COLUMBUS - The state of Ohio has added seven counts to a civil lawsuit seeking to recover $216 million that the Ohio Bureau of Workers' Compensation lost in a Bermuda hedge fund.
The additional counts accuse MDL Active Duration Fund Ltd. and eight other defendants of "fraudulent inducement, negligent nondisclosure, and constructive fraud," which is more specific than the initial 10 counts when the state sued in June, 2005, said Mark Anthony, a spokesman for the attorney general's office.
"We continue to vigorously pursue this case on behalf of the BWC and the injured workers of Ohio," Attorney General Jim Petro, a Republican candidate for governor, said in a written statement.
"It's our position and our client's position that the defendants did not live up to their contractual obligations to a state agency and their duty to comply with our state's securities laws."
The lawsuit is pending in U.S. District Court in Columbus.
The bureau in 1998 hired MDL Capital Management of Pittsburgh as a fixed-income investment manager, and MDL formed the hedge fund in 2002.
To solicit investors, MDL and its directors used a Jan. 15, 2003, document that outlined the hedge fund's investment strategies and objectives, the state's amended lawsuit says.
The bureau in September, 2003, transferred $100 million from a long bond account with MDL to purchase shares in the hedge fund.
Despite the Jan. 15, 2003, document saying the hedge fund's assets would be "leveraged in a very limited manner," MDL violated the terms and crafted a plan to deceive the bureau into agreeing with those borrowing decisions, wrote Dan Cvetanovich, an attorney with Bailey Cavalieri LLC, the Columbus law firm the attorney general's office hired to represent the workers compensation bureau.
In March, 2004, the hedge fund "began to experience unusual losses without explanation to the bureau," the state's lawsuit says.
A month later, Mark Lay, an MDL executive and member of the hedge fund's board of directors, met with bureau officials but did not tell them that the hedge fund had lost an additional $30 million and that the fund's assets had been leveraged far beyond the guidelines set in 2003, according to the lawsuit.
The bureau invested an additional $25 million in the hedge fund in September, 2004, but declined to invest more a month later.
The bureau recovered about $9 million of its $225 million investment.
In addition to the hedge fund, MDL, and Mr. Lay, the other defendants in the state's lawsuits are members of the hedge fund's board of directors: Steven L. Sanders, Edward Adatepe, Oskar Lewnowski, C. Raymond Morrison, and two firms, Warwick Fiduciary Services Ltd., and Hamilton Fiduciary Services.
Attorneys representing Mr. Lay, the hedge fund, and other defendants didn't return messages seeking comment.
Late Wednesday, the state filed deposition transcripts of Mr. Lay and six others in federal court under seal, so the public can't read them.
A November, 2005, order by federal Magistrate Terence Kemp says the goal is to "preserve business and trade secrets."
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