Minutes before trial begins, feds drop case against developer Terry Diehl

SALT LAKE CITY -- Just minutes before his trial was scheduled to start, federal prosecutors reluctantly dropped their case against prominent Utah developer Terry Diehl.

In arguments before U.S. District Court Judge Clark Waddoups, the U.S. Attorney's Office for Utah complained that recent rulings had severely limited their case. The judge had blocked them from bringing up financial transactions past a certain point.

"That order flipped the United States' case on its head, from a reasonable likelihood of success to a reasonable likelihood of failure. The United States is in an untenable position to proceed," assistant U.S. Attorney for Utah Mark Hirata said.

Judge Waddoups said he would not allow discussion of those financial transactions until a later time in the trial. The judge told the federal government he would not allow them to discuss it in front of the jury in opening statements or call witnesses who would testify about it.

"This trial was going to be about everything they didn’t charge," Diehl's attorney, Loren Washburn, told the judge.

Judge Waddoups said at some point in the trial, he would consider the government's request to admit the information. That prompted some tense exchanges between Hirata and the judge.

"How is the United States supposed to put on its case and make no mention of the most significant evidence in the case in chief?" he asked.

"If you’re telling me you can’t make a prima faca case... you’ve got to evaluate whether you should have filed the indictment," Judge Waddoups snapped.

After about a 15 minute recess, the government announced it would drop the case.

Diehl, a prominent developer and one-time member of the Utah Transit Authority's Board of Trustees, was originally accused of not reporting income from development projects -- including one near a UTA Frontrunner stop.

He was originally indicted the day after UTA itself struck a cooperation agreement with the feds. But since then, the case has gone from 14 charges to one in a series of superseding indictments and rulings. He was left facing a charge of making false declarations on financial statements.

"It's a good day today," Diehl told FOX 13 as he left the courthouse.

In a statement, Diehl's attorneys called the government's investigation and prosecution "unfounded."

"Today’s Justice Department’s dismissal of the only remaining count against Terry Diehl is a great relief to Terry and his family. He looks forward to reclaiming his good name and moving forward with the next chapter of his life," Washburn wrote. "We are all fortunate to live in America, where the federal judiciary creates a thin blue line between citizens and the federal government."

Outside court, federal prosecutors conceded mistakes were made early on in the case. The U.S. Attorney's Office said it would not re-file charges against him.

"The jury was already empaneled, prejudice attached so this case is dismissed," said assistant U.S. Attorney for Utah David Backman.

Backman would not comment on the status of any ongoing investigations into UTA or anyone else. An attorney for UTA was seen in the courtroom as the case was dismissed.

In a statement, UTA General Counsel Jayme Blakesly wrote:

"Terry Diehl is no longer affiliated with UTA in any way. UTA is a much different organization today than it was years ago. Since 2014, UTA’s Board and management have put in place dozens of reforms to strengthen checks and balances, tighten policies, improve transparency, and enact the strictest ethical standards of any public agency in Utah."