Keith Roysdon

kroysdon@muncie.gannett.com

MUNCIE, Ind. — After a months-long FBI investigation into allegations of wrongdoing in Muncie city government, the city's building commissioner has been arrested and charged with wire fraud, theft and money laundering.

Craig Nichols was arrested Wednesday morning and the U.S. Attorney's office released details of the charges against him late Wednesday afternoon.

Nichols, 38, appeared in federal court Wednesday in Indianapolis. He is charged with 16 counts of wire fraud, one count of theft of government funds and 16 counts of money laundering.

"Nichols has served as Muncie’s building commissioner since 2012, exercising authority over permitting, inspections and code enforcement for the city," the office of U.S. Attorney Josh Minkler said. "The indictment alleges that Nichols abused his position of trust by using sham bidding practices and submitting fraudulent invoices to steer work to his companies, and then bill Muncie more than $376,000 for work his company either never performed or performed at inflated prices."

The federal indictment alleges that Nichols and others who are not cited by name conspired to steer demolition contracts to his private companies, Advanced Walls and Ceilings and Capitol Consulting and Property Management. Demolition and asbestos abatement work that authorities said fit into the schemes was conducted on properties purchased by the Muncie Sanitary District for demolition for the district's White River levee recertification process, the KPEP project to redevelop the former Indiana Steel and Wire property and several inner-city properties that were the scenes of demolitions even though they had no structures.

"It was further part of the scheme that defendant Nichols, another city official and others attempted to conceal Nichols' sham demolition of four properties to create the false impression that the minimum two-quote threshold for emergency work had been met and to conceal inflated prices in (Advanced Walls') invoices," according to the indictment.

Although "others" and "another city official" are cited, sometimes repeatedly, throughout the federal indictment, no names are specified. Other companies that are cited are not identified.

Scott Shockley, Nichols' attorney, told The Star Press Wednesday evening, "Craig denies the charges."

"Every time the city or Sanitary District paid Craig or one of his companies for work, it was done at a fair price," Shockley said. "The Constitution presumes that people are innocent. Craig is entitled to to be presumed innocent."

The Star Press reported in May 2016 that the FBI investigation was underway and that it appeared to focus on Nichols, whose Muncie City Hall office and home were searched by the FBI on Jan. 5.

Mayor Dennis Tyler, through a statement released just before 4:30 p.m. Wednesday, said that his office had not yet heard details of the indictment and tentatively scheduled a press conference for 11 a.m. Thursday at the mayor's office. Tyler early on in the investigation told The Star Press that he had instructed his department heads to fully cooperate with federal investigators.

In the wake of the Jan. 5 search warrants, rumors began circulating in local political circles that an indictment or indictments could come by Valentine's Day.

Among the elements of the FBI investigation were demolitions of vacant houses reportedly done by the city and also demolitions done by Nichols' private contracting companies and paid for by the city.

RELATED: In May 2016, The Star Press reported that the FBI was investigating Muncie city government

RELATED: In January, the FBI executed a search warrant at city hall

Over the course of several years, the city paid hundreds of thousands of dollars to Nichols' private companies for demolition-related work.

The FBI subpoenaed records, including invoices to Nichols' demolition companies, and interviewed city officials in March and April 2016. The Star Press reported the investigation in May and later that month reported that the focus of the investigation was on demolitions. The city paid Nichols' companies nearly $800,000 since 2013. Much of that was for demolition-related work for the Muncie Sanitary District.

The indictment issued Wednesday cites a figure of nearly $800,000 but specifically cites $376,625 in the theft count. "Beginning in or about July 2015, and continuing until in or about June 2016, Craig Nichols and others embezzled, stole, obtained by fraud or otherwise converted at least $376,625 in funds owned by, or in the care, custody and control of Muncie ... "

After establishing the players, including Nichols, the Muncie Sanitary District and the KPEP project at Indiana Steel and Wire, the indictment notes that between July 30, 2015, and May 18, 2016 — six days after The Star Press revealed the existence of the FBI probe — Nichols' companies were paid $376,625 for demolition and asbestos-related work on the Muncie Sanitary District and Indiana Steel and Wire properties.

Among the details in the indictment, under the heading "Nichols bills Muncie for sham demolitions," authorities recount how "Nichols abused his position as Muncie building commissioner to enrich himself through his company (Advanced Walls) by steering public works projects and associated payments to (Advanced Walls) through sham bidding practices and fraudulent invoices ... Nichols and others acting at Nichols' direction instructed contractors to submit false and fraudulent quotes for the same public works projects to ensure the success of (Advanced Walls') sham bidding practices and to conceal inflated prices in (Advanced Walls') own quotes."

The indictment cites four properties for which Nichols and others "submitted false and fraudulent" invoices, specifically properties on Elliott, Elm, Wolf and Proud streets for demolition projects for structures that had already been demolished. Nichols' company was paid $81,500 by the city for those invoices.

Nichols "and others" attempted to conceal the sham demolitions, the indictment alleges, by saying the first invoices were in error and submitting another set.

Under the heading "Nichols conceals his ownership of (Capitol Consulting and Property Management)," authorities say Nichols "induced Individual A" to register as owner of the company, but Nichols controlled the checkbook, ATM card and post office box associated with the company. Nichols also had Individual A's signature stamp so he could endorse that person's name on checks issued from the city to Capitol Consulting. Another person was instructed to answer correspondence, obtain checks from the Muncie controller's office and interact with subcontractors.

Nichols didn't file a conflict of interest form — which disclosed he benefited financially from the company — until after the FBI issued a subpoena for the company's records.

The indictment also alleges that Nichols "fraudulently billed" the city for asbestos abatement, including at the KPEP project, "at an inflated price."

The 16 wire fraud counts are based on allegedly using "wire communication" to embezzle and steal $376,625.

On the 16 money laundering counts, the indictment says Nichols performed financial transactions "designed in whole and in part to conceal and disguise the source and ownership of the proceeds of said unlawful activity."

The indictment also says the federal government will pursue forfeiture against Nichols' property.

The local ramifications of the investigation have been politically charged from the beginning. Nichols' father, Phil Nichols, is a former chairman of the Delaware County Democratic Party, as is Tyler.

Several people who spoke to The Star Press during the course of the FBI investigation said they talked to federal agents about other topics besides Nichols.

City officials had emphasized that the investigation also included circumstances following the firing, in early 2016, of Gretchen Cheesman, a longtime city employee who told Tyler after her termination that she would tell him about the wrongdoing of city officials if her status was changed from fired to retired and her benefits were restored. Another person, Carl Barber, told The Star Press he talked to FBI agents about the Muncie Sanitary District's purchase of his flea market building at a higher price than the amount he had received just weeks earlier.

Contact Keith Roysdon at 765-213-5828 and follow him on Facebook and Twitter.

Ward: Should anyone be surprised?