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During his testimony Thursday, Jeff McMahan made repeated references to taking action or being unaware of alleged improprieties until “after it came out in the paper.”

In some cases, his memory was mistaken. However, jurors don’t know that.

A couple examples:

• In answer to a question from his attorney, Rand C. Eddy, McMahan said he was unaware of an alleged effort to stall a permit request for a new abstract company in McCurtain County until he read it in the paper. However, that matter didn’t surface until last week, when witnesses testified about it at the auditor’s trial. A new company would have broken up a monopoly by admitted co-conspirator Steve Phipps.
• Under cross-examination, McMahan said he told a campaign worker for his 2006 campaign not to accept any money from so-called “Phipps people.” The reason, he said, was that the media had begun reporting possible straw contributions involving Phipps to various political campaigns, including McMahan’s 2002 campaign. However, that information didn’t become public until March 2007.

Prosecutors didn’t confront the auditor about those time lapses. 

The table was set. Lori McMahan would either testify against her husband or, preferably, convince him to plead guilty to a felony and resign as the state auditor and inspector.

In return, she would receive immunity for her admitted crimes involving businessman Steve Phipps, whose companies were regulated by the auditor’s office.

The deal was nixed when Lori McMahan couldn’t recall whether her husband attended a 2002 dinner meeting where Phipps handed her $10,000 in cash.

Jurors will hear about that Wednesday at the criminal trial of Jeff and Lori McMahan. They’re likely to also hear prosecutors question Lori McMahan about her memory gaps concerning key events.

The proposed deal for her immunity was made at the FBI office in Oklahoma City in late October. The fifth-grade teacher remembers the approximate date because she was wearing a Halloween sweater, the same one she’d worn to school that day.

The meeting occurred two months after the FBI served a search warrant on the McMahans’ home in Tecumseh. During the search, Lori McMahan admitted she had accepted cash and jewelry from Phipps. A prosecutor suggested she gave conflicting versions when confronted with inconsistencies.

“I had made a mistake, and I was willing to take responsibility for my sins,” she said, explaining her reason for the admission.

Assistant U.S. Attorney Gay Guthrie wasn’t impressed with some of Lori McMahan’s answers during a hearing outside the jury’s presence to determine whether she could testify about the immunity offer.

“The point of all this is, she lied then (to the FBI), and she’s lying now,” Guthrie told U.S. District Judge James H. Payne.

Payne ruled that the auditor’s wife can testify about the immunity offer.

Jeff McMahan’s chief fundraiser for his 2006 re-election campaign faced two huge obstacles. She dubbed them “The Hands Off List” and “The Dead List.”

Combined, those two lists accounted for the largest single source of money for McMahan’s first campaign in 2002. Now, the people on those lists were untouchable, Erin Bradshaw testified Monday.

Bradshaw had worked a governor’s race in North Dakota and two other political races in Kansas when, in 2005, she was brought in to help get McMahan re-elected as state auditor and inspector.

As she delved into McMahan’s campaign contribution reports from 2002, she noticed a large number were tied to abstract company owner Steve Phipps. Some were clerical workers who gave as much as $5,000, which Bradshaw said raised red flags.

She said McMahan instructed her not to contact those people.

“Anybody that was somebody Phipps might be involved with, I was to be hands off with,” Bradshaw testified. 

That included former state Sen. Gene Stipe and the 2002 donors tied to him. Stipe and Phipps were secret business partners in 2002. By 2006, they were suing each other, and both were under FBI investigation.

“The Stipes were completely off the table (for campaign money), because there was so much publicity by then,” Bradshaw testified.

The dead list, Bradshaw explained, includes donors from a candidate’s previous campaign who have either died since then or indicated they don’t want to be bothered for another contribution.

One such person was Ancel Arrington, an Edmond accountant who gave $2,700 in 2002. Bradshaw said she was sitting across from McMahan, making fundraising calls, when McMahan relayed this message that Arrington had just told him: “I only gave in ‘02 because somebody told me to, and I will never give again.”

Arrington did accounting work for Larry Witt, who in 2002 co-owned some abstract and title insurance companies with Phipps. By 2006, Phipps was under FBI investigation, and both Witt and McMahan were distancing themselves from him.

