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3 Utahns charged with fraud in alleged coffee and doughnut scheme

Three men have been charged with ripping off a historic doughnut company in Utah after prosecutors say they billed the owner for nearly $1 million in coffee, doughnut glaze and other items that they never delivered.
Three men have been charged with ripping off a historic doughnut company in Utah after prosecutors say they billed the owner for nearly $1 million in coffee, doughnut glaze and other items that they never delivered.
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SALT LAKE CITY — Three men have been charged with ripping off a historic doughnut company in Utah after prosecutors say they billed the owner for nearly $1 million in coffee, doughnut glaze and other items that they never delivered.

Ernest Markisich, Brad Nelson and Dennis Engle were all charged Friday in 3rd District Court with communications fraud, a second-degree felony. Markisich is charged with six counts, Engle with five and Nelson with two.

Markisich and Engle were also charged with engaging in a pattern of unlawful activity, a second-degree felony.

Spudnut Donuts was started in 1940 by two brothers from Salt Lake City who created their signature potato-flour recipe and coined the name.

Today, Michael Patton, of MP-OTHA Corp. in Illinois, owns the name Spudnut Donuts. Patton had previously been engaged in a civil lawsuit with Douglas Bagley, of Salt Lake City, over use of the Spudnut name.

According to the charges filed last week in Utah, Markisich used to work for Bagley. Markisich made a verbal agreement with Patton to help with Spudnut operations in Utah by procuring equipment, developing new recipes and fulfilling orders, the charges state. Patton would finance the projects.

Markisich introduced Patton to Nelson and Engle. Nelson told Patton that he was "associated with" The Church of Jesus Christ of Latter-day Saints and "was responsible for purchasing products for the LDS Church's welfare services," according to the charges.

Since 2012, Markisich, Nelson and Engle provided invoices to Patton for doughnut mix, doughnut glaze, coffee, recipes, storage space and other items. The purchase orders allegedly came from places such as the MGM Grand Hotel in Las Vegas, the LDS Church, the Salt Lake City International Airport, Harmons grocery store and Wal-Mart. But when investigators later showed those organizations the invoices, "the purchase orders did not appear to be purchase orders created by those companies," the charges state.

In 2012, Patton sent Markisich and Engle $36,000 for the purchase of Agar, an ingredient used for making doughnut glaze, the charges state. The money was used instead for "profit-sharing," and Markisich and Engle used it "for personal expenses," including travel, restaurants, shopping, home improvement and sporting goods, according to charging documents.

Also in 2012, Patton sent Markisich and Engle an additional $30,000 to buy the recipe for Agar from a company named Wenzcor. Investigators later could not find record of a company by that name and "rights to the Agar recipe were never purchased or received by Patton," the charges state.

In 2013, a $28,000 check was sent to the two men for purchase of coffee, the charges state. Patton told investigators he never received the coffee.

In late 2013, all three men claimed the MGM Grand Hotel in Las Vegas was going to purchase 42,000 pounds of Spudnut Coffee, according to charging documents, for just under $268,000. Six days later, a second order for $168,000 worth of coffee was made. Patton wired $129,000 to the men who then used the money for "personal expenses unrelated to Spudnuts," the charges state. MGM confirmed it never placed an order for Spudnut Coffee, according to investigators.

In 2014, allegedly all three men told Patton that LDE Enterprises, which they claimed was a business entity related to the church, wanted to buy Spudnut dough mix. The men "provided Patton with a fraudulent purchase order from LDE Enterprises for the purchase of pancake, bread and roll mix for $675,000," the charges state. Patton wired them $70,000 as an initial payment.

Also in 2014, Markisich told Patton that he was negotiating with the Salt Lake City International Airport to open a Spudnuts Donuts and had him send $28,000 for a "negotiating fee," the charges state.

Email: preavy@deseretnews.com

Twitter: DNewsCrimeTeam