, and are more likely to
recidivate. 45 The burden remains on the United States to establish, by a preponderance
of the evidence, the facts necessary to establish the defendants leadership role. 46
The Tenth Circuit has held that the fact that a defendant recruited other
participants, directed their activities, paid them, exercised a leadership role over other
participants, and the enterprise involved more than five individuals supports the
imposition of the four-point enhancement for leader-organizer. 47
The testimony at trial indicated that Mr. Johnson directed Mr. Riddle, Mr. Payne,
and Mr. Loyd Johnston, and the merchant accounts department to submit the false
applications to Wells Fargo Bank. The false statements were made on merchant account
applications to insure iWorks, Mr. Johnsons company, could continue to accept credit
card payments. As the general manager of iWorks Riddle directly and indirectly
supervised all iWorks employees, including employees solicited to be nominee owners
for the fraudulent merchant accounts as well as the employees that worked in the
Merchant Account Department under Loyd Johnston, who created and/or organized the
creation of the 281 merchant account applications.
44
USSG 3B1.1 n. 4.
45
USSG 3B1.1 commentary.
46
United States v. Cruz-Camacho, 137 F.3d 1220 (10th Cir. 1998)
47
137 F.3d at 1224-25.

27
USSG 3C1.1 Obstruction of Justice

USSG 3C1.1, imposes a two-level enhancement where a defendant attempted to
obstruct or impede the administration of justice with respect to the investigation,
prosecution, or sentencing of the instant offense of conviction, and the obstructive
conduct must be related to the defendants offense of conviction, relevant conduct, or a
closely related offense. 48 The enhancement applies to a defendant who threatened,
intimidated, or unlawfully attempted to influence a witness or juror, directly or
indirectly. 49 There are numerous instances of obstruction that occurred during the trial.
1. Mr. Johnsons decision to contact Margaret Lacy Holm during her testimony at
trial, while she was represented by counsel, and his text messages to her in an effort to
influence her testimony is obstructive conduct. 50
2. A close friend of Mr. Johnsons attempted to influence two jurors during the
course of the trial. The United States contends this conduct would support this
enhancement. The United States may provide further testimony regarding this
obstruction at the time of sentencing.
3. Mr. Johnsons attempt to introduce fabricated evidence in the form of audio
recordings he made with a Wells Fargo employee unrelated to the facts and time period
in this case and during the course of the trial.
48
USSG 3C1.1.
49
USSG 3C1.1 n (4)(A).
50
See.e.g., United States v. Howard, 215 Fed. Appx. 750 (10th Cir. 2007) (unpublished).
28
4. Mr. Johnson attempted to manufacture evidence of merchant account

applications to Wells Fargo in the name of iWorks that were blatantly false and unrelated
to the applications charged in the indictment.
5. Mr. Johnsons unilateral excuse of Mr. Johnston from appearance at trial,
when he was scheduled by everyone to be here was obstructive during the trial.
(Detention Hearing Transcript, 57:23-25.)
6. Mr. Johnson caused unnamed parties to surreptitiously record meetings with
federal prosecutors during witness preparation sessions and selectively edited those
recordings in an effort to manufacture evidence and obstruct the proceedings.
Conclusion
The United States submits this memorandum and the following summary chart
representing the applicable sentencing enhancements that are supported by the
Sentencing Guideline provisions in this case.
Recommended Guideline levels applicable to Mr. Johnson:

2B1.1
Loss > $50 million (b)(1)(K)
24
Sophisticated Means (b)(10)
Gross Receipts > $1 million (b)(16)(A)
Leader or Organizer 3B1.1 (5 or more participants)
Obstruction or Impeding the Administration of Justice 3C1.1
29
Total Offense Level
41
Estimated Guideline Range
324-405 months
Recommended Guideline levels applicable to Mr. Riddle:

Under USSG 2B1.1, and the other relevant guidelines, the United States estimates that
Mr. Riddles guideline calculations should be:
Base Offense Level 2B1.1
Loss > $20 million (b)(1)(K)
22
Sophisticated Means (b)(10)
Gross Receipts > $1 million (b)(16)(A)
Leader or Organizer 3B1.1 (5 or more participants)
Total Offense Level:
36
Estimated Guideline Range :
188-235 months
Respectfully submitted this 22nd day of April, 2016.

JOHN W. HUBER
United States Attorney
/s/ R. Lunnen_____________
Robert C. Lunnen
Assistant United States Attorney
30
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I am an employee of the United States Attorneys

Office, and that a copy of the foregoing SENTENCING MEMORANDUM
DISCUSSING RELEVANT GUIDELINE APPLICATIONS was caused to be served
on all persons named below, either by electronic filing notice, U.S. Mail (postage
prepaid), or hand delivery, on April 22, 2016.
Greg Skordas
Rebecca Skordas
Skordas Caston & Hyde
560 South 300 East, Suite 225
Salt Lake City, Utah 84111
rskordas@schhlaw.com
Attorney for Jeremy David Johnson
Steven B. Killpack
43 E 400 S
Salt Lake City, UT 84111
(801)656-5221
Email: killpack@rocketmail.com
Attorney for Ryan Riddle
Mary Corporon
Karra J. Porter
Sarah E. Spencer
Christensen and Jensen, P.C.
257 East 200 South, Suite 100
Salt Lake City, Utah 84111-2047
31
Case 2:11-cr-00501-DN-PMW Document 1461-1 Filed 04/22/16 Page 1 of 2

