Auditor's wife tells of trips and gifts

By Tony Thornton

Published: June 11, 2008

MUSKOGEE — The wife of state Auditor and Inspector Jeff McMahan tearfully recalled for jurors Tuesday the evening she offered to "pack my bag” after admitting to her husband that she committed crimes to help him get elected in 2002.

Lori McMahan testified as a defense witness at the criminal trial for her and her husband. Both face nine federal felony counts related to their association with businessman Steve Phipps, whose abstract companies were regulated by the auditor's office.

Her testimony confirmed a defense strategy to tell jurors that the fifth-grade teacher — without her husband's knowledge — accepted money and jewelry from Phipps. Her attorney, Kevin Krahl, has argued that any crimes she may have committed were state crimes, not federal ones, and that because she's not a public official, she couldn't be bribed.

Outside the jury's presence, Lori McMahan testified that prosecutors offered her immunity if she would testify against her husband.

The deal, proposed to her in late October, required her to say Jeff McMahan attended a dinner meeting in Shawnee late in the 2002 campaign, where Phipps handed her an envelope containing $10,000 in cash.

She said she couldn't recall whether her husband had been there, so the immunity deal was off.

But she struggled in hopes of remembering, because "I was a mother as well as a wife,” Lori McMahan testified during a hearing to determine whether jurors could hear about the proposed immunity deal.

"By that time, I knew Jeff was going to be indicted,” she said.

If she went to trial with him and was convicted, she might go to prison, leaving an 18-year-old son and a 14-year-old daughter without their parents.

"I wanted to be around to raise my children,” Lori McMahan said as tears welled in her eyes.

U.S. District Judge James H. Payne said he will allow Lori McMahan to testify about the proposed immunity. She had not reached that part of her trial testimony when Payne recessed court for the day about 5:25 p.m. Tuesday.

Jeff McMahan's attorney said he hasn't decided whether the auditor will testify.

Before Lori McMahan took the stand about 4 p.m., defense attorneys focused on trying to discredit Phipps and Tim Arbaugh, the prosecution's two main witnesses.

Phipps pleaded guilty to a conspiracy charge last year and awaits sentencing. Arbaugh, who headed the auditor's abstract division until being fired last year, received criminal immunity for his cooperation.

One witness who said she's known Phipps her entire life said he's not trustworthy.

Two other witnesses suggested Arbaugh was lying when he testified last week that Jeff McMahan stalled a permit for a proposed abstract company to benefit Phipps.

That permit application, if approved, would have ended Phipps' monopoly in McCurtain County.

Also Tuesday, political consultant Pat Hall, who ran the auditor's 2002 and 2006 campaigns, said he was sickened to learn in March 2007 that Lori McMahan had accepted jewelry from Phipps.

Hall said Lori McMahan made the admission during a "damage control” meeting to determine how to "spin” newspaper inquiries about the auditor's trips allegedly funded by Phipps.

Lori McMahan told the court she took what she thought was $5,000 from Phipps during a meeting with him and Arbaugh on Oct. 22, 2002. Arbaugh and Phipps previously testified that Jeff McMahan left after Phipps pulled out the envelope.

She had taken cash from him before that for campaign signs, she said, but that night was when she suspected Phipps might also have funneled money into the campaign through "straw donors.”

A few months after her husband took office, the McMahans, the Phippses and a third couple went to New Orleans. Phipps paid everyone's expenses.

Lori McMahan said her husband tried to pay for their room, gasoline and meals, but Phipps always beat him to it. She said she promised she would reimburse Phipps, but never did.

Phipps bought expensive jewelry for all three women on the trip. After her husband told her privately that the gift wasn't appropriate, she justified it by saying it was costume jewelry, and that state Ethics Commission rules allowed gifts of up to $300, Lori McMahan testified.

She said she researched the Ethics Commission rules again to help her husband justify a second New Orleans trip in October 2004. He was supposed to teach courses to abstractors on the bus ride as part of their required continuing education, but once on the bus with about 30 other people, Phipps never presented the auditor to teach, Lori McMahan testified.

She said she accepted a second piece of jewelry from Phipps on that trip after Phipps "started a scene” in a hotel lobby when she tried to decline it.

Lori McMahan said she later lied to her husband by telling him she had returned both pieces to Phipps.

She admitted taking $3,000 (prosecutors say it was $3,500) from Phipps in July 2004 to pay the McMahans' expenses to the 2004 Democratic National Convention in Boston.

She said she went to Arbaugh's office in the state Capitol basement to get it, without her husband's knowledge.

"He wouldn't have been happy if he'd known I'd done that,” the auditor's wife testified.

She said she lied to her husband by telling him their tax refund paid for the trip. That testimony contradicted earlier testimony from Arbaugh and Phipps, who said Arbaugh called Phipps from Jeff McMahan's office — at the auditor's request — to solicit the money.

The FBI searched the McMahans' home in Tecumseh on Aug. 23, 2007. That's when Lori McMahan confessed to taking money and jewelry from Phipps. Later that evening, she told her husband about the situation, she testified.

"I offered to pack my bag and leave,” Lori McMahan said.

"What did he say?” asked her attorney, Kevin Krahl.

"He said he loved me, and my leaving wouldn't solve anything; that we'd work it out,” the auditor's wife said.