Two hundred local Arizona governmental entities and many governments in other states invested in NCFE,

April 11, 2007
Breaking News
Treasurer's payment to Attorney General investigated
By Phil Riske and Christian Palmer, Arizona Capitol Times

The Maricopa County Sheriff’s Office is investigating whether a $1.9 million payment from the Treasurer’s Office to the Attorney General’s Office for legal expenses was made as part of a deal to secure leniency for former treasurer David Petersen.

The June payment was for work Attorney General Terry Goddard’s office had done in obtaining a settlement in 2002 in a fraud case that cost local governments and the state $131 million in bad investments. Several sources confirm with the Arizona Capitol Times that current and former Treasurer’s Office employees have been questioned recently regarding the circumstances surrounding the payment.

In October, Petersen pleaded guilty to a single misdemeanor charge for failing to disclose a $4,200 commission he received for selling teaching materials for a character education program.

Petersen, who was facing felony charges of theft, fraud and conflict of interest, resigned Nov. 30 as part of a deal reached with Goddard. At sentencing hearing in December he was also ordered to pay $4,500 in fines and put on supervised probation for three years.

Maricopa County Sheriff Joe Arpaio would neither confirm nor deny that an investigation is being conducted, but said his office, in tandem with the Maricopa County Attorney’s Office, is “very active” in efforts against corruption by public officials.

“We have got a lot of investigations,” he said, noting recent newspaper reports of an official inquiry into possible corruption surrounding the light-rail construction project.

Barnett Lotstein, a spokesman for Maricopa County Attorney Andrew Thomas, said he could not confirm or deny an investigation of the payment.

Through his press aide, Andrea Esquer, Goddard said this morning, “The Attorney General's Office will cooperate fully with the Maricopa County Sheriff's office in this matter. The information related to this transaction [the payment] is a matter of public record.”

She added that Goddard was not aware of the investigation until contacted by Arizona Capitol Times.

Don Dybus, who was employed as a part-time special assistant at the treasury for what he described as an assignment to prepare the office for the next treasurer, negotiated the payment because Petersen recused himself from the matter.

Before Dybus’ employment, then-Chief Deputy Treasurer Blaine Vance refused to send the money without written advice from the state solicitor general.

Petersen, however, later approved the payment, which was for the Attorney General’s work is obtaining a settlement in the National Century Financial Enterprises (NCFE) fraud case.

Petersen’s sentence was viewed skeptically by some, including then-treasurer candidate Dean Martin, who regarded it as a “slap on the wrist.”

But Goddard at the time defended the plea arrangement, saying the most important thing was to get Petersen to leave office. And after the payment was made, the Solicitor General’s Office, an independent arm of the Attorney General’s Office, issued an opinion that the Treasurer’s Office indeed owed the money.

The Arizona Republic at the time also questioned the independence of the Solicitor General in an editorial.

“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.”

Dybus has not responded to phone calls, but he told the Arizona Capitol Times in July that Petersen’s legal problems were never discussed when the payment negotiations were taking place.

Two hundred local Arizona governmental entities and many governments in other states invested in NCFE, which made loans to inner-city Medicare hospitals, before collapsing in 2002 in a fraud scandal involving $3 billion in losses to all investors, including the $131 million in Arizona.

Of that amount the state treasury lost $14.3 million. So far, $52 million has been recovered for Arizona.
The payment, made in June of 2006, was not disclosed to the Board of Investment, which oversees the state’s investment portfolio. The move angered board members, including Department of Administration Director Bill Bell, who asked why the state is required to pay 35 percent of its recovery in the NFCE case to the Attorney General’s Office.

He also questioned whether the board should have been informed since the recovered funds were tied to investments made by the Treasurer’s Office. Martin, the current state treasurer would not confirm or deny the investigation, but did acknowledge his office is providing materials requested by an attorney for Vance and Tony Malaj, Petersen’s former chief of staff

Malaj and Vance, who assisted the Attorney General in the Petersen investigation, have filed multi-million dollar claims against the state in a whistleblower case on grounds their cooperation would hurt their chances of future employment.

The Department of Administration, which handles such suits, did not respond to the claims within 60 days as mandated by state law. That means the two former employees are free to file civil lawsuits.

Arizona Capitol Times has requested documents under the open records law from DOA related to the claims.

The prospect of a county sheriff investigating an elected state official poses no problems regarding legal jurisdiction, Arpaio said.

“The sheriff is the chief law enforcement officer of this county,” he said. “I can investigate and lock up anybody, including the governor. Nobody is immune from the sheriff.”

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Contact Phil Riske at phil.riske@azcapitoltimes.com

Contact Christian Palmer at christian.palmer@azcapitoltimes.com