A grand jury in South Bend has returned a 14-count criminal indictment against Indianapolis real estate broker John M. Bales and two associates over a state lease deal in Elkhart first revealed as part of an IBJ investigation.
The complaint alleges Bales, his partner and general counsel William E. Spencer, and Indianapolis developer and attorney Paul J. Page defrauded the state and an unnamed bank.
The charges, brought by the U.S. Attorney for the Northern District of Indiana, include eight counts of wire fraud, three counts of mail fraud, one count of bank fraud, and one count of conspiracy to defraud. Page was also charged with one count of making false statements to influence the actions of a bank.
The state hired Bales' firm, Venture Cos., in 2006 to handle leasing for state agencies in a contract that explicitly banned Venture and its partners and employees from “any ownership interest” or any “attempt to acquire” properties to be leased by the state.
But as IBJ reported last year, the politically connected real estate broker over the years has acted as a developer for several public-sector tenants he represents—putting government agencies into buildings he owns or those owned by his friends and associates.
The indictment points to one transaction in particular that prosecutors allege ran afoul of Bales' agreement with the state: A lease deal in Elkhart for the state's Department of Child Services in a building jointly owned by Page and former Marion County Prosecutor Carl Brizzi. The government has not charged Brizzi.
According to the indictment, Page bought the office building without putting up any cash through a company called L&BAB LLC, then leased it to the state's Department of Child Services. Page put up $361,000 in cash for the property, which had been wired from Bales' account under an entity called BAB Equity.
"Page promised to repay BAB Equity and to give it 25 percent of the profits when the Elkhart building was resold, even though Bales and Spencer could not have any sort of ownership interest in the building and even though Venture told the state that it would only be compensated through commissions," U.S. Attorney David Capp said in a statement.
The indictment alleges that Page also borrowed $531,000 from a bank without disclosing he wasn't investing his own money in the deal.
Venture was paid an $88,400 commission on the lease deal, then took more than a year to rebate $22,100 to the state as required under its deal. The firm also received a $28,875 broker's fee and a $22,700 development fee, the indictment alleges, "even though it told the state it would only be compensated through lease commissions."
Barnes & Thornburg Partner Larry Mackey, who is representing Bales, said in a statement late Wednesday that he's confident Bales will be exonerated.
"We caution against a rush to judgment," Mackey wrote. "John Bales is a good, ethical businessman and we welcome the opportunity to demonstrate throughout these proceedings."
The charges follow an FBI investigation that lasted more than a year.