SOUTH BEND — Federal prosecutors rested their fraud case against Indianapolis real estate broker John M. Bales and partner William E. Spencer on Monday after a full day of testimony from FBI Special Agent Brian Percival that included several references to former Marion County Prosecutor Carl Brizzi.
The defense opened its case Tuesday by calling former Department of Child Services Director James W. Payne, who worked with Bales and Spencer in 2007 and 2008 as they brokered lease deals for new DCS offices around the state. The trial in U.S. District Court for the Northern District of Indiana could go to the jury as early as Wednesday.
Prosecutors say Bales and Spencer secretly provided the down payment so Indianapolis attorney Paul J. Page could buy a building in Elkhart to lease to the DCS. The government says the deal violates an agreement between Venture Cos. 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.
Page agreed in January to plead guilty to a single wire fraud charge and cooperate with the government both on the Northern District case and a Southern District investigation that targets Brizzi, who has not been charged and has denied wrongdoing.
Brizzi's name came up several times in court Monday, though the parties carefully avoided any reference to his position as a public servant in front of the jury, to comply with an order from U.S. District Judge Robert L. Miller Jr.
During its cross-examination of Percival, the defense introduced the operating agreement and an amendment for L&BAB LLC, which owned the Elkhart building, making the documents public for the first time. The original agreement, dated Feb. 22, 2008, shows Page as the building's sole owner.
But an amendment executed Dec. 24, 2008, shows Page added Brizzi as a 50-percent owner as of Feb. 22. Page, a defense attorney who dealt with Brizzi's office on dozens of cases, told IBJ in 2010 that Brizzi did not invest any money or take out a loan for the ownership stake. The FBI investigation is looking at whether Brizzi's side business dealings, including in Elkhart, influenced his actions as prosecutor.
Defense attorneys in the Bales and Spencer case also made apparent reference to the Brizzi investigation as they questioned Percival about an FBI surveillance operation.
Spencer attorney Bernard Pylitt asked Percival whether FBI agents who followed Bales were looking into concerns about "criminal activities involving other individuals."
"That's correct," Percival said.
The judge declined to admit as evidence a government exhibit consisting of an e-mail conversation between Brizzi and Spencer. The December 2008 e-mail suggested Venture was arranging for Brizzi to take an interest in the Cafe Patachou-anchored shopping center at 49th and Pennsylvania streets in Indianapolis.
In the e-mail, which Assistant U.S. Attorney Jesse Barrett read aloud but did not display in court, Spencer tells Brizzi: "Don't worry. I will not let Bales pick the name of the entity."
Spencer was referring to Bales' selection of the name L&BAB LLC for Elkhart, which apparently stands for "lazy and broke-ass bitch." For the exchange, Brizzi used his campaign e-mail account, including a "Brizzi for Prosecutor" signature line.
Percival, who joined the FBI in 2005, was noticeably nervous on the stand. He said it was his first white-collar case to go to trial and his first time testifying in a criminal case.
Among the evidence the prosecution asked him to introduce: summary documents showing the money transfers involved in the Elkhart deal, photos of the building, and a chart showing more than 750 cell phone calls and text messages between Bales and Page between January 2008 and March 2010.
Percival also discussed several e-mails, including messages from Venture partners Greg Rankin and Wendy Michael in which they seek to conceal Venture's involvement in the Elkhart deal. Neither has been charged with a crime.
Bales attorney Larry Mackey begin his cross-examination by jokingly asking Percival not to start talking in Spanish or Portugese, languages he has learned as an agent.
"If you promise not to yell at me," Percival quipped, referencing earlier cross-examinations by Mackey.
Mackey and fellow defense attorney Bernard Pylitt didn't yell, but they did not give Percival a pass.
They got him to acknowledge he's new to white-collar cases, doesn't understand complex real estate transactions and did not subpoena bank records from the actual L&BAB account, which has handled more than $1 million in transactions including $150,000 in outflows to Paul Page and family members.
Mackey noted it was the defense that first dug into those transactions. Percival responded that the FBI found everything it needed by looking at the bank accounts of individual players.
Percival said the FBI opened the case against Bales and Spencer in January 2010, and he took over as case agent in 2011. He said six or so agents have worked the case. The FBI did not use wiretaps on Bales or Spencer.
A couple of Percival's answers seemed to bolster the defense case. He said the government has not been able to quantify a financial loss to the government or bank that loaned the rest of the purchase price to Page. The state and bank are considered the aggrieved parties.
Later, he said "no" when asked by Mackey whether John Bales "owns" 1659 Mishawaka St. in Elkhart, and repeated the same answer about Bill Spencer when asked by Pylitt.
Mackey introduced a document showing a calculation of potential profits to Venture on the building had been overstated, meaning the building would have to sell for $2 million or more for Venture to make money. Mackey asked Percival whether he would have bought the building for $2 million.
"I wish I had that kind of money," Percival answered. "I'm just a public servant operating on a basic salary."
Mackey asked whether he'd buy it if he won the lottery.
"I would hope I would have much better things to spend on than a building in Elkhart," Percival said.
The prosecution rested at about 4:20 p.m. Monday, and the judge dismissed the jury. Shortly thereafter, the defense filed a routine motion for acquittal, arguing the government did not produce enough evidence to prove the 13 charges, including bank, mail and wire fraud.
The judge on Tuesday denied a portion of the defense's motion to acquit and withheld judgment on another portion, but he handed the defendants a big victory when he ruled several e-mails sent by Venture partners Rankin and Michael cannot be admitted as evidence.
He said the government had not met its burden to show Rankin and Michael were co-conspirators with Bales and Spencer, and barely met its burden with the defendants.
The prosecution has the burden of showing the judge a preponderance of evidence supporting a charge, but the jury has to consider the more-stringent "reasonable doubt" standard.
To catch up on IBJ's coverage of the Bales trial and Elkhart deal, click here.