Former New York City police chief Bernard Kerik has pleaded not guilty to federal corruption and tax charges.
Mr Kerik pleaded guilty to lesser charges in a state court last year
Mr Kerik, police commissioner at the time of the 9/11 terror attacks, has been released on $500,000 bail and vowed to fight the case against him.
The issue is awkward for presidential hopeful Rudy Giuliani, who backed him to run Homeland Security in 2004.
Mr Giuliani spoke of a "sad day" following the charges and said Mr Kerik had been a "hero police officer".
Mr Kerik withdrew his name from consideration for the Homeland Security post after he was accused of failing to pay taxes on a nanny and of having extramarital affairs.
Mr Giuliani has repeatedly said he made a mistake in endorsing his ally and former business partner's nomination, but correspondents say it remains to be seen how much the link damages him politically.
He will be under additional pressure in the run-up to the primary elections, which start in less than two months, in which states choose their preferred presidential nominee.
Campaigning in New Hampshire, another contender for the Republican Party's presidential nomination, John McCain, questioned Mr Giuliani's judgement over his relationship with Mr Kerik.
Mr McCain pointed to Mr Kerik's role training local police in Iraq after he left the police department.
"Kerik was supposed to be there to help train the police force. He stayed two months and one day left, just up and left," he said.
"That should have been part of anyone's judgment before they would recommend that individual to be the head of the Department of Homeland Security," he added.
Among the 14 counts Mr Kerik faces are fraud, obstructing an FBI inquiry and lying to the federal government.
The federal investigation on the current charges arose after Mr Kerik pleaded guilty last year in a state court to accepting $160,000 of work on his home from an allegedly mafia-related construction firm.
Presenting the charges in the indictment, US attorney Michael Garcia told reporters that Mr Kerik had lied "time and again" when questioned about his financial dealings.
"It is a sad day when this office returns an indictment against a former law enforcement officer, particularly one who served in positions as high as those held by Bernard Kerik," Mr Garcia said.
"But we will not hesitate to pursue any public official who violates his oath and betrays the public trust as Mr Kerik is alleged to have done."
According to the authorities, Mr Kerik failed to report more than $500,000 in taxable income between 1999 and 2004.
He is also alleged to have made false statements to White House and other federal officials while being considered for the Homeland Security role.
Speaking after his court appearance, Mr Kerik said: "I am disappointed that the government has brought forth this case... This is a battle I am going to fight."
If convicted, he could face up to 142 years in prison and $4.75m in penalties.