Last updated on 2017-07-25
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.
Auditors? Eide Bailly took a very narrow look at Mid-Central’s GEAR UP ledger last fall and found nothing wrong. Schoenfish and Company of Parkston (where Rep. Kyle Schoenfish works) audited Mid-Central’s books for at least eight years. Neither organization blew any whistles about the blatantly obvious misalignment of monthly ending and beginning balances that went on for at least nine years and that appear to be the central evidence of the Westerhuises’ embezzlement.
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.
Just look at who is sitting their fat butt on a video lottery stool all evening long from MCEC. That’s one way to follow the money.
The backdating of contracts indicates that Rick Melmer and Keith Moore may have been working without contracts. Melmer apparently just had an unsigned letter advising him of duties. Without work logs it looks like Moore may not be able to prove what work he did.
If there is no written agreement with Melmer and Moore showing what work they were to do for what rate of pay, and they can’t document what actuall work they did they may have to return some of the money they received. That is, if the state decides to hold them accountable. But this would likely be a civil matter – not criminal.
Call the Feds,indict the entire wingnut party going back 10 years and threaten them all with the death penalty. You will find out quick who wants to throw the rest under the bus. Pardon those at the bottom and jail the rest for life.
So an unpaid researcher named Cory finds documents online and sees “something wrong” with the accounting at these organizations? But the paid accountants who have the documents in front of them can’t see anything wrong with the accounting?
W? T? F?
Jenny—good point. Perhaps the first point of contact in any corruption investigation in South Dakota should be the local casino manager. Perhaps, since video lottery is taxes, we should require every video lottery player to sign in so we can track how much they pay into the system.
Ror, if you ask me to do work for you, and I do it, and you give me money, but we never sign a contract, aren’t you pretty much SOL in any effort to get me to give that money back?
Let this be a lesson, kids. Stephanie Hubers was just a mild-mannered bookkeeper who received an extra $880/month for a total of $55k. Phelps, with the help of Guericke, Scott and Nicole, was the ultimate mastermind behind the situation. He managed to dish out over $100k to his family alone; that doesn’t even count what he got paid. Yet, it is Hubers who is facing the stiffest penalty. Crime doesn’t pay. Well, it does for a while until you get caught.
Bob, bingo. A lot of people a lot closer to the complete information let one guy say one line—”voided checks and journal entires”—and miss the story. Incredible. Their deniability is barely plausible.
And imagine what I could do if I had a staff. :-)
Jackie, it is interesting that Hubers is the only one facing grand theft charges. Should we expect more grand theft charges agains Phelps and folks on the AIII side?
I would think most ‘mild-mannered’ bookkeepers would have been too ‘mild-mannered’ to deal with such corruption going on and ran the hell away from MCEC. After the anxiety attack then call the police, hire a lawyer, something! I can’t believe Jackie actually is justifying this!
Oh, it’s just grandma’s checkbook. She never checks it anyway.
Cory, if I am reading this correctly about Rick Melmer rolling the first marble in the mousetrap while he was Education Secretary under Mike Rounds, the action seems to be remarkably similar to what Joop Bollen did with the agency handling millions of EB-5 investments. He took a function out of direct supervision by state officials and made it less transparent and easier to access for illicit purposes. I wonder if this was going on about the same time that Bollen and Benda, another Rounds cabinet member, were setting up their scam operation. If so, that’s quite a coincidence that two Rounds cabinet members were setting up federal programs to be milked off-site from Pierre.
Cory,
What was it Melmer and Moore were supposed to do exactly? What work did they actually do? They may not have done any. There is no contract unless both parties agree what is to be done and both parties perform.We don’t know that there was ever a meeting of the minds between whoever paid them and Melmer and Moore. Where does it say what they were supposed to do? If there was an agreement as to work, we don’t know that they performed their duties. Hubers got pay she wasn’t entitled to, and she’s going to be ordered to give it back.
Melmer and Moore are higher up the food chain and more politically connected than Hubers. They may be immune from prosecution, or maybe the bigger they are the harder they fall.
Possibly the small fry Hubers is facing the toughest charges in an effort to get her to talk and testify to everything she knows in an effort to catch bigger fish.
