The Treasurer’s Office was obligated under law to pay the Attorney General’s Office for its work in the settlement of a fraud case that cost government agencies in Arizona $131 million dollars, says a state solicitor general memorandum obtained by Arizona Capitol Times.
Chief Deputy Treasurer Blaine Vance had delayed payment of $1.9 million to the AG’s office for several months pending written legal advice from the solicitor general, which was delivered by e-mail Aug. 9.
Attorney Don Dybus, whom Treasurer David Petersen hired in June, stepped in and negotiated the payment with the Solicitor General’s Office, which was made in late June, because Treasurer David Petersen recused himself from the issue.
Mr. Petersen has been under investigation by the AG’s office since February on several felony allegations.
“We believe the [Attorney General’s Office] is not only entitled, but required, to collect the statutorily mandated CERF [Collection Enforcement Revolving Fund] collection credit,” states a memorandum from Solicitor General Mary O’Grady to Rhoda Bryce at the Treasurer’s Office.
“I advised Mr. Dybus on June 30, 2006 that I concur with the conclusions of the Civil Division memorandum that, pursuant to ARS 41-191.03, thirty-five percent of the state portion of the NCFE recovery is appropriately allocated to CERF,” Ms. O’Grady wrote.
The memorandum was directed to Ms. Bryce because Mr. Dybus left the Treasurer’s Office last month. She has been running the day-to-day operations at the agency.
The Solicitor General’s Office is a division of the AG’s office that is responsible for legal advice, independent of the attorney general, to state agencies.
Board of Investment Aug. 16 meeting
Ms. O’Grady and Pamela Cullwell, chief counsel of the AG’s Civil Division, are scheduled to appear before the Board of Investment at its Aug. 16 meeting. The board, which oversees state investments, has questioned whether it should have been involved in the decision to make the payment to the AG.
At a special board meeting July 24, member Bill Bell asked why the state is required to pay 35 percent of its recovery to the AG’s office and whether the board should have been informed of the matter because the recovered funds were tied to investments made by the Treasurer’s Office.
“I’m not trying to set up a fight with the Attorney General’s Office,” he said. “What I want to know is precisely where the board stands.” Mr. Bell said.
Two hundred local Arizona governmental entities and many governments in other states invested in NCFE, which made loans to inner-city Medicare hospitals, until it collapsed in 2002 in a fraud scandal involving $3 billion in losses to all investors, including the $131 million in Arizona.
The state lost $14.3 million. So far, $52 million has been recovered in Arizona, and the case is still in litigation. A Texas law firm, Gibbs & Brunn, represented local governments in the case, and its fees ranged from 18 percent to 11 percent of the recovered amount.
Mr. Bell questioned why state government took “such a big hit” regarding the statutory 35 percent paid to the AG’s office.
[A former treasury employee wrote to Arizona Capitol Times] “In all the years I prepared the monthly report and took minutes for that monthly meeting, the members of the [Board of Investment] were attentive and asked questions.” “Nothing slipped by them… at no time were they ever given glorified facts or denied access to information.”
In an Aug. 9 editorial,
The Arizona Republic questioned the independence of the solicitor general.
“The solicitor general is appointed by Attorney General Terry Goddard. The decision to proceed with the payment should have been ratified by an outside, truly independent legal counsel. It wasn’t,” the editorial stated. ”The intense push by Petersen and his part-time enforcer, Dybus, to overrule Vance and get the check to the attorney general smells of an effort to curry favor with Goddard, whose investigation of Petersen continues even now.”
Investigation
Mr. Petersen has been under investigation by the Attorney General’s Office since February. Court filings in State of Arizona vs. David A. Petersen say the treasurer is being investigated for theft, fraudulent schemes and practices and conflict of interest. If charged and convicted, he would be required to forfeit his office.
The Arizona AG’s office seized three computers and numerous files and tapes from the Treasurer’s Office, including materials and e-mails related to the Character Training Institute (CTI) and Character First!, an Oklahoma-based, nonprofit character education organization that paid the treasurer $4,000 in commissions for selling its training materials in Arizona.
Wanda Simeona, who left as Mr. Petersen’s executive secretary last December, accused her boss in a resignation letter of allowing his campaign manager, Rhoda Bryce, to use a state computer to work on Character First! matters, and that he turned speaking engagements about the Treasurer’s Office into character promotion.
Ms. Bryce, who left the Treasurer’s Office for several months after the investigation began, has returned and been given more authority over day-to-day operations, sources said.
The AG’s filings also state Mr. Petersen submitted a travel claim for a trip to Los Angeles last year to promote Character First! to Michael Milken, a philanthropist and financier who in 1989 was indicted by a federal grand jury on insider trading and racketeering charges. Those charges were dropped and he pled guilty to securities fraud and was sentenced to 10 years in prison.
Also, court filings state that Tony Malaj, Mr. Petersen’s chief of staff, “provided a copy of an invoice dated 1/1/04… from Leadership Challenge of Arizona to Telesis Preparatory Academy in Lake Havasu City. The invoice is for training materials totaling $1,030.41. The salesperson for Leadership Challenge of Arizona was listed as Stacey Sherwood. Sherwood is the daughter of Petersen.”
Ms. Sherwood is also mentioned in the court filings as involved in a private charity, Arizona Foundation for Financial Freedom, set up by her father despite advice from the Attorney General’s Office against it.