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Published: 4/8/2005

STATE OF TURMOIL

Ohio opens probe into coin assets

Inspector general looking at 'alleged wrongful acts'

BY JAMES DREW
BLADE COLUMBUS BUREAU CHIEF

COLUMBUS -- Ohio's anti-corruption watchdog said Thursday that he is starting an investigation into alleged wrongful acts associated with the investment practices of the state Bureau of Workers Compensation.

Recent concerns expressed as to the bureau's investment in rare coins merit the review of an independent study to ensure that state officials actions were proper and do not create even the appearance of impropriety, Inspector General Tom Charles said in a statement.

The Blade reported Sunday that the state since 1998 has invested $50 million in rare coin funds controlled by Tom Noe, a prominent Toledo area Republican and coin dealer.

The Bureau of Workers Compensation has continued to be the sole investor in Mr. Noe s Capital Coin funds despite strong concerns raised by an auditor with the bureau about possible conflicts of interest and whether the state s millions were adequately protected.

The Blade reported Sunday that several issues arose regarding Mr. Noe s Capital Coin funds.

• Two coins purchased with state money and worth roughly $300,000 were lost in the mail in 2003.

• The funds wrote off $850,000 in debt over the last three years to cover a failed business relationship between Mr. Noe s Capital Coin and a fellow coin dealer who was managing a subsidiary set up by Mr. Noe.

• Capital Coin had loaned some of the state s money to a Toledo real estate business that buys and sells central-city homes. An auditor for the bureau could not find documents to prove if the loans were sufficiently covered by the value of the real estate that a Capital Coin subsidiary held as collateral.

The Blade reported Sunday that it could find no other instance of a state government investing in a rare coin fund. Neither Mr. Noe nor the state could provide one.

The bureau is the state agency charged with paying medical bills and providing monthly checks to Ohio workers injured on the job.

Taft supports inquest

Gov. Bob Taft, in Toledo Thursday, said he supports Mr. Charles decision to investigate.

We certainly welcome the investigation. We look forward to reviewing the report and the recommendations, Mr. Taft said.

Mr. Noe, a former chairman of the Lucas County Republican Party, has received high-profile appointments from Republican governors.

Gov. George Voinovich appointed Mr. Noe to the Board of Regents in 1995 to complete a vacated term. Mr. Taft reappointed him in 1999 for a full nine-year term.

In 2003, Mr. Taft appointed Mr. Noe to the Turnpike Commission. Mr. Noe is now the Turnpike Commission s chairman.

Since 1990, campaign finance records kept by the state show that Mr. Noe has contributed a total of more than $100,000 to candidates including to both Mr. Voinovich and Mr. Taft for state offices and to various state Republican Party committees.

James Conrad, the bureau s administrator-chief executive officer, was unavailable for comment Thursday, said agency spokesman Jeremy Jackson.

In a written statement, the bureau said it is confident the inspector general s office will conduct a fair, impartial review. The bureau will cooperate fully with the investigation, the statement said.

BWC operates a fair and thorough investment manager selection process, Mr. Jackson said.

Mr. Noe wouldn t comment about the state investigation, but one of his attorneys, fellow Ohio Board of Regents member James Tuschman, said Mr. Noe welcomes the inquiry and believes the Bureau of Workers Compensation and the two coin funds that he controls will get a clean bill of health.

Mr. Charles said at the end of his investigation a report will be issued about the bureau s management and operation.

The report will identify any instance where reasonable cause exists to believe state officials committed a wrongful act or omission, Mr. Charles said. He declined further comment, pending the resolution of the investigation.

The announcement that an investigation would start came only two days after Senate Democratic leaders, including Teresa Fedor of Toledo, sent a letter to Mr. Charles requesting a probe.

Reaction to Charles

Ms. Fedor Thursday said she has a lot of faith in Mr. Charles.

Mr. Charles, a 31-year veteran of the Ohio Highway Patrol, has released investigations that have found wrongdoing in the Turnpike Commission (before Mr. Noe was appointed to the commission), the Ohio State Fair, the Racing Commission, the Ohio Consumers Counsel, the Ohio School Facilities Commission, and several other state agencies.

He is able to root out the waste, fraud, and abuse in state government, Ms. Fedor said.

