Stacy Phelps ate out a lot on GEAR UP’s dime. So suggest the exhibits attached to Attorney General Marty Jackley’s notice filed this week in State v. Phelps, one of three felony cases he’s prosecuting in the Mid-Central/GEAR UP scandal.
Consider Exhibit 2, which shows aggregate totals spent at dozens of restaurants and stores by Phelps using money from his American Indian Institute for Innovation, the corporate entity Phelps and Mid-Central business manager Scott Westerhuis appear to have set up to conceal their use of public dollars for personal use. Here’s that exhibit in edited one-page form:
Squint at the maddeningly fine print showing just the restaurant expenses (left column, plus lighter pasted block at bottom right), and you’ll see $87,647.15 in dining expenses accumulated in 812 visits over four years (October 2011 through September 2015). Phelps spent $108 every other day taking people out to eat or ordering take-out for staff and GEAR UP students.
Even if we strike the four largest line-item expenses for what appear to be food for students at the GEAR UP summer program (Dave and Busters, Golden Corral, Little Caesar’s, and Subway), we are still have over $45,500 spent on 712 dinings out. That’s an average of $64 dollars spent on 49% of the days in the period covered by the listed expenses.
The expense summaries submitted to the court by A.G. Jackley do not indicate how many of those dining out on AIII/GEAR UP dollars were current or former state officials.
The American Indian Institute for Innovation is getting $455,000 from the Cheyenne River Sioux Tribe to run the Takini school. But not for long:
We’ve learned that after felony charges of faking evidence were filed by the state in the GEAR UP investigation against Stacy Phelps, the Cheyenne River Tribal Council has made a motion to terminate its contract with AIII to run Takini school. The Tribal Council will vote on it next week [Angela Kennecke, “Tribe Takes Step to Cancel Contract with AIII,” KELO-TV, 2016.03.29].
AIII has taken over three South Dakota schools: Takini, Lower Brule, and Wounded Knee. The GEAR UP scandal may unravel all three of those takeovers and call into question the wisdom of privatizing Indian education. But let’s watch closely to see whom the Cheyenne River Sioux Tribe picks to run Takini.
Following up on a 2015 Human Rights Watch report alleging massive corruption on the Lower Brule Sioux Reservation, the Justice Department’s Office of the Inspector General reported last week that Lower Brule tribal officials misspent at least $938K out of $2.7 million in grants that the Justice Department intended for crime prevention, victims’ needs, drug courts, and other reforms. Human Rights Watch contends the losses to corruption may be more on the order of tens of millions across a variety of federal programs, including education.
There have been several million dollars diverted out of school funding at Lower Brule and as a result they had to go into restructuring which is a federal requirement when you have really low school performance. And so they hired AIII Stacey Phelps, which at the time was the head of AIII, and Scott Westerhuis was the COO. So they (Lower Brule) brought in AIII to manage Lower Brule schools and that had been going on for about two years.
According to Ganesan, the chairman of the Tribal Council, Michael Jandreau, and his ruling majority have held power for more than 30 years. Ganesan says the financial dealings were undisclosed while education, safe water and other programs that were to be financed through grant money clearly suffered [Beth Warden, “Gear Up, Westerhuis and Phelps Role in New Government Report,” KSOO Radio, 2016.03.29].
Ganesan doesn’t tie any fund diversions directly to AIII. He tells Warden that the money trail he’s seen so indicates the Lower Brule tribe diverted federal grant money to its general fund and spent it on items that haven’t been fully explained. Listen to Warden’s full 12-minute conversation with Ganesan below:
In his Platte press conference yesterday, Attorney General Marty Jackley said the charges he was bringing against Dan Guericke, Stacy Phelps, and Stephanie Hubers (Guericke and Phelps: conspiracy and falsification of evidence; Hubers, grand theft) were “initial” charges. The conspiracy charges refer to Guericke, Phelps, the deceased and accused embezzlers Scott and Nicole Westerhuis, and “other unknown co-conspirators.” In her February 16 interview with DCI agents, Hubers, who took illegal payments from Scott Westerhuis from 2009 through 2014 totaling $55,339.49, alleges that two assistants received similar illegal payments. According to Hubers, one assistant asked for more money, and Scott Westerhuis acquiesced to keep that assistant from squealing to Guericke.
Attorney General Jackley has more leads to follow and more shoes to drop. On whom migh those next shoes fall?
Other Mid-Central staff? The top three business personnel in the Platte office have been implicated in theft of hundreds of thousands, perhaps a million dollars. If the Westerhuises weren’t dead, they could both have face charges of aggravated grand theft, the highest classification of theft, a Class 2 felony worth up to 25 years in the pen. Hubers says Scott Westerhuis gave her stolen money laundered through his GEAR UP-managing corporation AIII because he felt “she was worth more than what MCEC was paying her” (DCI Special Agent Brett Spencer’s words, Probable Cause Affidavit, State v. Hubers, paragraph 44). Hubers’s statement implicates two other Mid-Central staffers; might the Westerhuises have sprinkled more of their sizable ill-gotten gains to other Mid-Central staff to win goodwill and tamp down questions?
