Former Valley creamery owner pleads guilty to federal charges

Zaz Hollander

Kyle Beus, the former owner of the now-defunct Matanuska Creamery, on Monday pleaded guilty to six felony counts associated with his misuse of federal grant funds meant to save Alaska's dairy industry.

A December federal grand jury indictment charged Beus with three counts each of wire fraud and making false statements. He's accused of falsifying paperwork to secure federal grant money and then obtaining payment from a third party and spending at least some of the gain for personal use.

Beus originally entered a not guilty plea but ended up pleading guilty to all six counts at a relatively brief hearing in U.S. District Court.

The change of plea allows Beus to avoid a jury trial that had been scheduled to start Tuesday.

But, Beus said in a statement, he still doesn't support the government's version of his story.

"I do notagree with the governments claim of any theft," reads a hand-written fax sent out Monday. "All of the funds involved ultimately went to the building of Matanuska Creamery."

Prosecutors developed an eight-page list of what they believe they could prove at trial, according to Assistant U.S. Attorney Retta-Rae Randall. Beus attorney John Murtagh agreed with only a few of the facts on that list.

Murtagh acknowledged that Beus submitted inflated grant documents and false invoices, albeit with the knowledge of the company involved, according to an email he sent Randall on Monday.

More than $1 million in state and federal grant funds flowed to dairy-related operations involving Beus in the last six years.

Prosecutors charge Beus fabricated invoices to a Washington state dairy supplier in 2007 to siphon off U.S. Department of Agriculture grant funds intended to support and stabilize Alaska's struggling dairy industry. The closure of state-run Matanuska Maid in 2007 had left farmers with nowhere to sell their milk.

Here's how prosecutors say the Beus scheme worked:

Beus formed a company called Klondike Creamery and Candy in 2006. The next year, he got $168,000 in federal Alaska Dairy Industry Grant money for an ice cream and cheese-making facility.

In August 2007, the USDA gave a $475,000 federal dairy grant for a milk manufacturing facility to Robert Wells and Company, a partnership between Wells, a Valley farmer and former Mat-Su Assembly member, and Karen Olson, former U.S. Department of Agriculture Farm Service Agency head.

By November 2007, Beus, Wells and Olson had combined their facilities into one. Beus served as day-to-day manager.

That same month, Beus started working with a Washington state company to install dairy processing equipment from the old Mat Maid building in Anchorage.

Prosecutors say Beus submitted to the USDA falsified documents for payment to the company. Then he wrote false invoices on behalf of Klondike Creamery totalling $121,040 for supplies, materials and management, the indictment says. Beus got the money. He never provided the services.

Some of the money went to pay part of Beus' personal investment in BLW Manufacturing, a Palmer company he formed to make recyclable water and milk containers, prosecutors charge.

Meanwhile, Matanuska Creamery struggled from the start with renovation debt of more than $1 million, faulty equipment brought in from the old Mat Maid facility, and problems with bacteria in cheese made from raw milk.

In January 2008, Beus, Olson and Wells formed Valley Dairy Inc. The corporation obtained $630,000 in state grants to rescue the creamery business. Beus at the time said he invested about $200,000 of his family's money.

Matanuska Creamery shut down in late December after failing to repay $800,000 in state loans. A smaller dairy operated by the Havemeister family now sells local milk in stores.

A federal grand jury indicted Olson in August on charges of wire fraud, mail fraud and false statements. The indictment charges that Olson, in an effort to conceal Valley Dairy's financial situation and keep the business running, submitted false documents to the state and federal government. She's also accused of covering up for Beus.

Her arraignment is scheduled for Thursday, Randall said.

Beus has a sentencing hearing scheduled for Dec. 23.

Reach Zaz Hollander at or 257-4317.