The interim state health director abruptly resigned Tuesday amid a criminal investigation into his alleged involvement in medical reimbursement fraud.

Neal Palafox, 58, was Gov. Neil Abercrombie‘s pick to lead the Hawaii Department of Health, which oversees community hospitals, drinking water and hazardous waste, among others.

Hawaii Attorney General David Louie is investigating Palafox for medical reimbursement fraud, according to Hawaii News Now.

But Louie was mum about the investigation at a Tuesday news conference shortly after news of Palafox’s resignation broke. When reporters asked Louie if he was investigating a medical reimbursement fraud case involving Palafox, he replied, “I have no comment about that.”

Asked if his office is investigating any case involving medical reimbursement fraud, Louie replied, “Nice try.”

Before joining the Abercrombie administration, Palafox was professor and chair of the Department of Family Medicine and Community Health at the University of Hawaii John A. Burns School of Medicine, where he was former director of the Family Practice Residency program.

He was awaiting confirmation from the Hawaii Senate. The resignation represents a setback for the administration, which released a short statement:

Dr. Neal Palafox today asked Governor Neil Abercrombie to withdraw his nomination for Director of the State Department of Health. Governor Abercrombie accepted Dr. Palafox’s request and will make a new appointment for the Health Director as soon as possible.

Laurie Au, Abercrombie’s Deputy Director of Communications, told Civil Beat she could not comment on the Palafox resignation.

The Palafox resignation is a major embarrassment to the new administration.

For one, it comes just as the Legislature has begun and just two days after Abercrombie delivered a well-received State of the State address. Confirmation hearings on the governor’s Cabinet appointments are to begin later this week.

For another, the resignation involves one member of Abercrombie’s administration tasked with the uncomfortable matter of investigating another.

Third, it raises questions about the vetting process Abercrombie used to screen job applicants. The governor repeatedly has praised the work of his transition manager, Bill Kaneko, an attorney who also managed Abercrombie’s gubernatorial campaign.

The Health Department is the state agency that oversees the Waimanalo Gulch Landfill that recently overflowed, causing vials of blood and used needles to wash up on Leeward Coast beaches. The department is also responsible for responding to the spill.

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