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Defense rests in Bales trial after flurry of witnesses

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SOUTH BEND — Closing arguments are expected to begin Wednesday afternoon in the federal fraud trial of Indianapolis real estate broker John M. Bales and partner William E. Spencer after the defense raced through seven witnesses Tuesday and early Wednesday.

The defense made many of its points to the jury via tough cross-examinations of government witnesses before leading off its own case with former Department of Child Services Director James W. Payne, a long-time juvenile judge in Marion County.

Payne told the jury that Venture Real Estate Services, Bales' and Spencer's company, did a good job for DCS, delivering on a promise to find office space in Elkhart better suited for the agency's staff and children they serve.

"I thought it was a vast improvement," Payne said of the Elkhart office. "It was spacious and met our needs. It was an inviting and warm environment."

On cross examination, Assistant U.S. Attorney Jesse Barrett noted that Payne did not oversee Venture's contract with the state (that responsibility fell to the Indiana Department of Administration), and Payne never inquired about the ownership arrangement for the Elkhart building.

Prosecutors say Bales and Spencer provided the down payment so Indianapolis attorney Paul J. Page could buy the property to lease to the DCS, without disclosing its involvement to the state or a bank. The government says the deal violates an agreement between Venture and the state that barred the company from direct or indirect ownership of properties where state agencies leased space, but the defense argues the arrangement was a loan.

The government took about five days to present its case after the proceedings began with jury selection on Jan. 28. Defense attorneys for each of the defendants will get about one hour for closing arguments, and the government is scheduled for an hour and a half to wrap up its case before the jury gets its instructions and begins deliberations.

The second defense witness Tuesday was Adam Gilliatte, a construction contractor and developer who intended to buy the Elkhart building and serve as landlord for DCS before he "got exhausted" waiting for the state to execute a lease and opted out of the deal.

Indianapolis developer Paul Kite also considered buying the Elkhart building, he testified Tuesday, but decided against becoming a state landlord.

Defense attorneys asked both Gilliatte and Kite whether Bales or Spencer had proposed Venture act as a partner or shadow investor in their deals, and both men said no.

The most time-consuming testimony Tuesday came from Marion Siara, a retired special agent for the Internal Revenue Service hired by the defense to review financial records in the case.

The defense introduced exhibits prepared by Siara, including one showing withdrawals by Page on the bank account of L&BAB LLC, the entity that owns the building. Page had been a co-defendant with Bales and Spencer until he accepted a plea deal in January.

Siara said his research uncovered transfers of $58,300 to Page personally and another $93,700 paid out to family members and associates, including $50,000 for Page's defense attorney, Robert Hammerle, who represented him in plea negotiations with the government.

The Elkhart building is and always was a losing deal for Bales and Spencer, Siara said. His estimates showed that if the building sold for $1.65 million as the defendants estimated in 2009, proceeds needed to pay off the bank loan and Venture investment would leave a $25,000 deficit, not a profit for Venture to split with Page as originally pondered.

The government has introduced emails that indicate Bales and Spencer expected to profit from the deal.

In another exhibit, Siara claimed Venture actually overpaid the state on the Elkhart lease commission refund since the value of the 10-year deal was higher than Venture had calculated. (Venture was required to remit 25 percent of its 4-percent commission on lease deals for the state to a discretionary project fund for the state's benefit.)

Barrett saved his toughest cross-examination of the trial for Siara, needling him when he acknowledged using Google to flesh out an exhibit showing where Page directed money from his L&BAB bank account.

Barrett also pressed the former IRS agent for his exhibit claiming the state had been overpaid on the Elkhart deal. The exhibit showed an adjusted amount due to Venture while keeping the total commission amount the same, resulting in a lower payment due to the state.

Siara said he was hired by the defense team in December 2012, a late date for a fast-approaching trial, and did not know whether another financial analyst had worked on the case for the defense before he came onboard.

Other defense witnesses: Ed Scahill, a Huntington Bank commercial loan officer who said he was "quite surprised" to learn in October 2009 there was a second mortgage on the Elkhart building, but took no action since the loan was performing; and David Nugent, a commercial real estate broker based in Fort Wayne, who explained the concept of a "shared-appreciation loan," which the defense says describes the Elkhart deal.

"It's a loan, it's a mortgage, that's it," Nugent said. "It's not ownership."

On cross-examination, Barrett read Nugent portions of the code of ethics for the National Association of Realtors, which appeared to contradict Nugent's claim that brokers can represent multiple parties at once on a deal.

Barrett said the code makes clear that brokers may not accept payment from multiple parties without disclosure; Nugent contended that a broker can be paid a sale commission, lease commission and development fee on a building because each of those transactions is separate.

The final witness for the defense was Caroline Karanja Smith, a former Venture employee who worked on the DCS office rollout. She testified Wednesday morning that the state officials overseeing her, including leasing director Steve Harless, were satisfied with Venture's work.

The defense introduced an email Harless sent to Smith and another Venture employee: "Without their constant support we would be screwed," Harless wrote. "Good luck and God Bless America!!"

Defense attorney Jason Barclay also asked Smith, who handled property management for the Elkhart building, to describe her interactions with Page. She said he was hard to pin down.

She agreed with Barclay when he asked whether it was a "fair assessment" to call Page "lazy."

To catch up on IBJ's coverage of the trial and Elkhart lease deal, click here. The IBJ is a sister publication of Indiana Lawyer.
 

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  1. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  2. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  3. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

  4. When I hear 'Juvenile Lawyer' I think of an attorney helping a high school aged kid through the court system for a poor decision; like smashing mailboxes. Thank you for opening up my eyes to the bigger picture of the need for juvenile attorneys. It made me sad, but also fascinated, when it was explained, in the sixth paragraph, that parents making poor decisions (such as drug abuse) can cause situations where children need legal representation and aid from a lawyer.

  5. Some in the Hoosier legal elite consider this prayer recommended by the AG seditious, not to mention the Saint who pledged loyalty to God over King and went to the axe for so doing: "Thomas More, counselor of law and statesman of integrity, merry martyr and most human of saints: Pray that, for the glory of God and in the pursuit of His justice, I may be trustworthy with confidences, keen in study, accurate in analysis, correct in conclusion, able in argument, loyal to clients, honest with all, courteous to adversaries, ever attentive to conscience. Sit with me at my desk and listen with me to my clients' tales. Read with me in my library and stand always beside me so that today I shall not, to win a point, lose my soul. Pray that my family may find in me what yours found in you: friendship and courage, cheerfulness and charity, diligence in duties, counsel in adversity, patience in pain—their good servant, and God's first. Amen."

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