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Investigative report shines new light into dark corners of a controversial Draper train station development

(Trent Nelson | Tribune file photo) Then-House Speaker Greg Hughes speaks to the Health and Human Services Interim Committee during a hearing on the Utah Medical Cannabis Act before the special session in Salt Lake City on Nov. 26, 2018.

The following was written and reported by Eric S. Peterson of The Utah Investigative Journalism Project in partnership with The Salt Lake Tribune.

The FBI has shut down its yearslong investigation into the murky, conflict-riddled deals involving a Utah Transit Authority commuter train station and related development in Draper.

No charges resulted aside from the bankruptcy fraud counts brought two years ago against politically connected developer Terry Diehl, a former UTA board member. And those were dismissed before trial.

But an investigative report produced by the Utah attorney general’s office before the case was handed off to the feds sheds some new light on key players in the tortuous development saga, not least of which was the relationship between Diehl and Greg Hughes, the former Utah House speaker and UTA chairman who is exploring a possible run for governor.

The report was released last month in response to an open-records request that previously had been denied multiple times, dating back to 2017, but now has been made public because the statute of limitations has run out.

Hughes would not comment for this story.

Loren Washburn, an attorney for Diehl, emphasized that countless hours of investigation by state and federal law enforcement found “nothing actionable took place at all” in regards to the FrontRunner station development. He also said that Hughes did not work for, nor did he consult with, Diehl on the project.

That said, the report did detail business ties between the two. Among the report’s highlights is the chronicling of payments totaling $350,000 from Diehl-owned businesses to a property management company that Hughes runs with a partner. The three checks were issued in 2009 when Draper City and UTA were making decisions about the train station and both Hughes and Diehl served on the transit authority’s board.

The final $250,000 check was dated one day before Draper agreed to transfer the project’s development rights from Diehl’s company to another developer incorporated under the name Draper Holdings, owned by Jeffrey Vitek.

A little more than a week later, Draper Holdings bought the assets of Diehl’s Whitewater VII company for $3.3 million. On that same day, Dec. 17, 2009, UTA gave Draper Holdings $10 million in public money, purportedly to build a 1,000-stall parking lot associated with the station. The money changed hands despite the lack of any construction plan in a deal legislative auditors called “very unusual” and “against UTA policy and practice.”

The parking structure was eventually built, but by a different developer, and when UTA sought repayment of the $10 million, Draper Holdings couldn’t come up with all of it.

However, the attorney general’s investigator, and previous audit records, indicated Vitek and Diehl made millions when it sold some of the land to eBay in 2011.

Another financial transaction between Hughes and Diehl documented in the investigation report involves a vacation to San Diego. In April 2011, Diehl purchased $1,527 in airfare for a Hughes’ family trip. Hughes, by then, had been named chairman of the UTA board.

A month after the trip, Diehl was pressured to resign from the UTA board, ending his decadelong tenure. The move was fallout from a damning legislative audit that concluded Diehl had used insider information to profit from the Draper station site — up to $24 million — and recommended a criminal investigation. In pushing for Diehl’s departure in a closed-door board meeting, Hughes helped engineer a special waiver whereby Diehl was exempted from a one-year ban on former board members transacting business with the transit agency.

Hughes, in an August 2017 interview, denied having received any money connected to the development.

“I don’t know how long I’ve been saying it but I never received any payments having anything to do with UTA or that Draper ”project,” Hughes said in response to a question about whether he had ever received money from Diehl.

He earlier told investigators for the state attorney general’s office that “I don’t have any financial interest here [in the Draper station development]. … I don’t own anything over here, I have no financial interest in the property whatsoever, OK? I don’t.”

Diehl, despite the millions he made on the Draper station development, filed for bankruptcy in 2012.

Documents in that case indicate the $350,000 in 2009 payments to Hughes’ company were structured as a loan, with interest set at the prime rate plus 1% — a good deal. (The Small Business Administration standard business loan is prime plus 2.25%.)

Washburn, Diehl’s attorney, answered some questions about the payments in a letter taking issue with this story and the release of the investigative report. He stressed that federal Judge Clark Waddoups in the now-dismissed bankruptcy fraud case determined the $350,000 was “not a personal transaction at all but reflected a business-to-business loan and repayment.”

