Folks, fasten your seat belts and get prepared for a wild ride. The IBJ's Cory Schouten uncovered years' worth of e-mails totalling in the thousands that shed light on what is increasingly becoming a major public corruption scandal that could permanently tarnish the reputation of Gov. Mitch Daniels and result in more criminal charges against more very high profile individuals on the Indiana political scene. The U.S. Attorney's Office in the Northern District of Indiana's indictment of top Daniels political supporter, John Bales, for defrauding the state on a lease agreement for state office space in Elkhart, Indiana might just well be the tip of the iceberg to rock the Daniels ship.
What emerges from the e-mails Schouten uncovered is a picture of conscientious state employees raising legitimate concerns about Bales' business practices, only to feel threatened with retaliation if they didn't play ball as Bales demanded. A top official in Gov. Daniels own office, Betsy Burdick, whose brother is a partner at the law firm which represents Bales, Barnes & Thornburg, joined in sending less than thinly-veiled threats to state officials who messed with Bales' business dealing with the state. Check out this example of Burdick intervening on Bales' behalf:
The deputy chief of staff for Gov. Mitch Daniels intervened on Bales’ behalf in late 2009 after officials with the Indiana Department of Administration encouraged the state’s quasi-governmental agencies to hire the real estate brokerage Resource Commercial over Venture.
Venture had offered a lower per-square-foot commission rate, but IDOA officials saw the company's attempts to carve out side deals representing quasi-governmental agencies as a conflict with the state deal. It’s not clear whether Betsy Burdick was aware of IDOA's rationale in recommending Resource.
“I hope what I am hearing is wrong with respect to the way IDOA is doing business here,” Burdick wrote on Aug. 28, 2009. “If this is true it is unacceptable and further discussion needs to take place. If what I am hearing is correct—this is not how we do business.”According to Schouten, Bales was less than bashful at throwing out big names that he would involve to assist him if state officials didn't do as he demanded of them. "At one point, a deputy to Bales threatened to call in the chair of the Indiana Republican Party and two partners at the powerful law firm Barnes & Thornburg if the state wouldn’t reimburse Venture for disputed expenses," Schouten writes.
Kevin Ober, the Department of Administration’s deputy commissioner at the time, pushed back when Venture sought reimbursement for more than $200,000 in expenses not pre-approved by the state, as required by its contract.
That did not sit well with Venture.
The firm’s chief financial officer, Greg Rankin, responded with an email threatening to seek intervention by Barnes & Thornburg partners Brian Burdick and Joe Loftus or even J. Murray Clark, then the chairman of the Indiana Republican Party. All three have close working ties to Gov. Mitch Daniels, whose deputy chief of staff is Burdick’s sister.
Ober bristled at the name dropping by Bales’ top deputy in an email he sent to his boss, IDOA Commissioner Carrie Henderson, and the chief of staff to Gov. Mitch Daniels, Earl Goode.Schouten found that Bales was near the center of other embarrassing recent episodes for the Daniels administration for which his role had not been previously disclosed, including the leasing of lavish new office space for the Hoosier Lottery and the growing IURC scandal involving Duke Energy. There's this revelation on the Hoosier Lottery:
In 2010, Venture brokered the deal to move the Lottery into a 35,000-square-foot headquarters at Meridian and 13th streets. Bales earned more than $250,000 in commission on the deal, which ultimately cost Hoosier Lottery Director Kathryn Densborn her job.
She resigned in October amid controversy over lavish fixtures at the new headquarters including an employee gym with $25,000 of exercise equipment.
Bales' commission was based on the project's total value, including the cost of building out the space.
The hiring process at Venture could move quickly if you were related to a top state official.
In October 2009, then-INDOT Commissioner Mike Reed sent an email to top officials at the state, including IDOA Commissioner Mark W. Everson, touting his son-in-law Ben Jones as a “quality individual” with “a work ethic, maturity and desire to be successful not often seen in younger people today.”
Deputy IDOA Commissioner Rob Wynkoop on Oct. 19 forwarded the resume to Bales, noting “this is Mike Reed’s son-in-law. Not sure if you are looking for anybody like this. Everson asked me to forward it on.”
That was at 2:21 p.m.
At 2:55 p.m., Bales responded: “Hiring him.. Call me”
At the time, one of Venture’s assignments was working with the Reed-led INDOT on the disposition of the agency’s surplus real estate.
The records show former Deputy IDOA Commissioner Michael Huber—who joined Bales for happy hour on several occasions and mostly offered support for Venture in emails—at times had reservations about the company’s methods. Huber oversaw the Venture contract from January 2007 to January 2008.
Huber was not pleased, for example, when he heard Venture was pitching the Hoosier Lottery on a tenant-representation agreement outside the purview of its contract with the Department of Administration. The arrangement ran counter to Huber’s mission of consolidating and simplifying the state’s leasing functions.
