COLUMBUS - In the world of trying to make a buck, Tom Noe and the managers of the state's rare-coin investment got to play all the important parts.
They were the buyers, sellers, and middlemen, the wholesalers and the retailers. They set the prices that Mr. Noe's limited partner, the Ohio Bureau of Workers' Compensation, would pay for the coins that would make up the bulk of the state's investment.
They sometimes took their profits coming and going, and often had the dual - but traditionally conflicting - roles of manager of the state's $50 million rare coin funds and salesmen to those funds.
They often sold coins from their own inventories, or that they found on the market, to the state for a profit. They would set the price.
The state might only make money off those same coins, down the road, if they appreciated in value or if a buyer could be found that would pay more.
That retail profit would then be split between the state and Mr. Noe - 80-20. Mr. Noe's managers would then get another slice of the profit, depending on their particular arrangement with Mr. Noe.
The incestuous circle of coin trading - with the state as the bankroll but sometimes at the rear of the profit bus - was not designed to maximize state returns. Mr. Noe set up the system, and it appeared he could not lose.
It was not a secret to the state, either. The investment was approved by former bureau Administrator James Conrad in 1998.
In auditing and accounting parlance, they are called "related-party transactions," and they can be rife with conflicts of interest.
"So you really didn't have value with the coins at all," said state House Minority Leader Chris Redfern, (D., Catawba Island), a critic of the investments. "That's why we never should have got-ten into this business to begin with. That's the legacy that we as Democrats have to live with. This problem was created by the legislature and taken advantage of by Tom Noe."
Mr. Redfern was referring to a 1996 law, approved by Democrats and Republicans, that allows for unusual investment vehicles, such as rare coins, for some state money.
The legislature repealed the law last month, prohibiting state investments in rare coins, collectibles, and other exotic investments following revelations that up to $13 million is missing from the bureau's rare-coin funds managed by Mr. Noe.
First reported by The Blade on April 3, problems with Mr. Noe's rare-coin fund have blossomed into the biggest state government scandal in a generation.
Ohio Attorney General Jim Petro charged last week that Mr. Noe had stolen at least $4 million from the coin fund and that he and his wife, Bernadette, a former Lucas County GOP chairman, had used the money to pay debts and purchase expensive homes, cars, and boats.
In addition to the internal trading with the coin fund, a Blade review of recently released transaction records shows millions in loans taken by coin fund managers out of the state funds, even after Mr. Noe agreed to limit the practice.
The "related-party" transactions and loans stretch across a corporate web of subsidiaries, created by Mr. Noe, with managers across the country buying and selling coins on behalf of the $50 million Ohio investment.
Mr. Noe's subsidiaries ranged from Wilmington, Del., to Malibu, Calif., with other offices in suburban Denver, Minnesota, and suburban Toledo.
The whole enterprise was headquartered at Mr. Noe's Vintage Coins and Collectibles in Monclova Township.
The first $25 million from the state's Workers' Compensation Bureau was invested in a partnership Mr. Noe set up as Capital Coin Fund Limited in 1998 with fellow coin dealer Frank Greenberg's Delaware Valley Rare Coin, of Broomall, Pa. Each man put $5,000 into the venture. Mr. Noe was the managing partner.
The second $25 million came from the bureau in 2001. Mr. Noe set up another partnership to accept the state's cash - Capital Coin Fund Limited II - this time without a partner.
Mr. Noe confirmed there was insider trading in the funds in a March interview with The Blade. Sometimes the state would not get the first crack at the profits, he said.
"I can do a lot of things. [But] we run this straight," he said. "If we buy a collection over the counter at Vintage Coins, and there's a $100 coin that's worth $200 to anybody in the country, can we sell that to the fund for 200 bucks? Absolutely," he said. "But do we go out as a regular course of business to do it? No. That's not what this is all about."
Bureau officials knew it was happening and approved of the arrangement, which was enshrined in an operating agreement presented by Mr. Noe to the bureau and approved by Mr. Conrad in 1998, the year Tom Noe received the first $25 million.
In later revisions of the agreement, bureau officials said fund managers could only sell coins to the state at a fair market rate.
