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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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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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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McMahan Panel Stymied By Feds' Reluctance To Share Probe Results

By Tim Talley/The Associated Press ~ One of the biggest tasks facing Oklahoma lawmakers remained unfinished when the Legislature adjourned its 2008 regular session.

The need to complete that task could force lawmakers back to the Capitol for a special session this summer.

Two weeks after it convened in February, the state House ordered an investigation of indicted Auditor and Inspector Jeff McMahan, the first step in a possible impeachment vote of the second-term Democrat who faces federal charges of accepting improper trips and illegal campaign contributions.

House Speaker Chris Benge appointed eight House members — four Republicans and four Democrats — to a special investigating committee to collect evidence on whether McMahan violated his constitutional duties, particularly whether he took something of value for the performance or nonperformance of his job.

But the panel’s progress has been stymied by the pending criminal case and the reluctance of federal prosecutors to share information with state investigators prior to the auditor’s trial, which is scheduled to begin in one week in U.S. District Court in Muskogee.

Before the Legislature adjourned on Friday, members of the committee met only once to hire Edmond attorney Andrew W. Lester as special counsel to gather evidence that will help the panel decide whether to recommend that the full House impeach McMahan.
Lester has done a considerable amount of background work, but obtaining evidence from the criminal case will have to wait until witnesses begin testifying at McMahan’s trial, said Rep. David Braddock, D-Altus, co-chairman of the House committee.

“I understand the concern on the part of the federal prosecutor. They don’t want to take any action at all,” Braddock said.

“We’ll be watching the trial. We’ll see what witnesses say. We’ll try to get a good handle on the testimony and then develop a plan,” he said.

Braddock said that depending upon the length of the trial, the investigating committee could be ready to begin taking testimony as early as July. An impeachment recommendation would force the House to return for a one-day special session to consider an impeachment vote. A vote to impeach would lead to a trial in the Senate and removal from office if McMahan is convicted.

McMahan and his wife, Lori, 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 southeast Oklahoma businessman Steve Phipps, who is identified in the nine-count indictment as a coconspirator. 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.

If convicted on all counts, the McMahans could face up to 135 years in prison.

McMahan, who lives in Tecumseh, has not been to his state Capitol office since he turned over daily operations to Deputy State Auditor Michelle Day. But he continues to collect his $109,000 annual salary.

Key witnesses in the criminal case, including Phipps and Tim Arbaugh, former head of the abstract division of McMahan’s office, will likely testify before committee members following their appearances in federal court.

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Caught On Tape: Lori McMahan, Steve Phipps

The Oklahoman's Tony Thornton reports today that an FBI affidavit released Friday contains damning allegations against Auditor and Inspector Jeff McMahan's wife, Lori. Like McMahan, she faces a 9-count federal grand jury indictment.

The allegations come as the FBI reveals it has tape recordings of conversations Lori McMahan had with abstract company owner Steve Phipps. The affidavit provides partial transcripts of conversations between Phipps, Tim Arbaugh (McMahan's 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.

The alleged payments took place in 2002. The conversations took place in February 2007.

Concerning Phipps' alleged payments totaling $17,000 for campaign signs, the affidavit quotes Lori McMahan as saying, “I can go down for that if you, you know, if you have to tell about it, it'll be me that goes down with it. I took it and I did it.”

According to the affidavit, she instructed Phipps that if the FBI asks whose cash paid for the signs, “It wasn't yours.”

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Former Head Of Auditor's Abstract Division Identified As Key Player In Alleged Illegal Acts

The former head of Auditor and Inspector Jeff McMahan's abstract division, Tim Arbaugh (pictured), has been identified as a key player in arranging alleged illegal acts on behalf of McMahan and his benefactor, southeastern Oklahoma abstract company owner Steve Phipps.

The indictment against McMahan and his wife refers to Arbaugh as "schemer number two," but does not identify him by name. Phipps was "schemer number one." Based on descriptions of their actions in the indictments, and previous knowledge of Arbaugh's involvement in the operation of McMahan's office, his role was determined. The indictment details several alleged illegal acts by "schemer number two" that point to Arbaugh's identity; first was his role in arranging a 2002 campaign fundraiser and second was his role in orchestrating the recording of McMahan's campaign jingle. Arbaugh was known to have been involved in both.

