Very much in line with what I was saying. An unemployment "judge" is that, an administrative judge, not connected with the court system. And I think I can see, from re-reading the OP's post, what may have happened.
He says, "...a separate criminal matter was brought up..." What may have happened is that after the person was terminated, another issue came up, in which maybe the employer found, or thought they found, evidence that the employee had stolen $500 or embezzled $500. And during the hearing, they tried to introduce this into evidence as showing they had a misconduct reason to terminate the person.
In this case, the appeals judge/referee/officer whatever it's called in your state system would advise the employer that while he might very well have grounds to prosecute this person in civil court, this would have no bearing on the unemployment hearing.
For example if the person was terminated for absenteeism, and then after they were gone, it became apparent that they had stolen $500 from the company. The only issue that would be dealt with in the unemployment hearing would be the absenteeism issue, and the employee very well could be denied unemployment. But it would have nothing to do with the information that was obtained later, after the person was already terminated. If the employer tried to say, "But we later found out that this person was stealing from us!" that would still make no difference in the unemployment decision.
If the hearing decision was appealed to the board of review, and then on to the circuit courts, there would still not be any mention of the issue that was not a factor in the original termination.