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.