Questions Linger Around State Ag Commissioner's Election Campaign

Phipps has not been charged and U.S. Attorney Frank Whitneydeclined to say whether she might be a target of investigators.

"She has not been contacted by the U.S. attorney's office orany of the investigators associated with the case, but she'scertainly willing to cooperate," said spokesman Mike Blanton, adeputy commissioner who was interviewed for 3-1/2 hours byinvestigators and testified to a grand jury.

Phipps' attorney, Roger Smith, said he couldn't comment aboutthe case, but Blanton said Phipps' attorneys had contacted thefederal prosecutors to tell them she was willing to talk to them.

As for Phipps' effectiveness to lead in the wake of the indictments, ranking members of the Senate agriculture committee said it must be a difficult time for her.

"As far as I know that work is still going on, but I know it's got to be hard for her. It's got to be a distraction for her," said Sen. Charles Albertson, D-Duplin.

"It is damaging and it does make it difficult and I do think that a serious cloud has been cast over her and her administration," said Sen. Austin Allran, R-Burke.

Two of Phipps' former aides were indicted this week by a federalgrand jury on fraud, extortion, money laundering and conspiracycharges related to fund raising during and after Phipps' 2000campaign.

Former campaign treasurer Linda J. Saunders was charged with 17counts, including conspiracy, mail and wire fraud, extortion by apublic official, money laundering and structuring transactions toavoid reporting them. Former commissioner candidate and assistantcommissioner Bobby McLamb was charged with two counts - extortionby a public official and conspiracy to commit mail and wire fraud.

An initial appearance hearing for McLamb is scheduled forThursday, according to his lawyer, David Long. No hearing wasimmediately scheduled for Saunders.

The indictment outlined a scheme in which the defendantsallegedly diverted campaign contributions intended for Phipps tohelp pay some of McLamb's campaign debt. McLamb lost to Phipps inthe Democratic primary in 2000 and, when he then joined hercampaign, Phipps said she would help him repay what he owed.

During a hearing before the state Board of Elections last year,Phipps repeatedly denied knowing about her campaign's paymentstoward McLamb's loans.

But the indictment said Phipps called and wrote to Centura Bank,where McLamb owed $75,000, asking that the loan be extended.

"My husband Robert and I are holding a series of fund-raisersnow and after the election in November to assist Bobby in retiringthis debt and feel we should have no trouble raising the money tosatisfy his debt to Centura Bank," Phipps wrote in an October 2000letter to the bank.

During the elections board hearing, Phipps said she and herhusband talked with McLamb and a campaign contributor about helpingMcLamb. But she said she never agreed to use her campaign money topay off McLamb's debt.

According to the 42-page indictment, the alleged crimes beganafter an unnamed person in Phipps' campaign told McLamb thecampaign would help repay his debt. McLamb received the assuranceMay 2, 2000 - the night of the primary - after he offered tosupport Phipps in the general election.

The indictment said the Phipps' campaign diverted at least$86,000 in contributions to repayment of McLamb's $100,000 debt.McLamb had separate $75,000 and $25,000 bank loans and Phippscalled at least one bank asking that the loan be extended while hercampaign raised money for it, the document said.

Saunders, 43, a longtime assistant to Phipps, and McLamb, 42,were accused of soliciting money they said would go toward retiringPhipps' campaign debt. But state campaign finance reports filed bythe campaign didn't disclose the payments for McLamb.

Last year, the state Board of Elections fined Phipps' campaign$130,000. The board said the campaign had taken $84,202 in cashfrom donors it could not identify and more than $14,000 in illegalcorporate contributions.