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, Artbaugh 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.

MUSKOGEE — Records from Clifton Scott’s last two political campaigns tend to validate at least part of a claim made Wednesday on the witness stand by the prosecution’s star witness, Steve Phipps.

Phipps claimed that he channeled money into the former state auditor’s campaigns beginning around 1988 and ending in 1998, the last time Scott ran for office.

Earlier this year, The Oklahoman pulled Scott’s campaign records from a warehouse near the Capitol to see whether Phipps attemped to buy influence with Jeff McMahan’s predecessor.

Those records show thousands of dollars in contributions from the same people who Phipps said acted as straw donors, at his request, for other campaigns. Many of them worked for Phipps’ abstract companies.

Phipps claims Scott, like McMahan, knowingly took the money and provided special favors to benefit his abstract companies, which the auditor’s office regulates. Both Scott and McMahan deny that claim.

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, 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 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.

By Tony Thornton

Staff Writer

Steve Phipps needed an insurance policy to protect his abstact companies. His insurance, a federal prosecutor told jurors Monday, was the state auditor.

“The best insurance is (bribing) the only person who regulates your industry,” Assistant U.S. Attorney Ryan Roberts told jurors.

Roberts laid the foundation for a series of witnesses who he said will establish a conspiracy between Phipps, state Auditor and Inspector Jeff McMahan and McMahans’ wife, Lori.

Phipps is cooperating as part of a plea deal. The McMahans face a nine-count felony indictment.

Roberts referred specifically to the night of Oct. 22, 2002, when Phipps is alleged to have handed an envelope containing $10,000 to Lori McMahan at a Shawnee restaurant.

The general election — Jeff McMahan’s first — was two weeks away. He desperately needed last-minute funding in a tight race with his Republican challenger, Gary Jones.

The future of Phipps’ companies was at stake. Jones was vowing to do away with the abstract industry. That $10,000 represented Phipps “paying an insurance premium,” Roberts said.

Two years later, McMahan needed money again, this time to send him and his wife to Boston for the Democratic National Convention, Roberts said.

He said he asked Phipps for the money through an intermediary, then sent a poster from Boston, along with a “thank you” note.

“It’s like when an insurance company sends you a cheap refrigerator magnet and says, ‘Thanks for doing business with us,’ ” Roberts told jurors.

One day into the trial, this much seems apparent: Reputations will be tarnished, if not destroyed.

Jeff McMahan’s defense attorney, Rand C. Eddy, told jurors about several elected and appointed public officials who benefited from Phipps’ illegal activities. He promsed to elaborate during the trial.

While Phipps essentially bought those public officials, he chose to “create a story” about McMahan after Phipps got caught in a scheme to obtain $2.7 million in state money for his businesses.

The criminal corruption trial of Jeff and Lori McMahan figures to feature some of the same prosecution witnesses who testified in the same Muskogee courthouse last month during a trial for McAlester businessman Francis Stipe.

For sheer entertainment value, however, the two trials couldn’t be more different.

The difference starts with the man overseeing the McMahans’ trial. U.S. District Judge James H. Payne’s demeanor is, in a word, judicial. He listens politely and typically delivers monotone answers to attorneys’ questions. He has, however, shown a tendency to mispronounce the defendants’ last name during two pre-trial hearings.

Payne’s manner is a sharp contrast to that of U.S. District Judge Ronald White, who presided at Stipe’s trial.

Among White’s antics:

– Bringing a cup of tea into a morning session and explaining to jurors why he could have it but they couldn’t.

– Scolding a reporter — outside the jury’s presence — for writing that shouting could be heard coming from the jury deliberation room.

– Describing for jurors in great detail how his dog’s intestinal worms would affect the trial. (White had to pick his dog up from the vet, which gave jurors a longer lunch break one day.) He then displayed a photo of his dog, gave jurors daily updates and turned the photo to face them for the rest of the trial.

Payne is far more predictable. That could make it imperative for the McMahans’ jury, which convenes Monday, to have frequent doses of caffeine.