Noe owes $13.5M to state, audit finds; coin funds fueled lavish lifestyle, officials say

The Crowe Chizek audit found Tom Noe wrote a $60,000 check that was endorsed by Sandy Cove Marine Sales.

COLUMBUS A year ago, Tom Noe was a high-level Taft appointee and a go-to Republican fund-raiser who vacationed in palatial waterfront homes and was a regular at the exclusive Inverness Club.

But a special audit released yesterday alleges that part of his lavish and charitable lifestyle was a mirage, bankrolled with money from the $50 million he controlled in two rare-coin investment funds for the Ohio Bureau of Workers Compensation.

Without the conversion of the state s money with the help of phantom coin deals, auditors said Mr. Noe did not have the cash to afford his lofty status in the community.

Mr. Noe and an associate owe the state more than $13.5 million, the audit found.

He was basically bankrupt when he got the first $25 million, Auditor Betty Montgomery said yesterday.

The audit, which helped prosecutors build a 53 felony-count case against Mr. Noe in Lucas County, also attacked the bureau itself, saying it held Mr. Noe to a lower standard than other firms and failed to review and monitor the rare-coin funds and other investments.

Democrats yesterday asked the question that neither the audit nor state and federal investigators have yet to answer: How did Mr. Noe get the money in the first place?

This audit puts all the blame on Tom Noe and his coin funds, said state Sen. Marc Dann, a Youngstown-area Democrat who, like Ms. Montgomery, is running for attorney general. But, Tom Noe did not walk into the Bureau of Workers Compensation and steal this money; he had government officials help him get these accounts.

In addition to detailing where they thought the money went, auditors reviewed the bureau and its policies. There were not enough policies, they felt, and the ones that existed were not always followed.

Among the audit s concerns:

• Mr. Noe did not have the credentials to be a fund manager.

• The bureau allowed his attorneys to write the agreement.

• The bureau failed to require him to file regular financial records.

• The bureau did not have the internal structure to adequately review the initial investment.

Ms. Montgomery called the lack of oversight startling, if not shocking. But, she said the special audit did not examine why there was so little oversight.

A Chicago-based firm spent hundreds of thousands of dollars on the audit, and concluded Mr. Noe, his businesses, and associate Frank Greenberg owe the state more than $13.5 million, nearly $12 million of which was the byproduct of phony coin transactions, the audit states.

Most of the money is unaccounted for. But auditors from Crowe Chizek and Company believe that hundreds of thousands of dollars was used by Mr. Noe to pay home contractors, appliance dealers, and to pay for a hospitality tent at the 2003 U.S. Senior Open golf championship at Inverness.

Last week, Mr. Noe was charged with laundering or stealing more than $3 million from the coin funds. John Weglian, a top assistant to Lucas County Prosecutor Julia Bates, said his office did not seek charges covering the entire $13 million loss because it would have created a case that may have been so large it could confuse a jury.

I did not want to have a 300-count indictment, he said.

A good chunk of the money identified by the auditors allegedly went to Florida contractors and to the Sylvania company that built Mr. Noe s former home on Catawba Island.

Mr. Noe and his wife, Bernadette, have owned two homes and a condominium in the Florida Keys. Over the years, they hired Webb Construction to add windows, air-conditioning, and a 750-square foot guest house to their current home. Auditors say Mr. Noe used nearly $150,000 of coin-fund money to pay Webb.

More than $168,000 also went to Nick Giovannucci of Nicholas Homes in Sylvania, auditors state. That company built the Catawba home.

The report says nearly $21,000 went to a Maumee appliance vendor and $9,500 to a local store that sells audio equipment.

And as has been alleged before, one of Mr. Noe s coin funds sent money to the other coin fund to pay for most of the state s profit in the funds. Without that infusion of money, Capital Coin Fund I could not have made that payment, the audit said.

You have a theme and variation of illegality and theft, whether it s a Ponzi scheme or lack of documentation or taking money from Peter to pay Paul, Ms. Montgomery said.

During the Senior Open at Inverness tents cost $95,000, according to Judd Silverman, director of Toledo Classic Inc., the local marketing representative for the tournament.

He said Mr. Noe bought his tent in the name of his company, Vintage Coins, and split the cost with others. The audit report says Mr. Noe spent nearly $48,000 in coin-fund money on the tent.

