Deniability veil is described
Auditor's trial: Deniability veil is described by witness

By Tony Thornton

Published: June 6, 2008

MUSKOGEE — A key prosecution witness in the trial of state Auditor and Inspector Jeff McMahan choked up Thursday as he recalled the moment he realized "we'd crossed the line” by taking $10,000 in cash from southeastern Oklahoma businessman Steve Phipps.

Tim Arbaugh, who regulated the abstract industry for the auditor's office until his firing last year, also discussed a "veil of deniability” aimed at helping McMahan feign ignorance about Phipps' illegal contributions.

Arbaugh and Phipps are the two main witnesses against McMahan. Both wore recording devices in early 2007 to capture conversations with the auditor and his wife, Lori McMahan.

Jurors heard excerpts of conversations between Arbaugh and Lori McMahan that prosecutors said reveal an effort to cover up the McMahans' alleged crimes.

The McMahans face nine felony counts accusing them of taking illegal money, jewelry and trips from Phipps, then taking action to benefit his companies, which were regulated by the auditor's office.

The alleged crimes began in 2002, when Jeff McMahan was in his first campaign as the successor to state Auditor Clifton Scott.

In May 2002, Phipps hosted a campaign fundraiser at a Guthrie restaurant, followed by a play across the street at the Pollard Theatre.

Arbaugh, who organized the event, said he asked McMahan whether he was concerned about the large number of Phipps' abstract company employees who had paid up to $1,000 to sit next to either Scott or Jeff McMahan.

The candidate's response: "Clifton Scott told me that it might be a problem, and it might be best if I just didn't notice,” Arbaugh testified.

After the play, Arbaugh said, he was talking to Lori McMahan about the chance that some of those people might be "straw donors,” who gave under their own name but with Phipps' money so Phipps could avoid the $5,000 campaign contribution limit.

About that time, Jeff McMahan asked what they were talking about, Arbaugh said.

He said Lori McMahan said, "You don't want to know.”

That phrase, and others like it, would be used often to provide Jeff McMahan with "deniability,” Arbaugh testified.

One of those times was Oct. 22, 2002. The campaign needed cash. A dinner meeting was arranged at the Garfield's restaurant in Shawnee.

Arbaugh said he and Phipps showed up early, and Phipps pulled out two stacks of cash.

When Assistant U.S. Attorney Ryan Roberts asked Arbaugh about Phipps' aims for the cash, Arbaugh choked up.

"He told me he was going to give it to Jeff and Lori,” Arbaugh testified.

"We'd been stretching things” in the campaign, he said. "It was at that point,” Arbaugh said, before choking up again. "It was at that moment I realized we'd crossed the line.”

Two weeks later, Jeff McMahan won re-election.

By 2006, Phipps was under criminal investigation, and McMahan was trying to distance himself.

While going over the list of Phipps' employees who had contributed in 2002, Arbaugh said he would ask them again.

"Don't bother. They don't have any money,” Arbaugh said his boss told him.

"But they gave last time,” Arbaugh said he told the auditor.

Roberts asked how Jeff McMahan responded.

"He said they didn't have any money last time, either,” Arbaugh said.

Arbaugh also admitted helping stall, at McMahan's request, a McCurtain County man's attempt to open an abstract company that would have competed with one owned by Phipps.