IBJ Details Shocking Depth of Bales' Scandal; Will Bales' Attorney Larry Mackey Step Down Because of Conflict of Interest? (IBJ Link Now Available)

In an article appearing in the most recent edition of the IBJ, Cory Schouten writes a shocking account of what he found while reviewing scores of John Bales-related emails within state government.  The article portrays influence peddling at the highest levels of state government and that people in state government who tried to do the right thing were silenced or threatened with retaliation for speaking out about Bales and violations of the law.


John bales

While I like Governor Daniels on so many levels, I have always been frustrated that he appears to run a very loose ship and has a tin ear when it comes to wrongdoing in his administration.  Having been a whistleblower myself, someone who repeatedly asked the Governor's Office to look at my complaints about legal violations and other problems at the Department of Insurance, I know first hand the frustration these officials felt when they tried to report problems, only to instead receive threats of retaliation for speaking out.  Daniel's time in office has seen numerous situations where whistleblowers were ignored, even retaliated against.  Almost always the situation persisted until it ended up being exposed  by the news media.

Gary Welsh of Advance Indiana did a review of the Schouten article.  Here is some of what Welsh reports:

Folks, fasten your seat belts and get prepared for a wild ride. The IBJ's Cory Schouten uncovered years' worth of e-mails totalling in the thousands that shed light on what is increasingly becoming a major public corruption scandal that could permanently tarnish the reputation of Gov. Mitch Daniels and result in more criminal charges against more very high profile individuals on the Indiana political scene. The U.S. Attorney's Office in the Northern District of Indiana's indictment of top Daniels political supporter, John Bales, for defrauding the state on a lease agreement for state office space in Elkhart, Indiana might just well be the tip of the iceberg to rock the Daniels ship.

What emerges from the e-mails Schouten uncovered is a picture of conscientious state employees raising legitimate concerns about Bales' business practices, only to feel threatened with retaliation if they didn't play ball as Bales demanded. A top official in Gov. Daniels own office, Betsy Burdick, whose brother is a partner at the law firm which represents Bales, Barnes & Thornburg, joined in sending less than thinly-veiled threats to state officials who messed with Bales' business dealing with the state. Check out this example of Burdick intervening on Bales' behalf:

The deputy chief of staff for Gov. Mitch Daniels intervened on Bales’ behalf in late 2009 after officials with the Indiana Department of Administration encouraged the state’s quasi-governmental agencies to hire the real estate brokerage Resource Commercial over Venture.

Venture had offered a lower per-square-foot commission rate, but IDOA officials saw the company's attempts to carve out side deals representing quasi-governmental agencies as a conflict with the state deal. It’s not clear whether Betsy Burdick was aware of IDOA's rationale in recommending Resource. 

“I hope what I am hearing is wrong with respect to the way IDOA is doing business here,” Burdick wrote on Aug. 28, 2009. “If this is true it is unacceptable and further discussion needs to take place. If what I am hearing is correct—this is not how we do business.”

According to Schouten, Bales was less than bashful at throwing out big names that he would involve to assist him if state officials didn't do as he demanded of them. "At one point, a deputy to Bales threatened to call in the chair of the Indiana Republican Party and two partners at the powerful law firm Barnes & Thornburg if the state wouldn’t reimburse Venture for disputed expenses," Schouten writes.

Kevin Ober, the Department of Administration’s deputy commissioner at the time, pushed back when Venture sought reimbursement for more than $200,000 in expenses not pre-approved by the state, as required by its contract.

That did not sit well with Venture.

The firm’s chief financial officer, Greg Rankin, responded with an email threatening to seek intervention by Barnes & Thornburg partners Brian Burdick and Joe Loftus or even J. Murray Clark, then the chairman of the Indiana Republican Party. All three have close working ties to Gov. Mitch Daniels, whose deputy chief of staff is Burdick’s sister.

Ober bristled at the name dropping by Bales’ top deputy in an email he sent to his boss, IDOA Commissioner Carrie Henderson, and the chief of staff to Gov. Mitch Daniels, Earl Goode.

Schouten found that Bales was near the center of other embarrassing recent episodes for the Daniels administration for which his role had not been previously disclosed, including the leasing of lavish new office space for the Hoosier Lottery and the growing IURC scandal involving Duke Energy.  

There's this revelation on the Hoosier Lottery:

In 2010, Venture brokered the deal to move the Lottery into a 35,000-square-foot headquarters at Meridian and 13th streets. Bales earned more than $250,000 in commission on the deal, which ultimately cost Hoosier Lottery Director Kathryn Densborn her job. 

... 

Bales' commission was based on the project's total value, including the cost of building out the space.

...

At the heart of this week's indictments against John Bales, his business associate Bill Spencer, and attorney Paul Page, is the federal prosecutors' contention that Bales held a financial stake in the Elkhart office building Paul Page acquired with former Marion Co. Prosecutor Carl Brizzi when he was suppose to be working exclusively for the state of Indiana as its real estate broker in the deal. Schouten found e-mails where Mike Huber, now a deputy mayor under Greg Ballard, had raised concerns about Bales' side deals while he was still working at the Indiana Department of Administration.

