Phipps, Mass Sentenced To Federal Prison Terms

The Oklahoman's Nolan Clay reports today that a federal judge in Muskogee has "sentenced corrupt businessman Steve Phipps to a year and a day in federal prison for paying off three legislators to divert almost $2.8 million in taxpayer funds to his businesses. The judge sentenced former state Rep. Mike Mass to two years in prison for taking kickbacks from Phipps. They must together pay $279,258 in restitution to the state of Oklahoma. Phipps, of Kiowa, also must pay a $50,000 fine."

Read the story at www.newsok.com.

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Federal Jury Acquits Randall Erwin

A federal jury in Muskogee has acquited former State Rep. Randall Erwin of seven felony charges.

The jury, the second one to hear the case against Erwin, found Erwin innocent on counts of conspiracy, money laundering and failure to provide honest public service.

Erwin was accused of involvement in the conspiracy involving southeastern Oklahoma businessman Steve Phipps. Phipps, former State Senator Gene Stipe and former Auditor & Inspector Jeff McMahan all were implicated in the federal investigation. McMahan and his wife just began serving prison terms after their convictions.

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Federal Jury Hears Arguments In Erwin Case

Closing arguments were delivered this afternoon in the federal corruption trial of former Rep. Randall Erwin.

The southeastern Oklahoma Democrat faces seven felony counts, including conspiracy, money laundering and failure to provide honest public services.

This is the second federal jury to hear the case; a first jury failed to reach a verdict last year.

Erwin’s defense rested today without calling any witnesses, officials said.

Prosecutors allege Erwin took kickbacks from Steve Phipps in exchange for $1.1 million in taxpayer money Erwin earmarked for Phipps' businesses in 2003 and 2004. Phipps was involved with former Senator Gene Stipe and others in what prosecutors said was a criminal enterprise that included campaign contributions in the names of straw donors, money laundering and conspiracy. The case sent former Auditor & Inspector Jeff McMahan and his wife, Lori, to prison.

Image courtesy The Oklahoman.

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Take A Minute To Study This Graphic

The Oklahoman has posted a graphic showing links to those involved in the Steve Phipps/Jeff McMahan/Gene Stipe/Mike Mass/Richard Lerblance/Tim Arbaugh/Randall Erwin/Jerry Hefner/Randy Dittman/Larry Witt campaign finance scandal. Take a moment to view this insightful graphic at http://static.newsok.biz/flash/stipe/stipe.html.

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Agent Says McMahan Gave Conflicting Stories; Prosecution Rests In Auditor's Trial

By Tony Thornton/The Oklahoman ~ State Auditor and Inspector Jeff McMahan gave conflicting stories during three interviews about Pittsburg County businessman Steve Phipps, an FBI agent testified today.

Agent Steve Kaitcer was among the final prosecution witnesses at the criminal trial of Jeff and Lori McMahan, who face nine felony counts related to Phipps.

Prosecutors rested their case shortly before 3 p.m. today. Jurors were dismissed for the day an hour later.

Lori McMahan's attorney indicated she will testify. It's unclear whether her husband will testify.

A federal grand jury indictment accuses the McMahans of benefiting from trips, jewelry and more than $100,000 in illegal contributions to the auditor's 2002 campaign, all provided by Phipps. In return, an indictment alleges, the auditor, sometimes at his wife's urging, gave special favors to Phipps' abstract companies, which the auditor's office regulated.

Kaitcer testified about his interviews with both Jeff and Lori McMahan. All three interviews with the auditor occurred at his state Capitol office between August 2006 and August 2007, Kaitcer said. The one with Lori McMahan occurred during a search of the couple's Tecumseh home on Aug. 23, 2007, he said.

After first denying in August 2006 that he attended any business meetings with Phipps, McMahan later acknowledged going to New Orleans on a "teaching" trip funded by Phipps, Kaitcer said.

That bus trip involved about 30 people, many of them Phipps' abstract company employees. Kaitcer said the McMahans told him the auditor could teach courses on the trip if Phipps paid for no more than $300 of his expenses. Other witnesses testified that the auditor did no teaching on that trip, and that the McMahans' expenses far exceeded $300.

Kaitcer said during a second interview with Jeff McMahan, the auditor admitted meeting with Phipps and two legislators at the Capitol between November 2002, when he was first elected, and January 2003, when he took office, Kaitcer testified.

