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Published: Tuesday, 5/10/2005

STATE OF TURMOIL

State decides to get rid of rare-coin investments

BY JAMES DREW AND MIKE WILKINSON
BLADE STAFF WRITERS

COLUMBUS -- State officials yesterday said they are halting a controversial investment in two rare-coin funds controlled by Tom Noe, a prominent Toledo-area Republican fund-raiser and coin dealer.

The Ohio Bureau of Workers' Compensation announced that it will dissolve the $50 million investment "over a reasonable period of time sufficient to protect the state's investment."

The agency did not say how long that would take.

"We had concerns about the ability of the managers to commit the necessary time and resources to make it profitable," said Jeremy Jackson, the bureau's press secretary.

The agency's decision was made a day after The Blade reported that two rare gold coins purchased for the state had probably been stolen. Mr. Noe had said the coins were "lost in the mail." He has told the bureau that an additional 119 coins owned by the state were "misappropriated" by a former employee.

In a written statement, James Conrad, bureau administrator-CEO, wrote that the state decided with Mr. Noe that "it's time to close this chapter and have mutually agreed to dissolve the Capital Coin Funds.

"While the investment has been profitable, its future prospects are uncertain in light of questions that have been raised with respect to its management," Mr. Conrad added.

A "series of events" led the bureau to that conclusion, but Mr. Jackson would not elaborate.

The Blade also reported Sunday that in the year since Mr. Noe learned the 121 rare coins were missing and possibly stolen in Colorado, he had not contacted law enforcement authorities.

A bureau spokesman also said Ohio officials didn't learn until being informed by Blade reporters of the missing gold coins, two of the most valuable rare coins purchased for the state by an employee of Mr. Noe's at a cost of $250,000.

Mr. Jackson yesterday said the bureau has asked the attorney general's office to appoint an "independent, third-party" to make sure the divestiture is "conducted in the best interest of the state Insurance Fund...."

Asked if the state would confiscate the state-owned coins from Mr. Noe, Mr. Jackson said there are discussions between Mr. Noe and the bureau's legal department.

State Sen. Marc Dann, a Democrat from suburban Youngstown, said state leaders didn't act soon enough to protect "what's left of the investment."

He said the governor, attorney general, and state auditor "fiddled for a month while Rome is burning."

"These guys were falling over themselves to protect their big donor, Tom Noe," Mr. Dann said.

Mr. Noe has contributed more than $11,000 in campaign funds to Gov. Bob Taft and more than $4,000 to former Gov. George Voinovich, now a U.S. senator, over the past decade.

Since 1990, campaign finance records show that Mr. Noe has contributed more than $110,000 to candidates for state offices and to various state Republican Party committees.

Mr. Dann said the governor has been irresponsible in addressing the concerns raised about the coin investments.

"Clearly, any good fiduciary, the moment they had notice they had the problems we had with this investment would have taken dramatic and specific action to protect the investment for the state of Ohio," he said.

Even though the state has decided to liquidate the investment, Mr. Dann said several questions remain and new ones arose with yesterday's announcement by the bureau:

● Will the state look to recoup management fees from Mr. Noe?

● Why and who made the decision to invest in rare coins with Mr. Noe?

● Was this a "pay-to-play" investment?

● Why did it take state officials more than a month to decide to divest?

● If this was such a lucrative investment, as the bureau stated, then why divest?

● What's left of the investment?

"I will be fascinated to find out if there is $50 million there," Mr. Dann said. "I would be absolutely surprised if there was."

Mr. Noe didn't return messages last night seeking comment.

Governor Taft supports Mr. Conrad's decision, said press secretary Mark Rickel.

"Although the investment was profitable, insufficient safeguards were in place," Mr. Rickel said.

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

State Sen. Jeff Jacobson, a Dayton-area Republican, said Mr. Taft had made the right call.

"I want to make sure it is all properly accounted for," said Mr. Jacobson, the No. 2-ranking senator. "I do support an orderly time-frame for liquidation as long as we get these assets back into state custody one way or another."

The Blade first reported April 3 that the bureau since 1998 had invested $50 million in rare coin funds that Mr. Noe controls, 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 also reported that Mr. Noe's Capital Coin had loaned some of the state's money to a Toledo real estate business that buys and sells central-city homes.

A bureau auditor could not find documents to prove if the loans were sufficiently covered by the value of real estate that a subsidiary held as collateral.

Profits claimed

The Blade could find no other state government investing in a rare coin fund. Neither the state nor Mr. Noe could provide one.

Since first venturing into the rare-coin investment, the state has claimed that it has received profits of $13.2 million since 1998, while Mr. Noe and his partners have split $3.3 million.

The coin funds have generated profits of between 1.4 percent and 11 percent to the state since their inception, the bureau has claimed.

The bureau over the past month continued to back its decision to invest $25 million in Capital Coin in 1998 and another $25 million in 2001.

