A Silicon Valley nonprofit that has given out tens of thousands of dollars in scholarships to needy students has been suspended and two of its officials arrested on suspicion of stealing $120,000 for their personal use.

Even more shocking: The organization is the Latino Peace Officers Association and the two board members facing charges are a San Jose police officer and a former police officer.

On Tuesday morning, police arrested former Officer Manuel Villagrana, 37, who was the longtime president of the Latino association, and Officer Marco Ybarra, 37. Both were booked on suspicion of felony grand theft. If convicted, they face a maximum of three years in county jail.

As recently as three years ago, the Latino Peace Officers Association of Santa Clara County had more than 100 members and threw high-powered galas to dole out about a dozen $1,000 to $5,000 scholarships to needy minority college freshmen looking to launch careers in criminal justice.

Now the national organization has suspended the local chapter. The coffers are stripped bare and the scholarship program appears dead.

“It amounts to greed,” said Felipe Ortiz, a spokesman and past president of the National Latino Peace Officers Association. “As law enforcement officers, they should know this right from the start: It’s not your money.”

Mysterious activity

There have now been two high-profile arrests of San Jose officers in recent weeks, further roiling a demoralized department that lost dozens of officers to unprecedented layoffs this year. Last month, Officer Patrick D’Arrigo was charged with having sexual activity with two teenage high school students.

Villagrana, who, as the head of the organization that put on an annual gala that often drew a starry crowd of powerful movers and shakers, is accused of stealing about $80,000. He was fired from the force in recent months. Ybarra, who is still on the force, is suspected of stealing about $40,000 from the association’s coffers.

Court information was not immediately available. Bail was set at $25,000 each.

“I find it very disappointing,” said Lt. Dave Storton, who heads the department’s financial crimes unit. “It angers me anytime anyone in law enforcement violates the public trust like that.”

Police officials would not disclose why Villagrana was fired from the force. But sources said he was terminated for unrelated time card fraud.

Investigators say Villagrana denied he had made cash withdrawals from the association’s account.

Police say Ybarra told them that Villagrana asked him to withdraw money one or two times to pay for DJs or dancers who performed at fundraising events. Ybarra said he was suspicious because the performers were generally Villagrana’s friends and seemed more expensive than they should have been.

The officer said he could not recall depositing a signed $10,000 check into his own account in 2006, according to the affidavit, and he suggested that “his lack of memory was likely due to an accident while serving in the military in Iraq.”

The theft was discovered through an audit by the National Latino Peace Officers Association, launched by a past president who noticed a series of mysterious cash withdrawals by the San Jose chapter.

Audit trail

Retired San Jose police Officer Noe Longoria — a former chapter president — became suspicious two years ago when he tried to call the previously flush nonprofit organization — which raises most of its money through dues and donations — only to discover that the phone had been disconnected.

After some weeks, according to the affidavit, Longoria confronted Villagrana and asked him for bank records. He was shocked by the paltry accounting that he finally received after several fruitless months, the affidavit said, so he asked for an audit.

The audit showed that money began to mysteriously disappear from the organization’s accounts in 2005, soon after Villagrana took over as president, and lasted through 2009, according to a police affidavit.

In contrast, in the last year of Longoria’s tenure as president, in 2004, the association withdrew $300 in cash.

The next year, the first year Villagrana served as president, withdrawals from the account totaled $10,300. In 2008, $50,000 was taken out. There were no receipts, according to officials.

Investigators said they do not know how the money was spent. None of it has been recovered.

Longoria told police that the only need for the organization’s officials to withdraw money was to pay a band or have petty cash on hand at fundraising events. Scholarships and performers at fundraisers were paid by check.

After launching their probe in late February, police investigators say they discovered the two men had been steadily stealing money from the account for years, the affidavit says.

Police say the two used little stealth and simply made cash withdrawals using their own names or sometimes just deposited checks into their personal accounts.

Contact Sean Webby at 408-920-5003.