Tom was always a guy who wanted to support community activities, said Mr. Silverman, who has run the Jamie Farr LPGA event for years. If it is true that he used state money for his portion of the hospitality tent, I m very disappointed to learn that.

Crowe Chizek said yesterday it will refer its findings to the Internal Revenue Service because of possible inaccuracies in the amount of profits reported by Mr. Noe s Capital Coin Fund.

Mr. Noe got $25 million from the bureau, the agency in charge of paying medical bills and providing monthly checks to injured workers, in March, 1998, and another $25 million July, 2001.

After Blade articles beginning last April began detailing the coin funds and the problems associated with them, multiple agencies formed a task force to investigate Mr. Noe and the bureau s investments.

The investigation was aided substantially by the Crowe Chizek audit, which was first shared with county prosecutors before going to Ms. Montgomery s office, which paid for it.

William Wilkinson, Mr. Noe s attorney, did not return a message seeking comment.

The audit identifies other items that are likely included in the Lucas County indictment of Mr. Noe, including some of the 22 counts of forgery.

Crowe Chizek reported that a check was written to Jim Gideon on Feb. 10, 2004, for $52,500. It was endorsed and deposited in Mr. Noe s personal account. Some of that money came from the coin funds, auditors believe.

Mr. Gideon, a Cleveland area accountant, said yesterday he never saw that check nor endorsed it; count 52 of the indictment alleges that Mr. Noe committed a forgery on Feb. 10 as well.

At about the same time, Mr. Noe loaned $52,500 interest free to the Catawba Orchard Beach Homeowners Association to help pay for the repair and expansion of its marina. Mr. Gideon handled that transaction but said that check was from Mr. Noe s personal account.

Yesterday, Mr. Gideon said the association is withholding the last payment to Mr. Noe until the situation becomes more clear. He said he knew that Mr. Noe did business for the bureau but did not know what kind.

I always figured that s why he did the fund-raisers, Mr. Gideon said. Both Gov. Bob Taft and U.S. Senator George Voinovich have attended political fund-raisers at Mr. Noe s Catawba Island home.

The Crowe Chizek audit found Tom Noe wrote a $60,000 check that was endorsed by Sandy Cove Marine Sales.

Mark Rickel, Governor Taft s spokesman, said changes have been made in how the bureau is run. Last year, Mr. Taft, who appointed Mr. Noe and his wife to three posts and who could rely on them for financial support, defended Mr. Noe and his coin funds before acknowledging it was a bad decision.

There was no coherent system to appropriately monitor bureau of workers compensation investments, and when that became abundantly clear, we took swift action to fix the problems and put the systems in place so that this does not happen again, Mr. Rickel said.

Ms. Montgomery blamed the bureau for a massive failure of oversight and said KPMG the firm she hired to audit the BWC failed to alert her in 2004 that rare coins were missing from the Noe-run funds.

But her Republican and Democratic critics continue to blast her for not ordering a special audit sooner. She did not call for a special audit of the coin funds until six weeks after The Blade reported April 3 about problems with the rare-coin investment.

The Blade reported then that two coins worth roughly $300,000 were lost in the mail in 2003, Capital Coin had written off $850,000 in debt over the last three years to cover a failed business relationship, and that Mr. Noe had invested some of the state s money with John Ulmer, a controversial Toledo area real-estate mogul whose firm buys and sells central-city homes.

Ms. Montgomery said she agreed in April to work with the task force investigating the Noe coin funds. It was not until Blade articles on April 22 and again on May 1 the latter detailing the loss of 119 coins that she said she ordered a special audit.

The special audit conducted by three firms, including Chicago-based Crowe Chizek examined the seven years from when Mr. Noe formed Capital Coin Fund I to last May, when the state halted the investment.

After the bureau wired Mr. Noe $25 million to invest on March 31, 1998, Capital Coin I sent $1.375 million to Vintage Coins & Collectibles Mr. Noe s former business in Monclova Township and called it a coin inventory purchase.

But records reviewed by the auditors showed Vintage had but a fraction of that inventory on hand.

A review of Vintage Coins accounting records after the $1.375 million transaction revealed $668,103 in payments that Crowe Chizek could not explain, $446,471 for a line of credit for Thomas Noe Inc., $218,000 in payments to Mr. Noe, and $20,000 to Mid America Sports, a company that Mr. Noe partially owned.

Also, Crowe Chizek found 15 transactions totaling $3.9 million listed as inventory purchases from Capital Coin I that were not supported by business records, such as customer sales slips and shipping records.

