P O I N T — blog

The Ohio BWC (Bureau of Workers’ Compensation) lost $216 million out of an initial $355 million investment placed with a corrupt hedge-fund firm that was headed by (recently convicted) Mark D. Lay. Since a criminal conviction against Lay was pursued by federal prosecutors, the Ohio Attorney General’s Office only filed a civil case against Lay. Former Republican Atty. General Jim Petro initiated the civil case against Lay in 2005.

Since the case was initially filed in mid-2005, the Ohio A.G.’s Office has spent more than $1.8 million of taxpayers’ money on legal fees and expenses in order to possibly recoup only $5 million of the $216 million that was actually lost. Lay will be sentenced on May 27 and he faces a sentence of up to 20 years in prison for his federal conviction. If Lay can’t get the federal charges overturned and avoid a long prison term, then it’s very possible that none of the $5 million settlement that Lay agreed to pay the state will be ever be recovered.

For a more detailed story, visit: BWC lawsuit cost state $1.8 million — or simply continue reading further on in this post.

BWC lawsuit cost state $1.8 million

Legal fees, other expenses erased a chunk of hedge-fund exec’s $5 million settlement

Saturday, May 17, 2008 3:05 AM

By MARK NIQUETTE

THE COLUMBUS DISPATCH

Mark D. Lay and his company, MDL Capital Management, handled an offshore hedge fund for the Ohio Bureau of Workers’ Compensation that lost $216 million.

Where the money went

A breakdown of the $1.84 million the state spent to pursue the civil case against investment adviser Mark D. Lay:

• Special counsel fees: $1.7 million to Bailey Cavalieri, including:

$1.36 million for more than 5,500 hours of legal work

$336,217 passed to consultants for various work

$14,343 for transcripts, other court records

$7,984 in travel-related costs

$7,543 for copying

• Special counsel fees: $5,762 to Schottenstein Zox & Dunn

• Audit fees: $98,938 to Clark, Schaefer, Hackett & Co.

• Bureau internal auditing costs: $16,935

Sources: Ohio Bureau of Workers’ Compensation, attorney general’s office

The state paid nearly $2 million, including $6,000 for a trip to Bermuda, for a chance to get back $5 million from one of the biggest frauds in Ohio history.

Records show it cost taxpayers $1.84 million for the state to pursue a civil lawsuit against Mark D. Lay, who agreed to pay $5 million to resolve the case stemming from an Ohio Bureau of Workers’ Compensation investment scandal.

Lay and his MDL Capital Management, based in Pittsburgh, managed an offshore hedge fund for the bureau that lost $216 million before it was shut down in 2005.

A federal jury found him guilty of criminal fraud charges last fall, and on Tuesday, U.S. District Judge David D. Dowd Jr. denied Lay’s request for an acquittal or a new trial. Sentencing is set for May 27 in Akron.

The Ohio attorney general’s office also filed a civil lawsuit against Lay and others in 2005 to recover the $216 million, but officials and Lay agreed in March to settle the case.

Records requested by The Dispatch show that the bulk of the $1.84 million spent on the civil case was the $1.7 million paid to Bailey Cavalieri, the Columbus firm hired as special counsel.

That amount includes work by several lawyers at rates of up to $250 per hour, plus copying, mailing and other expenses — including nearly $6,000 for a lawyer and court reporter to travel to Bermuda for a week in 2006 to interview witnesses, documents show.

The hedge fund managed by Lay was based in Bermuda, and the lawsuit initially named the Bermuda fund officers among the defendants.

The total also included more than $336,000 paid to Bailey Cavalieri that was passed on to several consultants who did work on the case, records show.

Among the other costs related to the case was nearly $100,000 paid to Clark, Schaefer, Hackett & Co. for audit work on the bureau investment. That included $4,700 in meals, lodging and other expenses, records show.

The final cost to the state does not include the investment loss itself of $216 million, any potential lost income had the money been invested properly, or other expenses such as the cost to change investment managers.

Republicans have criticized the settlement, saying former Democratic Attorney General Marc Dann was a vocal critic of the bureau before he was elected and then let Lay, who has contributed to Democrats, “off the hook.”

“Dann has allowed the criminal responsible for the biggest rip-off in the history of the bureau to walk away with a simple promise to try and pay back 3 cents on the dollar,” Kevin DeWine, deputy chairman of the Ohio Republican Party, said in a news release last month.

Dann’s office cited several reasons for settling the case, including the expected request by federal prosecutors for more than $200 million in restitution, which would offset any civil recovery.

There also were concerns about how collectable any civil judgment would be and whether the cost of continuing to pursue the case was justified.

mniquette@dispatch.com