OK, looks like the State has backed off for now as it could give the defense a reason for appeal if convicted.
From what I understood (and that's a stretch) , if a defendant's statement comes in through hearsay, introduced by the defense (such as the statement that Casey said the father was Erik Baker when Baez asked Cindy), and it is presented as true, then the prosecution has a right to impeach this witness. This witness being Casey (as she is the one who claimed it). Since they could impeach, the State could then introduce evidence to show she is a liar, hence, the fraud charges for stealing money and checks.
Now, if the defense brought in that statement but does NOT say that is is true, but is just another example of a lie, then this does not apply.
SO, the state is backing off as apparently, no one is claiming that the statement that Baker is the father is true.
Was that clear? Cause I don't know if even I completely understood LOL!