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State offers new evidence in GEAR UP scandal

The State of South Dakota will introduce additional evidence against a man facing felony charges relating to the GEAR UP grant program. The Office of the Attorney General announced Monday its intent to introduce testimony and evidence against Sta...

Stacy Phelps makes his way up the stairs before entering the courtroom for arraignment on Wednesday afternoon at the Charles Mix Courthouse in Lake Andes. Phelps pleaded not guilty to four counts stemming from an investigation surrounding South Dakota's GEAR UP grant program. (Matt Gade/Republic)
Stacy Phelps makes his way up the stairs before entering the courtroom for arraignment on Wednesday afternoon at the Charles Mix Courthouse in Lake Andes. Phelps pleaded not guilty to four counts stemming from an investigation surrounding South Dakota's GEAR UP grant program. (Matt Gade/Republic)

The State of South Dakota will introduce additional evidence against a man facing felony charges relating to the GEAR UP grant program.

The Office of the Attorney General announced Monday its intent to introduce testimony and evidence against Stacy Phelps, who pleaded not guilty on two counts of falsification of evidence and two counts of conspiracy to offer forged or fraudulent evidence after allegedly backdating two contracts between the Mid-Central Educational Cooperative and the American Indian Institute for Innovation (AIII).

The charges against Phelps came months after alleged misuse of GEAR UP funds were realized following a murder-suicide in Platte. Scott Westerhuis, a former employee at Mid-Central who is believed to have collaborated with Phelps, shot and killed his wife and four children before setting his home ablaze and killing himself. Westerhuis is believed to have stolen an excess of $1 million.

The new evidence and testimony relates to misuse of non-profit AIII funds that were "earmarked for enhancing education opportunities for Native American youth by Stacy Phelps on meals, consumer goods, electronics, car fuel, personal vehicle maintenance and other personal expenses.

The evidence includes itemized personal expenses at several restaurants, Hilton Hotels, a casino and a total of $20,729.74 in expenses at Best Buy from February 2012 to September 2015. Phelps is also believed to have spent $57,776.97 at Walmart from November 2011 to December 2014.

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The new evidence also includes emails between Phelps and Westerhuis in which the two discussed operating an AIII program through an affiliate so AIII's board would not question their activities.

As Phelps served as the CEO of AIII, and Westerhuis served as chief financial officer, the Attorney General's Office report connects the dots between the two parties.

"The backdated contracts in question aided Westerhuis' scheme by retroactively defining AIII as a 'sub-contractor' performing work for MCEC on contract as opposed to a 'sub-recipient' of federal funds passed through MCEC and administered by AIII," reads the court documents.

According to court documents, the state expects Phelps to blame Westerhuis for preparing the backdated contracts. But the state believes Phelps is connected to the illegal activity.

"While Westerhuis' wholesale embezzlement from AIII and MCEC eclipses Phelps' abusive spending, the personal benefit Phelps realized from his uncheck spending supplied a similar motive for avoiding a federal audit of AIII's finances," says court documents.

The state claims an audit would have put a stop to the misappropriation of funds and unchecked spending directed toward Westerhuis and Phelps.

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