Scandal drags down pair of consultants

7/1/2005

The investment scandal at the Ohio Bureau of Workers' Compensation cost the jobs of two firms hired in 1997 by the bureau to choose and evaluate minority investment companies, including MDL Capital, which lost $215 million in a hedge-fund investment.

Tina Kielmeyer, the bureau's new administrator, did not renew the contract of Philadelphia-based Fiduciary Investment Solutions Inc., which last year was paid $48,000 to judge the performance of fixed-income minority managers, which included MDL Capital. FIS is run by Tina Poitevien, who was chief investment officer for the Philadelphia Pension Board from 1990-1994.

The bureau also did not renew the contract of Gray & Co., an Atlanta-based firm paid $48,000 last year to judge the performance of minority agencies involved with investing in equities for the bureau.

The firm is run by Laurence O. Gray. The two contracts expired today.

Callan and Associates, which the bureau paid $166,500 last year to oversee nonminority agencies, was spared and is still working for the agency. Ms. Poitevien and Mr. Gray did not return calls yesterday.

Jim McLean, the bureau's chief investment officer who is on paid leave, told The Blade that FIS did not add much expertise in its quarterly reporting about the minority fixed income managers and investments it was supposed to be analyzing.

"We had our own team on it, and FIS wasn't telling us anything we didn't know," he said.

The bureau hired Chicago-based Ennis, Knupp & Associates on Monday to do an audit of all bureau investments and in the short term take over the minority firm oversight duties of FIS and Gray, said Jeremy Jackson, spokesman for the bureau.

The deal with Ennis, Knupp sets hourly rates of $235 to $775 for the firm to do its work, according to the contract.

Mr. Jackson would not lay blame for investment losses in the Minority and Emerging Managers programs at the feet of the two firms, which helped choose some of the poor performing companies. He did say the bureau was shaking up an investment system that had internal controls in need of a review.

"What they [Ennis, Knupp] are being tasked with is an overall review of our investment policies and procedures and to go through each investment," he said. "[It's] a reflection of some of our dissatisfaction with some of the issues from our investments."

The "dissatisfaction" includes some $270 million in losses and also uncertainty, including the value of a $50 million investment into rare coins with Toledo-area coin dealer Tom Noe. The two rare coin funds, which were confiscated by the state, have $13 million unaccounted for, according to Mr. Noe's lawyer. The state is assessing the value.

Mr. Noe is under investigation by numerous agencies, including the FBI, which is looking into campaign contributions made to the Bush-Cheney campaign last year.

Two weeks after revealing the $215 million loss in the MDL Active Duration Fund, the bureau said it had a half billion dollars invested in two other hedge funds, something Mr. Jackson said the bureau did not know until late May because the hedge fund investments were wrongly classified as venture capital investments.

The $550 million investment, in two funds offered by Minneapolis-based American Express Asset Management, represented 4 percent of the bureau's portfolio. Mr. Jackson said the bureau would be getting out of the funds.

The Blade reported this week that the bureau waited until two years after the U.S. Securities and Exchange Commission cited Tiffany Capital Advisors Inc. for deceptive practices to terminate the company, which was hired under the Minority and Emerging Managers programs.

The Philadelphia-area company had the bureau as its sole client and was managing $20 million.

One month after taking over as the chief investment officer in August, 2003, Mr. McLean fired Tiffany.

He told The Blade this week the firm was trading too much, the institutional equivalent of day-trading, but had been hired to employ a longer-term approach.

Tiffany's owner, Curtis O'Del Townsend, was former treasurer of the city of Philadelphia.

Staff writer Joshua Boak contributed to this report.

Contact Christopher D. Kirkpatrick

at: ckirkpatrick@theblade.com

or 419-724-6077.