By J.B. Smith and Erin Quinn

Tribune-Herald staff writers

Police have issued an arrest warrant for former Downtown Waco Inc. executive director Margaret Mills on a felony charge that the longtime civic leader stole more than $200,000 from the agency that she turned into an economic development dynamo.

The Waco Police Department, however, had not yet arrested Mills late Monday night after a six-month investigation of Downtown Waco Inc.’s books.

The arrest warrant affidavit filed Monday accuses Mills of taking $268,458 by misusing agency checks and debit and credit cards, and by diverting members’ dues checks to her personal bank account. The affidavit says other questionable expenses could push the total as high as $500,000. The theft over $200,000 charge could carry a punishment of five years to life in prison and a fine of up to $10,000.

Approached at her home mid-afternoon Monday, Mills opened the door looking tired and worried and wearing a blue pantsuit. She told a reporter she and her attorney knew nothing of the warrant, and she had little comment.

“Only that I’m devastated,” she said, closing the door. “And that’s it. Thank you.” Minutes later, she left the house in a tan SUV.

By evening it was unclear where Mills was. Her husband, Coke Mills, approached around 5 p.m. outside his law office at Central Tower on Bosque Boulevard, said he didn’t know where his wife was. Her attorney, Pat Beard, said he was trying to make arrangements for Mills to bond out of the McLennan County Jail, but she had not arrived there by 10:30 p.m., a jail spokeswoman said.

Police Sgt. Ryan Holt said Margaret Mills is the sole target of the investigation so far.

In the affidavit, Waco police detective Charles Jaquith says he obtained records by subpoena for several banks where Mills and Downtown Waco Inc. did business. The investigation found the following:

* Mills wrote 121 checks from Downtown Waco Inc. to herself, cashing some and putting some into her account at First National Bank of Central Texas. Other Downtown Waco Inc. checks were deposited into the account of her son, Richard Coke Mills III, at Bank of America.

* Mills diverted into her private account at least 10 checks intended for Downtown Waco Inc., worth $19,939. That included checks of several thousand dollars from Kelly Realtors, Waco Independent School District, the Waco Tribune-Herald, McLennan Community College and Baylor University. The owner of Kelly Realtors, Stewart Kelly, is on Downtown Waco Inc.’s board.

* Mills wrote $40,800 in checks to herself from an account with RiverCity Corp., a Downtown Waco Inc. fundraising arm that board members thought was inactive.

* Mills used credit and debit cards that she had created in the name of Downtown Waco Inc. but never told the board about.

* Mills spent Downtown Waco Inc. money on personal items such as her Zeta Phi Beta sorority contributions, personal storage space and a gardener and a maid at her West Waco home.

The Tribune-Herald furnished Beard a copy of the three-page arrest warrant affidavit and asked his reaction to it.

“I’m not sure right now,” Beard said. “It’s a hard thing to respond to. They kind of go all over the place with it. They basically just say that we stole a bunch of money.”

McLennan County District Attorney John Segrest said late Monday afternoon that detectives had not presented his office with a case involving Mills. He declined comment. It is widely believed that Segrest will recuse his office from the case and ask 54th State District Judge Matt Johnson to appoint a special prosecutor. Segrest’s father, Claude Segrest, and Mills’ husband, Coke Mills, were law partners. Segrest and Coke Mills also have been active together in local Democratic Party politics.

Johnson declined comment Monday about whether he will recuse himself from hearing the case.

In an official statement Monday, Downtown Waco Inc. officials said they would not comment directly on the arrest warrant, but noted that the board had brought the case to the attention of police and had cooperated with the investigation. Board vice president and spokesman Mark Boyd said the board wants the full truth to come out.

“The word’s out,” he said. “We want something to happen.”

The downtown development agency’s own investigation last fall found more than a half-million dollars of questionable financial transactions.

The agency’s internal analysis showed at least $410,575 in “questioned check activity” between October 2002 and July 31, 2006, with yet other financial irregularities pushing the total beyond the half-million dollar mark.

