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Testimony: Large purchases not board authorized

LAKE ANDES -- The former CEO of the American Indian Institute of Innovation (AIII) purchased vehicles and several meals without board approval, according to court testimony Thursday.

Former Mid-Central Educational Cooperative Executive Director Dan Guericke, left, attorney Michael Butler, center, and former AIII CEO Stacy Phelps, right, discuss their case Thursday at the Charles Mix County Courthouse in Lake Andes. (Jake Shama / Republic)
Former Mid-Central Educational Cooperative Executive Director Dan Guericke, left, attorney Michael Butler, center, and former AIII CEO Stacy Phelps, right, discuss their case Thursday at the Charles Mix County Courthouse in Lake Andes. (Jake Shama / Republic)

LAKE ANDES - The former CEO of the American Indian Institute of Innovation (AIII) purchased vehicles and several meals without board approval, according to court testimony Thursday.

John Herrington, chairman of the board for the AIII, testified Thursday by phone during a motions hearing for Stacy Phelps, former CEO of AIII.

The testimony came on the final day of a two-day hearing at Charles Mix County Courthouse regarding potentially admissible evidence in trials for Phelps and two others facing charges related to mismanaged grant funds through Platte-based Mid-Central Educational Cooperative.

Herrington said Phelps took advantage of his position with the nonprofit by using AIII funds for improper purchases.

After Scott Westerhuis, former business manager for Mid-Central and CFO for AIII, allegedly killed himself and his family in September 2015, Herrington began investigating AIII's business practices.

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According to court documents, Westerhuis helped establish AIII in 2008 to help Native American students prepare for college. Then, contracts were set up with Mid-Central and money was allegedly funneled to Westerhuis and others illegally.

According to Herrington's testimony, he discovered the nonprofit was profiting from contracts with Native American reservations and schools. Herrington said he thought AIII was "bare bones" and operating solely on grants.

He also discovered the purchase of about 20 vehicles, some of which were wrecked and unusable.

"I was shocked, absolutely shocked, what was being done in the name of AIII," Herrington said. "I was beyond angry. I was taken advantage of. The board was taken advantage of."

Herrington said he confronted Phelps about the vehicles, who allegedly said, "Scott said it was OK." Herrington also said Phelps did not have board approval to use AIII funds to pay for dinners or other purchases questioned by the state, including tools and repairs to his personal vehicles.

Herrington said he asked Phelps about two purchases at a coffee shop, but when he questioned Phelps, he said Phelps threatened to resign due to a lack of trust.

Phelps' attorney, Dana Hanna, questioned why Herrington believed the purchases were inappropriate. Herrington expected Phelps to seek the board's approval before making large expenditures but admitted there were no written rules regarding purchasing decisions by the CEO. Phelps was terminated after the discoveries were made.

Matching grant money

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Dan Guericke, former executive director of Mid-Central, and Stephanie Hubers, Mid-Central's former assistant business manager, are facing criminal charges and also appeared at the hearing.

Guericke's attorney, Michael Butler, said Attorney General Marty Jackley presented a "disingenuous representation" about evidence surrounding a $4 million matching grant from Microsoft to purchase DreamSpark software. DreamSpark, now known as Microsoft Imagine, is a software design and development tool.

Jackley argued the matching grant was vastly overvalued and the software was never distributed to schools, but Butler said the valuation is based on package deals, not individual pieces of software.

He also said the issue doesn't apply to Guericke, who is charged with backdating two contracts. Butler said Guericke wrote past dates on two contracts to memorialize the documents, which he thought were lost, because he trusted the instruction of Westerhuis, who Butler called a "coward."

"My client is guilty of trusting Scott and Nicole. Worked there for 16 years. Everybody trusted him, and he exploited it," Butler said.

Jackley said the Microsoft evidence is relevant and points toward Guericke's alleged motive and intent.

Jury trials will be scheduled, but Guericke and Hubers will be seeking a change of venue to move their cases out of Charles Mix County. Phelps, too, could motion to move his case in the future.

Judge Bruce Anderson has not issued a decision on the matter, but Jackley said he'd like the trials to stay in the county where the alleged incidents occurred.

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"In this case, I believe it happened in Charles Mix County, and I believe a jury can be seated," Jackley said.

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