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Article published Sunday, August 13, 2006
BWC tried to keep $215M loss under wraps prior to '04 vote
Documents reflect director's concern about possible 'leak'
By JAMES DREW and STEVE EDER
BLADE STAFF WRITERS
COLUMBUS - Less than a week before the 2004 presidential election, Jim Conrad, then head of the Ohio Bureau of Workers' Compensation, took steps to ensure that a $215 million investment loss in an offshore hedge-fund would not become public, documents obtained by The Blade show.
On Oct. 27, 2004 - just six days before President Bush was re-elected after narrowly winning Ohio - Mr. Conrad expressed his concern about a potential "leak" of the losses in an e-mail to John Annarino, then the bureau's chief legal counsel and ethics officer. In the e-mail, Mr. Conrad advised how Mr. Annarino and James McLean, then the bureau's investment director, should manage the agency's investment staff to keep the potentially explosive losses under wraps.
"When you and Jim meet with the employees of Investments make sure it is the friendly, jovial John Annarino not the brow beat attorney John Annarino," Mr. Conrad wrote. "You want them to feel comfortable coming up and expressing their thoughts and concerns."
Mr. Conrad continued: "Jim told me this morning that he thought the major chance of us getting involved with the MDL situation is with a leak from OUR employees."
A day earlier, Mr. Conrad sent an e-mail to James Samuel, a former bureau official who was Gov. Bob Taft's executive assistant for business and industry, about how MDL Capital Management was in danger of collapsing, which he wrote would be "likely to make national news."
Other e-mails show that in October, 2004, Mr. Conrad - in the interest of concealing the MDL losses - misled the bureau's politically appointed oversight board and the agency's employees about the real reasons for the departure of Terrence Gasper, the bureau's chief financial officer. He told oversight members and agency employees that Gasper left for health reasons, when actually he had been given a choice to resign or be fired after failing to tell Mr. Conrad that he had approved a reallocation of $100 million to MDL.
The allegation that high-ranking bureau officials covered up the MDL hedge-fund loss has emerged in the state's civil lawsuit seeking to recover the $215 million investment loss. That lawsuit is pending in federal court in Columbus.
In a motion filed last month requesting that the lawsuit be dismissed, attorneys representing Mark D. Lay of MDL Capital Management accused state officials of "covering up the bureau's investments and investment losses in 2004 just before a presidential election."
"State officials have left little doubt that the timing and substance of their public disclosures, as well as their entire litigation strategy, have been manipulated and planned for political purposes," attorneys for Mr. Lay and MDL wrote in the motion. Eric Kuwana, a Washington attorney representing Mr. Lay, declined to elaborate on the allegation of a cover-up.
Chris Redfern, chairman of the Ohio Democratic Party, said last week that if the MDL losses had been revealed in October, 2004, it "would have been national news" and would have had a significant impact in Ohio, where 120,000 votes separated President Bush and John Kerry, the Democratic nominee.
"This had to do with the election of a president and obviously the facts are that Conrad and the rest of his group were willing participants in a widespread conspiracy in the Bureau of Workers' Compensation," Mr. Redfern said.
Mum on MDL
Under the pressure of the scandal surrounding the bureau's failed $50 million rare-coin fund with GOP fund-raiser Tom Noe, bureau officials on June 7, 2005, revealed the losses in the MDL investment - after concealing them for more than eight months. Three days later, the bureau sued MDL and several of its principals, alleging fraud and breach of contract.
Now, nearly two years after the hedge-fund collapse and as another political season heats up, the officials responsible for the handling of the MDL crisis refused to discuss it for this report.
Mr. Conrad, who resigned in May, 2005, after attorneys for Noe disclosed that the state's rare-coin investment had a $10 million to $12 million shortfall, declined requests for an interview. Mr. Conrad's attorney, Brad Barbin, declined comment on the e-mails that Mr. Conrad had sent, saying only: "The e-mails are what they are."
Mr. Conrad also has refused to explain why he allowed Gasper to sign contracts worth hundreds of millions of dollars without additional oversight or legal review, including the MDL hedge fund.
Attorneys for Gasper, who is cooperating with investigators after pleading guilty in June to charges he traded bureau business in exchange for personal gain, did not return messages seeking comment. Mr. Annarino, the bureau's former lawyer who is now a private-sector executive, did not return messages seeking comment.
Mr. Samuel - who was demoted by Gov. Bob Taft in June, 2005, for failing to inform the governor about the extent of the MDL losses - has said he briefed the governor's chief of staff, Jon Allison, in the fall of 2004 about the MDL losses and met with Mr. Conrad and Mr. Allison about the forced resignation of Gasper. Mr. Samuel declined comment for this story.
Mr. Allison, who also declined a request for an interview, said in an e-mail to The Blade: "I spoke on the record about this topic a year ago and don't have anything else to add. It is a matter of pending civil litigation and, I assume, ongoing criminal scrutiny."