“I have tried to give your team maximum flexibility and access to the right people throughout state government and want to continue to do so, but we need to make sure that we are on the same page,” Huber wrote in an email to the principals of Venture on Oct. 27, 2007.Whatever reservations Huber may have had about Bales while working in the Daniels administration, it didn't stop him from hiring Bales' firm for a similar sweetheart real estate deal with the City of Indianapolis after Huber left the Daniels administration to join Ballard's new administration as a top official. Huber was tapped by Barnes & Thornburg's Joe Loftus to join the Ballard administration, who likely ordered Huber to ink the deal with Bales, one of his clients. Loftus, Bob Grand and others at Barnes & Thornburg have dictated to Ballard who is hired for key jobs with the city.
Grand and Loftus, who exercise considerable influence in the Daniels administration, are also paid advisers to Ballard. The law firm firm has been awarded millions of dollars worth of legal work with the city since Ballard took office four years ago. Barnes & Thornburg's clients have also been the beneficiaries of sweetheart deals with the city, including the 50-year parking meter lease with ACS, a firm Barnes & Thornburg has long represented in business transactions with the state and local governments in Indiana. The firm helped lobby the Daniels administration on behalf of ACS to land the controversial welfare privatization deal with FSSA. When the lead partner's contract in that deal, IBM, was nixed by the state, ACS was allowed a continuing contractual relationship with FSSA. Incredibly, Gov. Daniels hired the law firm to represent the state in a lawsuit with ACS's former partner, IBM, despite the firm's obvious conflict of interest.
The City of Indianapolis later cancelled its contract with Bales for failing to perform according to Huber. It is more likely the deal was nixed after the Ballard administration was tipped off that Bales' activities were being investigated by the FBI. Bales is represented by another Barnes & Thornburg partner, former Justice Department prosecutor Larry Mackey, in the criminal case the federal government has brought against him. Naturally, Mackey insists his client is innocent. Given the law firm's ties to the corrupt deal that led to the indictment, federal prosecutors should ask that the firm be disqualified from representing Bales in this criminal case against Bales. At least that's what the rules of professional conduct dictate, but as we've seen with the firm's representation of the state in the FSSA litigation, the rules don't seem to apply where Barnes & Thornburg is concerned. One particularly troubling aspect of Schouten's story is a claim by another Barnes & Thornburg attorney representing Bales, Jason Barclay, that the state gave its blessings to Bales having an ownership interest in the Elkhart office building he brokered for the Department of Child Services after he first disclosed it to them. That contradicts the express terms of Bales' exclusive real estate brokerage agreement with the state.
The e-mails Schouten uncovered showed that Bales' small company was incapable of handling the many leasing matters it had on its plate. One e-mail suggests Bales had involved another firm on his own to aid with his work. Other e-mails show that Bales played hardball with prospective landlords, insisting that he earn 100% of the brokerage commission and not split them with the landlord's broker as is the standard practice when both parties are represented in a leasing transaction by a broker. Bales would tell prospective landlords deals with them wouldn't happen unless they agreed to let him receive 100% of the commission. Quoting a 2008 email exchange between a state official and one landlord: “Requiring us to pay an intermediary that we do not choose or lose the contracts seems like extortion.” Schouten found e-mails where senior administration officials had shared their concerns about Bales with Daniels' top deputies. “I don’t discount the effect hard bargaining can have on one’s perception of the other side,” John Okeson wrote. “That said, how any ‘agent’ of the Governor handles a matter reflects directly on him, so I thought it important to forward what I’m hearing to you for consideration.” Okeson died suddenly a year later after a brief illness. His brother, Paul Okeson, served as chief of staff to Mayor Greg Ballard before joining Ersal Ozdemir's Keystone Construction, which has received a number of sweetheart real estate deals with the Ballard administration, including a controversial parking garage for Broad Ripple that includes a $6.3 million gift of public funds to the company. Keystone and Bales' firm have also partnered on many deals.
Schouten also wonders if campaign contributions have not played a role in Bales' success in landing business with the Daniels administration. Earlier reports suggested Bales had given as much as $31,000 to Daniels' campaign committee. A more thorough research of other entities controlled by Bales reveals that he gave $52,000 from 2003-2008. It once again points up the role Pay To Play has in Indiana. Neighboring Illinois has seen scores of officials and and political insiders prosecuted for honest services fraud and other public corruption crimes by federal prosecutors, while federal prosecutors in Indiana, particularly in the southern district, have seldom brought such cases despite the prevalence of these activities. Many observers were surprised that the indictment against Bales was brought by the northern district's federal prosecutor instead of U.S. Attorney Joe Hogsett in Indianapolis since the state agency involved in the transactions with Bales is located here.
Hats off to Schouten and the IBJ for once again demonstrating to us how good investigative journalism should be conducted.