The first man to hold the office of Nevada state treasurer may have been the most notorious. Accused of embezzling over $100,000 from the permanent school fund and other state accounts, Ebenezer "Eben" Rhodes died a mysterious death and set off a political firestorm that preoccupied state officials for almost four years after his death. No other state officials were ever charged with wrongdoing, and the bondsmen who had vouched for Rhoades' character were relieved of any liability.

Rhodes, a Republican, was elected state treasurer on November 8, 1864. Under the provisions of the new state constitution, he won a two-year term. Formerly the treasurer of Esmeralda County, Rhodes named his brother, Henry, as his deputy. The two brothers came to the Nevada Territory from Massachusetts in 1860, quickly rising to prominence as mine speculators, hardware retailers and local political activists.

According to state audits and legislative hearings conducted after his death, Rhodes began embezzling from the treasury during his first term. Reelected in 1866, he began taking state funds in earnest. At the time of his death a reported $106,432.88 (derived from land sales, revenue stamps, and the estate of at least one dead man) had been taken from state revenues.

Rhodes often traveled to San Francisco on state business, such as selling state bonds, and he died there on September 9, 1869. Early newspaper accounts attributed his sudden death to heart failure, but subsequent reports revealed that Rhodes was a drug user who had committed suicide.

Rhodes' brother Henry testified several times during the three-and-a-half-year-long investigation that followed his brother's death but was never charged in the scandal. Henry admitted he and Eben had hidden the embezzlement by borrowing money from Wells Fargo Bank to have sufficient funds on hand for cash counts. Eben also lent state money to elected officials for their personal use, including Governor Henry Blasdel and Controller William Parkinson.

Legislative maneuvers and a series of court trials attempted to recover the embezzled funds from Rhodes' bondsmen, who had put up their own credit against any loss of state funds, in accordance with state law. A powerful collection of notable Nevadans, the bondsmen were ultimately relieved of all liability by special legislation enacted in 1873.

As a result of the Rhodes' defalcation (a term used by the United States Bankruptcy Code to delineate debt that cannot be discharged in bankruptcy), Territorial debt was not retired until the 1920s, and the state's Permanent School Fund was severely deficient. Estimated interest from the embezzled money could have amounted to more than $300 million over the next 100 years of statehood.