Crain's Cleveland Business: Not So Simple

Monday, September 12, 2005

By: Crain's Cleveland Business

It was during the SAFE investment fund fiasco in 1994 that Mary Boyle, Tim Hagan and Jim Petro — the three Cuyahoga County commissioners at the time — met with our editorial board to proclaim their lack of advance knowledge of the faulty investment practices of county treasurer Frank Gaul.
 
Mr. Gaul had run the SAFE fund, which the commissioners shut down after interest rate gyrations drove down by more than $100 million the value of investments made on behalf of the county and other public bodies that had plowed money into the fund. However, we noted during that meeting that Messrs. Hagan and Petro had served as members of the investment advisory committee to Mr. Gaul, and that perhaps one or the other should have questioned the aggressive investment strategy Mr. Gaul was pursuing.
 
Our observation drew a response from Mr. Petro that we haven't forgotten to this day.
 
'We are only simple laymen,' Mr. Petro said in explaining their inaction.
 
That, from a man who was running for the post of state auditor — Ohio's financial watchdog.
 
We share this story a decade later because Mr. Petro's words back then have a familiar ring as he now faces criticism in his role as Ohio attorney general for the response of his office to a warning from the Securities and Exchange Commission about questionable investment practices at the state Bureau of Workers' Compensation.
 
SEC attorney Diane Dallianis wrote to Mr. Petro in March 2004 to make his office aware of what she termed 'possible abuse of discretion' by the workers' comp bureau 'in paying excessive brokerage commissions to certain brokerage firms.' She gave Mr. Petro the heads-up after the bureau didn't change its compensation practices despite repeated warnings made directly to the bureau by the SEC.
 
In explaining why it didn't explore the SEC's claims aggressively, Mr. Petro's office has noted that the workers' comp bureau 18 months ago wasn't the center of the investment scandals that have swirled around it this year. As a result, the attorney general's office did not question its client, the bureau, when bureau officials said the SEC's findings were based on inaccurate information.
 
Besides, Mr. Petro recently told The Columbus Dispatch, his office lacked the authority to launch an independent investigation of the bureau.
 
'We are simply lawyers that represent these agencies,' he is quoted as saying.
 
But it's not quite that simple, Mr. Petro.
 
Besides serving as legal adviser to state agencies, the attorney general is responsible for protecting the interests of all Ohioans as the state's top enforcer of laws. And here is where Mr. Petro failed.
 
The SEC does not make accusations lightly. The charges it leveled against the workers' comp bureau deserved more than a cursory look. If Mr. Petro thought pursuing them would compromise his office's role as the bureau's lawyer, he could have notified the state auditor, inspector general or a legislative committee of the SEC's concerns. His failure to do so was a serious error in judgment and is deserving of rebuke.