State officials launched an investigation this week into the business activities of Bill Doughty, a California investment adviser who promised followers that he would use their money to build a constitutionalist utopia in southern Utah.
The investigation began Tuesday after the state Division of Securities reviewed a Deseret News series of stories about Doughty and the collapse of his plan."We're very concerned," said Catherine McAvoy Johnson, director of enforcement for the division. "It is too premature to say that an action will come out of our investigation, but there are some definite red flags."
The division can prosecute for violation of the state's securities act, which makes it a felony to knowingly defraud anyone through the offer, sale or purchase of any security.
Each violation is punishable by up to a $20,000 fine and 10 years in jail.
According to court documents, interviews and private papers obtained by the newspaper, at least 72 families and individuals from five different states lent Doughty more than $1 million for his southern Utah projects, which were never finished.
He solicited the cash through promissory notes and marketing literature touting what investors hoped would become a national bastion of constitutionalist values.
The dream was to take shape in a 400-acre prototype community at Mammoth Valley, near Panguitch, Garfield County, and in an educational center named after W. Cleon Skousen, the patriarch of constitutionalist thought in the West.
Skousen, a former Salt Lake police chief and the author of popular conservative works that include "The Naked Communist" and "The Making of America," donated $50,000 to the center, the central - and incomplete - structure at Doughty's headquarters in Duck Creek, near the summit of Cedar Canyon.
Skousen also lent the enterprise his written support; his photograph was published prom-i-nent-ly in Doughty literature soliciting donations.
But he said he had nothing to do with Mammoth Valley, where Doughty hoped to build America's first and foremost model of a city that lived the way the Founding Fathers intended.
In its projected heyday, Mammoth was to house 200 families in a self-reliant, religiously oriented urban village where the majority made the decisions and interfaced with elected leaders through "captains of 10, 50 and 100," a reference to fundamentalist political thought.
Families and individuals from Arizona, Utah, California, Washington and Oregon gave Doughty $2,000 to $12,000 in "donations" in exchange for promises of deeds to lots.
Doughty never registered the parcels with the state Division of Real Estate, which subsequently ordered him to cease and desist the sales in January.
The 400 acres was to be auctioned Monday to satisfy a $175,000 loan Doughty withdrew from his own family trust, which is the parcel's first lienholder.
However, the trust, represented by Salt Lake attorney Kenneth Shep-pard, postponed the sale until Sept. 1.
"Some of the investors have come forward and indicated they might be able to buy it outright," Sheppard said. "We don't want all of those people who paid for deeds to lose their interests, so if somebody can satisfy (Doughty's loan), we're willing to give them time."
Constitutionalists believe that the U.S. Constitution is being systematically assailed by the courts and that the supreme law of the land has been altered to the point that the Founding Fathers' original plan has been destroyed.