Mr. Taft, who served as the Ohio co-chairman of the 2004 Bush-Cheney campaign, has said he didn't know the extent of the MDL hedge-fund loss until early June, 2005. Mark Rickel, a spokesman for Mr. Taft, referred to the allegation of a cover-up before the 2004 election as "absurd."
Political environment
As the extent of the MDL losses were becoming clear in the fall of 2004, e-mails show that the upcoming elections were on the minds of high-ranking bureau officials, including Mr. Conrad, a longtime aide to Republican U.S. Sen. George Voinovich, who was on the Nov. 2, 2004, ballot.
In an Aug. 27, 2004, e-mail to Mark Nedved, then the bureau's legislative lobbyist, and another high-ranking aide, Mr. Conrad wrote: "How to start each day with a positive outlook … 1. Open a new file in your PC. 2. Name it 'John Kerry.' 3. Send it to the trash. 4. Empty the trash. 5. Your PC will ask you, 'Do you really want to get rid of John Kerry?' 6. Answer calmly, 'yes,' and press the mouse button firmly. 7. Feel better already."
On Oct. 28, 2004, Mr. Conrad arranged to have lunch with Mr. Samuel on the day after the election.
"GREAT point … We can discuss the recount," Mr. Samuel wrote.
It also was on Oct. 28, 2004, in which Mr. Conrad, in an e-mail to two aides about his decision to not include information about the MDL hedge-fund loss in a weekly report to Mr. Taft, wrote, "There are 13 copies of it made [or thereabouts] and we don't need it getting unnecessarily passed around."
On Election Night, about an hour before polls closed, Mr. Conrad wrote to Mr. Annarino: "Too bad the election outcome isn't sounding too good!" Exit polls showed Mr. Bush trailing Mr. Kerry in Ohio.
Earlier that evening, Mr. Conrad sent an e-mail to Mr. Annarino about what Ken Brunke of the consulting firm Callan & Associates could do to help Mr. McLean review the bureau's investment managers - but Mr. Conrad wanted to exclude Mr. McLean from a meeting with Callan about MDL.
"I do not think Jim should be present,'' wrote Mr. Conrad, referring to Mr. McLean. "We need to be frank with Ken."
Mr. Annarino quickly replied, 'Sounds good."
Cover-up claims
Mr. McLean, who joined the bureau in 2003, believes bureau officials aimed to conceal the extreme losses from the public.
In September, 2005, Tina Kielmeyer, who succeeded Mr. Conrad as the bureau's administrator-CEO, fired Mr. McLean, citing his "lack of effectiveness" and "poor decision making." In an unsuccessful appeal of his firing, Mr. McLean outlined what he referred to as "the cover-up of the MDL mess" in a 13-page report to the State Board of Personnel Review.
Mr. McLean was placed on paid leave on June 7, 2005, just hours before bureau officials made the losses with MDL public. Mr. McLean, in his letter to the review board, said he had made it clear to senior bureau officials shortly before he was placed on leave that he was "unwilling to continue to participate in any 'cover-up'•" of the MDL problems.
"I don't believe that it is a coincidence that within hours of my being sent home on administrative leave that the bureau announced to the press that there was a problem with the Pittsburgh-based investment manager, MDL Capital," wrote Mr. McLean, also noting that external auditors were misled about the reasons for Gasper's departure from the bureau.
On Sept. 27, 2004, Mr. Conrad, the bureau's administrator-CEO, was giving a speech in Cincinnati when he received a call from Ms. Kielmeyer, then the bureau's chief operating officer. She told Mr. Conrad that an employee had told her about an investment gone bad.
That evening, Mr. McLean told Mr. Conrad in a conference call that when he wanted to "tighten the screws" on MDL, Gasper had told him that Mr. Conrad had given permission to "give MDL a break.''
Mr. Conrad said he never gave that permission to Gasper, records show.
Mr. McLean wrote that Mr. Annarino, the bureau's former chief legal officer and ethics officer, began coordinating "the 'cover-up' of the MDL losses" immediately after Gasper's resignation from the bureau in October, 2004.
Mr. McLean said he had assumed that Mr. Annarino had acted on behalf of Mr. Conrad, but he said he didn't have any proof of the administrator's involvement.
Mr. McLean said he was instructed by Mr. Annarino "to make sure that the [investment] staff was kept content and happy so that they would not reveal any information on MDL."
Mr. McLean said he no longer had the authority to discipline or reprimand the staff and he was directed to give members of the investment department the highest possible ratings on their annual reviews.
"Keeping a lid on the MDL losses was not something that I simply assumed Mr. Annarino wanted; it was a straightforward mandate," Mr. McLean wrote. "The Bureau did not want any information on MDL to get out and I was to cooperate with that mandate."
