Feds Indict Adviser for Huge Borrowing

Date: Monday, June 18, 2007
Author: David M. Katz and Stephen Taub, CFO.com

The adviser, who managed investments for the Ohio Bureau of Workers' Compensation, allegedly borrowed 4500 percent of a fund's assets.

Charging Mark D. Lay with failing to report to investors overleveraging that had grown to more than 4000 percent, U.S. attorneys for the Northern and Southern Districts of Ohio indicted the investment manager on four counts concerning his handling of an offshore hedge fund that allegedly resulted in the Ohio Bureau of Workers’ Compensation losing $216 million of its $225 million investment.

In directing the bulk of the trade activity of the MDL Active Duration Fund, an investment consisting primarily of government, corporate, and mortgage-backed fixed-income securities, Lay far exceeded the fund's pre-set limit of 150 percent in borrowing, according to the indictment issued Friday. In an April 2004 meeting with the workers' comp board's chief investment officer, Lay did not admit that the fund's leverage was 900 percent, according to the U.S. attorneys.