Coin-fund worker raised auditor s suspicions

10/20/2005

COLUMBUS The same Ohio Bureau of Workers Compensation internal auditor, whose questions about a rare-coin deal fell on deaf ears in 2000, had new concerns last year after a coin-fund employee was accused of misappropriating state money, e-mails released yesterday show.

But the bureau addressed the internal auditor s concerns by defending how former coin-fund manager Tom Noe handled the situation. Mr. Noe has been accused by Attorney General Jim Petro of stealing millions of dollars from the failed $50 million investment he managed for the bureau.

Keith Elliott, the bureau s chief internal auditor, on Sept. 21, 2004, sent an e-mail to the agency s former chief investment officer, Jim McLean, and other bureau officials, asking for information about a note in the fund s financial statement indicating that management discovered an employee misappropriating assets from the investment.

The questions centered around 119 coins costing about $93,000 that were missing from the fund s Colorado office, according to financial reports.

Mr. McLean responded to the message, saying Mr. Noe had terminated the employee and withheld about $900,000 in compensation and about $400,000 in coins purchased by the employee. Mr. McLean also said Mr. Noe had hired a forensic auditor to investigate and commented that his internal controls ... revealed the potential problem and allowed them to take actions to eliminate the potential for any loss.

Vintage Coin believes that the ultimate resolution of this issue will result in a gain to the fund of between $400,000 and $800,000, Mr. McLean wrote.

The internal auditor replied to Mr. McLean a couple hours later, saying he would need a more detailed understanding of the events causing the loss, and he asked for contact information on Mr. Noe s auditors. Mr. McLean wrote back two days later with the address and phone number for Plante & Moran s Toledo office, which did accounting work for the coin fund.

Yesterday, Mr. McLean said he felt he handled the inquiry from the internal auditor appropriately.

I would have given [Mr. Elliott] any information, but from my professional experience, the internal audit examination you let them do their own work, and you let them do their own discovery, and you don t necessarily work hand-in-hand with them, Mr. McLean said.

Jeremy Jackson, a spokesman for the bureau, said yesterday that he felt Mr. Elliott received the information he was looking for and that Mr. Noe had not been coddled by bureau officials.

I fail to see in that exchange that there was a stifling of the internal auditing process, he said.

The former employee accused by colleagues of misappropriating coins from the Colorado office, Mike Storeim, has denied through an attorney that he engaged in any wrongdoing.

In May, Mr. Storeim filed a lawsuit in Colorado, claiming that Mr. Noe wrongfully instructed employees to seize his property. Mr. Noe s attorneys in June said some of the 119 coins believed to be missing were accounted for when state fraud inspectors inventoried the collection.

The e-mails released yesterday also show how the bureau scrambled to answer questions about Mr. Noe s hiring of a convicted felon to manage coin-fund money in California. A Blade report in April set off a flurry of e-mails between high-level bureau officials.

The employee, Mark Chrans, caused the coin fund to write off more than $850,000 in bad debt and loans.

Mark Nedved, a lobbyist for the bureau, wrote in an e-mail to bureau officials, including former CEO-administrator James Conrad, I don t even know how you begin to comment. I m inclined to suggest we say there is an investigation, etc.

Mr. Conrad responded, asking his underlings, Do we now, on private equity loans as a limited partner, need to run background checks on everyone they do business with? I m somewhat confused.

Mr. McLean replied to his boss at 6:38 p.m. on a Saturday night the day after The Blade reported that Chrans had spent a year in a federal penitentiary that he was heading to the office the next day.

I will be in the office first thing Sunday morning and will review [the records] we used when we hired Capital Coin Fund I, Mr. McLean wrote to Mr. Conrad.

Capital Coin was the name Mr. Noe used for both of the rare-coin funds he convinced bureau officials to invest $50 million in.

Yesterday, Mr. Jackson, who was included on the e-mails, said, Initially there was some surprise that Mr. Noe would hire somebody who potentially had some criminal issues. Certainly, we wanted to see what the scope of the issues were and whether they were relevent to our investment.

The e-mails released yesterday also provide more details about how the bureau handled the unraveling of its hedge-fund investment with MDL Capital Management, which lost $215 million.

After the bureau realized the full scope of MDL s losses on Sept. 27, 2004, Mr. McLean canceled meetings with four other investment advisers scheduled for the rest of the week.

During the coming months, the bureau attempted to reconstruct the failed investment by examining spreadsheets detailing the hedge fund s transactions and returns.

According to an e-mail, Mr. McLean visited MDL in Pittsburgh that October to retreive information about the investment, but was unable to find all of the hedge fund s relevant documents.

Staff writer Joshua Boak contributed to this report.

Contact Steve Eder at:seder@theblade.com or 614-221-0496.