Washburn said the airline ticket purchase for Hughes’ family trip was a mistake made by one of Diehl’s employees.

“As best as anyone can remember,” he said, a former employee of Diehl’s used his credit card for the purchase. “Upon learning that she had done so, it is Mr. Diehl’s recollection that the Hughes family paid Mr. Diehl for those tickets. Why she did that, as with many things [she] did a decade ago is anyone’s guess.”

Washburn did not comment on the timing of the loans — during the Draper station development dealings — from Diehl’s companies to Hughes’ property management company Urban Chase, which he owns with his partner Gary Nordhoff. Nor did he comment on a whistleblower’s complaint to the attorney general’s office that the first check — for $25,000 — was made out to Hughes, but then reissued three days later when Hughes asked that it be made out to his company rather than to him personally.

The investigative report has a copy of the voided check made out to Hughes.

Prosecution clock

In April 2017, federal prosecutors announced they had brokered a deal with UTA to grant the agency immunity in exchange for its cooperation into a probe looking into corruption allegations against former board members and officials relating to train stations and mixed-use developments around them. A day later, prosecutors filed federal bankruptcy fraud charges against Diehl, mainly stemming from allegations he had lied about or misrepresented more than $1 million he had made from the Draper development.

When those charges were dismissed a few months later, The Utah Investigative Journalism Project requested a copy of the investigation report from the Utah attorney general’s office that was based on interviews and document reviews spanning two years, before the case was handed over to the feds in July 2013. The attorney general initially agreed to release the report but then was stopped by the FBI.

FBI Special Agent Michelle Pickens filed an affidavit with the state Records Committee on Jan. 3, 2018, warning that releasing it would hamper the ongoing investigation “targeting former UTA board members and others.” The committee then denied the records request.
The project filed another appeal in early 2019 that also was denied by the committee.

When yet another appeal was filed, the state attorney general’s office again inquired about the status of the FBI investigation and learned last June that the agency had quietly ended the investigation.

The report finally was released last month after the attorney general’s office screened the case again and redacted parts of it.

Greg Hughes

One section of the report focuses on how Hughes and Diehl pushed Draper City to connect the land under consideration for the 12800 South train station to the city through an overpass or tunnel to get around Union Pacific train tracks.

The investigator’s report includes an interview with Stephanie Davis, a Draper City councilwoman during the train station dealings and a former planning commissioner. She said Diehl told the city that the developer wanted concessions and without them, it wouldn’t get the station.

Among things the developer wanted was for the city to purchase the property and give it to UTA, and for the city to fund the costly connection of the site to Draper’s center and the Bangerter Highway exchange.

Davis told the attorney general’s investigator that Hughes was critical in finding state money to help fund the project and that “a letter endorsing Representative Greg Hughes was drafted for the Draper City Council’s signatures prior to the [2008] election.” That letter thanked him for getting $11 million for Draper, half of it used for a bridge to the FrontRunner site.

Hughes helped appropriate the money in a September 2008 special session of the Legislature, although he pointed out to investigators that he was not the sponsor. He acknowledged that he worked tirelessly to get the City Council to work with the land owner and developer to create such an attractive deal that UTA couldn’t refuse to site the station there.

A UTA frontrunner stop (Courtesy RideUTA.com).

‘Music to my ears’

While Hughes would not comment for this story, he offered a hearty defense in his interview with investigators on Feb. 22, 2012, in the office of the attorney general.

Hughes explained his dogged efforts to have the 12800 South site selected for the train station and related development, especially in light of a competing site in Bluffdale. He also downplayed his ability as a UTA board member to influence the decision, asserting that site selection was an objective decision controlled by UTA executives and out of the hands of board members like him.

Because of that dynamic, he told investigators, his efforts were entirely focused on persuading the Draper City Council to do what it took to make the 12800 South property the logical choice. Hughes said his efforts were driven by his ardent belief that the Draper site would be best for ridership and for the future economic development of the city — not because of any personal financial benefit from the project.

