3rd grand jury to begin review of state agency

Justin Meeks, left, and Del Wright, Jr., right, of the Department of Justice join Dean Martin of the Internal Revenue Service on the way to a grand jury session in Toledo in the Tom Noe case.

COLUMBUS The burgeoning scandal swirling around Tom Noe, the Ohio Bureau of Workers Compensation, and top state officials has triggered the need for a third grand jury, prosecutors announced yesterday.

A federal grand jury will be empaneled in Cleveland to look into the broader investment practices of the bureau, an escalation of the inquiry that started with Mr. Noe s failed $50 million coin funds and has moved into offshore hedge funds and other questionable investments.

Prosecutors also announced how they have divided the work:

• The federal grand jury that has been meeting in Toledo since June will continue to focus on whether Mr. Noe skirted federal campaign finance laws by giving others money to contribute to President Bush s 2004 re-election effort.

• A state grand jury, empaneled Monday in Toledo, will focus on possible criminal activities in Mr. Noe s rare-coin funds. It will be supervised by Julia Bates and Ron O Brien, the prosecutors for Lucas and Franklin counties.

• The federal grand jury in Cleveland will focus on the remaining issues associated with the bureau s investment portfolio. Both of Ohio s U.S. attorneys Greg White from the Cleveland office and Greg Lockhart from the Columbus office will supervise the investigation.

Mr. O Brien s office will supervise all state ethics investigations in conjunction with Columbus City Attorney Richard Pfeiffer. The ethics investigation includes Gov. Bob Taft and some top current and former aides.

This is being done to expedite things and for management issues of efficency, said Mr. White, U.S. attorney for the Northern District of Ohio. We are still maintaining the task force and we ll continue to work together and support each other in the overall effort.

A grand jury is a common investigative tool that allows prosecutors to gather evidence and compel testimony without first filing a criminal charge.

State Sen. Marc Dann, a Democrat from suburban Youngstown, said yesterday s announcement about the federal grand jury in Cleveland was the first clear indication that there could be criminal charges beyond Mr. Noe and ongoing ethics investigations of high-ranking state officials.

He questioned whether the federal grand juries could lead to charges that state officials were operating the Bureau of Workers Compensation as a criminal enterprise in violation of federal law.

[Does] operating a system that uses public money to gain private benefit whether that is in the form of campaign contributions, or consulting contracts, or lobbying contracts meet that standard?

The quid pro quo is a little bit more complicated and makes it more challenging, but it s encouraging to hear they are working on it, Mr. Dann added.

Although prosecutors would not talk about specifics surrounding the impending federal grand jury in Cleveland and what it will be studying, an attorney for one money manager proclaimed his client s innocence yesterday.

Barry Slotnick, an attorney who represents MDL Capital Management Inc. of Pittsburgh, said any investigation into MDL will clear it of any wrongdoing. State officials say MDL lost $215 million in a hedge fund it operated for the bureau.

Ohio Attorney General Jim Petro filed a lawsuit in June on behalf of the Bureau of Workers Compensation that argues the hedge fund contract was fraudulent and violated Ohio securities laws. The case has since been moved to federal court in Columbus. Although MDL is based in Pittsburgh, the hedge fund was based in Bermuda.

MDL has done nothing inappropriate. And whatever investigation is being conducted, we assume that it is an offshoot of the investment Ohio has made, starting with the rare coin fiasco, Mr. Slotnick said. We re sure that any investigation will clear MDL.

The Blade reported Tuesday that a special grand jury was empaneled in the Lucas County Common Pleas court, with the county prosecutor presenting evidence.

Ms. Bates said yesterday s announcement will eliminate some confusion that may have existed about which agency was pursuing which criminal issues.

It s a matter of trying to clarify as much as we can, Ms. Bates said, adding that ethical considerations preclude prosecutors from divulging additional information. I can t say where it s going, but at least it gives you a definitive approach.

As part of yesterday s announcement, prosecutors said the public integrity section of the Justice Department s criminal division will jointly supervise the campaign finance investigation.