There is a long laundry list of “administrators” in the seven firms that Westerhuis developed. They should all be interviewed. AIII was only one.
I presume MCEC has a board. What is their fiduciary responsibility to the coop?
Their denial is plausible. “I had my eyes shut when I checked the accounts.”
How can you argue with that?
That Schoenfish accounting firm that audited the books ought to be held accountable (no pun intended).
Really. I’d say that Schoenfish is vulnerable in his reelection campaign as a result.
None of those on the hot seat are politically connected to any extent that Jackley was willing to turn a blind eye like he was with the EB5 corruption banquet.
Great point about the Schoenfishs, who was it they had auditing them? Ray Charles? ?
I agree this wholesale fleecing of funds doesn’t happen without the complicity of state-sanctioned auditing firms.
https://dakotafreepress.com/2015/09/22/platte-family-dies-by-shotgun-not-house-fire-father-managed-accounts-for-audit-flagged-ed-coop/#comment-17582
I wonder if Melmer met with Westerhuis on Wednesday night (9-16-15) when he was passing through Platte as mentioned in his email to Scott & Dan? If so, he was probably the last person to see him alive if they met after Scott got home late coming back from Takini.
96—the parallel is important. The timeline doesn’t align perfectly, but it all happened under Rounds.
Per Mercer’s excellent timeline, DTSD applied to get in on EB-5 in May 2003. Joop expanded the project scope in 2005 and 2006. Rounds appointed Benda to head DTSD April 6, 2006. The Darley monkey business began in 2007. Joop incorporated SDRC Inc. in Jan 2008, then fully privatized his state job in Dec 2009. In December 2010, Rounds signed Future Fund Grant #1434, which became Richard Benda’s golden parachute.
Melmer and DOE landed the first GEAR UP grant in 2005. Hubers told investigators that the Westerhuises were stealing money from Mid-Central through their affiliated corporations from that point on.
Do we have a pattern of state officials looking for federal grants to pick over for profit for friends?
Cbass: Holy cow! Your question provokes me to reread the Melmer email. You noticed a detail that no one mentioned in yesterday’s press conference. “I’ll be traveling through Wednesday night,” writes Melmer. Wednesday night is September 16. Wednesday afternoon, Melody Schopp told Mid-Central the jig was up. Wednesday night, Scott Westerhuis was racing home from Takini, engaging in some seriously distracted driving.
Now if someone tells me that Rick Melmer was driving a white pickup truck, the game is afoot.
Mr. Melmer, where were you on Wednesday, September 16, 2015, from 12 p.m. to midnight?
Nick, that’s a sensible point. Hubers could be the most likely to crack. She’s also quite possibly the only person alive with direct knowledge of the cooked books. She could be the key state’s witness, the person who can facilitate moving beyond these initial charges to whatever comes next.
Ror, I do not know what work Melmer and Moore were supposed to do. I’m not sure anyone does.
Disgusted Dakotan, let’s not insult Ray Charles. ;-)
Steve! Good memory! Steve was on top of some key questions the moment the GEAR UP scandal erupted:
—Did Schoenfish and Company simply miss these errors?
—Could Schoenfish and Company have closed their eyes and mouths to errors to protect their contract to keep doing audits?
—Could Scott Westerhuis have given the auditors some extra motivation to look the other way?
—Whether the auditors’ failure to notice such gross financial misconduct was accidental or deliberate, what legal responsibility could the auditors bear for not catching those grave errors and bringing them to the attention of law enforcement?
Did anyone think it was odd that in Marty Jackleys interview with Angela. ..he called Stephanie Hubers the “witness” and not the “defendant”? He said..I will use the wordsame that the “witness” used in regard to the keeping “quiet”.
Moore and Melmer defrauded a federal program
Felony.
Seiler do your job.
Jackley, leave the priest home when you announce criminal charges against people.
Schoenfish n Schopp have blood on their hands. Soft shoeing around the “bigwigs” embezzling for years.
