ILNews

Bales defense: Elkhart deal was a 'scheme to help'

Back to TopCommentsE-mailPrintBookmark and Share

Facing a looming deadline to find suitable office space for the state Department of Child Services and the prospect that abused or neglected children in Elkhart County could go without services, real estate broker John M. Bales and partner Bill Spencer in 2008 dipped into their own pockets to help close a difficult lease deal, their defense attorneys contend.

The state had picked a building at 1659 Mishawaka St. in Elkhart because it was in a safer area, better lit and an all-around nicer facility than a DCS office that had been targeted by graffiti artists and thieves. But the partners at Venture Cos. struggled to find a developer willing to buy and fix up the building, and lease it to the state. To persuade Indianapolis attorney Paul Page to buy it, they agreed to contribute a $362,000 down payment and collect a percentage of any proceeds of a sale in lieu of interest.

"This is no scheme to defraud the state of Indiana," argued defense attorney Larry A. Mackey in his opening statement Monday afternoon on behalf of Bales and Spencer, who are facing 13 counts of bank, wire and mail fraud stemming from the deal. "This was a scheme, frankly, to help."

The government disagrees: "Bales and Spencer decided to make extra money on a state deal, even though they're not allowed to, and then they hid it," Assistant U.S. Attorney Jesse M. Barrett said in his own opening statement in U.S. District Court for the Northern District of Indiana.

The government says the defendants collected an $88,400 commission on the lease, but did not rebate the state's portion (anything over 3 percent) until after they were served with a federal subpoena. They also were secretly paid development and broker's fees, prosecutors said. And since they put up the equity for the building, they were entitled to 25 percent of any gains in a hoped-for sale of the building. The government said in its opening that Bales himself expected to profit by about $290,000 on a sale.

Mackey, a Barnes & Thornburg partner and former federal prosecutor, sought to draw the jury's attention away from "one lease deal in Elkhart, Indiana" and instead focus on the pressure Venture was facing to locate offices in every county for the Department of Child Services, under a short deadline, and the firm's overall body of work.

The defendants faced a dilemma when their buyer for the building, Paul Page, refused to "do anything or pay anything," and pressure was coming from state officials to close the deal. Page, who also was charged, agreed earlier this month to plead guilty to one count of wire fraud in exchange for cooperating with federal prosecutors.

Mackey said Venture's DCS contact, Jeff Lozer, knew that Venture was "helping financially" to get the lease deal finished, despite the fact Venture's state leasing contract barred it from any direct or indirect ownership of any buildings leased by the state.

The defense says Venture's involvement in the deal amounted to a loan, which was not mentioned as off limits under the state contract.

Mackey showed e-mails from state officials praising Venture's work, and a wire statement showing Bales transferred the money for the building purchase in his own name. He told jurors they will hear positive testimony about the firm's work from state officials, including former DCS Director James W. Payne and Indiana Department of Administration Director of Real Estate Steve Harless.

"No matter how thin the pancake, there is another side," Mackey said. "Neither of these men did anything wrong or intended to harm anyone."

Over a five-year stint as a state consultant, Mackey said, Venture saved taxpayers $11.3 million on a total of 160 lease deals and collected $10 million from the sale of surplus state properties.

Mackey asked why Bales and Spencer would put a positive relationship with state officials and healthy profits (Venture collected $2.9 million over five years) in jeopardy. He noted the men have seven children between them.

The defense also questioned whether the state and bank are truly victims: The state wound up with a good building at a fair rent rate, Mackey argued Tuesday morning, and the bank has collected more than $215,000 in interest payments. Meantime, Bales still is owed more than $200,000 on his loan to Page.

Barrett, the assistant U.S. attorney, said that the crux of the government's case is simple, despite all the documents and testimony jurors are expected to consider: Bales and Spencer committed "financial fraud" on the state and Huntington Bank, then lied about it.

State officials were led to believe Venture had no financial interest in the Elkhart building, and the bank was told Page would be the 100-percent owner.

Barrett said the scheme came to light after state officials began asking questions in response to a series of stories about the Elkhart deal published in IBJ. Bales and Spencer ignored some questions from state officials and lied in others, the government claims.

The final e-mail the government showed in its opening was a question from an IBJ reporter to John Bales, dated May 6, 2010: "I assume you aren't going to answer my question about who is behind BAB Equity?"

The Bales-controlled entity BAB Equity LLC provided the down payment for L&BAB LLC to buy the Elkhart building. The government contends the entity is key to the fraud scheme.

The government's opening lasted about an hour and followed jury instructions from U.S. District Judge Robert L. Miller Jr., which began at 2:30 p.m. The attorneys selected the panel of eight men and six women, two of them alternates, from a pool of 48 potential jurors on Monday morning and early afternoon.

The trial began Monday and resumed late Tuesday morning. Mackey finished his opening statement before Spencer attorney Bernard Pylitt made his first remarks to the jury.

The first government witnesses are expected Monday afternoon, and the trial is scheduled to take up to two weeks.

Story originally published at IBJ.com. Indianapolis Business Journal is a sister publication of Indiana Lawyer.

 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. "Am I bugging you? I don't mean to bug ya." If what I wrote below is too much social philosophy for Indiana attorneys, just take ten this vacay to watch The Lego Movie with kiddies and sing along where appropriate: https://www.youtube.com/watch?v=etzMjoH0rJw

  2. I've got some free speech to share here about who is at work via the cat's paw of the ACLU stamping out Christian observances.... 2 Thessalonians chap 2: "And we also thank God continually because, when you received the word of God, which you heard from us, you accepted it not as a human word, but as it actually is, the word of God, which is indeed at work in you who believe. For you, brothers and sisters, became imitators of God’s churches in Judea, which are in Christ Jesus: You suffered from your own people the same things those churches suffered from the Jews who killed the Lord Jesus and the prophets and also drove us out. They displease God and are hostile to everyone in their effort to keep us from speaking to the Gentiles so that they may be saved. In this way they always heap up their sins to the limit. The wrath of God has come upon them at last."

  3. Did someone not tell people who have access to the Chevy Volts that it has a gas engine and will run just like a normal car? The batteries give the Volt approximately a 40 mile range, but after that the gas engine will propel the vehicle either directly through the transmission like any other car, or gas engine recharges the batteries depending on the conditions.

  4. Catholic, Lutheran, even the Baptists nuzzling the wolf! http://www.judicialwatch.org/press-room/press-releases/judicial-watch-documents-reveal-obama-hhs-paid-baptist-children-family-services-182129786-four-months-housing-illegal-alien-children/ YET where is the Progressivist outcry? Silent. I wonder why?

  5. Thank you, Honorable Ladies, and thank you, TIL, for this interesting interview. The most interesting question was the last one, which drew the least response. Could it be that NFP stamps are a threat to the very foundation of our common law American legal tradition, a throwback to the continental system that facilitated differing standards of justice? A throwback to Star Chamber’s protection of the landed gentry? If TIL ever again interviews this same panel, I would recommend inviting one known for voicing socio-legal dissent for the masses, maybe Welch, maybe Ogden, maybe our own John Smith? As demographics shift and our social cohesion precipitously drops, a consistent judicial core will become more and more important so that Justice and Equal Protection and Due Process are yet guiding stars. If those stars fall from our collective social horizon (and can they be seen even now through the haze of NFP opinions?) then what glue other than more NFP decisions and TRO’s and executive orders -- all backed by more and more lethally armed praetorians – will prop up our government institutions? And if and when we do arrive at such an end … will any then dare call that tyranny? Or will the cost of such dissent be too high to justify?

ADVERTISEMENT