McMahan also gave conflicting accounts about two pieces of expensive jewelry Phipps bought for the auditor's wife, Kaitcer said.

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Jerry Hefner Says He's Retiring

By D. E. Smoot/Muskogee Phoenix ~ Wagoner County Commissioner Jerry Hefner, District 2, announced on Tuesday his decision to retire from public service.

Hefner, who has been implicated in an alleged kickback scandal involving former state Sen. Gene Stipe and his business partner Steven Phipps, said he is proud of his accomplishments during the past 20 years as state representative and county commissioner.

“In my public service to Wagoner County I’m proud of all my accomplishments,” Hefner said in a written statement that noted the completion of the Oklahoma 51 widening project, Wagoner Airport improvements, and additional support for veterans, senior citizens and rural fire departments. “During my service as county commissioner, I am particularly proud of meeting the challenges during the extraordinary rain and ice storms of the last two and a half years and seeing the Wagoner County Courthouse completed.”

A section of Oklahoma 51 in Wagoner has been named in Hefner’s honor and the airport has been named the Hefner-Easley Airport in honor of Hefner and former state Sen. Kevin Easley.

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McMahan Asked For, Got, $3,500 Cash

By The Oklahoman's Tony Thornton, Blogging From Muskogee ~ It was July of 2004. Oklahoma Democrats had named state Auditor and Inspector Jeff McMahan and his wife, Lori, to be delegates at the Democratic National Convention in Boston.

McMahan called staffer Tim Arbaugh into his office and announced the good news, then tempered it by saying the McMahans couldn’t afford the trip, Arbaugh testified Thursday.

Arbaugh, who headed the abstract division of the auditor’s office, said his boss asked him to call abstract company owner Steve Phipps and ask for $3,500 to help pay their expenses.

Phipps was no stranger to helping McMahan. In earlier testimony, Phipps said he provided more than $150,000 illegally to McMahan’s 2002 campaign, including $27,000 he gave directly to Lori McMahan. He said he also paid for trips for the McMahans and bought expensive jewelry for the auditor’s wife.

Arbaugh testified he knew about some of the previous crimes. But this was the first time McMahan had asked so overtly for Arbaugh to be a bag man, Arbaugh said.

He said he called Phipps from his cell phone while sitting in McMahan’s office and explained the situation. The request surprised Phipps as much as it had surprised him, Arbaugh said.

However, Phipps agreed to provide the cash, Arbaugh testified.

A few days later, Phipps met Arbaugh for lunch and gave him an envelope containing the $3,500, Arbaugh testified.

Upon his return to the state Capitol, Arbaugh said, he went straight to McMahan’s office and delivered the envelope.

“What did he do?” Assistant U.S. Attorney Ryan Roberts asked.

“He put the envelope in the pocket of his coat and said, ‘Thank you,’" Arbaugh said.

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Arbaugh Granted Immunity For Testimony

From The Tulsa World ~ Former Deputy State Auditor Tim Arbaugh, a key prosecution witness [in the federal corruption trial of Jeff McMahan and his wife], now works for [felon Steve] Phipps at Indian Nations Entertainment, a maker of gambling machines. Arbaugh said he earns about $2,000 a month, plus expenses and his mortgage. In return for his testimony, Arbaugh has been granted immunity for any crimes he may have committed in the past 10 years. [Arbaugh and his wife also operate a bed and breakfast in Guthrie.]

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Arbaugh: 'I realized we had crossed the line' As Phipps Handed Over Cash

By Susan Hylton/Tulsa World Staff Writer in Muskogee ~ Former deputy state auditor & inspector Tim Arbaugh, on the stand in the federal trial of State Auditor & Inspector Jeff McMahan, nearly broke down on the witness stand Thursday in describing what he said was an illegal campaign contribution.

Arbaugh testified that he got into Kiowa businessman Steve Phipps’ vehicle at a Garfield's parking lot in Shawnee where he saw two stacks of cash.

It was Oct. 22, 2002, and the campaign of his soon-to-be boss, McMahan was in trouble, especially in Tulsa County, the former abstract registrar testified in U.S. District Court.

One of the stacks, topped by a $100 bill, was meant for Arbaugh, he said. It was $2,500 to infuse illegally into the campaign for last-minute advertisements.

