April 20, 2014

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Trial begins for money manager in BWC scandal

AKRON — Another trial is set to begin in the wide-ranging scandal involving the Ohio Bureau of Workers’ Compensation.

Opening statements were scheduled for today in the case of Mark D. Lay, the head of a money management firm who is accused of losing $215 million in state investment funds.

Lay, founder and chief executive of MDL Capital Management in Pittsburgh, was indicted in June on charges of investment advisory fraud, mail fraud and conspiracy to commit mail fraud and wire fraud. If convicted in U.S. District Court, he faces a maximum sentence of 20 years in prison, but would likely receive less time under federal sentencing guidelines.

The indictment emerged from a wide-reaching case that began with the 2005 revelation that prolific Republican donor Tom Noe was investing state money in rare coins. Nineteen people have been convicted in the scandal, which rocked state politics.

More than $300 million in losses were reported at the bureau, and the investigation reached all the way to former Gov. Bob Taft, who pleaded no contest to charges that he failed to report golf outings and other gifts on his disclosure forms. Taft was fined $4,000.

In the wake of the scandal, Democrats made significant inroads in the November elections, gaining four of five statewide offices, including the governor’s office, which was wrested from Republican control for the first time in 16 years.
While Ohio Inspector General Tom Charles, who leads a task force of investigators, said the inquiry continues, few clear targets remain.

“They always say they’re continuing,” said Cleveland attorney Roger Synenberg, who represented two brokers cleared of bribery charges in the scandal. “This thing’s been going on for so long, I can’t imaging anyone else out there.”
MDL managed a hedge fund for speculative, high-risk investments on behalf of the state fund for injured workers that Lay set up in Bermuda.

The bureau was the sole investor in the fund, according to the indictment against Lay. He is accused of repeatedly failing to tell bureau officials when questioned beginning in 2004 about the extent of the risks he was taking with the fund.

The bureau paid MDL fees of nearly $1.8 million. Prosecutors are seeking that money back as part of their action against Lay.