Bales Trial Underway In South Bend; Only The IBJ Is Covering

The fraud trial of the politically-connected real estate broker, John Bales, that began in a federal courtroom in South Bend yesterday should be big news in the state's largest city and seat of state government. After all, the key man on trial is someone that is oh so close to former Gov. Mitch Daniels and involves charges of serious public corruption in state government. Oddly, or perhaps not, only the IBJ is providing day-to-day coverage of the trial. The Indianapolis Star has had nada, and none of the local TV stations have reporters covering the story. The South Bend Tribune, the only major newspaper in the area of trial, is apparently unaware the trial is taking place a few blocks from its offices. The IBJ's Cory Schouten ticked off a list of names that Judge Robert L. Miller, Jr. read off to potential jurors as jury selection began, which reads like a who's who of Indiana politics and which underscores why coverage of the trial is worthy of media attention:

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.

I'm frankly a bit surprised the trial is taking place after a key defendant, Indianapolis attorney Paul Page, agreed to plead guilty to wire fraud charges and cooperate in the government's prosecution of Bales and his business partner, William Spencer, as well as cooperate with the U.S. Attorney's Office in Indianapolis in an ongoing investigation that reportedly has former Marion Co. Prosecutor Carl Brizzi as one of its targets.

According to the government's case, Bales and Spencer, while acting as the state's exclusive real estate broker for leasing state property, fronted money to a company owned by Page (and perhaps Brizzi) to purchase a building in Elkhart in which they intended to enter into a long-term lease on the state's behalf  with the Department of Child Services. The plan was to have Page flip the building for a quick profit and split the net profits with them, along with repaying the money they fronted for the building's purchase and kicking back the developer's fee and brokerage commission earned by Page to them. The government also says the two schemers shorted the state money it earned from a commission on the lease, which it later paid to the state after the feds launched their investigation.

Bales has hired Barnes & Thornburg top white collar defense lawyer, Larry Mackey, to defend him, along with Jason Barclay of the firm. It's unclear how attorneys for the firm can represent Bales since it was attorneys for their firm who helped hook Bales' company up with the exclusive real estate brokerage agreement with the state and ran interference for them when veteran state employees balked at the company's actions and course of conduct while acting on the state's behalf. Barclay also worked in the Daniels' administration as the Governor's Special Counsel and Policy Director and had intimate knowledge of what Bales was doing on behalf of the state. It's unclear who they're defending: Bales or their law firm? Former Hamilton Co. judge Bernard Pylitt is representing Spencer. Robert Hammerle of Indianapolis represented Page in reaching his plea agreement with the government.

Mackey, who you may recall was the first criminal defense lawyer for Ponzi schemer Tim Durham when government prosecutors in Indianapolis were convinced to drop a civil forfeiture action against Durham before quietly fading away after that fete, told jurors in his opening statement that "there was no scheme to defraud the state of Indiana." "No matter how thin the pancake, there is another side," Mackey said. "Neither of these men did anything wrong or intended to harm anyone."Yeah, just like the "exercise of civic virtue" when Mackey's law firm engineered the awarding of the welfare privatization deal to its client. I'm still shaking my head over the lack of a prosecution by the U.S. Attorney's Office in that case, given that the federal government was snookered out of hundreds of millions of dollars in that debacle. Mackey claims that state officials knew what Bales' company was doing and didn't object to his actions, even though they clearly violated the express terms of his written contract with the state. The sad thing is that he's probably telling the truth. Some of these people who worked for Daniels saw it as their number one priority in state government to help make money for Daniels' political cronies. That's how Keith Bulen taught Daniels the business of politics was conducted back when he worked for his political consulting business back in the early days of Uni-Gov under Mayor Richard Lugar.

According to Mackey, the defendants' actions were based on a plan to save the state money on leases and procure as much money as possible for it from the sale of surplus state property. To hear Mackey explain it, Bales and Spencer were so concerned about getting a state office in place for DCS to protect abused and neglected children that it became necessary to cut corners and even dig into their own pockets to get the deal done. "This was a scheme, frankly, to help," Mackey explained. The prosecutors insist state officials had no idea Bales' company owned a financial stake in the building, and the bank that loaned money to Page had no idea it had fronted Page the money to close on the original loan and mortgage. According to prosecutors, Bales waited more than a year before preparing and recording a backdated mortgage executed by Page in his company's favor to secure his investment in the building, which also violated Page's original mortgage agreement with his lender. Bales and Spencer committed financial fraud on the state and the bank in doing so and then lied about it the government contends. Schouten said the defense plans to call several former state officials to provide positive testimony, including former DCS Director James W. Payne and and Indiana Department of Administration Director of Real Estate Steve Harless. I know. I laughed too!

Schouten says attorneys expect the trial to last through the end of next week. We'll look forward to catching Schouten's ongoing trial coverage.