The bureau also insisted that politics played no role in Mr. Noe's selection as part of a program to consider alternative investments in addition to its traditional focus on bonds and stocks.

In response to The Blade's articles, Ohio Inspector General Tom Charles announced on April 7 that he was starting an investigation into "alleged wrongful acts associated with the investment practices" of the bureau.

Taft defended choice

That same day, Mr. Taft, in an interview with The Blade, defended the state's investment in rare coins.

"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?" Mr. Taft said, referring to Mr. Noe.

On April 22, The Blade reported that Mark Chrans, one of the managers hired by Mr. Noe to buy and sell rare coins, was once convicted for faking a coin transaction to cover up drug money.

Twelve years before Mr. Noe agreed to pay Chrans more than $25,000 a month to manage the coin venture, Chrans pleaded guilty to fraud and perjury in U.S. District Court in Springfield, Ill. He spent less than a year in a federal penitentiary.

Chrans is the same manager who caused Mr. Noe's Capital Coin to write off $850,000 over the last three years because of bad coin deals, an unpaid loan, and the salary advances.

Mr. Noe said he had "no idea" that Chrans had a felony conviction, and he said he did not do a background check on Chrans before hiring him to buy and sell coins for a joint venture funded with bureau money.

On April 27, federal authorities also confirmed they are investigating Mr. Noe for possible violations of campaign contribution laws.

Gregory A. White, U.S. attorney for the Northern District of Ohio in Cleveland, confirmed that his office, in conjunction with the FBI, was investigating Mr. Noe, who was chairman of the Bush-Cheney campaign in northwest Ohio.

The federal probe is studying Mr. Noe's campaign contributions to the President, and specifically contributions made by others to the President who may have received money from Mr. Noe - a violation of federal campaign finance laws if proven.

Of particular interest to investigators is an Oct. 30, 2003, fund-raiser in Columbus where the Bush campaign raised $1.4 million.

Mr. Conrad, in a letter released by the bureau yesterday, said that Mr. Noe suggested last week that it was time to end the state's investment in rare coins.

Sen. Eric Fingerhut (D., Cleveland) said he doesn't believe Mr. Noe truly suggested the dissolution of Capital Coin.

"I don't believe it was his idea," he said.

'Culture of corruption'

"This is so revealing of the culture of corruption of the Republican party in Columbus and the Republican party in the state of Ohio that I wouldn't put anything past them," Senator Dann said. "I don't think he came voluntarily. I think they'll do anything to try to pull the wool over the public's eyes about this scandal."

Montgomery County Treasurer Hugh Quill, who is seeking the Democratic nomination for state treasurer next year, said if the Republicans wanted to put the controversy behind them, they would have pushed for the resignation of Mr. Conrad, who was appointed as BWC administrator-CEO in 1995.

The GOP controls all statewide executive posts, both chambers of the General Assembly, six of the seven Supreme Court seats, and both U.S. Senate seats.

"To have hidden behind yield as an argument for playing with a major contributor exclusively and changing the standards so they could do that, does not make a compelling case for any change of the culture," Mr. Quill said.

After The Blade began reporting on Mr. Noe's rare-coin investment for the bureau, Democratic legislators immediately called for investigations. Quietly, some Republican legislators began to ask questions, in particular Mr. Jacobson, who said yesterday he encouraged the bureau toward dissolving the rare coin investment with a series of questions.

The bureau's decision to do so allows legislators to have "policy discussions and leave details to the auditors and forensic accountants," Mr. Jacobson said.

Senator Dann said the bureau's decision to end the rare coin investment won't cause him to change course in his pursuit of acquiring a complete inventory of the coins.

The bureau has declined such public information requests with the explanation that an inventory of the coins would constitute revealing trade secrets.

More questions

"What we needed to do was get in there and see what we got. None of us, because they've failed to disclose anything about this investment, know what we are dealing with here," said Mr. Dann, adding, "There's a lot more questions than answers at this point. "

Sen. Randy Gardner (R., Bowling Green) said last night he was not surprised by the bureau's decision to end the rare coin investment, but he questioned whether Democrats have proof of any wrongdoing.

"Do the Democrats have evidence that money was lost? Is there any evidence of political favoritism? Have there been any funds lost? What has been the track record? These are all questions. They're fair to ask. I'm not sure we have answers to all of them," Mr. Gardner said

Jim Ruvolo, a Toledo-area political consultant and former chairman of the Ohio Democratic Party, said he expects the ramifications of the rare-coin investment to linger as issues in upcoming statewide political contests. He predicted the investment controversy will be troublesome to Republican candidates in the years ahead.

"There's a lot of damage that's been done to their credibility, their judgment, and there's a lot to be seen whether the state is made whole out of all of this,'' Mr. Ruvolo said.

Blade Staff Writers Steve Eder and Christopher Kirkpatrick contributed to this report.

Contact James Drew at:

jdrew@theblade.com

or 614-221-0496.



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