A federal grand jury Thursday indicted the former director of the Community Action of Minneapolis and his son, a Minneapolis police officer, on charges of alleged theft and fraud for misusing $250,000 in taxpayer money.

The indictment in the ongoing public corruption case alleges that Bill Davis ordered that his son, Jordan, be paid more than $140,000 from an alleged "slush fund" that was intended for heating and energy assistance for low-income residents.

Under Davis' direction, a portion of unused energy assistance aid was diverted to Community Action's former Ben & Jerry's franchise, an ice cream shop near the University of Minnesota that aimed to give low-income youths on-the-job skills and work experience.

Davis' son, Jordan Davis, had managed the ice cream shop before becoming a police officer in 2008. But Jordan stayed on the payroll, receiving 105 paychecks for serving as the shop's manager after he quit in 2006, according to the indictment. Jordan Davis received a "bonus" check of $6,000 on New Year's Eve 2010.

"[Bill] Davis concealed from CAM's board of directors that he ordered CAM's fiscal staff to pay his son for a job he did not perform," according to the 16-count indictment.

Bill Davis allegedly used "intimidation and retaliation to prevent CAM's staff from informing anyone, including CAM's board of directors, that Davis was using his position as CEO to divert funds to his personal use and to that of his family and friends."

Over seven years ending in 2014, prosectors allege that Bill Davis misspent at least $250,000 that should have been "used to provide services to the low-income residents of Minneapolis."

Bill Davis and his son were not available for comment Thursday.

"From what I understand, there is no fraud here," said Susan Gaertner, Bill Davis' attorney. "Mr. Davis has cooperated with authorities and continues to do so."

Bill Davis insisted last year that he would be vindicated after a scathing Minnesota Department of Human Services audit, which found that the nonprofit organization misspent at least $800,000 between 2011 and 2013 for everything from a car loan for Davis, travel, golf and other unauthorized expenses.

After the audit was first reported by the Star Tribune, the state raided the organization, confiscated documents and then shut it down. Bill Davis was suspended as several high-profile Democrats resigned from the board, including U.S. Rep. Keith Ellison, state Sen. Jeff Hayden and several Minneapolis City Council members. Earlier this year, local FBI agents and the IRS began to investigate Community Action as a state-appointed receiver began determining how much money was misspent.

The indictment shows that Bill Davis used the CAM credit card for personal travel for himself and three girlfriends. He took more than 19 trips at CAM's expense, including the presidential inauguration in January 2013 and a Democratic National Convention in Charlotte, N.C., in 2012. Other trips included Key West, Las Vegas, Hawaii, Cancun in Mexico, and a Caribbean cruise in February 2012.

Prosecutors also allege that Bill Davis incorrectly told CAM's human resources staff that he married his girlfriend and that she was entitled to health and dental insurance. After falsifying their marital status on a form, the organization wrongly paid $7,826 in insurance premiums.

The indictment of Jordan Davis was an unexpected development in an investigation that had largely centered on his father.

The indictment surprised police administrators, said John Elder, a department spokesman. "We were not notified in advance — this is the first the chief has heard of it," Elder said. "And we now need to evaluate it and address it."

Son was shot while on duty

In February, Jordan Davis was shot while investigating a home burglary in north Minneapolis. Days later, he publicly thanked residents on the North Side for their outpouring of concern.

In 2013, the state Department of Public Safety recognized Jordan Davis for his aggressive work in combating drunken driving. Davis and another Minneapolis officer combined to make 240 such arrests the year before.

Bill Davis took over Community Action of Minneapolis in 1990, turning it into a formidable organization that provided heating and weatherization assistance to low-income residents, along with career counseling and other services.

His salary and other compensation eventually rose to about $270,000 a year.

In 2000, Davis opened a Ben & Jerry's as a partnership with other Community Action agencies.

The ice cream shop was part of a national effort known as the PartnerShop Program that aimed to give employment to underserved youths.

The shop shut down in 2011 after a rent dispute, according to court records.

Patrick McFarland, the executive director of the Anoka County Community Action Program, said Bill Davis threatened him after he refused to give $50,000 for the shop.

McFarland said his organization had already paid $25,000 and loaned Davis another $50,000 for the venture.

"After he challenged me to a fist fight and called me a pip squeak, I had nothing to do with him," McFarland said.

The state audit blamed the organization's board for failing to adequately monitor spending.

Community Action paid $749 for airfare to New York for Sen. Hayden and his wife, Terri, who served as his representative on the board, according to documents.

Hayden was at the center of a state Senate ethics complaint driven by Republicans who alleged he benefited financially from the organization. The bipartisan ethics committee never made a definitive ruling on the complaint.

Senate DFL staffers said Hayden was not available for comment Thursday.

Finances under review

A state-appointed receiver, Michael Knight, has been reviewing Community Action's finances for more than six months.

In April, Knight included a records request for documents pertaining to car purchases, personal loans, a Ben and Jerry's PartnerShop and all documents relating to MAD DADS, a north Minneapolis nonprofit organization that tries to combat drugs and gang violence.

Davis' fiancée, Patricia Banks, is the program director at MAD DADS.

paul.mcenroe@startribune.com 612-673-1745

alejandra.matos@startribune.com 612-673-4028