The State Ethics Commission did not have the evidence to prove that the former head of the Multi-Cultural Academy Charter School in North Philadelphia violated state ethics laws, according to an investigative report that nevertheless describes Vuong Thuy's business dealings as "disturbing."

After a two-year investigation into allegations of conflicts of interest, the commission said it lacked "clear and convincing proof" that Thuy, Multi-Cultural's founder and former chief executive officer, broke the law when the charter school rented properties owned by him, his wife, Maria, and a nonprofit organization he cofounded.

Thuy and his wife received a "substantial" financial benefit from the lease arrangement, concluded the Ethics Commission's 42-page report, obtained by The Inquirer.

Recent controversy over Thuy's management has cast a cloud over the charter high school, which has won accolades for its academics.

The ethics commission found that the president of the Multi-Cultural board, Tae-Ock Kauh, approved the lease even though the full board did not vote.

"We may not find violations of the Ethics Act based upon the appearance of impropriety," the report said.

The document - including the commission's final order - is not expected to be made public until a 30-day appeal period ends Aug. 14.

Robin M. Hittie, chief counsel of the state commission, declined to discuss the case, as did Thuy's attorney, Drew S. Dorfman.

Charter school CEOs are covered by state ethics law because they are public officials. The law bars them from engaging in conflicts of interest, including doing business with the schools they lead.

Thuy's mounting legal bills for the ethics probe, and a separate federal investigation, were factors that led staff and parents to seek his ouster this spring.

Multi-Cultural is one of 19 local charters being investigated by federal authorities for several reasons, including conflicts of interest and fraud, according to sources with knowledge of the probes.

According to the charter's most recent tax filing, Thuy was paid $206,342 by Multi-Cultural for the year ended June 30, 2009, and an additional $69,550 that year for serving as executive director of the Indochinese-American Council. Thuy cofounded the council, which also employs his wife and owns Multi-Cultural's current building at 3821-23 N. Broad St.

The school pays the council $43,000 monthly rent for the former St. Stephens parish buildings, or more than $500,000 a year. The rent amounts to one-third of the school's $1.5 million budget, which comes from the Philadelphia School District, the state, and the federal government, the tax filing shows.

Thuy, who founded Multi-Cultural in 1998, was toppled by his handpicked board in the spring after a campaign by parents and staff, who said they were concerned money was being drained from the school to represent Thuy. Records showed the school had spent $222,000 on legal fees in the last 12 months.

Staff and parents also complained about a rodent infestation and charged that Thuy's temper and demeaning behavior had created a "toxic" climate at the school of 202 high school students.

In May, Multi-Cultural's board placed Thuy on leave. Upon his return, he was to serve as director of strategic planning until his contract ended in June 2012.

A month later, however, the board announced Thuy had left the school under terms of a negotiated agreement that would pay him half his base salary and provide medical coverage for the next year.

The ethics probe began in December 2008, after the commission received allegations that Thuy had violated the state law, the report said.

The questions centered on Multi-Cultural's lease arrangements. The school opened in 1998 in a building at 4666-68 N. 15th St., which Thuy and his wife owned.

When the charter's board was looking for other facilities to expand, the Thuys purchased a nearby property at 4654 N. 15th St. in April 2001.

Two months later, the couple leased the property to the Indochinese American Council. Thuy helped found the nonprofit group; he was its paid executive director, Maria Thuy the paid program director.

The council then sublet the property to Thuy's school beginning in 2001-02. The rental rate was based on a market analysis that a real estate firm did at Thuy's request.

Because of a five-year statute of limitations, the report said the commission could not consider real estate deals before 2004. In July of that year, the rental agreement was renewed for both 15th Street properties through July 31, 2009. The leases were signed by the charter school's board president.

The rent the school paid to the council equaled the amount the council paid the Thuys, the report stated.

In 2008, when the charter needed more space, the council paid the school district $1 million for the former St. Stephen's property on Broad Street. Multi-Cultural moved into those quarters in 2009.

During ethics commission hearings, charter board members said that as school CEO and treasurer of the charter board, Thuy was involved in the leasing and selected the appraiser who set the rent.

And as treasurer, Thuy handled the charter's monthly rental payments to the Indochinese Council.

State investigators concluded Thuy had not engaged in "trickery" and found "there is not enough evidence to establish" he had violated the law.

But the ethics commission's report said its findings should "not be misconstrued as condoning what happened in this case. To the contrary, it is disturbing" that while Thuy served as executive director of the council and head of the charter school, he and his wife "received substantial pecuniary benefits" from the lease arrangements.

The ethics commission did find that Thuy had violated provisions of state law by failing to report the 15th Street properties on statements of financial interest he was required to file. The commission said he fulfilled the requirement by filing amended statements in 2009.

Contact staff writer Martha Woodall at 215-854-2789 or at martha.woodall@phillynews.com.