Nonprofit official goes to trial in contract backdating case

October 2, 2018

FILE - In this March 22, 2016, file photo, Stacy Phelps leaves his initial appearance at the Charles Mix County Courthouse in Lake Andes, S.D. The former South Dakota nonprofit official accused of trying to avoid a potential state audit is heading to trial, capping an explosive multi-year case sparked after the nonprofit's financial officer killed his family and then himself. Jury selection begins Wednesday, Oct. 3, 2018, in Sioux Falls the former American Indian Institute for Innovation CEO, who prosecutors allege signed backdated contracts with a Platte-based educational cooperative to avoid a potential audit of the nonprofit Institute and scrutiny over his spending at the organization. (AP Photo/James Nord, File)

SIOUX FALLS, S.D. (AP) — A former South Dakota nonprofit official accused of trying to avoid a potential audit is heading to trial, capping a years-long case that began when the nonprofit’s financial officer died in a 2015 murder-suicide.

Jury selection begins Wednesday in Sioux Falls for former American Indian Institute for Innovation CEO Stacy Phelps, who prosecutors allege backdated contracts with an educational cooperative to avoid a potential audit of the nonprofit and scrutiny over his spending.

Phelps is the second and final defendant to head to trial in what prosecutors have dubbed the Gear Up case. It’s named for a grant program caught up in the complicated scandal. Here’s a look at key details about Phelps’ trial:



The trial comes more than three years after the nonprofit’s chief financial officer, Scott Westerhuis, shot his wife and their four children, set fire to their home and then killed himself in September 2015. Authorities have said they believe Westerhuis and his wife, who both also worked at Mid-Central Educational Cooperative, stole more than $1 million before their deaths.

It was against that backdrop that Phelps and two others were indicted in 2016, but Phelps isn’t charged with theft or participating in Westerhuis’ embezzlement scheme. Prosecutors allege Phelps backdated two contracts between Mid-Central and the nonprofit Institute in August 2015 before they were made available to legislative auditors.

Prosecutors contend Phelps wanted to deflect scrutiny from the nonprofit because he’d misused the organization’s funds for meals at steakhouses, electronics and other personal expenses.

“Because of his unauthorized spending, Phelps had as much motive as Westerhuis to avoid an audit, and therefore, as much motive to alter the contracts as Westerhuis,” prosecutors claim in a court record.



Judge Bruce Anderson has issued rulings ahead of trial that could complicate prosecutors’ case. That includes a decision blocking the state from claiming that Phelps’ motive was to keep the nonprofit’s board members from becoming aware of his spending.

Anderson also excluded records of Phelps’ alleged misspending from being used at trial, although he held open the possibility he might decide to allow it if the state provides “substantial evidence” the funds were used inappropriately.

Anderson wrote that the evidence shows “most of these invoices and expenditures were for legitimate business purposes.” 



Phelps, 45, has pleaded not guilty to two counts of falsifying evidence and two counts of conspiring to offer forged or fraudulent evidence. He faces a maximum sentence of two years in prison and a $4,000 fine per count.

“The defense contends that the evidence will prove that Mr. Phelps had no intention to defraud or cheat anyone, and in fact no one was defrauded or cheated by any of his actions,” said Phelps’ attorney, Dana Hanna.



Prosecutors have achieved split outcomes against the two other people accused in the case. Former Mid-Central Director Dan Guericke, who was to stand trial with Phelps, instead pleaded guilty last week in an agreement with prosecutors to one felony count of falsifying evidence. Guericke’s sentencing is set for Nov. 26, and he faces up to two years in prison.

But a jury in June cleared onetime Mid-Central assistant business manager Stephanie Hubers, who had been accused of receiving about $55,000 to keep quiet about Westerhuis and his wife’s alleged stealing. Hubers was found not guilty of grand theft, grand theft by deception and alternative receiving stolen property charges.

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