The other stack was much bigger, Arbaugh said.“It looked like a lot. He told me it was $10,000,” Arbaugh said.

When Assistant U.S. Attorney Ryan Roberts asked Arbaugh what Phipps was planning to do with the money, Arbaugh paused in silence for a moment to control his emotions.

He finally responded: “He told me he was going to give it to Jeff and Lori.”

In providing further detail, Arbaugh nearly broke down again.“It was at that point where I … I'm sorry,” he said, taking another moment to gather his words. “It was at that point that I realized we had crossed the line.”

The McMahans are on trial in a nine-count indictment alleging conspiracy, mail fraud and accepting bribes.

Phipps owned several abstract companies with Gene Stipe and the auditor’s office regulates the abstract industry.

Phipps testified Wednesday that he helped illegally finance McMahan’s campaign, along with taking the couple on trips to New Orleans and buying Lori McMahan jewelry in an effort to receive political favors.

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Henry's Spokesman: Laws Complied With

Governor Henry’s spokesman, Paul Sund, issued this statement in response to Wednesday’s testimony in the trial of Oklahoma State Auditor and Inspector Jeff McMahan and his wife, Lori McMahan:

“Today’s allegations were originally raised in March of 2007 and addressed by the governor at that time.

“Gov. Henry’s campaigns have complied with all state laws and ethics rules and operated under the highest of ethical standards.

“Everyone who donated to the governor’s campaigns was required to sign a sworn statement attesting that their contribution was their own and in compliance with state law. Because of those sworn statements, there was no reason to believe anything improper had occurred.

“Gov. Henry did not become aware of any potential problems until March of 2007 when federal authorities indicated that possible straw donors had contributed to Congressman Dan Boren’s campaign and other campaigns in Oklahoma. The governor was surprised and disappointed to learn that some of the same individuals had given to his 2002 campaign, and he moved quickly to address the issue.

“To err on the side of caution and address even the appearance of any conflict, Gov. Henry immediately donated the funds associated with the so-called straw donors to charity: The Oklahoma National Guard Relief Fund and the USS Oklahoma Memorial at Pearl Harbor.

“With respect to the chicken litter project, Gov. Henry met briefly with Mr. Phipps one time to discuss the venture, just as he has met with hundreds of other Oklahoma businessmen seeking input on economic development projects. After the meeting, the proposal was deemed to have no merit, and no action was pursued by the governor’s office. Gov. Henry never spoke to Mr. Phipps again after the meeting.”

There has been no assertion that Henry knew of the illegal donations.

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Clif Scott Denies Phipps' Allegations

Former Auditor & Inspector Clifton Scott says allegations he accepted illegal campaign donations from Steve Phipps and provided favors in return are wrong.

"I really don't know what to think of it," Scott said of Phipps' testimony in the federal trial of current Auditor & Inspector Jeff McMahan and his wife, Lori.

Scott said he knew that Phipps held fundraisers for his campaigns and added, "If there were straw donors, I wasn't aware of it."

In testimony Wednesday, Phipps detailed illegal donations to Scott's campaign and the favors he alleges Scott provided in return.

Phipps admitted from the stand that he funneled illegal money into six other campaigns, including those of Governor Henry, Congressman Dan Boren and the John Edwards presidential campaign. There was no assertion by Phipps that any of those candidates were aware he was the source of donations to their campaigns.

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Phipps Implicates Clifton Scott In Illegal Campaign Donation Schemes

By Tony Thornton/The Oklahoman ~ Southeast Oklahoma businessman Steve Phipps testified today that he provided $70,000 in illegal campaign contributions to Gov. Brad Henry in January 2003, about the time Henry took office.

Phipps also claimed that former state Auditor and Inspector Clifton Scott knowingly accepted Phipps' illegal campaign money for years and provided favors to Phipps in return.

The testimony came during Phipps' third day on the witness stand in the federal trial of Scott's successor as state auditor, Jeff McMahan.

McMahan and his wife, Lori, face nine felony counts related to their relationship with Phipps, an abstract company owner whose businesses were regulated by the auditor's office. Phipps, who is cooperating with prosecutors as part of a plea agreement, admitted Tuesday that he and two business partners, including former state Sen. Gene Stipe, funneled $157,882 into Jeff McMahan's 2002 campaign. The legal limit is $5,000 per person.