But still, the state might lose out on profits from coins bought by managers below market rate and then sold to the state at the higher market rate, like the hypothetical $100 coin Mr. Noe referenced in March.
And, records of the failed state coin venture show, many times the fund managers were using the state's money to buy coins and then sell them back to the state.
Gov. Bob Taft and Mr. Conrad vehemently defended the investments in April after The Blade first reported them as sound and profitable and said Mr. Noe, a generous GOP fund-raiser, was a quality general partner for the state. Mr. Conrad resigned at the end of May, and last week, Mr. Taft said he was misled by Mr. Noe.
Attorney General Petro said there is no evidence the coin funds ever made a profit. He said Mr. Noe used a Ponzi scheme to fool the state, meaning he took some of the original $50 million and pretended it was profit, Mr. Petro said.
He also said there is evidence Mr. Noe simply stole cash off the top of the investment, in particular, $1.375 million he wired to his own business checking account on March 31, 1998, the same day he received the first $25 million from the bureau.
Despite Mr. Noe's assertion that "related-party" transactions were rare, records of the venture show it was a common and accepted practice with the state's rare-coin money.
The first batch of transaction records from the state coin fund - 15,000 pages released by the Bureau last week through the Attorney General's Office - shows numerous transactions between Mr. Greenberg's Delaware Valley Rare Coin and Capital Coin, Rare Coin Alliance, and other companies that were set up by Mr. Noe and fully funded by the state.
Mr. Greenberg was one of the managers of the state's first $25 million investment in rare coins. As an investment manager, he was able to buy coins for the state from his own company.
Sometimes Delaware Valley would sell its own coins to the state, sometimes it would use the state's money and buy directly from dealers for the state, cutting himself out as the middleman, he said in an interview last week.
There was no set system, Mr. Greenberg said for deciding when the state would get to buy directly or when the state would first have to go through Delaware. It was on a case-by-case and coin-by-coin basis, and the decision depended on the coin and the market forces.
Mr. Greenberg, in a conference call that included his lawyer, Stephen Greenberg (no relation), told The Blade his dealings with Mr. Noe and the state were fair, ethical, and free from conflicts. Frank Greenberg said he was simply a manager and was in the dark about how Mr. Noe took care of Capital Coin.
"We purchased for the fund. Sometimes we purchased [coins] directly from customers or clients or from other dealers. Sometimes they were purchased from Delaware Valley Rare Coins," he said.
Stephen Greenberg, a Philadelphia lawyer, said that there is no conflict of interest because the arrangement was spelled out in the operating agreement accepted by the state.
"As long as it is permitted under the operating agreement, and as long as it is properly disclosed, then there's no conflict on interest," he said.
Delaware Valley had its own quality inventory and some of the coins might be better to hold for potential investment gains for the state and others might have been better for "immediate trading gains," Frank Greenberg said. "Delaware Valley wanted to sell [and] we would rather sell it to the [state] fund and let them make the additional profit, than sell it to other dealers and let them have the profit."
Under the arrangement with Mr. Noe, Delaware would make a 10 percent commission on coins it sold.
Mr. Noe said in March that the individual managers he hired or partnered with for the coin funds were each paid differently, on a "sliding scale, based on how well they do."
"They don't make much money unless the fund makes money, just as I don't make much money unless the fund makes money," he said.
After teaming up with Mr. Greenberg on the first coin fund, Mr. Noe said he felt he could "go alone" on the second $25 million.
"I share the wealth. I'm not a pig. I let a lot of people play," he said in March.
Millions in transactions between managers caught the eye of a bureau auditor in 2000, a year before the second $25 million was given to Mr. Noe.
A review of the first fund by the bureau's internal auditor. Keith Elliott, showed related-party transactions in 1999 that totaled $3 million.
"The related parties could potentially be realizing profits on sales of coins to the [Capital Coin Fund]," he wrote. "Such a situation represents a conflict of interest and potentially exposes both the managers and BWC to allegations of improper activity."
Mr. Elliott's recommendation was to prohibit the transactions. Higher-ups did not listen and instead placed restrictions on the sales.
Robert Cowman, the bureau's chief investment officer at the time, wrote in a letter on Jan. 10, 2001, that "coins purchased for the fund from an interested party will be purchased at wholesale or lower."
