BANGOR — Assistant U.S. Attorney Donald Clark said today he planned to introduce evidence into Carole Swan’s fraud trial that has been prepared for the extortion trial she will face later this year.

Clark revealed the strategy during the fifth day of Swan’s trial in U.S. District Court on fraud charges, and said that evidence will include recordings deputies made of Carole Swan’s phone calls with Whitefield contractor Frank Monroe, who has said she demanded kickbacks for giving him town contracts. Swan was a selectwoman in Chelsea for 19 years until her term expired in June 2011.

The recordings also include her confession to the scheme and testimony from a Kennebec County sheriff’s deputy, Clark said.

Monroe is scheduled to testify Monday or Tuesday.

Swan’s attorney, Leonard Sharon, balked at Clark’s strategy.

“There’s going to be a huge problem about my continuance in the case then,” Sharon said.

It was unclear whether that meant Sharon would quit the case.

The judge said he will deal with that issue when it arises, and told Sharon he can file written objections over the weekend.

All this occurred while the jury was out of the courtroom today.

The trial resumes at 8:30 a.m. Monday, and Vassalboro Town Manager Mary Sabins, who was town manager in Chelsea for 11 months until May 2007, is expected to finish testifying then.

Swan is facing extortion charges separately, but is currently on trial on other federal fraud charges.

In written arguments filed Thursday, Clark said the evidence from the extortion scheme proves Swan lied on her income tax forms and falsified her claim forms for federal workers’ compensation benefits.

Monroe worked with Kennebec County sheriff’s deputies to record Swan giving him money in return for contracts for the town of Chelsea, according to affidavits in federal court. Monroe is expected to testify about the money he gave Swan, which she then allegedly failed to report to the Internal Revenue Service as part of her income on tax returns.

In early testimony today, tax preparer Patricia Flagg told the court that she worked with figures given to her by Swan when preparing Swan’s tax returns.

Flagg said she has done the Swans’ taxes for 31 years, and that Carole Swan would bring in a summary of the couples’ income and expenses.

Flagg said the Swans owed no income tax from 2006 to 2009, even while Marshall Swan Construction was bringing in hundreds of thousands of dollars annually, because the Swans had large losses from a harness horse racing business run by Carole Swan, as well as equipment depreciation for the construction company.

In fact, in 2007, when Marshall Swan Construction reported $875,000 in gross receipts, the Swans paid $16,429 in self-employment tax, but no income tax.

Flagg said that after the 2010 return had been prepared but not yet filed, Carole Swan told the tax preparer that Marshall Swan Construction had an additional $40,000 in income that she had forgotten about.

That occurred after the Swans were charged. Later, Flagg said, Carole Swan brought in bank account records and other documents asking if Flagg could compile them. Flagg said she started to, but did not finish the process.

Clark, the prosecutor, asked Flagg if that paperwork indicated the Swans had under reported their income by $500,000 over those five years.

“I can definitely say there was under-reported income,” Flagg testified. “I can’t tell you the exact figure.”

Swan faces five counts each of falsifying income tax returns 2006-2010 as well as defrauding a federal workers’ compensation program by claiming she had no income and was incapable of working when she was working with the horses and for the Town of Chelsea.

Little testimony has gone to the workers’ compensation issue.

She also is accused of defrauding a federal program that helped fund repairs to the Windsor Road culvert in 2007.

Before the jury entered the courtroom today, the prosecutor told the judge he anticipated finishing his side of the case on Tuesday.

Sharon has yet to say whether Swan will testify in her own defense. However, the judge warned him that if she chooses to take the stand, she cannot selectively refuse to answer questions.

The extortion charges are to be tried separately because Swan, through her attorney, indicated she wanted to testify in her own defense, saying she was investigating Monroe.

Woodcock said today, “At least now, I’m inclined to allow the government to go forward and present the Monroe evidence.”

Sharon has said Swan was a victim of domestic abuse, forced to do her husband’s bidding, and may have unintentionally made mistakes in tax returns and other paperwork.

Sharon has said a domestic violence worker who interviewed Swan last month will testify as to what she was told about the abuse.

Clark has moved to block that testimony, telling the judge in writing that Swan “failed to provide any reasonable notice of her intent to use expert evidence of a mental condition.”

Betty Adams — 621-5631
badams@centralmaine.com