The Guide to Coingate and the Need for Campaign Finance Reform
The Beginning of the Scandal
Thomas Noe's Influence in Ohio
Other Questionable Investments by the BWC
The Campaign Money in Coingate
What is being done
"Coingate" is the term given to an ongoing scandal that has implicated officials on almost every level of government in Ohio and has received attention from the national press. It started in April 2005 when the Toledo Blade reported that a prominent Republican fundraiser received a generous contract to manage a state investment in a rare-coin fund, a peculiar investment for a public fund. Since then, it has triggered a continuously unfolding press reports as more scrutiny led to the discovery of additional questionable investments. The stories have resulted in charges of conflict of interest and corruption leveled at the state's current administration while Noe, his associates, and state officials are under criminal and civil investigation by federal and state prosecutors.
The Beginning of the Scandal
Coingate started when the Toledo Blade published a story about how the Ohio's Bureau of Workers' Compensation (BWC) was investing a portion of its portfolio into a rare coin fund managed by a prominent Republican fundraiser named Thomas Noe.
The BWC manages a fund that functions as an insurance program for small and medium-sized businesses and is used to reimburse workers with job-related injuries. Premiums from participating companies fund the program. Typically, government-related funds investments are conservative and liquid, so that they don't risk losing public money and can quickly distribute funds when needed. Investing in an antique coin fund is highly unusual. In fact, it is the only known example of any federal, state, or local government fund making such an peculiar investment. So when it came to public attention that a prominent Republican fundraiser received a lucrative contract with the state to invest $50 million of the fund's portfolio, critics began to question the role that political donations had in the BWC's choice of investors.
The story broke open when Governor Bob Taft (R), under pressure to respond to the fund's unorthodox investment, ordered a full audit of the state's assets in the rare coin fund. The result: up to $12 million of the state's portfolio was missing from the account. This revelation led to the state of Ohio pressing criminal charges against Thomas Noe.
Noe was already under investigation by the federal government for violating campaign finance laws as a fundraiser for President Bush's reelection campaign. As a Bush "Pioneer" he was responsible for bundling at least $100,000 in campaign donations from other supporters, but he is under investigation for reimbursing those supporters for their donations, a violation of the individual contribution limits under federal campaign finance laws
Thomas Noe's Influence in Ohio
Thomas Noe gave more $110,000 to Republican state candidates and party committees in the last ten years, but his influence extended outside Ohio as well. Besides being an elite fundraiser for Bush's reelection campaign, he donated to Republican committees and candidates outside of Ohio including the Republican National Committee and Arnold Schwarzenegger's gubernatorial race in California. Noe was a ubiquitous figure in Ohio politics and he and his wife were appointed to a number of state and local positions. He was the Chair of the Ohio Turnpike Commission and a long-time member of the Board of Regents, which oversees the state university system, despite the fact that he dropped out of college. His wife was a member of the Lucas County Election Board in northwest Ohio and was preparing to host a public affairs television show in Toledo until it was put on hiatus when the scandal broke.
Other Questionable Investments by the BWC
Further scrutiny of BWC's portfolio revealed additional questionable investments that have cost the state millions. Newspapers reported that the fund lost $215 million during 2004 in portfolio managed by an investment firm, MDL Capital. Further conflict-of-interest issues were raised when it became known that the daughter of the Vice President of the BWC's Oversight Commission worked as a senior vice president for the investment firm. Overall, almost a billion dollars of the Workers' Compensation Fund was placed in non-conventional investments such as hedge funds, venture capital funds, and rare coins, all of which are usually considered too risky for a public investment.
The Role of Campaign Money in Coingate
As the extent of "Coingate" unfolded, questions were raised as to how Republican state officials, who benefited from Noe family's generous fundraising, would be able to investigate the scandal in a nonpartisan and effective manner. Republicans dominate every branch of government in the state and the Noes had donated to everybody who would be responsible for overseeing an investigation. Governor Taft received the most money of any state official, but the Secretary of State, the State Auditor, and the Attorney General all took contributions as well. Five out of the seven State Supreme Court Justices had to recuse themselves from the investigation because they took money from the Noes in their election bids.
Particularly troublesome to many critics is the suspicion that Noe was using the missing funds to give campaign contributions. Even Republicans have speculated that Noe could have misappropriated state funds not only to maintain his lavish lifestyle, but also to recycle the money back into the hands of state officials in the form of political donations.
But the question of the role that money has on policy decisions extends past Thomas Noe. An analysis by the Cleveland Plain Dealer reported that two-thirds of the 212 companies that manage investment accounts for the BWC gave almost $5 million to Republicans from 1997 through 2004. Democrats and other critics have questioned as to whether the BWC's investment portfolio was chosen not because they represented a sound investment strategy, but that campaign donations gave some firms an advantage in the procurement process -- what is often known as 'pay-to-play'.
What is Being Done?
In June a task force was formed to coordinate the investigation of Noe between federal and state officials. The task force is comprised of prosecutors from Ohio and the U.S. government and includes the Ohio Inspector General and the Director of the Ohio Ethics Commission.
Specific questions Common Cause hopes that the investigator should address include; "How did state oversight mechanisms fail to discover the questionable actions and obvious conflicts of interest of a major party fundraiser with responsibility for investing state funds?" and "Why did it take seven years and only after press scrutiny for it to come to light that taxpayer money was being dumped into highly questionable investment funds - rare coin collections considered a dubious investment by public finance experts?"
Beyond the investigation, Common Cause and other reform groups believe that broader campaign finance and ethical reforms are needed curb influence of money and restore accountability.
In December of 2004, before Coingate broke, Governor Taft signed into law H.B. 1, a campaign finance reform bill supported by the Republicans. While it did include some additional disclosure provisions, it was designed to increase the amount of money politicians can raise for their campaign by raising the contribution limits individual or PAC can give to a state wide or legislative candidate from $2,500 to $10,000 dollars for both their primary and general election campaign during an election cycle. Under the new rules, Tom Noe and other fund managers would have four times the political leverage that they had last year. Ohio's new contribution limit for state legislative candidates is five times the limit for federal legislative candidates, despite the fact that state legislative races cost only a fraction as much, allowing only a handful of contributors to fund an entire election campaign.
Common Cause is part of a coalition of reform supporters are collecting signatures to place a series of reform initiatives on the November 2005 ballot. One would roll back the increase in contribution limits and once again close the door on corporate contributions in Ohio, illegal until the passage of H.B.1. Another would reform the redistricting process so that legislative district lines would be drawn in a non-partisan fashion and the third would bar partisan politicians from the administration of state elections and allow Ohioans to vote early and vote by mail.