Lawsuit Alleges Firm's 'Irresponsible' Activities Cost Ohio BWC $215 Million

The Ohio attorney general's office has filed a lawsuit against an investment firm accused of fraud, breach of contract and other "irresponsible and inappropriate activities" that ultimately led to the Ohio Bureau of Workers' Compensation (Ohio BWC) losing $215 million it invested with the firm last year.

The lawsuit, filed June 10 in Franklin County Common Pleas Court against MDL Active Duration Fund Ltd. and eight other defendants, brings forth a laundry list of allegations against the investment firm, including common law fraud, violations of three sections of the Ohio Securities Act, negligent misrepresentation, breach of fiduciary duty, breach of contract and common law conspiracy. The lawsuit is seeking monetary damages.

Ohio Attorney General Jim Petro said, "BWC was erroneously led to believe other investors would purchase shares in [the MDL Active Duration Fund]" when "in fact, BWC was the fund's sole shareholder."

Among other allegations, the lawsuit contends MDL far exceeded leverage limits it had agreed upon with BWC and then lied about it to the bureau.

The lawsuit is just one of the latest developments in a complex web of intrigue, finger-pointing and investigations stemming from recent revelations that Ohio BWC has lost millions through questionable investment decisions.

Among the investment gaffes that have come to light in recent months:

  • The agency says that a rare-coin fund it invested in is reporting a $13-million shortfall. The missing money sparked a lawsuit filed May 24 by Petro's office against the fund's manager, rare-coin dealer and prominent Republican fundraiser Tom Noe, who is under investigation by state and federal authorities.
  • The bureau also admits it lost another $4.8 million due to a drop in market value in investments handled by American Express Asset Management.

Despite the investment troubles, bureau spokesperson Jeremy Jackson told Occupational Hazards.com that the agency's losses will not impact injured Ohio workers. The bureau has pointed out that employer premiums will not be raised as a result of the losses, although they have increased by an average of 4.4 percent due to increased medical costs for the July 1, 2005, to June 30, 2006, rating year, according to the agency.

"From the perspective of the injured worker, it's important to realize that the bureau is and remains a fully funded workers' comp insurer in Ohio," Jackson said. "To the injured worker, that simply means that if the bureau closed its doors today and did not collect one additional premium dollar, it could meet each and every obligation it has to the 1.9 million injured workers who have open claims."

Jackson added that the bureau "not only is solvent but also at this particular juncture maintains a surplus, which, without question, points to its overall financial stability."

The $215-million MDL loss in 2004 represents 1.3 percent of Ohio BWC's $15.5-billion investment portfolio, according to the agency. Despite the MDL losses, Ohio BWC says it still earned an 8.5-percent return on its investment portfolio last year and paid $407 million in dividends to Ohio employers.

Ohio BWC says it no longer is investing with MDL, which is a mutual fund company incorporated under Bermuda law. Its affiliated company, Pittsburgh-based MDL Capital Management Inc., also is named in the lawsuit.

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