“I wanted to get it back to Draper, and I make no apologies for that,” Hughes said. Polling of his constituents, he told investigators, showed 74% support for the train station development.

Hughes has often described how he was appointed to the UTA board in 2006 as a conservative lawmaker critical of the agency as a misguided and overly taxpayer-subsidized social service. His role, as he saw it, was to help provide more public accountability. But in the intervening years, he has repeatedly described himself as having “drunk the Kool-aid” or “the transit punch” and was among the most enthusiastic supporters of mixed-use developments around train stations as a way to address Utah’s explosive population growth in a limited geographic area.

But his 2012 interview with investigators shows that his view of mass transit actually began forming much earlier when he viewed the initial construction of a light rail system as a potential financial bonanza for developers like himself.

In 2000, Hughes and his business partner began buying parcels along the 200 West TRAX line and near the proposed 900 South station with plans to knock down old buildings and replace them with apartments.

“I was shocked to find out you could buy parcels right [where] a future station was going to be. I couldn’t believe it,” Hughes said an interview transcript in the investigation report. At that point one of the investigators offers the description as “manna from heaven,” to which Hughes responds, “absolutely.”

When the attorney general’s investigator challenged Hughes on the concessions he was seeking from the City Council, which Assistant City Manager David Dobbins described as “not the norm,” Hughes was unapologetic. The unusual allowances included no limits on maximum residential density or building heights.

“It’s very aggressive, it is,” Hughes said. “But then again it’s music to my ears.”

(Francisco Kjolseth | Tribune file photo) Former Utah Transit Authority board member Terry Diehl, a developer, was the subject of a state investigation into conflict-of-interest issues. No charges were filed beyond bankruptcy fraud allegations that were dismissed in federal court.

Terry Diehl

When asked who he knew on the UTA board when he first was appointed to that body in 2006, Hughes named several individuals, freely admitting he couldn’t remember everyone.

But a glaring omission in the handful of names he came up with was his “loyal friend” Diehl.

He called the investigator a few days later to supplement his statement. “I certainly knew that Terry was a member there, I don’t know why I didn’t mention it. … It wasn’t a name that topped to my mind at the time,” Hughes offered, according to the report transcript.
Hughes, in the initial interview, was questioned about Diehl and his conflicts as a board member and as a developer with a financial stake in the Draper project. Hughes said he was satisfied that Diehl had properly disclosed and brought up the rules of the state Legislature, where Hughes served.

In the Legislature, members are required to vote whether they have a conflict or not, even if it is on a matter which could benefit themselves, family or friends. Hughes supports this policy.

“We have member[s] of law enforcement that are members of the Legislature. When we deal with law enforcement issues, we do not believe it’s a conflict of interest, we, well if it’s technically a conflict, we like it.”

Unlike other UTA board members interviewed by investigators who said they were unaware of Diehl’s financial entanglements in the Draper station project, Hughes said he was satisfied with Diehl’s disclosure. He even said Diehl saved the project when the original owner of Whitewater VII, for whom Diehl worked as a consultant, ran into financial troubles.

“He became a temporary owner of that to bridge, to bridge the time where someone could obtain those development rights and obtain what had been worked on and continue the project forward,” Hughes told investigators.

“That didn’t offend my [senses],” Hughes said. “I wasn’t upset by that, in fact, I didn’t want to see this thing die.”

The attorney general’s investigator also interviewed other frustrated former UTA board members such as Burtis Bills, who said that the board didn’t learn of Diehl’s conflicts of interest in the Draper site until August 2009. That was a year after UTA had approved the development agreement between itself, the city and Whitewater VII. It was also a year after he had disclosed them in a letter to then-UTA General Counsel Bruce Jones and UTA had approved the development agreement.

The report said neither the board nor the public knew of the conflicts that led to the long investigation because Jones didn’t share that letter.

Diehl’s attorney, Washburn, said his own investigation of the Draper project showed that Hughes and other UTA leaders at the time deserve credit, not blame.

They were, he said, “pioneers of innovative mass transit in Utah, in part because they believed that public transit worked best when it made room for and actively collaborated with private development.”

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