A separate spot check by the Tribune-Herald involving canceled Downtown Waco Inc. checks from February 2000 suggests the pattern of irregularity goes back more than six years. In that month, Mills was sole signatory on six checks totaling $7,790, with most written for cash. There also were two debits on the account for $200 and $50.

Waco Police Chief Alberto Melis, in an interview with the Tribune-Herald last month, said his detectives subsequently sorted through several years’ worth of financial records from numerous banks, including records obtained only weeks earlier through a subpoena.

Two detectives have worked on the Mills case full time since October. Melis earlier dismissed nagging questions about whether the police were participating in a cover-up because of Mills’ stature in the community.

“People don’t realize that this type of case usually involves a lot of paperwork,” the chief said. “You have to follow any trail that might be open, and that’s not just a matter of days or weeks.”

Waco Mayor Virginia DuPuy said she wasn’t surprised by the results of the investigation.

“We knew what was coming,” she said Monday night. “We knew the police department was working very hard to be thorough. The investigation could have gone on further, but there was enough information to know very clearly what had gone on. It’s been very tragic and very hurtful to the community that this has happened. I do think the investigation has been fair and thorough.”

Mills’ alleged misappropriation of funds continued right up till her resignation last summer, well after Downtown Waco Inc. board members insisted she stop conducting all financial transactions so they could sort through the agency’s troubled books.

On the eve of her retirement, already dogged by suspicions of financial irregularities, Mills intercepted a $2,031 check that the Waco Independent School District had mailed to the agency and deposited it in her own bank account, public records showed.

Mills deposited the check July 28, three days before she retired from her 18-year career at the agency’s helm, according to WISD records obtained by the Tribune-Herald through the Texas Public Information Act.

She made the deposit nearly four months after Downtown Waco board officers cut off her spending privileges at the agency and began an inquiry into the financial irregularities that ultimately forced Mills to resign, Downtown Waco Inc. documents show.

In a letter to board officers in late June, Mills acknowledged taking “liberties” with agency checks and debit cards and promised the board’s executive committee to try and reimburse Downtown Waco Inc. for inappropriate expenses.

The agency received a Sept. 26 restitution check for $70,000 on Mills’ behalf in September, though it is not clear where the money came from.

At the time of her retirement, Mills was making a salary of nearly $64,000. Her resignation came just as the agency was preparing to mark its 50th anniversary. In the end, plans for a celebration were shelved as the board’s executive committee focused on troubled finances.

Board member and former Waco City Council member Toni Herbert succeeded Mills in August and spent the next few months trying to help the executive committee sort through the agency’s fiscal mess.

Mills, long one of the city’s most vocal, undaunted champions of downtown development, has not returned repeated phone calls from the Tribune-Herald about the allegations.

The arrest is a sad milestone for one of Waco’s most prominent couples. Coke Mills, Margaret’s husband, is a longtime Waco attorney and an active Democrat who assumed a pivotal role in efforts to save the Waco Veterans Affairs Medical Center during the last few years.

As head of Downtown Waco Inc., Margaret Mills worked with business and property owners, city and county leaders, and others to increase downtown property values, boost its workforce and spark economic development through downtown and the Brazos River corridor.

Fallout for Downtown Waco Inc. has been massive. The agency lost its $386,138 annual funding from the city of Waco and McLennan County — three-quarters of the agency’s budget — and closed its doors after the financial scandal became public last autumn.

While board members say Downtown Waco Inc. may rise again, insurance executive Tom Chase, chairman of the city-appointed Public Improvement District board, said he envisions that board now assuming a greater role in downtown development.

Greater Waco Chamber of Commerce President Jim Vaughan has said his agency would also like to take on the duties of marketing downtown and working with developers. He says the chamber and the Public Improvement District board could even work together on such projects.

Tommy Witherspoon, Cindy V. Culp and Emily Ingram contributed to this story.

jbsmith@wacotrib.com

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