Lori McMahan: I Did It All, He Never Knew

By Susan Hylton/Tulsa World In Muskogee ~ The wife of Oklahoma State Auditor and Inspector Jeff McMahan shed tears on the witness stand Tuesday as she recounted the day she said she told her husband everything.

She had accepted cash — about $10,000 — to buy signs and radio spots for his 2002 Democratic political campaign from an abstract company owner whose industry her husband regulated. She said he never knew that until the day the FBI searched their house five years later.

Lori McMahan's testimony for the defense started Tuesday in U.S. District Court in Muskogee, where she and her husband face eight counts of conspiracy, mail fraud and accepting bribes from Kiowa businessman Steve Phipps in exchange for favors. She offered to pack her bags and leave, but her husband told her he loved her and that they would solve everything, she testified.

The McMahans are accused of accepting more than $157,000 in illegal donations, two all-expenses-paid trips to New Orleans, more than $2,000 in jewelry, and a trip to Boston for the 2004 Democratic National Convention, all bankrolled by Phipps.

Lori McMahan said her husband told her they couldn't let Phipps pay for the first New Orleans trip, so she told him she would reimburse Phipps but never did. It was on this first trip that Lori McMahan said Phipps gave her a ring, which records show cost $1,640, that she had admired in a jewelry shop showcase earlier that day. She said Phipps handed her a box with the ring inside in the presence of her husband as they were gathered in the McMahans' hotel room overlooking Bourbon Street to ride out a tropical storm.

"It kind of made me uncomfortable because it was not from a husband, father or son," she said. Later, she said, her husband told her the gift was inappropriate because his office regulated the abstract industry.

Lori McMahan said she justified her acceptance of the gift to her husband by convincing him that the ethics rules allowed gifts of up to $300, even though she suspected that the ring was worth more than that. In addition, she said, the women on the trip told her that Phipps bought jewelry for women he knew all the time. She said she never considered it a bribe, nor did she return any favors to Phipps by influencing the activities of her husband's office. Her husband asked her to return the ring after it was publicized that Phipps was under investigation for allegedly bribing lawmakers to steer state funds to a dog food plant he owned with former state Sen. Gene Stipe, D-McAlester, she said. She told her husband that the ring was gone, but she said she had actually loaned it to her sister to wear to a wedding.

About 30 people were on the second trip to New Orleans that McMahans attended with Phipps and many of his abstract company employees. She said she used the ethics manual again to convince her husband that their acceptance of the trip was proper if they considered it a continuing education trip in which he would teach a course for the abstract employees.

Several witnesses have testified that Jeff McMahan has little if any knowledge of the abstract industry.

Lori McMahan said her husband did not end up teaching on the trip. She said he relied on Tim Arbaugh, a former employee of the Auditor's Office, to devise an outline to teach a course but that he never followed through.

Lori McMahan said she accepted a pair of earrings that matched the ring from Phipps on the second New Orleans trip as they stood in the hotel lobby. "It was either that or make a scene," she said. But she said she still didn't feel bribed. "I just thought he was a nice man with lots of money because he bought lots of gifts for people," she said.

While Phipps and Arbaugh have testified that Jeff McMahan asked Phipps to pay for a $3,500 trip to Boston to attend the Democratic National Convention, Lori McMahan said she told her husband that the trip was funded by their tax return. She kept their household checkbook, and they didn't discuss financial matters much, she said. "He trusted me," she said of her husband.

She said Arbaugh was in his office when he gave her the cash for the DNC trip, which she remembers as $3,000 originating from Phipps. Arbaugh has previously testified against his former boss, saying he was aware of the "straw donors" to McMahan's campaign and many other parts of a conspiracy.

But other employees and former employees from the Auditor's Office testified Tuesday and vouched for Jeff McMahan as being truthful and honest.

Those witnesses included Terri Jo Ross, Jim McGoodwin, Mickey Gunkel and Chris Stephens.

When testimony continues Wednesday, defense attorney Kevin Krahl is expected to ask Lori McMahan about a purported deal offered by the U.S. Attorney's Office. With the jury absent, Lori McMahan said she was told that she wouldn't be indicted if she would testify that her husband was present during a cash transaction with Phipps at a Garfield's restaurant in Shawnee. Tearful again, she said she would have taken the deal if the account were true because she doesn't want to go to prison and leave her children.

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