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CLEVELAND, OHIO--- In the wake of a 53-count indictment of Tom Noe, a former Republican party fundraiser and coin dealer, Ohio Auditor of State Betty Montgomery has issued her special audit of the Ohio Bureau of Workers’ Compensation (BWC) that says Noe, his businesses and a businesses associate owe the BWC more than $13.5 million for illegal expenditures related to BWC’s investment into two rare coin funds.
The 316-page audit also indicates that the bureau, during the time period audited, failed to adequately monitor and manage its private equity investments.
Noe, 51, former chairman of the Lucas County Republican Committee, has been charged with embezzling at least $1 million from the state. He pleaded not guilty and is free on $500,000 bail.
The indictment is the result of Noe's handling of a $50 million investment fund created by the Ohio Bureau of Worker's Compensation by buying and selling rare coins. Noe has managed the bureau's investments since 1998. Prosecutors said that he wrote himself checks for hundreds of thousands of dollars.
He has been charged with one count of racketeering, 11 counts of theft, 11 counts of money laundering, eight counts of tampering with public records and 22 counts of forgery. All charges are felonies. Prosecutors allege that Noe forged checks, tampered with records interchanged state money with his own personal accounts.
Noe's business partner in Vintage Coins and Collectibles, Timothy LaPointe, was also indicted. According to the indictments, LaPointe allegedly borrowed coins from other businesses and individuals and fraudulently listed them as belonging to the state in annual audits of 2002, 2003 and 2004. LaPointe has been charged with one count of engaging in a pattern of corrupt activity under the RICO law and six counts of tampering with records.
Noe sold the building that housed his coin business on Feb. 1 to Frank and Carol Kollarits for $1 million. They plan to move the Eye Institute of Northwest Ohio into the building this summer.
Noe had gained approval from a judge to sell his interest in the NRS Partnership. The judge ordered that the proceeds from any sales of Noe assets would be placed in a court-controlled account pending the outcome of the state’s lawsuit against Noe,
Public concerns about the coin funds first surfaced in news accounts on April 3, 2005. That same week Montgomery says she consulted with Ohio Inspector General Tom Charles (who himself had launched an investigation into the coin funds) and offered Auditor Office help. Additionally, there were ongoing discussions about opening a special audit, but at the request of Mr. Charles and later U.S. Attorney Greg White, Montgomery says she held off a special audit until it became clear that such action would not in any way impede their already ongoing investigations. Montgomery initiated her special audit on May 16, 2005.
“It has been a tremendous exercise in teamwork to make the events of the past 10 months possible. I commend all parties involved for their dedication to this case,” Montgomery said. “The top priority for the state is bringing Tom Noe to justice. I am happy that our audit has played an important part in that process.”
Montgomery made six findings for recovery totaling $13,559,203 for unsupported inventory purchases, failure to properly allocate profits, and profits owed to BWC.
| Finding |
Capital Coin Fund I |
Capital Coin Fund II |
|---|
| Unsupported Inventory |
|
|
| Purchases from Vintage Coins |
$5,305,000 |
$6,871,540 |
| Profits Not Allocated Properly |
$95,497 |
$174,826 |
| Profit Distributions Owed to BWC |
$614,332 |
$498,008 |
| |
TOTAL: |
$13,559,203 |
Montgomery’s special audit was divided into three distinct parts. For the first part – a forensic audit of the financial transactions involving assets of Capital Coin Funds I and II, Montgomery hired the independent accounting firm Crowe Chizek and Company. The final report identifies more than $15 million in potential findings for recovery including $1,651,504 for investments in non-numismatic assets. Montgomery did not issue findings for recovery for the non-numismatic investments, however, because the state is in possession of the assets, the assets have value and will be liquidated, and thus the funds are not missing.
Crowe Chizek’s report indicates that on March 31, 1998 – the very day he received the first of two $25 million investments from BWC – Noe began funneling investment dollars to several of his own businesses.
On March 31, 1998, a payment designated as an “inventory purchase” of $1.3 million was made from Capital Coin Fund I (CCFI) to Vintage Coins and Collectibles (VCC), a division of Thomas Noe Inc. VCC accounting records indicate, however, that as of March 30, 1998 VCC’s on-hand coin inventory balance was only $150,774. Additionally, VCC’s check register showed a negative cash balance of more than $400,000 prior to the recording of the $1.3 million deposit, indicating that the CCFI money funded VCC checks written prior to the inception of CCFI.
Further investigation revealed that monies from both Capital Coin Funds I and II were used to make payments to Noe, his various companies and subsidiaries, home builders and home appliance vendors, and golfing events.
Crowe Chizek’s report also indicates that fund profits were not properly calculated and distributed to BWC.