The records show former Deputy IDOA Commissioner Michael Huber—who joined Bales for happy hour on several occasions and mostly offered support for Venture in emails—at times had reservations about the company’s methods. Huber oversaw the Venture contract from January 2007 to January 2008.

Indianapolis Deputy Mayor
Mike Huber

Huber was not pleased, for example, when he heard Venture was pitching the Hoosier Lottery on a tenant-representation agreement outside the purview of its contract with the Department of Administration. The arrangement ran counter to Huber’s mission of consolidating and simplifying the state’s leasing functions.

...

Whatever reservations Huber may have had about Bales while working in the Daniels administration, it didn't stop him from hiring Bales' firm for a similar sweetheart real estate deal with the City of Indianapolis after Huber left the Daniels administration to join Ballard's new administration as a top official. Huber was tapped by Barnes & Thornburg's Joe Loftus to join the Ballard administration, who likely ordered Huber to ink the deal with Bales, one of his clients. Loftus, Bob Grand and others at Barnes & Thornburg have dictated to Ballard who is hired for key jobs with the city. 

Grand and Loftus, who exercise considerable influence in the Daniels administration, are also paid advisers to Ballard. The law firm firm has been awarded millions of dollars worth of legal work with the city since Ballard took office four years ago. Barnes & Thornburg's clients have also been the beneficiaries of sweetheart deals with the city, including the 50-year parking meter lease with ACS, a firm Barnes & Thornburg has long represented in business transactions with the state and local governments in Indiana. The firm helped lobby the Daniels administration on behalf of ACS to land the controversial welfare privatization deal with FSSA. When the lead partner's contract in that deal, IBM, was nixed by the state, ACS was allowed a continuing contractual relationship with FSSA. Incredibly, Gov. Daniels hired the law firm to represent the state in a lawsuit with ACS's former partner, IBM, despite the firm's obvious conflict of interest.

Larry Mackey

The City of Indianapolis later cancelled its contract with Bales for failing to perform according to Huber. It is more likely the deal was nixed after the Ballard administration learned from Barnes & Thornburg's attorneys that Bales' activities were being investigated by the FBI. Bales is represented by another Barnes & Thornburg partner, former Justice Department prosecutor Larry Mackey, in the criminal case the federal government has brought against him. Naturally, Mackey insists his client is innocent. Given the law firm's ties to the corrupt deal that led to the indictment, federal prosecutors should ask that the firm be disqualified from representing Bales in this criminal case against Bales. At least that's what the rules of professional conduct dictate, but as we've seen with the firm's representation of the state in the FSSA litigation, the rules don't seem to apply where Barnes & Thornburg is concerned. One particularly troubling aspect of Schouten's story is a claim by another Barnes & Thornburg attorney representing Bales, Jason Barclay, that the state gave its blessings to Bales having an ownership interest in the Elkhart office building he brokered for the Department of Child Services after he first disclosed it to them. That contradicts the express terms of Bales' exclusive real estate brokerage agreement with the state.

...

The complete Advance Indiana article deserves reading as does the IBJ article by Cory Schouten.  I do want to note that I couldn't agree more with Welsh's point about Larry Mackey's conflict of interest.   The fingerprints of Barnes & Thornburg's influence peddling are all over Bales' interaction with administration officials.  It is in Bales' best interest to rat out those Barnes & Thornburg attorneys.  Mackey though is a B&T partner.  He has a clear conflict of interest and should step down from the case.  Either the court or the Disciplinary Commission should address the matter.

Of course, Barnes & Thornburg has always seemed above the conflicts of interest laws that all we other attorneys have to follow.  To recap B&T's FSSA representation, the state signed a multi-million dollar legal services contract with B&T for the firm to represent FSSA in the lawsuit against IBM over the failed Medicaid privatization effort.  B&T had also represented ACS, the major subcontractor on the Medicaid privatization project.   In the legal service contract, which I read, B&T admits it may have to sue ACS, a current client, as part of its representation of FSSA in the lawsuit. 

In the FSSA contract, B&T says ACS has consented to the conflict and that if it does sue ACS it will create a wall at the law firm to prevent the attorneys who represent FSSA in the Medicaid privatization lawsuit from interacting with the B&T attorneys who represented ACS on the Medicaid privatization.

Of course, ACS was probably thrilled to consent to the conflict.  ACS knows that having its law firm representing the State in the IBM lawsuit means the company is never going to be sued as part of that litigation. After all, B&T would not want to lose a profitable client by suing that client.  That is precisely why under the Rules of Professional Conduct it is a nonwaivable conflict of interest for attorneys to represent a party suing a current client of the attorney's law firm.  B&T is obligated to act in the best interests of both current clients FSSA and ACS and they have conflicting interests.

When it came to that obvious violation of the ethics rules associated with Barnes & Thornburg representing FSSA when it still represents ACS, the law firm has been given a pass.  We will see if Mackey gets the same pass when it comes to the conflict he and Barnes & Thornburg have in representing Bales when several partners at the firm are knee deep in the Bales' scandal.