Net Deposits from Merchant Accounts to Depository Accounts
Depository Account
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
Alternate Media
Balance Processing
Big Bucks Pro
Blue Streak Processing
Bolt Marketing
Bottom Dollar
Bumble Marketing
Business Loan Success
Costnet Discounts
Cutting Edge Processing
Diamond J Media
eBusiness First
eBusiness Success
eCom Success
Excess Net Success
Fiscal Fidelity
Funding Search Success
Funding Success
GG Processing
GGL Rewards
Hooper Processing
Internet Fitness
Lifestyle for Fitness
Net Business Success
Net Commerce
Net Discounts
Net Fit Trends
Optimum Assistance
Premier Performance
Preview Marketing
Pro Internet Services
Razor Processing
Revive Marketing
Simcor Marketing
Smasher Marketing
Unlimited Processing
Zip Marketing
Bank Name
Depository Account
Number
SunFirst Bank
121016695
SunFirst Bank
121016737
Town and Country Bank 6002919
SunFirst Bank
121015309
SunFirst Bank
121015960
Zions Bank
34168187
AmericanWest Bank
7600600131
Zions Bank
34166785
Zions Bank
34166793
The Village Bank
11024544
Zions Bank
34166751
The Village Bank
11025244
Zions Bank
34167312
Zions Bank
34166744
The Village Bank
11025194
AmericanWest Bank
7600600125
AmericanWest Bank
7600600135
AmericanWest Bank
7600600129
AmericanWest Bank
7600600126
Zions Bank
34167320
The Village Bank
11025459
AmericanWest Bank
7600600132
Zions Bank
34166827
The Village Bank
11025145
SunFirst Bank
121016703
The Village Bank
11025251
SunFirst Bank
121016760
The Village Bank
11025467
SunFirst Bank
121016687
Total Net Deposits from Merchant Accounts
Deposits
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
61.04
0.00
0.00
51,738.07
44,373.41
83.15
567.63
306,723.19
0.00
8,652.23
4,873.35
1,022,299.82
94,977.62
1,246,503.72
0.00
324,443.38
227,576.38
974,257.31
0.00
664,606.62
104,151.27
268,525.25
800,763.17
2,871,800.71
1,957.38
103,389.92
92,466.09
0.00
329,105.80
0.00
0.00
1,420,291.38
0.00
0.00
0.00
1,630,337.74
0.00
12,594,525.63
Returns
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(61.04)
0.00
0.00
(7,518.86)
(19,362.87)
(81.11)
(567.63)
(205,995.03)
0.00
(2,655.54)
(4,873.35)
(318,487.97)
(32,720.51)
(210,940.75)
0.00
(149,409.93)
(227,576.38)
(339,984.96)
0.00
(278,022.24)
(17,201.52)
(97,064.54)
(332,712.63)
(336,811.61)
(786.95)
(49,785.01)
(18,771.29)
0.00
(50,947.96)
0.00
0.00
(420,499.18)
0.00
0.00
0.00
(163,774.07)
0.00
(3,286,612.93)
Net Deposits
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.00
0.00
0.00
44,219.21
25,010.54
2.04
0.00
100,728.16
0.00
5,996.69
0.00
703,811.85
62,257.11
1,035,562.97
0.00
175,033.45
0.00
634,272.35
0.00
386,584.38
86,949.75
171,460.71
468,050.54
2,534,989.10
1,170.43
53,604.91
73,694.80
0.00
278,157.84
0.00
0.00
999,792.20
0.00
0.00
0.00
1,466,563.67
0.00
9,307,912.70

USA Sentencing Recommendation For Jeremy Johnson

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Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 1 of 31

JOHN W. HUBER, United States Attorney (#7227)

UNITED STATES OF AMERICA,

Judge David O. Nuffer

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 2 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 3 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 4 of 31

Calculating Loss Amounts

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 5 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 6 of 31

It is also reasonably foreseeable that defendants fraud would cause numerous

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 7 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 8 of 31

USSG 2B1.1 n. 3(A)(iv).

USSG 2B1.1 Application Note 3(B).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 9 of 31

USSG 2B1.1., cmt. n. 3(A)(i).

USSG 2B1.1 n. 3(A)(iii).

USSG 2B1.1 n. 3(A)(iv).

USSG 2B1.1 n. 3(C)(vi).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 10 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 11 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 12 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 13 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 14 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 15 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 16 of 31

These calculations do not include other enhancements discussed below, including

Id. at 1012 (internal citations omitted).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 17 of 31

conduct broadly to include, in the case of jointly undertaken criminal activity (a

Alisuretove, 788 F.3d at 1254-55.

631 F.3d 266, 328-30 (6th Cir. 2011).

631 F.3d at 329-330.

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 18 of 31

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 19 of 31

574 F.3d 950, 961 (8th Cir. 2009).

USSG 2b1.1 n. 3(B).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 20 of 31

USSG 2B1.1 n.3(B).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 21 of 31

Justice (2 point). This combination of enhancements would increase Johnsons guideline

USSG 2B1.1(b)(9)(C), cmt. n. 8(B).

630 F.3d at 1263 (10th Cir. 2010).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 22 of 31

468 Fed.Appx. at 842-43.

v. Snow, 663 F.3d 1156 (10th Cir.2011).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 23 of 31

346 F.3d 22 (2nd Cir. 2003).

Jackson 346 F.3d at 25.

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 24 of 31

574 F. 3d 950, 962 (8th 2009).

346 F.3d at 24-25.

574 F.3d at 962.

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 25 of 31

USSG 2B1.1, n. 12 (A) & (B).

USSG 2B1.1 n. 11, (A) & (B).

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 26 of 31

USSG 3B1.1(a) - Leader/Organizer

Case 2:11-cr-00501-DN-PMW Document 1461 Filed 04/22/16 Page 27 of 31

USSG 3B1.1 commentary.

United States v. Cruz-Camacho, 137 F.3d 1220 (10th Cir. 1998)

137 F.3d at 1224-25.