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Howard Fischer Oct 19, 2006

State Treasurer David Petersen will resign his office as part of a plea deal to end a criminal
investigation into his activities.

Under the terms of the pact offered to him Thursday, Petersen, of Mesa, will plead guilty next week in
Maricopa County Superior Court to a single misdemeanor of failing to report income he made from
Character First!, an education program run by the nonprofit Character Training Institute based in
Oklahoma. State law requires public officials to disclose all sources of revenue in excess of $1,000 a
year.

The deal requires that Petersen resign his $70,000-a-year job, but not immediately. Instead, he has to
leave office before Maricopa County Superior Court Judge James Keppel imposes a sentence, a
process that could take weeks.

An aide to Gov. Janet Napolitano said she is expected to quickly name a replacement. State law
requires that the person, like Petersen, be a Republican.

Even without criminal charges, Petersen, 56, would have left office at the end of the year because he
did not seek re-election. State Sen. Dean Martin, R-Phoenix, and Democrat Rano Singh are
competing for the job.

The state Attorney General's Office says it has evidence that the one-term treasurer stole from the
public, engaged in fraudulent schemes and violated conflict of interest laws — all felonies. But none
of that is mentioned in the plea deal.

"The public should be aware that neither the original allegations nor the charged offense relate to
public funds,'' said Craig Henley, Petersen's attorney. He said Petersen's failure to disclose his
income "was in no way meant to deceive the public and involved a small amount of compensation
unrelated to his duties as state treasurer.''

Attorney General Terry Goddard would not comment on what the investigation found or why the only
charge relates to a failure to comply with personal financial disclosure requirements. Nor would he
say why his office wanted a deal to force Petersen to resign months shy of the end of his term.

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"We are confident that this agreement is appropriate and in the best interest of justice,'' Goddard said
in a prepared statement.

Under the agreement, Petersen will plead next Wednesday to a crime related to the inquiry of
whether he used his position — and state funds — to promote the character education program that
he had financial ties to. The deal does not preclude Petersen from seeking office again.

In February, Petersen's office was searched after a special agent from the state Attorney General's
Office obtained statements from his top aides that he used his position to promote the Character
First! program.

Documents obtained by Capitol Media Services show that Tony Malaj, who had been Petersen's chief
of staff, told the investigator that Petersen routinely traveled around the state and made presentations
on character at taxpayer expense.

The records include a letter Petersen sent to Arizona Superintendent of Public Schools Tom Horne,
trying to convince him to let the state's schools use the Character First! program. Horne told Capitol
Media Services that Petersen was upset because the state was working with a competing program.

Malaj told the investigator that Petersen acknowledged being paid by the Character Training Institute.
Also, Malaj said Petersen tried to involve him in the program, taking him in September to meet with
Michael Milken, who had pleaded guilty in 1990 to violating securities and racketeering laws.

Milken e-mailed ideas about the program into the state computer system operated by the Treasurer's
Office. And Petersen later traveled to Los Angeles at state expense to meet with him.

Blaine Vance, chief deputy treasurer, provided similar reports — and told the investigator that
Petersen hired Raquel Wood, his future daughter-in-law. He also hired Rhonda Bryce, who managed
what was to be Petersen's reelection campaign. Vance said he had yet to see any work from her.

Vance also said a stock trader in the Treasurer's Office told him that within minutes of executing a
trade with Citibank, he overhead Bryce call Citibank and ask for money for the Character First!
program.

The incidents date back to 2003, after Petersen was first elected treasurer and when a speakers
bureau offered him a $1,500 honorarium for a keynote speech. After getting a written opinion saying
Petersen couldn't keep the money, Malaj gave it to the treasurer. Despite that, Petersen had the
original check, which was made out a to school, reissued to him personally.

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The investigator also said Malaj told her Peterson has required state employees to attend weekly
character education programs in the office, with the state paying for materials from character
education program.

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