Ohio Democrats said yesterday they were demanding to know why the state's attorney general took nine months to move against a Bermuda hedge fund that lost $215 million invested by the state's Bureau of Workers' Compensation (BWC).

"We're going to push it until we get to the truth," said State Sen. Marc Dann, D-Liberty Township, an attorney who is helping to spearhead his party's investigation into continuing revelations of politically-tinged investments and losses at BWC.

On Friday, Republican Attorney General Jim Petro said he had filed suit in Franklin County Common Pleas Court against MDL Active Duration Fund Ltd., alleging fraud, breach of contract and other violations of state law.

According to the lawsuit, BWC first allocated $55 million in 1998 for MDL Capital to create a long-bond account with a maturity of 10 years or more for the bureau, and in 2003 provided an additional $300 million for MDL Capital to manage.

The complaint says that under a new contract in 2003, the bureau allocated $100 million in 2003 from its existing MDL account to buy shares in the MDL Active Duration Fund, then allocated an additional $125 million to the fund in 2004.

A stated investment objective for the fund was to hedge BWC's investments against losses in other investments due to market price fluctuations.

According to the suit, BWC was erroneously led to believe other investors would purchase shares in the fund when in fact BWC was the fund's sole shareholder.

The complaint charges that MDL Capital far exceeded leverage limits it had agreed upon with BWC, then lied about it to the bureau.

"By the time the bureau discovered the defendant's irresponsible activities, the Bureau's investment had been substantially depleted. Due to the defendants' irresponsible and inappropriate activities, the Bureau suffered losses of approximately $215 million," the suit charged.

Questions about fund investments first surfaced last month when it was revealed that up to $12 million the BWC had invested in rare coins through Tom Noe==a heavy Republican Party fundraiser==had disappeared. After this revelation, the bureau's director, Jim Conrad, was forced to resign.

Democrats quickly labeled it "Coingate," but now they think they are onto something bigger.

According to Sen. Dann, the attorney general had hired a law firm as outside counsel in Nov. 9, 2004 to review the MDL investment. He said Democrats are seeking answers as to "why the attorney general hesitated so long" to move against MDL, and if the law firm failed to uncover anything, why the state shouldn't get its money back.

Mr. Petro's representative, Mark Anthony, said the initial review of MDL had been routine and the full details of the loss did not emerge until last Tuesday. Why not earlier? He could not say.

Mr. Dann said there are 75 funds involved in handling the BWC's investments, and Democratic legislators have asked for requests for information on all of them. Today they asked for the weekly reports on the fund that have gone to Republican Gov. Bob Taft.

The governor last Wednesday assured that the BWC, which is the exclusive provider of workers' comp insurance in the state, would keep providing coverage and that no worker would be without protection. Gov. Taft said he was "outraged and disappointed by revelations of investment losses at the BWC.

The governor's statement said that last year, Mr. Conrad had assured him that action had been taken on MDL.

MDL, while registered in Bermuda, is based in Pittsburgh. The Toledo Blade quoted MDL owner Mark Lay as saying his company did nothing wrong and the state should accept that it made a bad investment.

Mr. Anthony said if the case goes to court, the MDL contract calls for disputes to be heard in a Bermuda court. However, he said, that "is an option. We don't see it as a barrier. We think it can be tried here in Franklin County."

A representative for state Sen. Teresa Fedor, the Democratic whip, said she has introduced legislation to reform the state's workers' comp system and review its investment strategies, but "it got tabled by the majority party."

Special Reports /

Ohio AG Slow To Pursue $215M Comp Cash Loss, Dems Say

Related Stories

Recommended For You