Fraud probe names state treasurer Petersen

State Treasurer David Petersen is being investigated on accusations of fraud, theft of public money and violating conflict of interest laws, according to legal documents released Thursday.

Top aides with the treasury told investigators with the Arizona Attorney General’s Office that Petersen used his position to promote a character education program in which he has financial ties, according to the documents.

The records also allege that Petersen hired a family member at the treasury as well as accepted payments for speaking engagements as treasurer.

Last week, investigators served a search warrant on the treasurer’s office in central Phoenix, seizing computer equipment, financial records and filing cabinets full of documents.

Investigators also found records regarding the Milken Institute, an organization ran by former Wall Street businessman Michael Milken, who pleaded guilty to operating a junk-bond scheme in the late 1980s.

In addition, they found a Bank of America card in Petersen’s name but with

an unidentified woman’s picture on it.

Petersen did not return repeated phone calls to his home Thursday evening. The attorney general’s office could not be reached for comment.

Release of the documents comes one day after Petersen, elected in 2002, announced he would not seek re-election in the Republican primary.

Among a list of allegations, Petersen is accused of directing a $1,500 check for a speaking engagement be reissued in his name, despite being advised he could not take money for appearances in his official capacity.

Petersen also is accused of hiring his future daughter-inlaw to replace a former treasury employee who resigned because she was frustrated with how the office was being managed, according to records.

Tony Malaj, chief of staff to the treasurer, told investigators Petersen would submit travel reimbursement requests for trips he made on behalf of Character First!, an Oklahoma City-based firm that promotes character building.

According to the documents, Petersen sought travel reimbursement for a trip to Milken’s California home. He reportedly was trying to convince the former Wall Street financier to join the character education program.

Petersen’s ties with the Character First! program go back at least to 1999, when, as a state lawmaker, he pushed through legislation aimed at getting schools to adopt character education courses. That bill was vetoed by then Gov. Jane Hull.

The affidavit goes on to say that employees questioned Petersen’s hiring practices over the years. One of those hires included Rhoda Bryce, brought on last month to work three days a week on special projects for Petersen only.

However, treasury officials told the attorney general’s office that they had no idea what she did.

Blaine Vance, chief deputy treasurer, said he had never seen any work produced by Bryce.

But one of the securities traders inside the treasurer’s office, Tim White, said he overheard Bryce ask Citibank for a contribution to the Character First! program moments after making a financial transaction with the bank.

Questions regarding Petersen’s management of the office first surfaced about two months ago when his executive assistant sent copies of a scathing resignation letter to the state’s top officials.

The letter accused Petersen of creating a hostile work environment that drove a high turnover rate.

The state treasurer is the state’s chief financial officer, overseeing 30 employees and handling about $9 billion in banking, cash management, investments and accounting services.