Phipps' testimony about Henry and Scott came during cross-examination by Jeff McMahan's attorney, Rand C. Eddy.

Phipps admitted he had engaged in ""numerous" criminal acts over the years.

"Did you give illegal campaign contributions to Clif Scott?" Eddy asked.

"Yes," Phipps answered.

"Did he know about it?"

"Yes."

Scott was the state auditor from 1983 until he retired after the 2002 election. He now is executive director of the state Commissioners of the Land Office.

Phipps said he gave excessive contributions to Scott's campaign through "straw donors" around 1988, and then the three elections thereafter.

"Did you expect favors in return?" Eddy asked.

"Yes."

"Did you get favors in return?"

"Occasionally, yes."

"If Mr. Scott denies that, he's lying; is that correct?" Eddy asked.

"Yes sir," Phipps responded.

Phipps didn't elaborate on how much beyond the legal limit he provided, nor did he specify what favors Scott provided. He said his intent for giving was to receive favors aimed at helping enhance profits for his companies.

Phipps also amplified testimony given Monday by Nita Magdalena, a Democratic Party organizer from Pottawatomie County, where McMahan lives.

Magdalena referred to a fundraiser for Henry at the Pollard Theater in Guthrie in January 2003. It was around the time of Henry's inauguration, she said.

That event, which the new governor attended, raised $105,000, she said. Phipps said $70,000 of it was his money, provided through "straw donors," or people who illegally claimed it was their money.

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Long-held Suspicion Confirmed; Phipps Admits Jones Cheated Out Of '02 Election

Abstract company owner Steve Phipps testitifed Tuesday in the federal felony trial of Auditor & Inspector Jeff McMahan that McMahan's 2002 opponent, Gary Jones, was cheated out of the election due to rampant illegal donations to McMahan's campaign.

The exchange came, The Oklahoman's Tony Thornton reports, as Phipps, who has admitted he was the source of about $158,000 in illegal donations and gifts to McMahan and his wife, was testifying under questioning by prosecutor Gay Guthrie.

The prosecutor noted that, in 2002, Jones claimed he was "being cheated out of the election."

"Yes,” Phipps said.

"He was right, wasn't he?” Guthrie asked.

"Yes,” Phipps replied.

Jones, now Republican State chairman, also ran against McMahan in 2006 with the same result, and with many of the same allegations about the funding of that McMahan campaign.

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Tony Thornton Blogs About McMahan Trial; Illegal Phipps-McMahan Money Detailed

By Tony Thornton/The Oklahoman at http://blog.newsok.com/newsroom/2008/06/03/state-auditors-trial-day-2/?tm=1212548938 ~ Straw donors gave a total of $77,600 to Jeff McMahan’s campaign, using money supplied — illegally — by businessman Steve Phipps.
Turns out, that barely scratched the surface of Phipps’ generosity to McMahan’s first political campaign.

Phipps testified Tuesday that he and business partners Gene Stipe and Larry Witt contributed a total of $157,882 in cash and in-kind contributions. Most of that amount was his own money, Phipps said.

The breakdown:

$77,600 through straw donors.

$27,000 in cash to Lori McMahan.

$24,000 for radio spots on four McAlester radio stations owned by Stipe.

$23,157 for materials and labor for political signs built at Phipp’s house in rural Pittsburg County.

$5,000 to rent the Pollard Theater in Guthrie for two fundraisers.

$1,125 for roughly half the cost of recording a campaign jingle.

By contrast, McMahan’s Republican opponent, Gary Jones, raised a total of about $150,000 most of which was his own money.

Jurors heard Phipps describe numerous times when he either gave Jeff and Lori McMahan (money), took them on expensive trips or bought Lori McMahan fine jewelry.

One new revelation involved the 2004 Democratic National Convention in Boston. The indicment against the McMahans has alleged Phipps provided $3,500 — at Jeff McMahan’s request — so the couple could attend. Jeff McMahan’s campaign also paid $2,600 toward the Boston trip, a campaign and auditor’s office staffer testified.

Phipps said Tuesday that in addition to his $3,500, he also said he provided an extra $3,000 to save McMahan from embarassment.