Other AIII staff? Unless Stacy Phelps was handling all the books for the American Indian Institute for Innovation himself, someone else had to be processing the illegal transfers from Mid-Central. Scott Westerhuis acted as chief financial officer for AIII, but their 2013 Form 990 lists the following board members and employees:
One would imagine that if DCI hasn’t already included the above AIII players in its 65 witness interviews, those folks will be hearing knocks on their doors shortly.
Rick Melmer? Rick Melmer drew big dollars from Mid-Central for still unspecified work on GEAR UP and when pressed gave shaky answers about those payments. Guericke’s charges include falsifying Mid-Central’s contract with Melmer just two days before the state canceled Mid-Central’s GEAR UP contract and just three days before Scott Westerhuis allegedly torched his embezzlement-funded house and killed his family and himself. In the somewhat Swiss-cheesy narrative of his probable cause affidavit on Guericke, Special Agent John Barnes does not nail down Melmer’s involvement in backdating his contract. The charges say that Scott Westerhuis sent an e-mail to Melmer on September 14, 2015, at 3:37 a.m. (Westerhuis apparently wasn’t getting much sleep that week) saying, “Hi, Rick, this is what the original one would have looked like.” Melmer replied at breakfast:
That e-mail seems to walk Melmer to the edge of awareness of, if not participation in, the conspiracy. He didn’t like what he was hearing from Westerhuis, but the text only indicates that he was concerned that Mid-Central couldn’t find the original contracts, not that he felt he was being asked to help create a bogus, backdated contract. Special Agent Barnes does not say Melmer signed anything on September 14. Even if he did, he might not face charges: former Mid-Central board chairman Lloyd Persson signed the bogus contracts a few hours after the Westerhuis-Melmer exchange, and Jackley indicated at yesterday’s presser that Persson won’t face charges.
But recall the bigger picture. Melmer rolled the first marble into the whole GEAR UP/Mid-Central/AIII Mousetrap when, as Mike Rounds’s Secretary of Education, he steered GEAR UP responsibilities back to his home folks in Platte. Instead of keeping a big important federal grant under close supervision in Pierre, Secretary Melmer thought it would be a good idea to move supervision of those millions of dollars 135 miles away from the capital, to a co-op designed to provide special education services to small neighboring school districts which now would coordinate a statewide outreach program for Native American students. Farming GEAR UP out to Mid-Central wasn’t criminal, but it allowed Scott Westerhuis to hatch a criminal enterprise in which a number of people, possibly including Melmer himself, got tax dollars that they didn’t earn.
Keith Moore? Mike Rounds’s past director of Indian education and the current head of the South Dakota Fellowship of Christian Athletes figures in the Guericke charges just like Melmer: Guericke allegedly conspired to backdate Moore’s contract with Mid-Central just like Melmer’s to comply with the state audit in September 2015. The charges and affidavit provide no e-mails or other details from Moore. But like Melmer, Moore cashed in on Mid-Central contracts and gave vague answers about the work he did. Like Melmer, Moore failed to submit some work logs (an alarming fact that Bob Mercer reported way back in May 2015, before any of the rest of us were paying attention). Melmer and Moore said they were never asked to fill out work logs, which sounds exactly like what Stephanie Hubers says in paragraph 56 of Special Agent Brett Spencer’s affidavit: “Your affiant asked if Hubers had to fill out effort logs and she said that she did not. Hubers says she was never asked to fill out effort logs.”
Melody Schopp? Our current Secretary of Education has said she saw “incompetence” in Mid-Central’s bookkeeping in 2012. She responded with “technical support.”
The GEAR UP/Mid-Central/AIII criminal enterprise went on for at least ten years. Secretary Melmer and Secretary Tom Oster apparently noticed nothing. Secretary Schopp didn’t notice anything fishy until her second year in office. She didn’t cut Mid-Central off until three years later.
Rep. Lance Russell called on Secretary Schopp to resign back in November over her lack of oversight. We now have the Attorney General confirming that that lack of oversight cost the taxpayers as much as seven figures. Whatever further questions the Attorney General may have for Secretary Schopp and her staff, the primary question taxpayers and the Governor should have for Secretary Schopp is, “Why are you still drawing a state paycheck?”
The PAST Foundation? This Ohio-based organization is among the numerous players in AIII’s long-standing scheme to build an American Indian boarding school focused on STEM education. The PAST Foundation received the third-largest chunk of GEAR UP funds from Mid-Central during the last two years of the scam. The PAST Foundation, headed by USD grad Annalies Corbin, has also worked on Mid-Central’s Teacher Quality grant program and the South Dakota Innovation Lab. The PAST Foundation, like every other big-money Mid-Central partner, should now face serious scrutiny as the Attorney General tries to nail down where every dollar that passed through the Mid-Central office went, how many of those dollars went for legitimate expenses, and how many of those dollars went to friends of Scott for no good purpose.
I’m sure you readers can identify numerous other GEAR UP/Mid-Central players who may figure in the big picture of the vast Westerhuis scheme. Let us hope Attorney General Jackley continues to talk to those players and assemble the complete narrative of what went wrong in Platte and in Pierre.