Orignally appeared in The New York Times on Wednesday, March 28, 2001
By DAVID M. HALBFINGER with PATRICK McGEEHAN

For more information also see:
Senators Delay Treasurer Vote in New Jersey, (March 27, 2001)
and
New Jersey Treasurer Nominee Was Fired by Bank, Workers Say, (March 26, 2001)

TRENTON, March 27
Even as lawmakers here wrestle with accusations that Acting Gov. Donald T. DiFrancesco's nominee for state treasurer, Isabel Miranda, was fired from a job at Citibank and accused of misusing an expense account for personal trips, Ms. Miranda's continued ties to her most recent employer have become the subject of growing scrutiny.

When she was named acting treasurer last week, Ms. Miranda took an unpaid leave of absence from U.S. Trust Company of New Jersey. U.S. Trust, a subsidiary of the Charles Schwab Corporation, is one of the nation's largest trustees for bonds issued by government agencies.

Ms. Miranda's arrangement is, at minimum, a departure from custom: Mr. DiFrancesco, when he became acting governor on Feb. 1, resigned from his law firm. Even his chief spokesman, Tom Wilson, sold his share of a Trenton lobbying firm to his former partners before joining the administration, to comply with New Jersey's conflict-of-interest law.

Today, some state senators acknowledged that even if they ultimately dismissed questions about Ms. Miranda's departure from Citibank and accepted her as qualified for the job of state treasurer, they would still have to address her continued ties to U.S. Trust and its parent company before approving her nomination.

On Monday, members of the Senate Judiciary Committee refused to hold a scheduled hearing on Ms. Miranda's nomination, citing a report that day in The New York Times that Ms. Miranda was fired in 1996 as director of trusts and estates for Citibank's private banking unit. Current and former Citibank employees said that she left after being confronted with evidence that she had used her expense account to pay for thousands of dollars' worth of personal trips while having an extramarital affair with a co-worker in California.

Ms. Miranda, who was hired in January 1997 as senior vice president of U.S. Trust, denied on Monday that she had misused Citibank funds and described her dismissal from the bank as a mutual decision made with her supervisor. Tonight, Senators William L. Gormley and John A. Lynch, respectively the chairman and ranking Democrat on the Judiciary Committee, said they were told that the state police had reopened a background check on Ms. Miranda to gather what Mr. Gormley termed supplemental information.

In a memorandum signed by Ms. Miranda on Monday but backdated to last Friday, her first day as acting treasurer, Ms. Miranda recused herself from any matters affecting Charles Schwab, U.S. Trust and Morgan Stanley Dean Witter & Company, where her husband works. The memorandum was sent on Monday to Rita L. Strmensky, the executive director of the state Executive Commission on Ethical Standards, whose members are appointed by the governor.

Ms. Strmensky issued a statement late today saying that Ms. Miranda's recusal was "in accordance with New Jersey's strict ethical guidelines," and that it was "well established by governmental ethics agencies that a recusal cures a conflict."

But experts on ethics and government corruption interviewed today disagreed. "It's blatantly unacceptable," said Peter Eisner, managing director of the Center for Public Integrity in Washington. "She's trying to have it both ways. She's trying to protect her job, as if that's a question - any company would love the expertise of the former treasurer of New Jersey if it intended to do business with the state - and she's trying to add to her résumé by having a high-profile government position."

Mr. Eisner noted that President Bush's treasury secretary, Paul O'Neill, said on Sunday that he would sell his $100 million stake in Alcoa, the company he formerly headed, to put to rest conflict-of-interest questions. He had previously promised to recuse himself on any related business. "The very act of trying to maintain a foot in your private business enterprises at the same time you're working as a government official shows you're really more interested in personal gain than you are in serving the public," Mr. Eisner said.

Asked today why she did not simply resign from her job, as is customary for executives entering government service, Ms. Miranda replied through a treasury spokesman, Mary Lou Murphy. "She just wanted the option of returning," Ms. Murphy said. "That's all there is to it."

Larry J. Sabato, director of the Center for Governmental Studies at the University of Virginia, said Ms. Miranda probably just wanted job security, given that Mr. DiFrancesco's term as acting governor will last less than a year, and that he faces competitive races in this year's primary and general elections.

"But that's not the way the public world works," said Mr. Sabato, author of "Dirty Little Secrets: The Persistence of Corruption in American Politics" (Random House/ Times Books, 1996).

"I've never heard of such an arrangement," he said. "That is completely unethical, and I can't imagine an ethics officer approving that. It would be like Dick Cheney taking an unpaid leave of absence from Halliburton and returning once his term as vice president was over."

"What that really says is, `Trust me,' " he added of Ms. Miranda. "Who will ever know if she is informed or not, and gives direction to events that may involve Schwab and U.S. Trust?"

Schwab has earned commissions for selling municipal bonds to its customers, and its executives have expressed interest in taking a more prominent and potentially more lucrative role in the underwriting of bond offerings. U.S. Trust, which Schwab bought last year, has played an even bigger role in municipal finance. The company's Web site says it has consistently ranked as one of the nation's 10 largest trustees for long-term public debt issues. As a trustee for bond issues, U.S. Trust collects fees from government agencies for administering and processing bond sales.

Michael R. Lissack, a former Wall Street investment banker who blew the whistle on illegal practices in the business of underwriting municipal bonds, said Schwab and U.S. Trust might have to steer clear of state business while Ms. Miranda is an employee. Recusing herself would not suffice, he said, because her subordinates might still be inclined to favor a company tied to their boss.

"I don't see how they can compete for any new state business," Mr. Lissack said of Schwab and U.S. Trust. "Everybody's going to assume that her staff has an inclination to give it to Schwab."

He also said that if Ms. Miranda continued to receive any benefits from U.S. Trust, like health insurance or pension accruals, the company could violate rules that regulate municipal securities dealers. The Municipal Securities Rulemaking Board has strict limitations on what dealers can give to government officials in the form of gifts and political contributions. Some of those rules were intended to stamp out the notion that securities firms had to give money to politicians if they wanted to be considered as underwriters of bond issues - in short, that they had to "pay to play." Asked if Ms. Miranda would continue to accrue such benefits, Ms. Murphy said, "She has no clue."

Ms. Miranda's husband, Donald R. Browne Jr., is a client consultant for a unit at Morgan Stanley called Graystone, which manages money for wealthy families.