A Democratic Party tradition required certain office holders to sponsor a meal for all that state’s delegates. Phipps said he learned from Obera Bergdall, a retired employee (and longtime Democratic Party official) from the state auditor’s office, that McMahan didn’t have the necessary $3,000 to sponsor a meal. As a former state Democratic Party chairman, Bergdall knew all about the tradition.

Phipps said he agreed to front the money. Party officials rejected his ideas to either pay it by credit card or to make a donation to the Democratic Party.

“Ultimately, she (Bergdall) took the funds out of her retirement account, and I reimbursed her,” Phipps said.

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Prosecutor: McMahan 'Bought'

By Susan Hylton/Tulsa World ~ Prosecutors vow that when they present their case in U.S. District Court (in Muskogee) this week, the jury will see what happens when a public official — State Auditor and Inspector Jeff McMahan — allows himself to be bought.

But defense attorneys for McMahan and his wife, Lori McMahan, claim that the prosecution's key witness, multimillionaire Kiowa businessman Steve Phipps, is not reliable because he is a master manipulator and a career criminal.

Jeff McMahan's attorney Rand Eddy said Phipps knew he would be going to prison anyway in connection with the bilking of more than $2 million from the Legislature to pay bribes and kickbacks. In a plea agreement, he pleaded guilty to one count of conspiracy to commit mail fraud in exchange for assisting the prosecution in a sprawling investigation of political corruption in southeast Oklahoma.

"He thought he needed to give the government a big fish," Eddy said.

The prosecution's first witness was former state Auditor and Inspector Clifton Scott, who testified that he has known Phipps since 1984 or 1985, when the Auditor's Office began regulating the abstracting industry.

The McMahans are accused of accepting excessive campaign contributions, gifts and trips in exchange for political favors for Phipps.

In his opening statement, Assistant U.S. Attorney Ryan Roberts said Phipps and his former business partner Gene Stipe — a state legislator for more than 50 years — would gladly give someone $100,000 when they knew that they'd receive 10 times that in return.

Scott said Phipps was placed on an abstract board that advised the Auditor's Office. Phipps owned abstract offices with Stipe, and Scott said he was aware of that relationship. Scott testified that he received support from the abstracting industry in his own campaigns but that he had concerns about how McMahan's trips to New Orleans with Phipps and his employees could be perceived. Phipps allegedly purchased expensive jewelry for Lori McMahan on these trips.

After Jeff McMahan was elected and Scott was working in the Land Commission Office, Scott said, Phipps called him in 2005 when Phipps was in a civil dispute with Stipe. Scott said a meeting was set up with Phipps, McMahan, an insurance commission representative and himself to talk about revoking Stipe's insurance license after Stipe was convicted of perjury and campaign violations.

Lori McMahan's attorney Kevin Krahl said the Tecumseh fifth-grade teacher is guilty of violating state campaign laws by taking money from Phipps for signs, radio spots and a campaign jingle. But Krahl said she never told her husband that trips to political conventions were paid for by Phipps.

At the end of his opening statement, Roberts said that Lori McMahan had said in a recorded conversation that she would "go to the pen" if Phipps was secretly recording her conversations. The prosecutor urged jurors to do exactly what Lori McMahan had feared. "Send 'em to the pen," he said.

Several others testified that Phipps asked them to contribute to McMahan's 2002 campaign and would reimburse them — sometimes a little more than they gave — for their trouble.

Some of the contributors also admitted to being "straw donors" in the campaigns of Gov. Brad Henry, U.S. Rep. Dan Boren, and former state Rep. Mike Mass, all Democrats.

Nita Magdalena, a Democratic Party organizer, said Phipps asked her to organize a fundraiser for Henry in January 2003 — after Henry had won his election. The fundraiser was successful, Magdalena said, and Phipps was able to give Henry about $100,000 in checks. Henry's spokesman Paul Sund said Monday that the Governor's Office did not have an immediate comment on Magdalena's testimony.

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McMahan's Treasurer Realized Money Came From Straw Donors, Oklahoman Reports

By Tony Thornton/The Oklahoman ~ As a treasurer for Jeff McMahan's 2006 re-election bid looked over the contributor list to his first campaign, she noticed a disturbing trend.

Numerous donors tied to abstract company owner Steve Phipps had given large amounts of money to the state auditor's race in 2002, even though many lacked financial means to do so, Erin Bradshaw determined.