For the second part of the special audit, Montgomery hired independent accounting firm Clark, Schaefer, Hackett & Co. to review the BWC’s investment policies, procedures and management practices, and those relating to the two coin funds in particular. The review was expanded to include a review of the bureau’s MDL investment when concerns arose in June 2005.
The Clark, Schaefer, Hackett & Co. report found generally that BWC was ill-equipped to manage its more than 60 private equity investments. Major findings in the report:
BWC did not have policies in place to adequately govern its private equity investments.
When policies did exist, they were not consistently and sufficiently enforced.
The operating agreement for CCFI and II did not require audited annual financial statements despite such a requirement in the RFP.
BWC operating agreements with all fund managers required audited financial statements and other reports which were often missing from files when reviewed by Clark Schaefer. Eight of 66 private equity investments either had not been audited or were missing audited years in their files.
BWC’s oversight commission members did not possess expertise necessary to fulfill certain obligations required by statute.
No evidence indicated that the Oversight Commission approved criteria for selection of fund managers as required by the investment policy.
BWC selected its fund managers through an RFP process but was unable to provide any documentation or other evidence that potential managers were rated or scored, leading auditors to conclude the process was wholly subjective.
Noe does not fit BWC’s criteria to serve as a fund manager.
The bureau invested in Capital Coin Fund I in 1998 even though such investments were not allowed under Bureau policy.
The operating agreement was not reviewed by any legal staff or outside counsel acting on behalf of BWC. In fact, it was drafted by Noe’s legal counsel and appears to heavily favor Noe.
The operating agreement does not provide for the exit of BWC as a limited partner.
The Chief Investment Officer virtually dismissed concerns raised in 2000 by internal auditors regarding the accounting and practices of CCF and requests for increased auditing procedures including a requirement for annual audited financial statements.
The Chief Financial Officer authorized the transfer of funds from an original fixed income investment with MDL to a hedge fund with a much higher risk with no documented knowledge or permission of such transfer by the Administrator, CIO or Oversight Commission.
“We recognize that some of the management problems identified at BWC have already been addressed – either by legislation or by administrative changes at the bureau,” Montgomery said. “I have every confidence that Director Mabe will take any additional action necessary to bolster oversight of the bureau’s investments.”
For the third part of the special audit Montgomery hired Sotheby’s, a well-respected international auction house, to conduct an inventory and valuation of the coin fund assets. Reports from all three firms are included in today’s special audit report.
Per customary practice, Montgomery will forward the findings for recovery to the Franklin County Prosecutor and the Ohio Attorney General for recovery. Restitution will be sought as part of the ongoing criminal prosecution of Noe, and any restitution received via those channels may count toward the findings for recovery.
A copy of the audit report is available online at http://www.auditor.state.oh.us/.
In October, a federal grand jury returned a three count indictment against Noe for allegedly laundering $45,000 into President Bush's re-election campaign. Noe, a close personal friend of Ohio Gov. Robert Taft, had surrendered to the FBI in Miami and was released after posting $1 million bond secured by the property in the Florida Keys that is in the name of his wife.
The three-count federal indictment against Noe accused him of conspiracy, public corruption, false statements and violations of the federal campaign contribution act, and alleges that beginning in October 2003, Noe made contributions to President George W. Bush's 2004 re-election campaign over and above the limits established by the Federal Election Campaign Act (FECA). He did so, according to the indictment, in order to fulfill his pledge to raise $50,000 for a Bush-Cheney fundraiser held in Columbus, Ohio on Oct. 30, 2003.
The indictment alleges that Noe disguised his contributions by recruiting and providing money to friends and associates who made campaign contributions in their own names. The indictment also alleges that Noe wrote several checks in amounts slightly less than the maximum allowable amount so as to avoid suspicion. Altogether, Noe allegedly contributed $45,400 of his own money through 24 friends and associates who then made the contributions in their names in order to skirt the $2,000 limit for individual contributors.
Noe is charged with making contributions in the names of others, in violation of the FECA's anti-conduit provision. The indictment charges that Noe also conspired to make contributions in the names of others, to cause the submission of false statements to the Federal Election Commission, and to defraud the United States. The indictment alleges that Noe caused the conduits to fill out contribution cards and forms falsely certifying that they were making the contributions themselves, and that these false statements caused President Bush's campaign committee to unknowingly submit a false campaign finance report to the FEC. The campaign committee has been fully cooperative with the government's investigation.
Noe and his wife, who is also a former Lucas County Republican chairperson, have reportedly given more than $100,000 in political contributions to local, state and federal candidates. 2-23-06
© 2005 North
Country Gazette
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