David Bauer, the assistant U.S. attorney in Toledo, said his office has been in contact with attorneys from the public integrity section. Every investigation involving public officials must first run by that unit, Mr. Bauer said.

They ve been involved from the beginning, he said.

Republican Secretary of State J. Kenneth Blackwell, who urged U.S. Attorney General Alberto Gonzalez in a May 27 letter to have the Public Integrity Section take jurisdiction over missing funds from the bureau, said that s good news.

The issue is if there is sufficient evidence that this rises to the level of interstate organized crime, the public integrity unit is masterful at coordinating those investigations. That unit is made up of a bunch of pit bulls, said Mr. Blackwell, who in June returned $3,000 in campaign contributions from Mr. Noe.

In Toledo yesterday, a Justice Department tax attorney based in Washington testified before the federal grand jury.

Del Wright, Jr., who has prosecuted cases across the country, was joined by Dean Martin, a local IRS agent, and an assistant from Washington. The men declined to say what they told the grand jury.

A law-enforcement source, although he did not know the specifics of the Noe case, said the arrival of Mr. Wright from the Justice Department s division could signal the investigation is getting more serious.

They come in and look at tax scams and [for] people who are willfully avoiding tax consequences, he said.

The three men arrived with audio-visual equipment and thick files and they were in the courthouse for more than two hours, longer than almost any of the witnesses who have testified so far.

Several high-profile local officials have testified before the grand jury, including City Councilman Betty Shultz, Lucas County Commissioner Maggie Thurber, and former Toledo mayor Donna Owens. Ms. Shultz and Ms. Owens contributed $2,000 to the Bush campaign; Ms. Thurber and her husband Sam both contributed $1,950. He testified in June as well.

Investigators are focusing on fund-raising surrounding an Oct. 30, 2003, fund-raiser in Columbus for the Bush campaign. Mr. Noe sponsored a table at the event.

• The state agency that regulates lobbyists is examining Thomas Needles relationship with Games Inc., the Cincinnati online lottery company that included Mr. Noe and the state s rare coin fund as investors.

Mr. Needles, a lobbyist not registered to represent Games Inc., told the Ohio Office of the Legislative Inspector General that his unpaid work for the company was very limited, according to a letter sent by the agency on Tuesday.

Ohio Lottery Director Tom Hayes, who is overseeing a management review of the Bureau of Workers Compensation, met with Mr. Needles and Games Inc. chief executive Roger Ach II on July 14, 2005, but said that Mr. Needles was quiet during the unsuccessful sales pitch.

You have to understand lobbyists. They arrange blind dates, Mr. Hayes said. Usually, they ll come and sit in the room and not do a lot.

Mr. Needles purchased $20,000 worth of stock in Games Inc. last March.

• Mr. Noe wrote a $25,000 check drawn on his personal joint account with wife Bernadette Restivo Noe to Rare Coin Enterprises on Oct. 9, 2002. The memo line on the check is left blank and the purpose of the personal payment unknown from the records provided.

Rare Coin Enterprises was a subsidiary set up by Mr. Noe. The subsidiary served as a pass-through point for millions in coin deals, records show.

• A 2003 inventory by accountant Plante & Moran found that the state coin fund bought American memorabilia worth more than $500,000.

The collection ranged the span of U.S. history from politics to the national pastime to 30 autographed albums from the Mike Douglas Show, a television talk show that ran until 1982.

Included in the inventory: a 1963 Christmas card signed by John F. Kennedy, a letter handwritten by Thomas Jefferson; a document signed by George Washington and Revolutionary War Gen. Henry Knox; a campaign badge for Abraham Lincoln; an original Norman Rockwell drawing for the Saturday Evening Post; 100 baseballs autographed by Boston Red Sox slugger Ted Williams, and checks signed by Detroit Tigers batting champ Ty Cobb.

Contact James Drew at:jdrew@theblade.com or 614-221-0496.