Investment adviser to be sentenced for fraud conviction

Lay could get up to 20 years in prison but is expected to get far less.

AKRON — The senior federal judge said it was the longest sentencing hearing he’d ever had — and it’s not over yet.

U.S. District Judge David D. Dowd Jr. postponed sentencing until Tuesday for investment adviser Mark Lay, who was convicted of fraud charges related to the loss of $216 million at the state agency for injured workers.

Testimony at Thursday’s hearing lasted all day, including Lay’s three hours on the stand, where he accepted blame for a hedge fund’s losses but denied any criminal action.

“We thought it would add tremendous benefit to the state of Ohio’s portfolio,” Lay said. “It was done with the right intentions.”

Lay, 44, was the chief executive and founder of the now-defunct MDL Capital Management of Pittsburgh. He faces a maximum sentence of 20 years in prison but is expected to receive less under federal sentencing guidelines.

Prosecutors said Lay hid the extent of the risk he took in the high-risk fund he set up in Bermuda. The defense contends that the financial loss to the Ohio Bureau of Workers’ Compensation wasn’t a crime.

Lay was the 19th person convicted in Ohio’s wide-reaching corruption scandal that began when Republicans controlled most statewide offices. In the wake of the scandal, Democrats won four of five statewide offices in the November 2006 election, including the governor’s office.

In October, Lay was convicted of investment advisory fraud, two counts of mail fraud, and conspiracy to commit mail and wire fraud.

He lost the bulk of $300 million in investments made from the bureau’s $19 billion investment portfolio.

“The bureau’s only mistake was trusting you,” assistant U.S. Attorney Benita Pearson said.

“That’s incorrect,” said Lay, who often frowned and wrinkled his brow during the contentious cross-examination.

Dowd grew frustrated with both sides as the day wore on.

“This case will boggle the mind trying to figure out everything that happened,” Dowd said.

Lay compared the loss to paying a premium on an insurance policy, noting that the fund was a hedge against the bureau’s bond investments.

“It wasn’t catastrophic,” Lay said. “Lord knows that’s a lot of money.”

Lay denied that he had a deal with George Forbes, a former member of the commission that oversaw the bureau’s fund. MDL had employed Forbes’ daughter Mimi.

George Forbes pleaded guilty last year to filing inaccurate financial disclosure reports with the state and no contest to two counts of improperly receiving gifts. The charges were unrelated to MDL and his daughter.

Prosecutors spent much of the day seeking to establish a pattern beginning in the late 1980s in which Lay lost money on trades that violated the investment policies of his employer.

Lay was fired from Pittsburgh National Bank after losing about $1 million trading foreign currencies in 1989, former supervisor Bruce Cobb testified. Lay, who tried to trade his way out of losses, violated bank policies, including trading during off hours, Cobb said.

Cobb noted on cross-examination that Lay had made the bank about $150,000 in the six months before he incurred the losses.

Lay lost about $500,000 at Mellon Bank in 1988 and created fictitious trades to cover up the ones that violated bank policy, testified former supervisor Steven Martino Peras in a videotaped deposition that was played in court.

“Thank God we caught him at that point and the losses didn’t go into the millions of dollars,” Peras said.

Lay testified that he did not make fictitious trades and that neither Peras nor Cobb were his direct supervisors.

The banks did not notify authorities in either case.

The state settled a civil lawsuit against Lay in April when he agreed to pay $5 million in a settlement with the office of former Attorney General Marc Dann. Lay did not admit any wrongdoing.

MDL Capital Management collected about $1.7 million in fees from the bureau, and the jury in the criminal case ordered Lay to pay back about $590,000, based on his 35 percent ownership stake in the company.

Lay was the last person convicted in the wide-reaching corruption scandal that began with the 2005 revelation that the bureau was investing $50 million in rare coins through Republican donor Tom Noe. Noe is serving 18 years in prison for theft and other crimes.

The scandal included former Gov. Bob Taft, who pleaded no contest to charges that he failed to report golf outings and other gifts on his disclosure forms and was fined $4,000.

Prosecutors say their investigation is ongoing.