Still, Mr. Elliott's warnings about the potential abuses seemed lost on Mr. Cowman, records show. The former chief investment officer wrote to the bureau's chief legal officer, John Annarino, that the concerns seemed misplaced.
"Keith seems to be questioning the investment merits of this partnership, plus he seems to be questioning the adequacy of the [operating agreement]," Mr. Cowman wrote. "I'm not sure he should be questioning either issue."
Tom Noe also authorized millions of dollars in loans to coin dealers, coin shops, and other types of businesses, The Blade's review of coin records shows.
There were hundreds of thousands in loans to Delaware Valley Rare Coin from the state funds. On March 15 of this year, Mr. Greenberg, in an e-mail, told Mr. Noe he was issuing himself a 60-90 day loan of $250,000 from the state's pool of money. He wrote himself a check, records show.
"We have run into some cash flow problems here [Delaware Valley Rare Coin] needs to borrow $250,000 and add it to our loan portfolio," he wrote. "I hope this isn't a major inconvenience or problem."
Mr. Elliott's internal review of the coin funds concluded that the lending was a concern. His audit recommended eliminating it. Again, higher-ups did not take action.
Mr. Noe answered that it was a necessary part of doing business, but allowed that it should not exceed "a few million" dollars, according to a summary in the May, 2000, review.
The recommended plan of action was to limit the lending and require that the bureau be notified of future borrowing. The lending continued until the bureau announced its plans to divest from the coin funds in May and other bureau investment losses, such as a $215 million loss in an MDL Capital hedge fund, came to light.
Mr. Noe took out at least two loans totaling $585,000 for his business, Vintage Coins, in 2004 and 2005. Both loans were at 6 percent interest. He also wrote off $850,000 in bad debt as a result of the fund's relationship with Mark Chrans, a convicted felon hired to work out of California for the coin operation.
Chrans, beginning in 1998, was allowed to draw $25,000 a month in state money from anticipated profits from future rare-coin deals while he ran Visionary Rare Coin, a subsidiary.
Mr. Noe also loaned Chrans $250,000 in state money within a month of receiving his first installment of $25 million from the bureau. By the end of 1999, Chrans owed the coin fund $128,583 on the $250,000 loan; $335,076 in pay advances from the coin fund; $359,646 in "losses," and $11,571 in unpaid interest.
In the March interview, Mr. Noe called the $850,000 in bad debt written off for Chrans "a bump in the road."
Chrans, during a May interview with a Blade reporter at his Malibu coin shop, said he did not list the coin fund in a bankruptcy filing because he said he did not know how much he owed the fund. He said he did not realize Ohio was the source of the money.
"I thought it was some billionaire's money," he said.
James McLean, the chief investment officer for the bureau who took over for Mr. Cowman, said that the bureau tried to minimize the potential abuses of "related-party" transactions. He said that regardless of the particulars of each deal, the general responsibility of Mr. Noe was to maximize the profit or return for his limited partner, which in this case was the state of Ohio.
"Potentially there could be a conflict of interest that's something that would have to be carefully monitored by auditors. There has also been some confusion about what is or is not a related-party transaction," he said. "[Mr. Noe] was supposed to be devoting his interest and his [expertise] in the best interest of the limited partner, for him to be profiting on the side [would be wrong]."
Mr. McLean is on paid administrative leave because of the rash of investment losses at the bureau, including the $215 million hedge fund loss.
In March, Mr. Noe said his business is filled with friends and longtime acquaintances, and that the profits were slim at first.
"We have a wonderful coin business. You have to understand all the people I do business with, I've known for a long time," he said.
"Over the years, it was not a real good deal for me. In the first few years I was in this, I probably didn't make any money at all if you really look at the net effect of time away from my core business," he said.
Mr. Noe said the principals in the initial $25 million - Vintage, Delaware Valley, and the bureau - were each paid at the end of the year.
"These people that buy and sell, they get enough money to live on during the year," he said. "Their gravy is at the end of the year."
Blade staff writer Joshua Boak also contributed to this report.
Contact Christopher Kirkpatrick at: firstname.lastname@example.org or 614-221-0496.