Fifty-seven-year-old Karen B. Olson fought for years to save the dairy business in the Matanuska Valley. Now she's going to have to fight to save herself. A federal grand jury on Friday handed down a six-count amendment charging Olson with lying to the U.S. Department of Agriculture and trying to defraud the state of Alaska. According to charging documents, Olson covered up the alleged criminal conduct of Kyle E. Beus, the former co-owner and president of the Valley Dairy.

The dairy did business as the Matanuska Creamery. It was trying to pick up the pieces after Matanuska Maid, an historic Valley dairy folded. Mat Maid was started in the 1930s by the Matanuska Valley Farmers Cooperative Association, an offshoot of the Matanuska Colony and New Deal efforts to boost American Midwesterners out of the Great Depression by sending them to Alaska to tame the wilderness.

By the mid-1980s, Mat Maid was faltering, and a state-run corporation took over management. It struggled until Sarah Palin became Alaska's governor. She arrived on the scene shortly before the state Board of Agriculture and Conservation, which had watched the dairy bleed cash for years, voted to deny it further loans.

Keeping Mat Maid alive

With that move threatening to kill the dairy, Palin fired the board and appointed another, which voted to give the dairy more money. That went on until the new board realized, as did the old board, the dairy just couldn't compete in the real world of modern-day Alaska with cheaper milk shipped in from the Lower 48.

Enter Beus, then a Valley dairy farmer, and Bob Havemeister, another dairy farmer. They formed a joint venture to take over the equipment and operations of Mat Maid in an effort to keep it alive. Beus was the one who eventually ended up with most of the equipment and set up a company called Klondike Creamery and Candy, which briefly marketed ice cream in Alaska.

It was not long, however, before it was rolled into Valley Dairy -- a joint effort of Beus, Robert Wells and Olson. Olson was the former Alaska state executive director of the U.S. Department of Agriculture Farm Service Agency, a job she held from 1993 to 2001.

Olson has insisted in a number of interviews with Alaska Dispatch that the only interest she ever had was trying to keep the dairy business alive in Alaska. After she joined Beus at Valley Dairy, the company began efforts to tap a $5-million pool of USDA money set aside for rural development.

Beus was indicted last year on charges he took at least $120,000 of that money for his own "personal and discretionary use." Where and when Olson learned of his alleged activities is not explained in the indictment against her, but it says she devised a scheme "to conceal the true nature of the Valley Dairy finances and the fraudulent activity of Beus, and to obtain a loan from the ARLF (Alaska Revolving Loan Fund) to keep the Valley Dairy, of which Olson was an investor and employee, operating."

To get another $430,000 in funds for the dairy in 2008, the indictment charges, applied to the state loan fund for $430,000 to cover costs that were in bills previously submitted to and paid by the USDA. Were that not enough, the indictment said, the money the USDA had already given the dairy was gone because it had been "misapplied."

The press release from the U.S. Attorney's office said Olson could face up to 30 years in jail, a fine of $2 million or both. Olson could not be immediately reached for comment.

Last fall, however, she adamantly defended her efforts to save the now-defunct Valley Dairy.

"Valley Dairy may be sneered at, and we may be struggling, but we paid the Board of Agriculture and Conservation over $250,000 in leases, interest and principal repayment over the last three and a half years," she said then. "And we provide an honest 100 per cent local product. That compares to zero over 23 years with 80 percent Lower 48 milk for Mat Maid. It amazes me that politically correct thought is so sanguine about Mat Maid taking state assets to ruin the Alaska dairy industry, and so snide and snarky about our loans when we're trying to save it."

State losses in Mat Maid both before and after Palin are estimated to run into the millions.

Contact Craig Medred at craig(at)alaskadispatch.com