Arbaugh, who was fired by Democrat McMahan in March after allegations of straw donors to his campaign drew attention, operates a bed and breakfast in Guthrie, The Victorian Garden Inn, with his wife. Federal investigators, a source claims, have questioned Arbaugh about any financial involvement Phipps may have had in the operation of the bed and breakfast by the Arbaughs. They acquired it in 1994, records show.

Last April, The Oklahoman's Tony Thornton reported that Arbaugh was involved in successful efforts to secure state money to buy a train owned by disgraced former State Senator Gene Stipe, Phipps' abstract company empire partner.

The indictment alleges that Arbaugh was employed by McMahan at Phipps' insistence, and had to be retained in that job if McMahan wanted Phipps' financial help in his 2006 reelection campaign.

McMahan and his wife, Lori, now face a 9-count federal grand jury indictment alleging they conspired with Phipps, took illegal campaign donations and committed mail fraud.

Phipps and his abstract company partner, Stipe, operated a string of abstract companies across the state. As auditor, McMahan was charged by law with regulating the abstract industry. That law was changed after the ties between McMahan and Phipps became clear.

Arbaugh, who has not been indicted, allegedly arranged for some McMahan campaign expenses to be paid for illegally by Phipps, was McMahan's agent in using the powers of the office to delay a competing abstractor's application to operate to help Phipps, was McMahan's agent in seeking cash from Phipps so the McMahans could attend the Democratic National Convention in Boston, and, at McMahan's direction, misused the power of the office to benefit Phipps in a lawsuit with Stipe over ownership of their abstract companies.

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McMahan Fires Second Top Official

A second top official in the office of Auditor and Inspector Jeff McMahan has been fired, his spokeswoman has confirmed.

No reason for the termination of Director of Finance Ed Noltensmeyer on Friday was given in a letter signed by McMahan. Previously, McMahan fired Tim Arbaugh, director of the abstract division, after it was alleged Arbaugh was involved in a scheme involving illegal campaign donations.

Noltensmeyer started working for the auditor in September 2005. His salary was $55,440, state records show.

Noltensmeyer had worked for the House of Representatives, the attorney general and the Office of State Finance since 1995.

Noltensmeyer said all he was told by McMahan was that "it was not a good fit." Noltensmeyer is an at-will employee, so the auditor does not have to provide a reason for the termination.

Terri Watkins, spokeswoman for the auditor's office, said she could not discuss reasons for his termination.

Meanwhile, Watkins confirmed that an accounting error on McMahan's campaign finance report will prompt the filing of an amended report. The initial report shows him with cash on hand of $19,745 when in face he has less than $400 on hand, she said. An accountant attributed $19,000 in in-kind contributions as cash contributions, she said, resulting in the incorrect balance being shown. McMahan's campaign is $22,500 in debt.

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Arbaugh Linked To Stipe Train Deal

The Oklahoman's Tony Thornton reports today that Tim Arbaugh, former head of the abstract division in the auditor and inspector's office, was involved in successful efforts to secure state money to buy a train owned by former Senator Gene Stipe.

The revelation is another connection between Arbaugh and Stipe, primary target of a federal investigation into campaign straw donors and an abstract company empire Stipe built with southeastern Oklahoma businessman Steve Phipps, also a target of the probe. It's also another indication of Arbaugh's ties to Phipps and the abstract industry he was in charge of regulating.

Arbaugh was fired by Auditor and Inspector Jeff McMahan after Arbaugh was identified in an FBI affidavit as a straw donor. It is alleged that some illegal donations were made to McMahan's campaign. Arbaugh and his wife (pictured) operate a bed and breakfast, Victorian Garden Inn, in Guthrie.

Thornton reports that Stipe collected $300,000 in state funds for seven railroad cars, which now "sit abandoned on a track near the Guthrie train depot, having never been used for their stated purpose." The money apparently came from the Oklahoma Historical Society and the Association of Central Oklahoma Governments (ACOG). A letter the newspaper obtained shows the cars were owned by Phipps Enterprises, one of Steve Phipps' operations in which Stipe allegedly was involved.

