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 Indianapolis Business Journal is a sister publication of Indiana Lawyer.



Post a comment to this story

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
Subscribe to Indiana Lawyer
  1. Especially I would like to see all the republican voting patriotic good ole boys to stop and understand that the wars they have been volunteering for all along (especially the past decade at least) have not been for God & Jesus etc no far from it unless you think George Washington's face on the US dollar is god (and we know many do). When I saw the movie about Chris Kyle, I thought wow how many Hoosiers are just like this guy, out there taking orders to do the nasty on the designated bad guys, sometimes bleeding and dying, sometimes just serving and coming home to defend a system that really just views them as reliable cannon fodder. Maybe if the Christians of the red states would stop volunteering for the imperial legions and begin collecting welfare instead of working their butts off, there would be a change in attitude from the haughty professorial overlords that tell us when democracy is allowed and when it isn't. To come home from guarding the borders of the sandbox just to hear if they want the government to protect this country's borders then they are racists and bigots. Well maybe the professorial overlords should gird their own loins for war and fight their own battles in the sandbox. We can see what kind of system this really is from lawsuits like this and we can understand who it really serves. NOT US.... I mean what are all you Hoosiers waving the flag for, the right of the president to start wars of aggression to benefit the Saudis, the right of gay marriage, the right for illegal immigrants to invade our country, and the right of the ACLU to sue over displays of Baby Jesus? The right of the 1 percenters to get richer, the right of zombie banks to use taxpayer money to stay out of bankruptcy? The right of Congress to start a pissing match that could end in WWIII in Ukraine? None of that crud benefits us. We should be like the Amish. You don't have to go far from this farcical lawsuit to find the wise ones, they're in the buggies in the streets not far away....

  2. Moreover, we all know that the well heeled ACLU has a litigation strategy of outspending their adversaries. And, with the help of the legal system well trained in secularism, on top of the genuinely and admittedly secular 1st amendment, they have the strategic high ground. Maybe Christians should begin like the Amish to withdraw their services from the state and the public and become themselves a "people who shall dwell alone" and foster their own kind and let the other individuals and money interests fight it out endlessly in court. I mean, if "the people" don't see how little the state serves their interests, putting Mammon first at nearly every turn, then maybe it is time they wake up and smell the coffee. Maybe all the displays of religiosity by American poohbahs on down the decades have been a mask of piety that concealed their own materialistic inclinations. I know a lot of patriotic Christians don't like that notion but I entertain it more and more all the time.

  3. If I were a judge (and I am not just a humble citizen) I would be inclined to make a finding that there was no real controversy and dismiss them. Do we allow a lawsuit every time someone's feelings are hurt now? It's preposterous. The 1st amendment has become a sword in the hands of those who actually want to suppress religious liberty according to their own backers' conception of how it will serve their own private interests. The state has a duty of impartiality to all citizens to spend its judicial resources wisely and flush these idiotic suits over Nativity Scenes down the toilet where they belong... however as Christians we should welcome them as they are the very sort of persecution that separates the sheep from the wolves.

  4. What about the single mothers trying to protect their children from mentally abusive grandparents who hide who they truly are behind mounds and years of medication and have mentally abused their own children to the point of one being in jail and the other was on drugs. What about trying to keep those children from being subjected to the same abuse they were as a child? I can understand in the instance about the parent losing their right and the grandparent having raised the child previously! But not all circumstances grant this being OKAY! some of us parents are trying to protect our children and yes it is our God given right to make those decisions for our children as adults!! This is not just black and white and I will fight every ounce of this to get denied

  5. Mr Smith the theory of Christian persecution in Indiana has been run by the Indiana Supreme Court and soundly rejected there is no such thing according to those who rule over us. it is a thought crime to think otherwise.