Legal Issues and State Government and Criminal Charges and Government & Economic Development and Law and Real Estate & Retail and John Bales

Jury: Real estate execs Bales, Spencer not guilty of fraud

February 7, 2013
rop-bales-012813-2col.jpg
This office building in Elkhart is the subject of the legal case against brokers John Bales and Bill Spencer. (IBJ Photo/Jennifer Shepard)

SOUTH BEND — John M. Bales lifted his crossed hands to his face and began to cry Thursday evening as a federal judge read the same jury verdict on each of 13 fraud counts against the real estate broker and his partner: Not guilty.

Sighs of relief turned to sobs among family and friends of Bales and William E. Spencer as U.S. District Judge Robert L. Miller Jr. read the jury's verdict, reached after eight hours of deliberation ended about 5:30 p.m.

As the jurors filed out, a tearful Spencer looked toward the group and mouthed, "Thank you."

Bales also thanked the jury of seven men and five women in a statement sent via his attorneys.

"Few things have brought more pride than the small part I played in helping the children in need," Bales wrote, referring to his role in finding office space for Indiana's Department of Child Services. "I won't let this legal ambush change that. I did not deserve this nightmare and pray that no other citizen suffers what I experienced."

Spencer's attorney, Bernard Pylitt, said in a statement that the evidence was clear Spencer violated no laws.

"It has been a difficult few years for the entire Spencer family," Pylitt wrote. "Shame on the federal government for the harm that this indictment and trial caused."

The jury's verdict followed an eight-day trial in U.S. District Court for the Northern District of Indiana that included testimony from several Indianpolis power brokers and repeated references to a federal investigation that targets former Marion County Prosecutor Carl Brizzi.

Bales and Spencer, both 45 and principals in Venture Real Estate Services, were facing 13 felony counts, including wire, mail and bank fraud. Indianapolis attorney Paul J. Page, who was also charged, agreed in January to plead guilty to one count of wire fraud in exchange for cooperating with federal prosecutors. 

The prosecutor on the case, Assistant U.S. Attorney Jesse M. Barrett, declined to comment after the judge read the ruling Thursday.

The government said Bales and Spencer provided a down payment so Page could buy a building in Elkhart to lease to the state's Department of Child Services, without disclosing Venture's involvement to the state. The government said the deal violated 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 argued the arrangement amounted to a loan.

The defense argued there were no victims in the Elkhart deal, 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. The defense attorneys argued the arrangement was Venture's way of helping the state close a difficult lease deal and help DCS escape a crime-plagued former office.

"This is no scheme to defraud the state of Indiana," defense attorney Larry A. Mackey argued in his opening statement Jan. 28. "This was a scheme, frankly, to help."

The government disagreed: "Bales and Spencer decided to make extra money on a state deal, even though they're not allowed to, and then they hid it," Barrett said in his own opening statement.

The government argued that a fraud scheme led by Bales began to unravel in July 2009 when Page withdrew about $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 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 Real Estate Services. 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 felt that to protect their investment they had no choice but to reveal the partnership with a state landlord, so 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 federal prosecutors had hoped to introduce as evidence in their case.

Judge Miller ultimately ruled that Rankin emails and others from fellow Venture principal Wendy Michael could not be admitted since the government had not met its burden in showing that Rankin and Michael were co-conspirators with Bales and Spencer.

The ruling was a big victory for the defense, but it didn't stop the government from introducing more than a dozen other documents it claimed demonstrated a cover-up.

Barrett wrapped his closing arguments Wednesday by showing the jury poster-size versions of financial statements from Bales and Spencer. The men had submitted the statements to another bank as they considered whether to buy the Elkhart building outright from Page in the summer of 2009.

The transaction, which never materialized, would have been an unequivocal violation of Venture's agreement with the state.

But Barrett told the jury they should focus on the way Bales and Spencer categorized their interest in BAB Equity: Both put it under categories that included other real estate assets. Bales pegged the value of his stake at $290,000, and Spencer said his was worth $51,350.

Witnesses for the government included former Indiana Department of Administration commissioners Carrie Henderson and Mark Everson, state leasing director Steve Harless and former Indianapolis deputy mayor Michael Huber.

Matthew Dyer, Venture's former controller, said he disagreed with Bales and Spencer that the company's involvement in the Elkhart deal amounted to a loan.

"Equity means ownership," Dyer testified. "If it was truly a loan, I would have called it BAB Loan or BAB Mortgage."

The prosecution ended its case with a full day of testimony from FBI Special Agent Brian Percival that included several references to Brizzi, though the parties carefully avoided any reference to his position as a public servant in front of the jury.

The defense led off its case with testimony from former Department of Child Services Director James W. Payne, a long-time juvenile judge in Marion County.

Payne told the jury that Venture 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.

To catch up on all of IBJ's coverage on the Bales trial and Elkhart deal, click here.

ADVERTISEMENT

Recent Articles by Cory Schouten

Comments powered by Disqus