Correction Appended

Former Rep. Bob Schaffer (R-Colo.) has been named as a possible witness by prosecutors in the sentencing phase of a federal tax evasion and embezzlement case involving a former business associate who is on trial for illegally using funds from a 2002 Congressional earmark.

Schaffer — who is locked in a tight race with Rep. Mark Udall (D-Colo.) to replace retiring Sen. Wayne Allard (R) — has not been accused of any wrongdoing in the case being heard in a federal court in Colorado.

The prosecution has indicated it is unlikely Schaffer will be called to testify against Bill Orr, but his name was included on a witness list submitted by prosecutors, which could become an issue in the campaign.

Dick Wadhams, Schaffer’s campaign manager and chairman of the state GOP, said Schaffer has not been contacted by either the defense or prosecution in the case, and that he did not secure the more than $3.7 million federal earmark.

“Bob was never part of the trial. He was never interviewed, he has never been contacted about this trial,” Wadhams said.

At issue is a 2002 earmark tucked into what was at the time the Veterans Affairs, Housing and Urban Development, and Independent Agencies appropriations bill. The provision provided $3.7 million for the National Alternative Fuels Foundation for the development of a new type of fuel, and was to be administered by the Environmental Protection Agency.

NAFF was run by Orr, a Colorado businessman who operated a number of fuel- and energy-related companies and nonprofits in the state.

According to sources familiar with the case, the EPA’s inspector general launched an investigation into the case shortly after the contract was awarded in response to concerns that NAFF was not properly managing the grant. Although no formal public report was ever written, IG investigators eventually concluded that Orr had been misusing federal funds, using them to pay himself a $250,000 salary, and that the work the foundation had been doing was not substantial, according to these sources.

Schaffer, who lost a 2004 GOP Senate primary to beer magnate Pete Coors, left Congress in 2002 and took a position on NAFF’s board of directors in October 2004, according to his personal finance filings with the House.

According to Wadhams, Schaffer joined NAFF in part because of his interest in the development of alternative fuels.

Schaffer is “intrigued by the technology that the company was working on … the fact is Bob has had a longstanding interest in renewable fuels technology,” Wadhams said.

Wadhams also said Schaffer’s interest in NAFF — and his decision to join the board in 2004 — came about on the recommendation of longtime political associate Scott Shires.

Shires ran some of Schaffer’s local and statewide political campaigns, including fundraising operations and campaign committees.

However, Schaffer’s relationship with NAFF was short lived. According to his disclosure forms, Schaffer left the board in March 2005. Wadhams said his departure was a direct result of news that federal investigators were looking into the group and Orr’s handling of the earmark.

“As soon as he learned of the investigation, he resigned. He was barely on the board,” Wadhams said.

Shires pleaded guilty to federal tax evasion in connection to his work with another of Orr’s companies, according to court documents and local news reports, and testified against Orr in his trial.

Correction: May 28, 2008

The article incorrectly stated that Bill Orr, accused of misusing funds from a 2002 earmark, had been found guilty at the time of publication. His trial had not yet concluded. Orr has since been convicted of 24 of 28 counts in the case.