"It became very obvious to her that many of these people were straw donors," FBI agent Gary Graff testified at a recent court hearing.

Bradshaw and McMahan's staff had a common phrase for those contributors: "Phipps people."

Read the entire story at http://newsok.com/witnesses-expected-to-detail-campaign-bribery-scheme/article/3250945/?tm=1212200662.

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Hall, McGoodwin Likely To Testify At McMahan Trial, Sources Say

Capitol lobbyist Pat Hall and Office of State Finance official Jim McGoodwin are likely to be among those called to testify in the federal trial of Auditor & Inspector Jeff McMahan and his wife, Lori, sources tell The McCarville Report Online.

The trial is scheduled to begin next week.

A source said he would not be surprised if Tulsa Mayor Kathy Taylor, former secretary of commerce, also is called as a witness.

Another almost-certain witness will be Tim Arbaugh of Guthrie, deputy auditor fired by McMahan as the scandal unfolded. Arbaugh is identified in FBI affidavits. One affidavit provides partial transcripts of conversations between Steve Phipps, Arbaugh (McMahan's then-abstract division chief) and Lori McMahan concerning alleged cash payments totaling $27,000 from Phipps. In return, according to the indictment, the auditor gave special treatment to Phipps' companies.

Asked if it is true he will appear as a witness, Hall told TMRO, "I would prefer for the U.S. Attorney to answer that question or Mr. McMahan's attorney."

Hall, a former Oklahoma Democratic Party executive director, is among the state's most influential lobbyists. A source says he's likely to be questioned about his knowledge of the activities of the McMahans and Phipps, the eastern Oklahoma abstract company owner implicated in the scandal that has engulfed McMahan and other public officials. Hall was also a consultant for Phipps' Rural Development Foundation and, according to an FBI affidavit, was paid $15,000 by RDF for work as a "water consultant."

McGoodwin now is deputy director of operations for the Office of State Finance and previously served as deputy state auditor and inspector and was director of special investigations in the auditor's office at the time laws allegedly were violated by McMahan and his wife. They face nine felony counts.

Taylor held the state office when a huge state grant was given to Phipps' interests by the Department of Commerce.

McMahan also faces a House committee formed to consider his impeachment.

McMahan and his wife were indicted by a federal grand jury in January on nine counts including conspiracy, mail fraud and violating the Travel Act to commit bribery. The McMahans have pleaded not guilty.

The charges stem from dealings with Phipps, who is identified in the nine-count indictment as a co-conspirator. Federal prosecutors say the charges are tied to favoritism shown to Phipps by McMahan as well as excessive political donations to McMahan during his 2002 campaign.

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Randall Erwin Indicted By Federal Jury

Muskogee ~ Former Rep. Randall Erwin of Nashoba on Thursday was indicted by a federal grand jury for allegedly steering state funds to a phony nonprofit entity and receiving kickbacks from its owner, southeast Oklahoma businessman Steven Phipps, as part of a scandal that has rocked southeastern Oklahoma and implicated at least four former lawmakers and Auditor and Inspector Jeff McMahan and his wife, Lori.

Read The Indictment

Erwin, 56, a Democrat, is charged with one count of conspiracy, three counts of mail fraud and three counts of money laundering.

The indictment alleges that Erwin, former Rep. Mike Mass and another, unnamed person were involved in the conspiracy to steer state funds to the Rural Development Foundation.

The third, unnamed alleged co-conspirator is former Rep. Jerry Hefner, a source close to the investigation confirmed to the Tulsa World. He was not charged in Thursday’s indictment.

Money from the phony nonprofit foundation was then funnelled to Indian Nation Entertainment, a company owned by Phipps, the indictment alleges.

Erwin, Mass and Hefner used their influence to have INE gaming machines placed in Indian casinos, according to the indictment.

Phipps then periodically paid the three an agreed upon percentage of gross profits from the machines in cash, the indictment alleges.

The indictment does not say how much was paid to the former lawmakers.

Neither Phipps nor Mass, who earlier this year entered into plea deals with federal prosecutors in exchange for their cooperation, were charged in Thursday’s indictment.

Conviction of any of the seven counts in the indictment is punishable by 5 to 20 years in prison and a fine of $250,000 to $500,000 each, U.S. Attorney Sheldon Sperling said.

