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INVESTMENT SCANDALS 2 sides spar over agreement to pay back money



Published: Fri, June 24, 2005 @ 12:00 a.m.



Three risky funds caused a state fund for injured workers to lose $220 million and violated policy.

COLUMBUS (AP) -- A coin dealer who says he's lost up to $13 million of the state's investment into rare coins could repay the money in part by selling vacation homes and other personal assets and keep half for attorney's fees, the state attorney general's office proposed Thursday.

Lawyers for Tom Noe said they won't accept the change to a previous agreement.

Also Thursday, the state's insurance fund for injured workers confirmed that separate investments in three risky hedge funds that lost a combined $220 million violated investment policy.

Noe, a prominent Republican donor who stepped down from managing the coin investment for the Bureau of Workers' Compensation, has been working with state investigators on liquidating what's left of the $58 million fund. His attorneys on Wednesday threatened to stop cooperating because Attorney General Jim Petro was blocking Noe's efforts to sell a condominium and other personal assets to pay them.

They also said in a letter to Petro's office that another $3 million could be in danger because the state won't sign off on Noe's plan to sell stock to repay a loan he took from the coin fund.

The state can no longer believe Noe and must independently find out who owns the stock and what it's worth, Petro's office said in a letter Thursday to attorney Judson Scheaf.

"Anyone who now blindly accepts the word of your client does so at their peril," says the letter signed by D. Michael Grodhaus, Petro's top assistant.

The stock certificates show Noe owns them, said William C. Wilkinson, Scheaf's partner.

Petro's idea

Petro will not authorize selling any assets unless he and Noe's attorneys can work out guidelines for what to do with the proceeds, the letter said. Petro suggested that half go to the coin shortfall and half to a trust fund for attorney fees, and that a judge approve any payments to lawyers from that fund.

Noe will stick to the existing agreement: that his assets are frozen except to pay for groceries and legal bills, Wilkinson said. "He's going to insist the attorney general abide by the promises he made last month."

Noe took a loan of $3 million from the coin fund in 2003 to buy stock in Florida-based Numismatic Guaranty Corp. and has paid interest, Wilkinson said. The privately held coin-grading company agreed last month to buy the stock back for more than the purchase price but might back out now that the state is holding up the deal.

The stock may be worth more, and Petro doesn't believe Noe is entitled to any proceeds from selling it, spokesman Mark Anthony said Thursday.

Federal and state officials are conducting criminal and civil investigations into Noe's handling of the coin fund. That led to investigations of other investment scandals at the workers' compensation bureau, including the loss of a combined $220 million from three hedge funds that violated bureau policy.

Contracts with MDL Capital Management Inc. and American Express were signed by investment officers but not approved by the bureau's director or oversight commission.

The bureau on Monday started liquidating two American Express funds, which lost a combined $4.8 million.

"When the subscription agreements were signed, the bureau's investments policy prohibited any and all investments into hedge funds; this represents a blatant violation of our policy," interim administrator Tina Kielmeyer said in a statement Thursday.

The MDL fund was closed last year after losing $215 million. All three funds were created in 1998. The agency allowed hedge funds starting last August, spokesman Jeremy Jackson said.

High rewards, high losses

Hedge funds carry the chance of very high returns but also a small chance of very large losses. They mix traditional long-term investments such as stocks, which count on value increasing, with investments structured so the fund makes money if the stock declines in value.

Terry Gasper, the bureau's former chief financial officer, authorized the MDL hedge fund, while former chief investment officer Robert Cowman converted an American Express fund into hedge funds. Both did so without the knowledge of former administrator James Conrad, who resigned because of the scandal.

Conrad on Wednesday told The Plain Dealer he didn't feel he relinquished authority in giving the two power to sign off on deals. "In retrospect, I will admit it was probably something I should not have done," he said.

Kielmeyer has revoked all authority for staff to approve contracts.




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