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October 26, 2017 10:06 PM

Judge Hands Down Decision In GEAR UP Criminal Case

Originally Published at 10:27 a.m.

Following two days of testimony in March, where the state submitted evidence in the cases against the three GEAR UP defendants, Judge Bruce Anderson has now issued a ruling over the evidence jurors will ultimately hear.

Stephanie Hubers is charged with grand theft and receiving stolen property. She worked as an assistant business manager for Mid Central Educational Cooperative.

Judge Anderson has ruled that he will allow all of the state's evidence submitted at the motions hearing back in March, except for a recent legislative audit report. 

In that report, Mid Central claimed it never knew it was bankrolling Stacy Phelps, Scott and Nicole Westerhuis, or their organization — American Indian Institute for Innovation. The educational cooperative also claims it didn't know about making payments to Hubers for her work on AIII.  

The court ruled the report contains hearsay and also contradicts what long-time Mid Central Auditor Randy Schoenfish said on the stand: Mid Central had been advancing money to AIII and another non-profit organization, OSEC, for years. 

Schoenfish testified that between 2009 and 2011, both entities owed Mid Central money and he had met with Dan Guericke, the Westerhuises and Stephanie Hubers about "red flags" in the audit.

Prosecutors wanted to show that Hubers kept a secret set of books to keep Mid Central board members in the dark about illegal activities committed by Scott and Nicole Westerhuis, but Judge Anderson ruled the state cannot introduce any evidence or otherwise characterize evidence that the AIII payroll and accounts receivable were "secret” or unknown to Mid Central. 

Hubers will go on trial March 1-9, 2018.

Former AIII head Stacy Phelps and former Mid Central Director Dan Guericke are charged with falsifying evidence and conspiracy to commit fraud.  Both men are accused of altering contacts between AIII and Mid Central to avoid an audit. 

Prosecutors want to use Guericke's own testimony before lawmakers against him in the case. Guericke claimed in August 2015 that students in the GEAR UP summer program had 98-percent high school graduation rates and that 95 percent went on to college. In the weeks that followed his testimony before GOAC, a series of emails between Guericke and the Department of Education showed that the data wasn't there to back up that claim.

Judge Anderson will allow prosecutors to present the audit reports from 2014 and 2015 on GEAR UP, which first showed problems and Guericke’s testimony before GOAC on August 25, 2015

Between 2009 and 2015, Guericke signed 17 contracts on behalf of Mid Central with no board approval required by South Dakota law.  Judge Anderson ruled that cannot be introduced as testimony against Guericke because it could be an "innocent mistake."  Judge Anderson says introducing the 17 unapproved contracts could confuse the issue and mislead the jury. 

As KELOLAND Investigates reported, the prosecution hoped to show that Guericke had motive to alter contracts because of the $4 million Microsoft match issue. Defense attorney Mike Butler asked that evidence be thrown out, saying it wasn't relevant.

A state audit later determined there was no evidence the software was used at all in the GEAR UP program. The audit determined that the state's match was unsupported and the state may be asked to pay the federal government back. The South Dakota Department of Education has indicated that is the main reason it has filed a civil suit against the school district that made up Mid Central Educational Cooperative. The state says the lawsuit an "insurance policy" in case the feds ask for the money back.

Judge Anderson says prosecutors cannot use the Microsoft match issue as evidence in Guericke's trial because it is not relevant to prove motive or intent for backdating contracts between Mid Central and the American Indian Institute for Innovation. 

The state also submitted evidence against Stacy Phelps, which allegedly showed grant money was misspent on fancy meals, casinos and personal items. Phelps claims they were all legitimate business expenses in his role as CEO of AIII. 

But in March, astronaut and AIII board member John Herrington testified that the spending and contracts between Phelps and Westerhuis were all done in secret and that the AIII board had no idea it was going on. Judge Anderson says the state's evidence of Phelps' spending may be used in trial. 

The judge will also allow an email exchange between Phelps and Westerhuis, which indicates they were trying to hide some of what AIII was doing from another board member.

Guericke and Phelps are scheduled to go before a Charles Mix County jury June 25 to July 20, 2018.

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