The specific part of the statute that the attorney general has invoked as being potentially violated by Mann is the following:
1. Knowingly presents, or causes to be presented, to an officer or employee of the Commonwealth a false or fraudulent claim for payment or approval;
2. Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Commonwealth;
3. Conspires to defraud the Commonwealth by getting a false or fraudulent claim allowed or paid;
I'm no lawyer, but the chances of Mann being found guilty of violating this statute are precisely zero. Mann's work has been pored over for years. The worst that can be said about Mann is that he may have done sloppy research using poor methods that won't stand the test of time, and when challenged he tends to act petulant and nasty. Let's just accept this as true for the purposes of discussion. OK, so what? None of this rises to scientific misconduct or fraud, not even close, and no one has even made such a case, despite the ample noise in the blogosphere.
The attorney general for the state of Virginia can get away with this harassment of an individual scientist because climate change is fully politicized as a wedge issue and Mann is unpopular, even among many climate scientists. The frothing hoards on the internet who rise to Mann's defense probably don't help his image among anyone undecided about the issues who decides to take a look at the online debates. But make no mistake, this is a fishing expedition pure and simple. The point of the "investigation" is not to recover Virginia funds that were misappropriated, as the law might suggest, but to go back the the Climategate well one more time to see if more embarrassing information or emails might be dredged up. And on this point, there are probably more embarrassing things in Mann's emails and files. But given the attention he has received and the information already found in the East Anglia emails, it'd be a shock to find anything indicating research misconduct.
The attorney general's "investigation" is a cheap publicity stunt hoping to uncover something of political value. It should serve as a warning to everyone in the academic community who works for state universities or receives public funding for their research (one of which most everyone in the academic community falls under) -- your entire life's work is subject to public scrutiny at any time. This is just a fact, no point in complaining about it. Academics should behave accordingly, because each of us has a chance to be in Mann's position. Mann's circumstances are pretty extreme, but even so.
What should Mann do? He should respond to the request for information as quickly as possible. Resisting or stonewalling is simply not an option and will fuel suspicion that something is being hidden. If, as I have surmised, there is nothing to be found in his files other than the occasional embarassing private correspondence and evidence of sloppy work, he should explore every opportunity to sue the state of Virginia to the extent possible by law. If he takes these actions, he'll have my full support.
Note: I am among those named in the attorney general's letter as a target of emails with Michael Mann.