BWC tried to keep $215M loss under wraps prior to '04 vote
Documents reflect director's concern about possible 'leak'
By JAMES DREW and STEVE EDER
BLADE STAFF WRITERS
COLUMBUS - Less than a week before the 2004 presidential election, Jim Conrad, then head of the Ohio Bureau of Workers' Compensation, took steps to ensure that a $215 million investment loss in an offshore hedge-fund would not become public, documents obtained by The Blade show.
On Oct. 27, 2004 - just six days before President Bush was re-elected after narrowly winning Ohio - Mr. Conrad expressed his concern about a potential "leak" of the losses in an e-mail to John Annarino, then the bureau's chief legal counsel and ethics officer. In the e-mail, Mr. Conrad advised how Mr. Annarino and James McLean, then the bureau's investment director, should manage the agency's investment staff to keep the potentially explosive losses under wraps.
"When you and Jim meet with the employees of Investments make sure it is the friendly, jovial John Annarino not the brow beat attorney John Annarino," Mr. Conrad wrote. "You want them to feel comfortable coming up and expressing their thoughts and concerns."
Mr. Conrad continued: "Jim told me this morning that he thought the major chance of us getting involved with the MDL situation is with a leak from OUR employees."
A day earlier, Mr. Conrad sent an e-mail to James Samuel, a former bureau official who was Gov. Bob Taft's executive assistant for business and industry, about how MDL Capital Management was in danger of collapsing, which he wrote would be "likely to make national news."
Other e-mails show that in October, 2004, Mr. Conrad - in the interest of concealing the MDL losses - misled the bureau's politically appointed oversight board and the agency's employees about the real reasons for the departure of Terrence Gasper, the bureau's chief financial officer. He told oversight members and agency employees that Gasper left for health reasons, when actually he had been given a choice to resign or be fired after failing to tell Mr. Conrad that he had approved a reallocation of $100 million to MDL.
The allegation that high-ranking bureau officials covered up the MDL hedge-fund loss has emerged in the state's civil lawsuit seeking to recover the $215 million investment loss. That lawsuit is pending in federal court in Columbus.
In a motion filed last month requesting that the lawsuit be dismissed, attorneys representing Mark D. Lay of MDL Capital Management accused state officials of "covering up the bureau's investments and investment losses in 2004 just before a presidential election."
"State officials have left little doubt that the timing and substance of their public disclosures, as well as their entire litigation strategy, have been manipulated and planned for political purposes," attorneys for Mr. Lay and MDL wrote in the motion. Eric Kuwana, a Washington attorney representing Mr. Lay, declined to elaborate on the allegation of a cover-up.
Chris Redfern, chairman of the Ohio Democratic Party, said last week that if the MDL losses had been revealed in October, 2004, it "would have been national news" and would have had a significant impact in Ohio, where 120,000 votes separated President Bush and John Kerry, the Democratic nominee.
"This had to do with the election of a president and obviously the facts are that Conrad and the rest of his group were willing participants in a widespread conspiracy in the Bureau of Workers' Compensation," Mr. Redfern said.
Mum on MDL
Under the pressure of the scandal surrounding the bureau's failed $50 million rare-coin fund with GOP fund-raiser Tom Noe, bureau officials on June 7, 2005, revealed the losses in the MDL investment - after concealing them for more than eight months. Three days later, the bureau sued MDL and several of its principals, alleging fraud and breach of contract.
Now, nearly two years after the hedge-fund collapse and as another political season heats up, the officials responsible for the handling of the MDL crisis refused to discuss it for this report.
Mr. Conrad, who resigned in May, 2005, after attorneys for Noe disclosed that the state's rare-coin investment had a $10 million to $12 million shortfall, declined requests for an interview. Mr. Conrad's attorney, Brad Barbin, declined comment on the e-mails that Mr. Conrad had sent, saying only: "The e-mails are what they are."
Mr. Conrad also has refused to explain why he allowed Gasper to sign contracts worth hundreds of millions of dollars without additional oversight or legal review, including the MDL hedge fund.
Attorneys for Gasper, who is cooperating with investigators after pleading guilty in June to charges he traded bureau business in exchange for personal gain, did not return messages seeking comment. Mr. Annarino, the bureau's former lawyer who is now a private-sector executive, did not return messages seeking comment.
Mr. Samuel - who was demoted by Gov. Bob Taft in June, 2005, for failing to inform the governor about the extent of the MDL losses - has said he briefed the governor's chief of staff, Jon Allison, in the fall of 2004 about the MDL losses and met with Mr. Conrad and Mr. Allison about the forced resignation of Gasper. Mr. Samuel declined comment for this story.
Mr. Allison, who also declined a request for an interview, said in an e-mail to The Blade: "I spoke on the record about this topic a year ago and don't have anything else to add. It is a matter of pending civil litigation and, I assume, ongoing criminal scrutiny."
