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How A Utah Teen Helped Take Down A Powerful Polygamist's $1B Fraud Scam
Mary Jacobs Nelson fled the secretive polygamist sect known as The Order just days before she says she was going to be forced to marry her first cousin and brought with her secrets powerful enough to take down a massive biofuel fraud scheme.
It took the help of a Utah teenager to take down a powerful polygamist and Armenian fuel dealer, working together to carry out a $1 billion renewable fuel tax credit fraud scheme.
Mary Jacobs Nelson, who had grown up the Salt Lake City area as part of a polygamist group known as The Order, woke up the morning of June 15, 2013 knowing she’d be leaving her old life behind her, according to a new episode of CNBC’s “American Greed.”
Nelson, then just 17 years old, snuck out of her Taylorsville home in the pre-dawn hours to flee The Order just two days before she says she would be forced to marry her first cousin.
The dramatic escape, aided by Bryan Nelson, a man she met at community college and would later marry, would pave the path for Mary to create a new life on her own terms, but it also meant she took with her powerful secrets damaging enough to take down a massive biofuel scheme.
Mary had worked since she was a child in The Order’s accounting office and had intimate knowledge of a financial fraud being run by one of its members.
After leaving the group, Mary met with the FBI and gave them the financial details necessary to unravel the years-long con.
“They met with them for hundreds of hours, hundreds, to detail what the operations were, who the players were, what their role was and how the Washakie energy scam was being run,” Nelson’s attorney Mark Pugsley said in the episode. “Without Mary’s information that she brought with her when she left and Bryan’s very detailed research into the order, I don’t think this ever would have happened.”
Jacob Kingston—a man with three wives and 20 children—had been one of The Order’s prominent members and served as the chief executive officer for Washakie Renewable Energy, a Utah-based biodiesel company.
Kingston had gotten interested in renewable energy in the early 2000s during a doctoral program in mechanical engineering.
Initially, he set out to create the biofuel himself by turning French fry grease into diesel fuel as part of a new business effort for The Order. The polygamist sect willingly shares all its money collectively with the group’s estimated 3,500 to 5,000 members living within the Salt Lake area.
“They have many million businesses, they have security companies, they’ve got coin and laundry businesses, ice companies, pawn shops, and the idea is you build up these businesses for the greater good to restore wealth,” Lindsey Hansen Park, the host the Year of Polygamy podcast, told "American Greed."
Kingston set up a biodiesel refinery on his father’s Utah ranch and by 2008 the company began importing vegetable oil to create the fuel. But its remote location proved to be a challenge, not only for importing the raw materials but also for selling the resulting fuel to prospective customers.
The company couldn’t make a profit until Kingston decided to fraudulently take advantage of federal tax credits – without actually making the product.
“Utah was a terrible place to make biodiesel, but as it turns out it was a fine place to commit fraud,” said Arthur Ewenczyk, a former trial attorney with the Department of Justice.
Kingston was able to pull off the ruse by connecting with other corrupt operators, who agreed to let him pretend to sell the biofuel. He enlisted his brother Isaiah Kingston, his mother Rachel Kingston and first wife Sally Kingston to help him falsify the books and paperwork.
Over the next few years, Kingston collected government checks totaling an estimated $10 million but it wasn’t until he connected with another man, Lev Dermen—an Armenian immigrant known as “The Lion”—that the fraudulent proceeds really skyrocketed.
“Once Lev Derman got involved and the conspiracy continued under his tutelage, the amounts of money are mind-blowing,” John Huber, former U.S. Attorney for the District of Utah, told “American Greed.”
According to “American Greed,” before connecting with Dermen—who is also known by the name Levon Termendzhyan—the company had received IRS and EPA credit payments totaling an estimated $41 million, but those claims jumped to $1.1 billion in the five years after meeting Dermen.
By 2015, $511 million of those claims had already been paid out. The pair used the money to fund lavish lifestyles, complete with Rolex watches, large mansions and a yacht for Dermen and a chrome Lamborghini for Kingston.
“As part of their scheme, Dermen and Jacob Kingston shipped millions of gallons of biodiesel within the U.S. and from the U.S. to foreign countries and back again to create the appearance that qualifying renewable fuel was being produced and sold," the Department of Justice announced in a statement in 2020. “They also doctored production and transportation records to substantiate Washakie’s fraudulent claims for more than $1 billion in IRS renewable fuel tax credits and credits related to the EPA renewable fuel standard. To further create the appearance they were buying and selling qualifying fuel, the co-conspirators cycled more than $3 billion through multiple bank accounts.”
By 2015, the IRS and EPA had both taken notice of the company’s supposedly massive production of biofuel and started their own investigations into the company. But it wasn’t until Nelson’s harrowing escape and later decision to share what she knew with authorities that the scheme was fully revealed.
“I was able to see a lot of the different transactions or even businesses that Washakie laundered money through,” Mary said. “Once we started talking and we starting explaining that all these businesses are connected and all these people are connected ... that’s when they were like ‘OK, there’s something wrong.’”
In August of 2018, Kingston was arrested at the Salt Lake City airport as he was trying to flee to Turkey. His family members who had helped him pull off the scheme were also arrested.
Kingston and his brother Isaiah agreed to plead guilty and testify against Dermen, who had also been charged in the scheme.
Dermen was found guilty in March of 2020 on 10 counts including money laundering and conspiracy to commit mail fraud. He’s facing up to life in prison.
Kingston pleaded guilty to multiple charges including conspiracy to commit mail fraud, aiding and assisting in the filing of false claims to the IRS and conspiracy to commit money laundering. He faces a maximum of 30 years in prison, authorities said.
His brother Isaiah, mother Rachel and wife Sally also pleaded guilty for their roles in the scheme.
All five are still awaiting sentencing after delays due to the COVID-19 pandemic.
The Order has stated that they were not aware of the fraud and said they have been unfairly targeted by the media and others because some families practice plural marriage.
To learn more, tune in to “American Greed” at 10 pm ET/PT Tuesdays on CNBC.