But Montgomery County Treasurer Hugh Quill questioned whether Mr. Charles would investigate the bureau aggressively.

Mr. Charles was appointed by Mr. Voinovich, now a U.S. senator, in 1998 and was reappointed by Mr. Taft as he began his first term as governor in 1999.

Mr. Quill urged the legislature to change state law so the inspector general isn t a political appointee.

It s the proverbial fox guarding the hen house, said Mr. Quill, a Democrat who is running for state treasurer in 2006.

State Sen. Randy Gardner (R., Bowling Green) said it would be wrong for legislators to condemn or condone a decision to start an investigation.

If an inspector general is truly going to be independent, he should not have state legislators telling him what to do or what not to do, Mr. Gardner said.

In an interview with The Blade Thursday, Mr. Taft said the state s investment with Mr. Noe has worked well for the state, bringing about positive returns.

Mr. Taft, who has received $12,350 in campaign contributions from Mr. Noe since 1990, said there is no evidence that politics played any role in the awarding of the contract to Mr. Noe.

The bottom line is: Is it making money for the state? And it was. He was making money for the state; what s the problem?

In 1998, the bureau gave Capital Coin $25 million to invest as part of a program to consider alternative investments in addition to its traditional focus on stocks and bonds.

A second coin fund that Mr. Noe set up received a second $25 million in 2001 to invest.

Since the funds inception, they always have returned a profit to the state. All told, the Capital Coin funds have generated $13.3 million, with Mr. Noe and his partners splitting more than $3.3 million.

The returns have ranged from 1.4 percent to more than 10 percent in the most recent year. Most of the bureau s other funds had years when they lost money.

Mr. Noe has acknowledged that he turned to other investments when he could not find enough coins to buy and sell.

He recently told The Blade that a coin dealer in Pennsylvania gave him a mortgage on his house as collateral for a $200,000 loan.

Mr. Noe would not identify in which county the real estate was held, and the bureau has said the information may be a trade secret and exempt from Ohio s public records law.

In a letter to Mr. Conrad Thursday, Columbus Mayor Michael Coleman urged him and Mr. Taft to openly and with transparency address questions on this matter rather than avoid questions by citing trade secrecy claims.

Mr. Voinovich appointed Mr. Conrad as bureau administrator, and Mr. Taft reappointed him.

Attorney General Jim Petro, a GOP candidate for governor next year who has received $4,100 in campaign contributions from Mr. Noe since 1990, has declined comment on the bureau s investments in Mr. Noe s rare coin funds.

Auditor Betty Montgomery said if a broad pattern of misconduct became apparent and more factors start to pile up, she would order a special audit of the rare coin funds.

Audit did not address issue

The most recent state audit of the bureau, by the accounting firm KPMG, did not uncover or address the missing coins or other documented problems.

Ms. Montgomery, a former Wood County prosecutor and state senator who also is seeking the 2006 GOP nomination for governor, said she learned of the rare coin investments more than a year ago as the member of a committee searching for better investments for state pension funds.

I was surprised, she said.

Ms. Montgomery, who has received $4,350 in campaign contributions from Mr. Noe since 1990, said she called Mr. Conrad.

He said the investment had been one of the best returns for the bureau, Ms. Montgomery said.

The state treasurer s office said it does not have details of the coin fund investments, such as the types of rare coins backed by the bureau dollars or the collateral to back up real estate loans.

The state treasurer is the custodian of the bureau s money, but it has only the operating agreements and subscription booklets between the bureau and the coin funds that Mr. Noe controls as proof the investments exist, said Pat McDonald, director of the trust department.

William Sopko, chairman of the bureau s five-person oversight commission, could not be reached for comment. He is president of STAMCO Industries of Cleveland.

The oversight commission, which is appointed by the governor, is an advisory board to the bureau.

In starting an investigation, Mr. Charles said his office followed its standard procedure after receiving the letter from Senate Democratic leaders.

You get the complaint, process it, give it a number, then we as a staff meet, discuss, and decide if it fits within our jurisdiction and whether we need to do an investigation, he said.

Staff writers Mike Wilkinson and Christopher Kirkpatrick contributed to this report.

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



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