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Tulsa World: McMahan Now Admits Ties To Phipps

By Mick Hinton and Randy Krehbiel, Sunday Tulsa World ~ State Auditor and Inspector Jeff McMahan (left) on Friday admitted that he had ties to the man suspected of helping former Sen. Gene Stipe funnel illegal straw donations to favored candidates.

Two years ago, McMahan said his only connection to Steve Phipps (right) of Kiowa was that his son had sung a jingle used in McMahan's 2002 campaign for auditor.

At the time, Stipe said Phipps was McMahan's campaign manager.

Stipe and Phipps are former business partners who are locked in a civil lawsuit.

McMahan now says he recalls two fundraisers put on by Phipps and Tim Arbaugh, a former employee in the auditor's office. "I believe there were two fundraisers in Guthrie," McMahan said. "We had dinner and then (contributors) would go to the theater for a play." McMahan said the fundraiser tickets cost $100 a person. The auditor said donors were required to sign a form saying they had made the contribution themselves. "I'm not aware of anyone getting a ticket for nothing. Unless there was someone who contributed $500, they probably had (extra) tickets."

Last week, the auditor fired Arbaugh. The termination was prompted by allegations in a federal search warrant asserting that Arbaugh was a $2,000 "straw donor" to U.S. Rep. Dan Boren. Arbaugh was reimbursed the $2,000 by Phipps, the court document alleges.

"I don't know what kind of relationship Phipps and Arbaugh had," McMahan said. "I knew that they had been friends, but I always was very careful in checking whether there was any favoritism on abstract plants (businesses) connected to Phipps."

McMahan said he has never received a straw donation. However, Rita Benson, who prepared tax forms for Phipps' company, testified in Pittsburg County District Court on Tuesday that she was a "straw donor" to McMahan and Boren. "Steve Phipps paid me the check for the money I donated," she said.

Benson's testimony came a week after FBI agents seized records at Stipe's McAlester office. An affidavit released March 7 alleges that Stipe and three other former Democratic lawmakers conspired to funnel $2.27 million in state funds to companies linked to Phipps and Stipe. Records show that a dozen contributors to Boren's 2004 congressional race were connected to the abstracting industry. They also gave about $30,000 to McMahan's campaign in 2002. In his 2002 race for assessor, McMahan took fundraising for an auditor and inspector race to new heights. In his first race, McMahan raised about $360,000. Four years later, he raised $499,000 in contributions for a post that pays $109,250. McMahan's predecessor, longtime auditor Clifton Scott, said his last campaign in 1998 cost in the neighborhood of $100,000.

McMahan relied heavily on donations from abstract company personnel in 2002 and 2006, according to state campaign finance reports. His contributors included a substantial number of people associated with abstract companies connected to Stipe and Phipps. Stipe's connection to those companies became public two years ago, when the former senator sued Phipps, saying that he was not getting his fair share from their businesses. This was when Stipe's connection to several abstracting companies became public for the first time.

Gary Jones, who lost to McMahan in 2002 and 2006, said he did not take any donations from abstractors. Jones called last week for regulation of abstractors to be removed from the auditor's office. "Basically, the auditor controls it lock, stock and barrel, and this way if they controlled one person, they could control their monopoly," Jones said.

McMahan said he has never been able to "get my arms around" the abstractor aspect of his office. It was something that came with the office, having been placed within a state agency by law. "They have to get their certificates of authority to operate here. We also license abstractors. We have somewhere between 800 and 1,000 renewed yearly," McMahan said.

But starting a new abstract company is nearly impossible. A 1984 law requires the compiling of a complete "abstract plant" -- all land records for the county in which an abstract company plans to operate -- before a new applicant can be certified. Consequently, McMahan said, 30 to 40 of Oklahoma's 77 counties have only one abstractor's office. Jones said it costs about $1 million to copy all the records and meet other requirements to set up a new office. He said in the last 20 years, only one new abstractor has been granted a certificate. McMahan said a new abstract plant has been built in LeFlore County. He said he thought four more have applied and only one of those has been denied.

Jones contends that Phipps met with three former lawmakers, Mike Mass of Hartshorne, Randall Erwin of Nashoba and Jerry Hefner of Wagoner, in Arbaugh's basement office. Although he doesn't have any firsthand knowledge, Jones said that is where they worked out the deal that the lawmakers would designate more than $2 million in state appropriations to benefit Phipps' enterprises in return for kickbacks.