Such supporting documents were often prepared by [Vintage Coins] personnel for other similar inventory transactions, the audit says.

In 12 of the 15 transactions, Vintage Coins check registers reflected a negative cash balance at the time money from Capital Coin I was deposited, the audit said.

Of the $3.9 million total, $211,289 went to Mr. Noe; $176,088 to builders and home appliance vendors; $945,834 to Henry Gailliot, a wealthy Pittsburgh coin collector; and $60,000 to Mike Myers.

In June, 2003, Mr. Gailliot deposited $2 million into Capital Coin. Mr. Noe made payments to Mr. Gailliot totaling $1.3 million that were dubbed coin purchases, but Crowe Chizek said the money was a repayment to Mr. Gailliot as part of a joint venture with Mr. Noe to buy a coin collection.

Checks written to Mike Myers were endorsed by Sandy Cove Marine Sales. Mr. Noe was an investor in the Florida Keys business.

Mr. Gailliot and Mr. Myers declined comment yesterday.

The audit also says that Mr. Noe spent about $48,000 in coin money on a hospitality tent similar tothose used during the Senior Open at Inverness.

The report also focuses on two former bureau officials: Robert Cowman, who was chief investment officer and is now director of investment for the Ohio Schools Employees Retirement System, and Terrence Gasper, the former chief financial officer who was forced to resign in 2004 after the bureau lost $215 million in a risky hedge fund.

Crowe Chizek accuses Mr. Cowman of dismissing concerns raised in 2000 by Keith Elliott, an internal auditor at the bureau.

The bureau also allowed Mr. Noe s attorney to draft the operating agreement for Capital Coin Fund, which contained provisions that greatly benefited Mr. Noe, the audit says.

Crowe Chizek says Mr. Gasper transferred money from a fixed-income investment with Pittsburgh-based MDL Capital Management in 2003 to a Bermuda hedge fund without any supporting documentation justifying the transfer.

Crowe Chizek said it was not apparent if Jim Conrad, the bureau s administrator-CEO, and the bureau s chief investment officer were aware of the transfer.

Secretary of State J. Kenneth Blackwell, a Republican candidate for governor, yesterday renewed his call for the resignations of all of the members of the bureau s Oversight Commission.

There were a kennel of watchdogs asleep at the switch, said Mr. Blackwell. He added, I think that the oversight board was the first line of oversight and the others should have the decency to do what [former commission member] George Forbes did, and resign.

The special audit also details why it believes that Mr. Noe, his businesses, and Mr. Greenberg of Delaware Valley Rare Coins owe the bureau $1.7 million in profit distributions.

Auditors believe the coin funds shorted the state by giving a smaller percentage than the operating agreements call for.

After examining income tax forms, Crowe Chizek determined that Vintage Coins and Delaware Valley received $270,323 more than they should have and that money should have gone to the bureau.

The audit also determined that the bureau did not receive any monies from profit distributions from July 1, 2003, to May, 2005, when the state took over the coin funds, and should have received more in 2001 and 2002.

Kim Norris, a spokesman for Attorney General Jim Petro, said the audit confirmed some of the information that came to light last September as part of the state s lawsuit seeking to recover money for the bureau.

That lawsuit is on hold, pending the outcome of Mr. Noe s criminal charges.

Mr. Petro announced yesterday that the state has arranged to sell several rare U.S. coins and $10,000 bills on behalf of the bureau for at least $7.5 million to Spectrum Numismatics International a $1 million profit.

Crowe Chizek said a review of Capital Coin inventories showed that $1.65 million had been invested in collectibles such as political campaign pins, sports memorabilia, stamp collections, and historical and political documents items not allowed by the original operating agreement.

A review by Sotheby s found that as of last Nov. 11, the value of the collectibles ranges from $2.1 million to $2.9 million. Although the purchase of the items violated the agreement, the state can still sell them.

We have the collectibles in hand. We don t have to recover them, Ms. Montgomery said.

The special audit says Mr. Noe in 1998, when the state sent him the first installment of $25 million, did not meet the minimum criteria to be a fund manager which the bureau identified as a bank, insurance company, investment management company, or investment advisor.

Count Mr. Gideon among those wondering where, if not how, Mr. Noe got the money.

We had no clue, Mr. Gideon said. We just thought he was Mr. Moneybags.

Blade staff writers Steve Eder and Dave Hackenberg contributed to this report.

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