LAS VEGAS (Court TV) — The mistress of murdered millionaire Ron Rudin testified that he was planning to confront his wife the day before his disappearance.

Sue Lyles, a former employee of the real estate mogul, admitted the affair while on the stand Tuesday and said that Rudin believed his wife Margaret was responsible for a scathing letter sent to Lyles' two children. Margaret Rudin could face life in prison if convicted of the real estate mogul's murder.

As Lyles identified Margaret Rudin in court, the plain brunette exchanged a cool glance with the defendant, once a blond socialite whose hair has turned gray since she went to prison. Lyles, who sported a light brown bob and little makeup, wore a conservative black pantsuit and glasses.

Out of the presence of the jury, the defense tried to have the letter declared inadmissible, claiming that there was no proof Margaret Rudin wrote it.

But Judge Joseph Bonaventure denied that bid, ruling in favor of the prosecutor, who argued that the letter had to be written by Margaret Rudin because one copy sent to her 13-year-old daughter, Natalie, was addressed to Melissa Lyles. "I remembered Margaret called my daughter Melissa," Lyles said.

The letter, read aloud by Guymon to the jury, says that Lyles had been "screwing" Rudin on "dirty carpet floors" in vacant houses while Lyles, who works for the IRS, was supposed to be at work.

The letter, which contains graphic details about the affair, warns that the "time is now to be prepared for a big scandal." It said that the IRS had already been informed that Lyles was having her trysts with Rudin "on taxpayer expense time" and that the local media had already followed up on a news tip and taken videotapes of their meetings.

According to Lyles' testimony, Ron Rudin was convinced his wife was responsible for the letters and planned on confronting her.

The day after that alleged conversation, he disappeared.

"I knew something was drastically wrong," she said.

Rudin vanished on Dec. 18, 1994, but his charred, shot and decapitated remains were found about a month later.

A full-time IRS auditor in 1989, Lyles started working part-time for Ron Rudin in 1989 to make ends meet when her husband, from whom she has since divorced, was unemployed.

While working there, she met Margaret Rudin, who would occasionally visit her husband's office — and disparage him to his employees.

"She made various derogatory statements about Ron — he was stingy, he was a drunk until he met her, that he always wanted to know where she was, that he liked the hunt, that type of thing," Lyles said.

By 1991, she had been promoted and her husband was working, enabling her to quit the weekend clerical job at the real estate office.

Her "intimate relationship" with Ron Rudin didn't start until 1994, only months before his murder.

"I cared very deeply for Ron," she said during direct examination by prosecutor Gary Guymon.

On cross-examination, defense attorney Tom Pitaro ripped into Lyles for "cheating."

"So what we really have then is you being involved during this period of time in a deception, isn't that correct?

Lyles conceded that point, but Pitaro kept pounding away, getting her to admit that she deceived her husband, her children — and even Margaret Rudin.

Margaret Rudin mentions Lyles in handwritten logs documenting conversations she heard between Lyles and her husband. Rudin allegedly installed listening devices in his real estate office without Ron Rudin's knowledge.

"She's not anyone he'd ever be seen with at social places," the 57-year-old former socialite wrote.

She bought listening and recording devices from a store called the Spy Factory, said the store's owner, Rick Aker, who also testified Tuesday.

She bought a wireless transmitter with a wall plug conduit, a receiver and a tape recorder, paying between $1,200 and $1,500, Aker said.

On one occasion, Rudin even phoned Aker late at night, claiming she had an emergency because the batteries died in her recording device, he said.

Another witness, civil attorney Michael Rawlins, identified the handwritten logs, as well as another key document in the prosecution's case — a directive Ron Rudin issued disowning anyone suspected of causing his death should he die in a violent manner.

Rawlins represented Ron Rudin's trust in a probate trial that occurred after Margaret Rudin filed a claim for her share of the estate, long before she was charged with his murder.

Margaret Rudin was named a beneficiary for 60 percent of his estate, worth between $11 million and $12 million, but with no money to pay her legal bills, the widow resorted to representing herself.

The documents Rawlins testified about were obtained in the probate proceeding that ultimately ended in a $600,000 settlement, which was just enough to cover her legal expenses.

It wasn't until after a settlement was reached — and after the murder weapon was found at the bottom of Lake Mead — that Rudin was indicted. But by then she had fled Nevada, evading capture for more than two years before authorities arrested her in Massachusetts in 1999.

Also testifying Tuesday morning were Las Vegas Police Detective Eugene Marshall and Ron Rudin's office manager, Jerrian Munerlyn.

Marshall, who is an electronic surveillance expert, testified that the recording devices that Margaret Rudin bought were for covert surveillance, but he couldn't tell the jury that they were illegal because he wasn't qualified as a legal expert.

Munerlyn testified that in 1990 Ron Rudin instructed her not to let Margaret in the office building until he was gone.

Testimony resumes Wednesday morning.

Staff writer Adam Pitluk also contributed to this report