"I don't know anything about those secret meetings. I have looked through my itinerary and don't find anything referring to that," McMahan said. The auditor said that about a year ago he talked to the FBI, although he was not subpoenaed. "Close to a year ago, they just stopped by my office," he said.

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Damage Control: McMahan Fires Arbaugh

Embattled Auditor & Inspector Jeff McMahan has fired Tim Arbaugh, the head of his abstract division, identified as an illegal straw campaign donor in a federal affidavit.

McMahan reportedly informed Arbaugh of his firing in a one-paragraph letter sent late Tuesday.

The firing came as the campaign finance scandal focused on former Senator Gene Stipe and his abstract company partner, Steve Phipps, continued to shine light on McMahan and donations to his campaigns.

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Boren, Henry Run From Funny Money; Jeff McMahan Keeps It, Says He Won't Resign Office

Congressman Dan Boren and Governor Brad Henry have moved to shed themselves of apparent funny money shoveled into their campaigns by illegal straw donors, but Auditor & Inspector Jeff McMahan is keeping his and says he won't resign.

Those are the latest developments in the growing scandal focused on former State Senator Gene Stipe, his abstract company partner Steve Phipps, and others the Federal Bureau of Investigation alleges conspired to funnel money into political campaigns.

Boren, saying he had no idea illegal donations had been made to his campaign, donated $35,600 to charity. Henry, saying he had no idea illegal donations had been made to his campaign, donated $35,000 to charity. McMahan, who received at least $40,000 from those identified as straw donors to other campaigns, said a call by Republican State Chairman Tom Daxon that he resign is political and he won't resign. He said he will take "any appropriate action necessary" to deal with the head of his abstract division, Tim Arbaugh, who is listed as an illegal $2,000 donor to Boren's campaign and as the donor of $787 to McMahan's campaign.

McMahan's office regulates abstractors. Many of those alleged to be straw donors work in abstract companies controlled by Stipe and Phipps and it is known that Phipps was a fundraiser for McMahan in his 2002 campaign, and many of the alleged straw donors were among the most generous givers to McMahan. While McMahan has indicated he barely knows Phipps, a videotape from December 2002 shows McMahan participating in a Phipps Christmas party. The videotape was made public by McMahan's Republican opponent, Gary Jones.

The campaign finance scandal erupted (again) when The Oklahoman's investigative reporting team revealed the contents of an FBI affidavit filed in conjunction with a federal grand jury probe of Stipe and Phipps and others involved in numerous entities owned or operated by Stipe and Phipps in southeastern Oklahoma. Implicated in the arranging of some entities controlled by them to receive state funds are three former legislators, including Mike Mass, involved with Stipe in a previous campaign scandal.

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FBI 'Smoking Gun' Affidavit Revealed By Oklahoman; Boren, McMahan Got Alleged Illegal Donations Via Stipe, Phipps, Associates

In what can be described as a "smoking gun" affidavit, the Federal Bureau of Investigation alleges that former State Senator Gene Stipe and others conspired to make illegal donations to Congressman Dan Boren, Auditor & Inspector Jeff McMahan, and possibly others. Boren, the document indicates, probably was not aware of the illegal donation. Boren confirmed that and said any money given to his campaign illegally will be donated to charity.

The Oklahoman's investigative reporting team revealed the document today; the document claims Stipe engaged in illegal activity even while under house arrest for arranging illegal donations to an earlier federal campaign.

The affidavit seems to reinforce allegations made last year by Republican auditor and inspector candidate Gary Jones, who questioned fundraising in McMahan's campaigns of 2002 and 2006. The affidavit claims that at least one person gave McMahan $3,200 in 2002 and was reimbursed in a scheme involving McMahan friend Steve Phipps, Stipe's business partner in the abstracting company empire they own. The affidavit also alleges that Tim Arbaugh, the head of McMahan's abstracting division, himself was the conduit for an illegal donation. McMahan said today that Arbaugh denies the allegation.

The affidavit is the latest "smoking gun" development in the scandals that have swirled around Stipe and his associates in recent years. This investigation is providing information to a federal grand jury now empaneled in Muskogee. The FBI affidavits are filed as part of that proceeding.

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