Mr. Taft, who served as the Ohio co-chairman of the 2004 Bush-Cheney campaign, has said he didn't know the extent of the MDL hedge-fund loss until early June, 2005. Mark Rickel, a spokesman for Mr. Taft, referred to the allegation of a cover-up before the 2004 election as "absurd."
Political environment
As the extent of the MDL losses were becoming clear in the fall of 2004, e-mails show that the upcoming elections were on the minds of high-ranking bureau officials, including Mr. Conrad, a longtime aide to Republican U.S. Sen. George Voinovich, who was on the Nov. 2, 2004, ballot.
In an Aug. 27, 2004, e-mail to Mark Nedved, then the bureau's legislative lobbyist, and another high-ranking aide, Mr. Conrad wrote: "How to start each day with a positive outlook … 1. Open a new file in your PC. 2. Name it 'John Kerry.' 3. Send it to the trash. 4. Empty the trash. 5. Your PC will ask you, 'Do you really want to get rid of John Kerry?' 6. Answer calmly, 'yes,' and press the mouse button firmly. 7. Feel better already."
On Oct. 28, 2004, Mr. Conrad arranged to have lunch with Mr. Samuel on the day after the election.
"GREAT point … We can discuss the recount," Mr. Samuel wrote.
It also was on Oct. 28, 2004, in which Mr. Conrad, in an e-mail to two aides about his decision to not include information about the MDL hedge-fund loss in a weekly report to Mr. Taft, wrote, "There are 13 copies of it made [or thereabouts] and we don't need it getting unnecessarily passed around."
On Election Night, about an hour before polls closed, Mr. Conrad wrote to Mr. Annarino: "Too bad the election outcome isn't sounding too good!" Exit polls showed Mr. Bush trailing Mr. Kerry in Ohio.
Earlier that evening, Mr. Conrad sent an e-mail to Mr. Annarino about what Ken Brunke of the consulting firm Callan & Associates could do to help Mr. McLean review the bureau's investment managers - but Mr. Conrad wanted to exclude Mr. McLean from a meeting with Callan about MDL.
"I do not think Jim should be present,'' wrote Mr. Conrad, referring to Mr. McLean. "We need to be frank with Ken."
Mr. Annarino quickly replied, 'Sounds good."
Cover-up claims
Mr. McLean, who joined the bureau in 2003, believes bureau officials aimed to conceal the extreme losses from the public.
In September, 2005, Tina Kielmeyer, who succeeded Mr. Conrad as the bureau's administrator-CEO, fired Mr. McLean, citing his "lack of effectiveness" and "poor decision making." In an unsuccessful appeal of his firing, Mr. McLean outlined what he referred to as "the cover-up of the MDL mess" in a 13-page report to the State Board of Personnel Review.
Mr. McLean was placed on paid leave on June 7, 2005, just hours before bureau officials made the losses with MDL public. Mr. McLean, in his letter to the review board, said he had made it clear to senior bureau officials shortly before he was placed on leave that he was "unwilling to continue to participate in any 'cover-up'•" of the MDL problems.
"I don't believe that it is a coincidence that within hours of my being sent home on administrative leave that the bureau announced to the press that there was a problem with the Pittsburgh-based investment manager, MDL Capital," wrote Mr. McLean, also noting that external auditors were misled about the reasons for Gasper's departure from the bureau.
On Sept. 27, 2004, Mr. Conrad, the bureau's administrator-CEO, was giving a speech in Cincinnati when he received a call from Ms. Kielmeyer, then the bureau's chief operating officer. She told Mr. Conrad that an employee had told her about an investment gone bad.
That evening, Mr. McLean told Mr. Conrad in a conference call that when he wanted to "tighten the screws" on MDL, Gasper had told him that Mr. Conrad had given permission to "give MDL a break.''
Mr. Conrad said he never gave that permission to Gasper, records show.
Mr. McLean wrote that Mr. Annarino, the bureau's former chief legal officer and ethics officer, began coordinating "the 'cover-up' of the MDL losses" immediately after Gasper's resignation from the bureau in October, 2004.
Mr. McLean said he had assumed that Mr. Annarino had acted on behalf of Mr. Conrad, but he said he didn't have any proof of the administrator's involvement.
Mr. McLean said he was instructed by Mr. Annarino "to make sure that the [investment] staff was kept content and happy so that they would not reveal any information on MDL."
Mr. McLean said he no longer had the authority to discipline or reprimand the staff and he was directed to give members of the investment department the highest possible ratings on their annual reviews.
"Keeping a lid on the MDL losses was not something that I simply assumed Mr. Annarino wanted; it was a straightforward mandate," Mr. McLean wrote. "The Bureau did not want any information on MDL to get out and I was to cooperate with that mandate."