The triangle of land where Northeast Killingsworth Street, Cully Boulevard and Highway 30 meet had storefronts that featured an adult video store and lingerie shop.

"It was, pun intended, sort of a strip mall of various nakedness businesses," says David Sweet, land-use chairman for the Cully Association of Neighbors. "We don't want our neighborhood known as the strip-club heaven. But when you put an eyesore like that at a neighborhood gateway, that's what it looks like."

Neighbors want the strip club gone. A coalition of nonprofits called Living Cully has offered $2.75 million for the Sugar Shack strip mall. Nearly 300 people have contributed to an IndieGoGo crowdfunding campaign to help raise $50,000 toward the purchase.

"It would be pretty significant to Cully to get this for some other purpose," says Nathan Teske, director of community economic development for Hacienda Community Development Corporation, one of the groups behind Living Cully.

But records show the $2.75 million would flow to what federal investigators say is a prostitution and money-laundering ring that operated out of the Sugar Shack and five other clubs in the Portland area.

In 2010, local, state and federal law enforcement officials, acting on evidence compiled by the Internal Revenue Service, raided the businesses and seized $807,785 in cash.

No one has been charged in the case, and the criminal investigation drags on.

Meanwhile, the people running what the feds have called a criminal enterprise are still operating. In one case, the owners have been able to cash out one business for $800,000. The $2.75 million sale of the Sugar Shack site would add to the take.

In addition to Hacienda, Living Cully also includes Verde, the Portland Habitat for Humanity/Metro East, and the Native American Youth and Family Center.

Verde's Tony DeFalco, who is overseeing the effort to buy the Sugar Shack site, declined to discuss the coalition's potential purchase from people the feds have linked to a prostitution ring.

"This is a very important site to the community," DeFalco says. "The community has long sought to acquire and redevelop the site, and the community is working really hard to do so."

Katie Lorenz, assistant U.S. attorney who filed the civil forfeiture case, tells WW no charges have been brought yet, but that the criminal investigation is ongoing.

The feds could have also seized property and the clubs themselves. Lorenz declined to say why the feds have allowed the suspected ringleaders to sell off their properties.

Some neighborhood leaders say owners of the Sugar Shack will sell to someone, and there's no reason a local coalition to revamp the site shouldn't be the buyer.

Still, some residents who have contributed to the campaign say they had no idea that alleged criminals still owned the property.

"It's kind of a Catch-22," says Amanda Haworth, a realtor who just moved to the Cully neighborhood and pledged $100. "I want the good guys to win, but I also don't want the bad guys to make money off of this."

After the Sugar Shack opened in 1998, police started responding to reports of prostitution there within a year, records show.

Even after the federal raid in 2010, police were still getting calls about prostitution at the club. Police records also show calls complaining of fugitives, firearms and drugs. In addition to the Sugar Shack, the 2010 federal raid also targeted Dillinger's Pub in Milwaukie, Tommy's Too on Southeast Foster Road, and Pop-a-Top Pub on Northeast Columbia Boulevard.

In 1979, Owen was convicted of three counts of first-degree theft in Lincoln County, according to the state Department of Corrections, which says Owen served probation for the crimes. In 1991, he was charged in Clackamas County with wildlife violations and selling a stolen vehicle; the charges were later dropped.

Evidence compiled by federal investigators focused on activities at the various clubs, from about 2002 through 2010. Court records say strippers at the clubs negotiated the price of sex with customers, and clients would pay $100 or more for sex and $60 to rent a private room. Dancers and customers used rooms at the Sugar Shack and adjacent businesses, including Peek-a-Boo's, the Oh! Zone, Video Visions and Chantilly Lace.

Club management had dancers sign and date liability waivers stating they would not perform sex acts with customers. But informants have told federal agents that management knew the rooms were used for prostitution.

A court affidavit said the club's employees sold condoms and "that management posted instructions in each of the private rooms on how to properly dispose of the used condoms." According to court documents, Owen and other managers also paid dancers for sex.

The operation was clearly lucrative. Agents seized records of more than 28,500 sex-room rentals—that alone translates into more than $1.7 million. Court records also say the clubs' ATM machines—where customers could withdraw cash for sex with prostitutes—generated more than $12 million for the clubs between 2002 and 2009. 

The Sugar Shack is closed, but key players involved in the alleged prostitution ring are still operating.

A central player is Margery Owen-Savage, 84, ex-wife of alleged ringleader Lawrence Owen. Court records say Owen-Savage oversaw daily operations of the clubs and used her home in Milwaukie as a base for the alleged schemes.

Owen-Savage is listed as an owner of the Sugar Shack strip mall, for which Hacienda and Verde have offered $2.75 million. Also listed as an owner: Kandace Desmarais, whom federal court records identify as Owen-Savage's daughter and a subject of the investigation.

Peek-a-Boo's is still open, and records show it's registered to Cory Desmarais, Owen-Savage's son, who was named in the federal affidavit as being involved in the prostitution and money-laundering operation. Another son, Craig Matthew Desmarais, is the registered owner of Tommy's Too, which still has a license to serve alcohol from the Oregon Liquor Control Commission.

Another of Owen-Savage's sons, Gilbert Mace Desmarais, sold Pop-a-Top Pub in April to new owners who run Club Playpen and rent the building from Owen-Savage.

Owen-Savage didn't return calls placed to the number listed for her Milwaukie home.a

Ronald Hoevet, the attorney representing Gilbert Desmarais, says he doesn't know why the case has taken so long, but adds there is nothing wrong with selling off properties in the meantime.

"The government hasn't done anything after the initial execution of the search warrants, and maybe they're not going do anything, but there's no legal restraints against them selling it," says Hoevet, a former federal prosecutor. "I don't know why it hasn't been resolved. It's a mystery to me what's going on here."


The sale of the Sugar Shack site to the Living Cully coalition is reminiscent of other local activism that involves putting up money to force change—neighbors who have helped save old homes from becoming teardowns.

Hacienda, which works on affordable housing issues, hopes to build new offices across the street from the Sugar Shack site. Verde, which promotes investment in environmental community projects, is also located nearby.

The question in this case is, who gets the financial reward?

Michael Crupper, crime and safety chairman for the Cully Association of Neighbors, says it's not ideal to give money to alleged crooks, but it might be "the best of two evils" for a neighborhood trying to rid itself of a problem property.

"For a long time, it's been a nuisance property," Crupper says. "Not only for the type of business that's occurred there, but it's a run-down building that hasn't been well taken care of, and has had a legal history in the past. The Cully neighborhood remembers things like that."

Cully resident Adam Lobaugh raises another issue about buying property from possible crooks.

"Tough call," he says. "[You] willingly give money to a group of misogynistic pimps for an already rotting corpse with only a ray of hope that things will improve for this part of town—while potentially backing their next horrid venture somewhere else.”