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Stacy Phelps testifies in his own defense at trial

October 10, 2018

SIOUX FALLS, S.D. (AP) — A former South Dakota nonprofit official accused of backdating contracts said Tuesday that he didn’t know his colleague was using another organization’s money for the nonprofit’s payroll before he died in a murder-suicide.

Stacy Phelps, the former CEO of the nonprofit American Indian Institute for Innovation, testified in his own defense at trial, saying he trusted Scott Westerhuis and considered him a friend.

“I knew his kids,” Phelps told jurors during testimony that’s set to continue Wednesday.

Westerhuis was embezzling money before he shot his wife, his four children and then himself in September 2015. The deaths spurred a financial investigation that led to charges in 2016 against Phelps and two others who worked with Westerhuis at the Institute or Mid-Central Educational Cooperative.

Prosecutors allege Phelps backdated contracts between the Institute and Mid-Central to avoid an audit. Attorney General Marty Jackley said during his opening statement that the case was about a “cover up” of the financial dealings of the nonprofit and Phelps’ conduct.

Phelps testified that he didn’t learn Westerhuis was using Mid-Central funds to cover the Institute’s payroll until after the deaths, and Phelps said the staff appeared to get paid by the Institute. A state Department of Legislative Audit official said earlier in the day that he saw no evidence that employees at the nonprofit knew Mid-Central money was funding payroll.

Phelps’ defense attorney, Dana Hanna, asked questions highlighting that Phelps doesn’t have an accounting or auditing background and instead focused on his work in educating Native American students. The Institute helped Mid-Central administer a college-readiness grant program called Gear Up, and Phelps and Westerhuis worked for both organizations.

Judge Bruce Anderson on Tuesday denied a push by Hanna to clear Phelps on the four counts he’s facing. 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.

Phelps is the second and final defendant to go to trial in what prosecutors dubbed the Gear Up case. Mid-Central’s former director, Dan Guericke, was to stand trial with Phelps, but instead took a plea deal in September.

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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