Edie Bailly… “there’s nothing wrong here”
Can we also please have the state release the phone records of who Westerhuis was in contact with on his trip home from Takini? Surely this info would provide clues as to who his key accomplices were above him in the food chain in the fleecing of grant monies. It could also potentially reveal the individual who he threatened with public disclosure of the higher level criminal conspiracy unless the audit heat was removed thus leading to the tragedy that night.
Witness rather than defendant—yes, that does seem an important distinction.
Jenny –
I am not justifying this. I was being sarcastic. I think it is a crock that that Phelps, who paid at least 10 of his family members plus himself, has the lesser of the charges. Hubers charges are legit for what she has done, but Phelps, the mastermind, is not facing the same level of serious charges that Hubers is.
as suggested above by JJR, follow the money/political connections. I’ll bet it didn’t begin and end with Westerhuis killing and burning down his beautiful dream.
The fact that Melmer gave the Gear Up contract to Mid-Central, then he and Keith Moore both served as “consultants” for Mid-Central is an extreme demonstration of quid pro quo. Melmer admitted his wife found a letter outlining the duties he would have. First of all, if Melmer were actually performing any duties that he was being paid for, wouldn’t one assume that he’s a big enough boy to keep track of the document that explains what those duties are? And second, if he knew what duties he was to perform, but can’t prove that any of those duties were actually performed, shouldn’t he (and Keith Moore) be made to pay back the money they received? Come on, Marty Jackley, let’s see you crack this case wide open and lead SD to the open and honest place that it could and should be…if only there were an actual checks and balances in place.
Just saw John Thune in Aberdeen last night at the state basketball tournament sitting two rows in front of me. Sitting next to him was his buddy and partner in crime, Keith Moore. What’s the old saying? We should judge someone by the company we keep. It doesn’t seem to bother Thune one bit that his buddy, Moore, is involved in a major scandal and may soon be indicted.
It might bother Marlboro Barbie if SD’d AG was iowa’s Tom Miller. It might bother a whole bunch of pols and whole bunch.
Thune and Moore together in Aberdeen? Wow! How long have they been pals?
maybe keith’s wife works for his consulting business and thus his higher overhead billed to GearUp/MCEC ect is justifiable (so he can pay his wife in addn to his day salary and his moonlighting consulting to the tune of $500,000 in a given period of time), was it?
rick, not keith, I guess
LK, make Melmer and Moore pay their money back? That would require either a new MCEC board to review the contracts, determine breach, and make that demand (and what’s the statute of limitations? did MCEC forfeit any such claim when it wrote paychecks to Melmer and Moore?) or action by the feds on breach of GEAR UP grant conditions… although the feds might not reach al the way to subcontractors like Melmer and Moore; they might just go after the primary grant recipient (although, uh oh! MCEC doesn’t have enough money left to pay back any major settlements!).
And remember, the feds have yet to make any announcements and file any charges.
how in the hell did westerhuis get this job?
angela said last night something about the state all implementing tremendous checks and balances starting next year. plenty of warning to get all those other contracts, letter agreements, policies signed, implemented, and/or backdated, Regents, NSU, GOED, ect. cya republicans! u have been warned:) daugaard means business (wiping egg off his face)!!
oh, corporations are just people, buuuuuuut, corporations provide limited liability so, if the corp has few remaining unscorched assets, the “people” part of the corporation, incorporators, shareholders, officers, protected by the charter’s umbrella, get a buy.
freedom of speech for corporations YAH!!!!! (citizens united, hobby lobby [sorta] and scalia). end of an era??
I hadn’t realized politics could be such fun.
I have an idea for republicans. politicize SCOTUS. politicize state governments. associate all republican attys genral and freeze the nation in politics of abortion, deregulation, climate denial, god ect., ect., ect. own all assets in the world. greaaat!
oh, they’ve already done that? oh, I know, dems are just as bad. riiight.
Funny you say Moore and Thune were together at the 2016 State Basketball Tournament in Aberdeen. I saw them together at the Brandon Valley vs Riggs State Championship in March of 2013. Birds of a feather, flock together. Is Thune involved? If so, is there any end to how high up this goes? Interesting that Moore is still the State Director of the Fellowship of Christian Athletes. Wow.