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Fraud trial for broker Bales begins in South Bend

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The federal fraud trial of Indianapolis real estate broker John M. Bales and a partner began Monday morning in South Bend with a jury-selection process that may not have run as smoothly if it took place in central Indiana.

U.S. District Judge Robert L. Miller Jr. read a panel of 48 potential jurors the names of about 60 potential witnesses and key players likely to be mentioned during the case, including several Indianapolis power brokers.

Among them: former Marion County Prosecutor Carl Brizzi; former Indianapolis Deputy Mayor Michael Huber; former chief of staff to Gov. Mitch Daniels Earl A Goode; former Indiana Department of Child Services Director James W. Payne; Indiana Department of Workforce Development Commissioner Mark W. Everson; current DCS Director John P. Ryan; and real estate developer Paul Kite.

The judge wanted to know whether the potential jurors knew any of the people or recognized their names. They did not.

It wasn't clear which of those individuals, if any, would be called to testify, or for which side. Opening statements are expected to begin Monday afternoon, and the trial could last up to two weeks.

Bales and his general counsel, William E. Spencer, both 45, face 13 counts, including wire and mail fraud. Indianapolis attorney Paul J. Page, who was also charged, agreed earlier this month to plead guilty to one count of wire fraud in exchange for cooperating with federal prosecutors.

The government is expected to argue that a fraud scheme led by Bales began to unravel in July 2009 when Page withdrew $50,000 from a bank account that collected rent payments from a state-leased office building in Elkhart.

On paper, that wasn’t a problem, since Page controlled the company, L&BAB LLC, which owned the building. Page had taken out a $531,000 loan from Huntington Bank to buy the property in 2008, and the Department of Child Services moved in shortly thereafter.

But the bank withdrawal was an urgent concern for Bales and his partners at Venture Cos. The broker believed the move violated an unrecorded mortgage agreement: A Bales-controlled company called BAB Equity LLC had secretly given Page his $362,000 down payment in exchange for 25 percent of any profits. The bank was told Page would be the 100-percent owner.

The principals at Venture, which represented the state in office lease deals and had pledged to avoid “any ownership interest” in buildings the state leased, felt that to protect their investment they had no choice but to reveal the partnership with a state landlord. The company hurriedly placed a back-dated mortgage on the property.

“We are about to be outed like it or not,” Bales deputy Greg Rankin wrote in an e-mail, one of dozens of records federal prosecutors plan to use as they argue Bales and Spencer defrauded the state and a bank over the building purchase and subsequent lease deal.

The defense contends there were no victims, no loss and no intent to defraud: The state wound up leasing the building it wanted, and the bank loan on the property is current and paid. Bales’ and Spencer’s attorneys are expected to argue the arrangement was a loan that fell well short of ownership, and any attempts to conceal the deal stemmed from concern about media attention and were not meant to mislead the state. The questionable nature of the Elkhart lease deal was first revealed as part of an IBJ investigation.

Newly filed documents in the case suggest prosecutors intend to argue that Bales defrauded the state in multiple ways with the Elkhart deal:

— By secretly putting up the equity to buy the building;

— By keeping the entire $88,400 lease commission in violation of an agreement to remit a portion back to the state (Venture eventually paid the state’s $22,100 portion two years later after receiving a federal subpoena);

— And by taking $28,875 for a broker’s fee and a $22,700 developer’s fee on the deal—additional payments not allowed under the state contract. Venture recorded the latter in closing documents as having been paid to building owner L&BAB LLC.

Documents the government expects to introduce include several e-mails discussing IBJ’s coverage of the Elkhart deal and Bales’ assurances to state officials that the reporting was not accurate.

Bales explained that DCS had picked the 15,200-square-foot Elkhart building as its ideal location but the prior owner needed to sell and did not want to act as a landlord. Venture struggled to find a buyer: Five developers passed on the opportunity before Page came along.

But in each of the e-mails, Bales and his deputies left out the fact that Venture had put up the equity that allowed Page to buy the building. State records show Page as the sole owner of L&BAB LLC as of February 2008, but he added then-Marion County Prosecutor Carl Brizzi as a 50-percent owner in December 2008.

Page told IBJ in 2010 that he gave half the building to Brizzi at no cost as a finder’s fee of sorts for bringing him the opportunity. Page, a defense attorney, had represented dozens of clients and, at the time, was representing clients in cases involving Brizzi’s office.

Page’s plea deal calls for him to testify if necessary against Bales and Spencer in the Northern District case. He also agreed to cooperate with the government in a Southern District investigation that has Brizzi as its principal target.

The government has not filed charges against Brizzi, who did not seek re-election as prosecutor and stepped down after his second term ended in January 2011. He has denied wrongdoing.

Page, 47, admitted in court on Jan. 4 and in his plea agreement that he concealed from the bank that he received funds from Bales to buy the Elkhart building. The two had agreed to split any proceeds of a sale; after Venture recovered its equity, Page and Bales would split the remaining cash 75 percent to 25 percent.

Venture’s contract with the state banned the company and its partners and employees from “any ownership interest” or any “attempt to acquire” properties to be leased by the state. The defense is expected to argue that Venture disclosed the arrangement as required under its contract with the state.

E-mails among Venture employees suggest there was, at minimum, a concern about how the Elkhart deal would appear if the details went public. Bales associates including Wendy Michael puzzled over how to pay Elkhart County’s recording fee on the back-dated BAB Equity mortgage.

“Nothing we do should have our name on it,” Michael wrote. “If Page doesn’t sign it who would?”

Later, as Venture tried to orchestrate another state lease deal for the building and a potential sale, the company sought to keep its involvement quiet. Referring to a state official, Rankin wrote: “I do not want Stephanie to even be aware of our involvement because it may be hard for her to understand why, as the representative for the State, that we are trying to help a landlord.”

Michael and Rankin are not facing charges.

Assistant U.S. Attorney Jesse Barrett is leading the case for the government. Barnes & Thornburg partner Larry Mackey is representing Bales, and Katz & Korin partner Bernard Pylitt is representing Spencer.

Each side is expected to call expert witnesses, who likely will offer conflicting interpretations of the meaning of the word “ownership” under the state’s contract with Venture.

The two sides played hardball in the days leading up to jury selection and opening statements.

The government challenged a defense request to use an extra podium so counsel could conveniently refer to notes while addressing the jury. And the defense sought to introduce evidence challenging the credibility of a government witness for giving "recently-arrived at false statements" after he allegedly submitted a false insurance claim for a stolen vehicle.

A defense filing claims the witness, Matthew Dyer, made the fraudulent claim at the same time he was giving false testimony to the FBI.

The government dropped its challenge to the extra podium Monday morning. The judge had not yet ruled on the witness issue.

Originally published on IBJ.com. Indianapolis Business Journal is a sister publication of Indiana Lawyer.
 

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  5. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

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