Lt. Gov. Brian Krolicki was indicted Wednesday on four felony charges that he misappropriated state funds during his time as state treasurer.
A Clark County grand jury returned the indictment against Krolicki and his chief of staff, Kathy Besser, on Wednesday morning. Krolicki is charged with two counts of misappropriation and falsification of accounts by a public officer and two counts of misappropriation by a treasurer.
The charges stem from Krolicki's administration of a $3.3 billion state college savings program from 2001 to 2006. A legislative audit found that more than $6 million in fees earned by the program was not deposited in state accounts as required by law.
The funds have been accounted for, and Krolicki is not accused of embezzling money.
Asked whether the charges constituted political corruption, Chief Deputy Attorney General Conrad Hafen said, "It's a charge relating to a public officer failing to properly execute his duties and responsibilities while in office, specifically as it pertains to money owed to the state."
Hafen, the lead prosecutor on the case, said Krolicki's actions violated basic precepts of government transparency and accountability.
"As state treasurer, one of your primary responsibilities is to account for the money of the state," he said. "It's the accounting part that he failed to do."
Each of the charges presented Wednesday is a Category D felony carrying a potential penalty of one to four years in prison and a fine of up to $5,000. Probation is also possible.
Besser is charged with two counts: being a principal to misappropriation and falsification of accounts, and being a principal to misappropriation by a treasurer. She served as chief of staff in the treasurer's office starting in 2001 and since 2006 has served as chief of staff in the lieutenant governor's office.
The attorney general's office was issuing a summons Wednesday for Krolicki to appear in court in Las Vegas on Dec. 18.
A Republican who served in the elected position of treasurer from 1998 to 2006, when he was elected lieutenant governor, Krolicki, 47, announced last month that he was considering running for U.S. Senate against Majority Leader Harry Reid, D-Nev., in two years.
Krolicki has denied any wrongdoing related to his management of the program, which helps families save for higher education.
"I can now begin defending myself in the fairness of an open courtroom and can clearly demonstrate that these accusations are false," he said in a statement Wednesday. He declined to answer further questions about the indictment.
Besser declined to comment Wednesday.
Krolicki said he would continue to fulfill his duties as lieutenant governor while fighting the charges.
Krolicki has criticized the criminal proceeding against him as politically motivated. Like Reid, the attorney general, Catherine Cortez Masto, is a Democrat, but both have denied that Reid had anything to do with the probe.
"Based on the evidence presented as part of the investigation, there was an indication that state law was being violated," Cortez Masto said Wednesday. "It was my responsibility to pursue legal action based on that. I think you can tell by the last two years that I've been attorney general that I don't use my office for partisan purposes."
A legislative audit of the Nevada College Savings Program was released in May 2007 and prompted the investigation by the state Department of Public Safety that resulted in Wednesday's indictment.
The audit found that the money deposited in the program by participants was properly handled and accounted for. But the money the state earned from program fees, which was supposed to be used to run the program, was not.
The fees that were supposed to go back to the state to pay for administering the fund were paid by participants in the tax-free account program.
From its inception in 2001 to when Krolicki left office at the end of 2006, the program reaped $11.2 million in fees, but more than $6 million wasn't deposited with the state treasury as required, the audit concluded. As a result, normal budgetary controls could not be exercised and the Legislature couldn't access the money for other potential uses. In addition, Krolicki far overspent the legislatively approved budget for running and promoting the program.
According to the audit, the program spent more than $7 million on personnel, marketing, legal and other expenses, even though the Legislature approved just $1.6 million for those expenditures.
The treasurer's office also entered into contracts with financial management companies Upromise Inc. and Strong Capital Management Inc. without going through the college program's board as required.
According to the audit, of the $6 million that wasn't deposited with the state, $3.4 million was paid to the company overseeing the plan, GIF Services. Of the other $2.6 million, $1.5 million was spent on marketing and advertising, nearly $1 million for legal services and $45,000 for other expenses.
In the first year of the program, the hourly rate paid for legal services was $429, even though only $225 per hour was approved.
The allegedly misplaced funds were discovered in early 2007 by Treasurer Kate Marshall, a Democrat who succeeded Krolicki in the office after the 2006 election in which Krolicki won the lieutenant governor's post.
Responding to the audit, Krolicki and his lawyers have argued that the treasurer's office was following the law in the way it administered the fee money and that it was not improperly spent.
The terms of the indictment are vague and state only that $250 or more was mishandled, the minimum required by statute. Hafen said the amounts involved were "several hundred thousand dollars."
Hafen declined to comment on what prosecutors believe was Krolicki's motive for the alleged crimes. The charges require that criminal intent be found. More details of the case will be known when the transcript of the grand jury proceeding is made public sometime in the next two weeks.
According to the indictment, witnesses before the grand jury included Janice Wright, the former deputy treasurer in charge of the college program; James J. Fadule, former president of Upromise; County Commissioner Chris Giunchigliani, a Democratic former state assemblywoman who sat on the Ways and Means Committee; and Perry Comeaux, a former state budget director.
The office of lieutenant governor is part time and largely ceremonial, with duties that include filling in for an absent governor, presiding over the state Senate, and chairing state commissions on tourism and economic development.
Through a spokesman, Gov. Jim Gibbons had no immediate comment Wednesday.
Contact reporter Molly Ball at firstname.lastname@example.org or 702-387-2919.