They were three young boys who nearly a lifetime ago spent their spare hours scavenging for the treasures that seemed to sprout from the desert all around their small, isolated Utah town.

Jim Redd often led the way in the hunt for centuries-old arrowheads and ancient pots littering the ground in Blanding and beyond. Then he would return to compare and swap his finds with his close friends, Austin Lyman and Winston Hurst.

"That was our way of life," said Lyman, now 62. "You could find it just everywhere. You can go any direction from Blanding and there'll be mounds and dwellings and arrowheads and pottery and artefacts."

In the 1950s, collecting pre-Columbian antiquities was already a local tradition and the three boys, like most people in the town, gave little thought to the native Americans who had lived on the same land a millennium before them. The children mostly favoured arrowheads. Their parents lined mantelpieces with finely decorated pottery snatched from the soil, and hung the ancient jewellery on their walls.

"It was a treasure hunt," said Hurst. "It was fun to trade with each other. That's what we did. We hunted rabbits, we dug in ruins. Who knew?"

But decades later, the three friends' old pastime has wrought bitterness and tragedy. They fell out badly after Hurst became an archaeologist and came to see the town's obsession with collecting ancient artefacts as a desecration. Then last year, 150 FBI agents swooped on Blanding, arresting some of the town's most prominent citizens, including Redd, Lyman's three older brothers and the brother of the county sheriff, on charges of dealing in antiquities plundered from state land.

Redd, by then a popular local doctor, killed himself the next day. Two other people caught up in the case, including the FBI's principal informer, also took their lives in the following months.

Meanwhile Lyman's brothers, along with 23 other people, are expected to go on trial within weeks.

"They're calling us all here lifelong criminals," said Lyman. "I'm sure there's been money made but there's no multimillion network here that I'm aware of. It's surely not my three brothers, who are all on social security."

Blanding was founded in 1905 by Walter C Lyman, a sometime Mormon missionary, drawn by what was also likely to have attracted the Anasazi people to the area more than a thousand years earlier – the breathtaking location next to the snow-tipped Abajo mountains, canyons and sprawling wilderness, much of which is now national park land. From the day the first white settlers arrived they noticed the remains of the Anasazi artefacts.

"The pottery was so commonplace that kids would use them for target practice, they would throw rocks at them," said Blanding's mayor, Toni Turk. "There was nothing particularly special about them. Some people started seeing in them some art value for themselves and they'd start collecting. I know [where] one part of the family would collect the pottery and the other part of the family would collect arrow heads. They became specialists but it was primarily for personal collection."

By the 1960s much of what was readily visible on the ground had been collected and some residents took to digging in to the ancient dwellings and burial sites. "Some people went in with heavy machinery," said Turk. "It took a lot of the labour off the effort to dig up the graves. They dug down to get to the treasures. There are those who stepped across lines of propriety. They got into looting of graves and grave goods."

By then Hurst had become an archaeologist and questioned the popular view that collecting artefacts was innocent fun. He fell out with Redd who remained an enthusiastic collector.

Hurst said: "Anybody can walk out there, find the stuff, plunder it, take it home and almost no one understands the implications of what they're doing. They don't understand how the stripping of what's out there, how you might as well walk in to the library and start cutting the words out of the pages of the Dead Sea Scrolls. It's the primary record of the human experience and they're beating the crap out of it.

"I've been physically sick, truly nauseated by things I've seen walking in to these sites. One day you've got a relatively intact site that's been sitting there for 12,000 years and the next day it's a bombed-out crater, a landscape of craters and human bones strewn all over the place. It can never be put back together again and you never know what was taken away."

Hurst says that of the 28,000 documented ancient sites in the local county he has not seen one not damaged by looting. "But there's also quite a bit left. That's why it's still a fight," he said.

The laws against removing artefacts from state-owned land have been in place almost as long as Blanding has existed, even if residents gave them little thought. But theygot a wake-up call with an FBI raid in 1986 which led to the seizure of artefacts that ended up in the hands of the local museum, including 900-year-old baskets and pottery almost as pristine as the day it was made.

After the raid the consensus in the town was that even if the collecting had to stop what was already taken was safe.

But a few years later a thriving market in ancient artefacts emerged on the internet. Again, the FBI took notice as some of Blanding's residents started to cash in on what they kept at home.

An FBI informant, Ted Gardiner, over many months secretly recorded the Lyman brothers, Redd and others offering their collections for sale. Gardiner, a troubled man with a long history of alcohol abuse, said he volunteered to cooperate with the FBI and the authorities and denied he was coerced into being an informant. But his critics in Blanding questioned his motives by noting that Gardiner was himself a collector and dealer in ancient artefacts, and was paid at least $224,000 (£150,000) for working with the FBI, according to court papers.

The town's residents began to suspect government entrapment when it became known that Gardiner paid $11,000 alone to one prominent Blanding resident, David Lacy, a high-school maths teacher and brother of the county sheriff, for an ancient turkey feather blanket, sandals taken from a burial chamber and several other items.

Turk says that kind of money had many local people rushing to sell collections they had kept for years. "You've got these pots that have been passed down to you by your grandfather and maybe you need a little money," he said.

Hurst is sceptical, and the FBI says Gardiner hooked in to an existing network that was already getting rich off illegal dealings in ancient artefacts.

But there is near universal agreement in Blanding that the FBI handled the case badly, particularly the arrest raid. The mayor says it pushed Redd to kill himself. "I think locally there's an awful lot of feeling that the way the arrests went down, the shackling of old men in their pyjamas had a significant impact on Dr Redd's decision [to take his life]. He had been previously arrested on similar charges. The way that it was handled he probably thought, 'I'm gonna lose everything I have. I'm gonna lose my licence, I'm gonna lose my guns. Life's not worth living anymore'. So he hooks the exhaust up to his Jeep and asphyxiates himself," said Turk.

A quarter of the town turned out for the doctor's funeral.

Two months later, Redd's wife and daughter were convicted of illegal trafficking in antiquities.

Lyman, who is a case worker at Blanding's day-care centre for the elderly, has a picture of Redd in his office. "We went to school together, we grew up together. That's just like cutting off half my body, losing Dr Redd. He was just like a brother since we were both born. I still miss him every day," he said.

Another of those detained, a dealer in neighbouring New Mexico, shot himself a week later.

Then, in March, Gardiner also took his own life. His family said he had become highly unstable as the burden of the other suicides and the prospect of giving evidence weighed on him.

Lyman said: "I just hoped that maybe things would turn out a little better. Maybe there won't be a trial after all."

• This article was amended on 16 and 27 April 2010. The original said that the FBI "arrested and turned" Ted Gardiner. (His arrest was unconnected with the artefacts case, and was by the police.) A sub-heading in the original suggested that all three deaths mentioned took place in Blanding. A typographical error had the town "founded in 1950". This has been corrected.