Prosecutors: GEAR UP defendant misused nonprofit's money

SIOUX FALLS, S.D. (AP) – A Rapid City man facing felony charges from South Dakota's GEAR UP scandal allegedly spent money meant to help Native American youths on steakhouse meals, electronics and other personal expenses, the Attorney General's office said in a Monday court filing.

Prosecutors want to introduce evidence that former GEAR UP official Stacy Phelps misused funds from the nonprofit American Indian Institute for Innovation to show that Phelps' motive in allegedly helping a couple who had been embezzling was to avoid a potential audit of the Institute, where he was chief executive. Phelps, 42, is charged with two counts of falsifying evidence and two counts of conspiracy to offer forged or fraudulent evidence.

The court filing says Phelps spent more than $60,000 of the Institute's money at Sam's Club between October 2011 and December 2014; roughly $58,000 at Wal-Mart between November 2011 and December 2014; nearly $21,000 at Best Buy between February 2012 and Sept 2015; and more than $20,000 at Computer Village between December 2011 and September 2015, among other transactions. 

Prosecutors also detail lavish spending at restaurants from Seattle to New York. 

Defense attorney Dana Hanna said that they "are all legitimate work-related expenses that were submitted and approved as legitimate work-related expenses." 

Three people, including Phelps, have pleaded not guilty to charges stemming from a financial investigation into the GEAR UP college-readiness program. The investigation was launched after Scott Westerhuis in September shot his wife, Nicole Westerhuis, and their four children, then set fire to their home and killed himself.

Authorities say the Westerhuises used the Institute, where they had fiscal oversight, to embezzle money from their employer, Mid-Central Educational Cooperative. Their deaths came hours after the state informed Mid-Central it was losing a contract for GEAR UP because of financial problems and accounting failures.

According to court documents, the couple took money from Mid-Central's bank account without authorization to fund the Institute's payroll. 

By November 2015, the Institute owed Mid-Central as much as $826,000 for payroll, according to Stephanie Hubers, a former business employee at Mid-Central who has been charged.

Dan Guericke, who has been Mid-Central's director, faces six felony counts for falsifying evidence and conspiring to offer forged or fraudulent evidence. 

Guericke and Phelps are accused of backdating two contracts between Mid-Central and the Institute in August 2015 before they were made available to the state Department of Legislative Audit. Authorities say the contract changes were an attempt to avoid a potential audit of the Institute.

Prosecutors said in the filing that an audit would have stopped Phelps' "unchecked spending" and brought his and Scott Westerhuis' "financial schemes" to light. The state also wants to introduce evidence from an email exchange between Westerhuis and Phelps to show that the two wanted to avoid questioning from the Institute's governing board.

Attorney General Marty Jackley wasn't immediately available for comment.