Phipps is the former business partner of former longtime Democratic Senator Gene Stipe. Stipe’s brother, Francis, pleaded guilty to conspiracy, mail fraud, witness-tampering and engaging in an illegal monetary transaction. The charges included an allegation that Francis Stipe engaged in an illegal monetary transaction that directly dealt with a $48,000 kickback paid to Mass and drawn on Gene Stipe’s account.

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Cash Payments To Mass, Erwin, Hefner Stopped After Publicity, Gambling Company Owner Testifies

Muskogee (By Tony Thornton/The Oklahoman) ~ A southeast Oklahoma gambling machine owner instructed his general manager to stop paying cash to three legislators in 2005 amid newspaper reports detailing how the businessman benefited from state taxpayer money, jurors in a corruption trial heard today.

Mike Stokes, who was the top employee of Indian Nation Entertainment, said cash payments were common until that point to then-state Reps. Mike Mass, Randall Erwin and Jerry Hefner.

Company owner Steve Phipps described the legislators as "investors" in the company, Stokes recalled.
Their payments came from cash that the United Keetoowah Band Casino in Tahlequah routinely delivered to Indian Nation Entertainment as the company's share of money from machines the casino leased.

In late January 2005, The Oklahoman published a story tying Phipps to then-state Sen. Gene Stipe on another venture, a McAlester dog food plant that was built on land Stipe sold at an inflated price using taxpayer money.

A few months later, Phipps ordered the payments to the legislators stopped "until things cooled down," Stokes said.

Read Thornton's entire story at http://www.newsok.com/.

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Phipps On Hot Seat In Francis Stipe Trial

Muskogee (By Susan Hylton, Tulsa World) ~ A federal judge is being asked to grant a compulsory order so that one of the government's star witnesses will answer all questions during the trial of McAlester businessman Francis Stipe (pictured).

"Steven R. Phipps has indicated that if called as a witness he may refuse to answer some questions, invoking his constitutional privilege against self-incrimination," states the application for the order submitted by U.S. Attorney Sheldon Sperling.

Stipe, 76, goes to trial Monday in U.S. District Court in Muskogee on charges of conspiracy, mail fraud, witness-tampering and illegal mone tary transactions.

The crimes are punishable by as much as 45 years in prison and $1 million in fines.

Judge Ronald White ordered Phipps, a Kiowa businessman, to appear at a motions hearing before the start of the 9 a.m. trial. Phipps pleaded guilty in June as part of a plea agreement with the government on one count of conspiracy to commit mail fraud. The charge stemmed from his role in a scheme to pay kickbacks to legislators in exchange for earmarking $2.7 million to companies he operated. The maximum penalty is five years in prison and a $250,000 fine. The government vowed to recommend a lesser sentence against Phipps if he provided substantial assistance in the investigation into po litical corruption in southeastern Oklahoma. In addition, authorities agreed to bring no other criminal charges against Phipps.

Phipps' attorney, Dan Webber, said his client reserved his right to insist on "use" immunity for his testimony at trial. While the timing of the motion might seem noteworthy, Webber said, the action is routine. "This was done because the investigation has looked into both potential federal and state violations," he said. "Mr. Phipps does not have an agreement with state prosecutors. This provision allows Mr. Phipps to testify fully and completely, and simply means state prosecutors can't use his testimony."

Prosecutors allege that Francis Stipe recouped a $50,000 loan to the failed congressional campaign of Walt Roberts by obtaining state funds used by the McAlester Foundation to buy property from Stipe's brother, former state Sen. Gene Stipe.

The property was leased to National Pet Products, which is owned by Phipps. Gene Stipe allegedly had a secret interest. The state funds were steered by former state Rep. Mike Mass, a Democrat, who pleaded guilty to receiving about $250,000 in kickbacks.

Mass also has agreed to cooperate in the case and has not been sentenced.

Prosecutors also believe that the Stipe brothers tried to intimidate or persuade Mass not to testify before the federal grand jury and at trials by having Francis Stipe buy Mass' home mortgage in February 2007.

Gene Stipe, 81, faces the same charges as his brother, but unresolved questions of his mental competency related to a dementia diagnosis have delayed a trial and probation revocation hearing. He is on house arrest, serving a five-year probation that expires early next year

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