Saturday, June 11, 2005

“A Kind Of excellent dumb discourse.” – The Tempest

The latest scoop on Coingate takes us to that well-known center of tax-sheltered capitalism, Bermuda.

Bermuda is where some American companies and foreign investors go to shield profits from taxes and to save money, but the state of Ohio did the reverse and lost $215 million in the inviting tax haven.

The Bureau of Workers’ Compensation lost $215 million in what it says was an unauthorized hedge-fund investment with MDL Capital Management, which is actually based in Pittsburgh.

Even so, the hedge fund, called the Active Duration Fund, is listed with a Bermuda address. And the contract signed by the bureau’s former chief financial officer, Terry Gasper, specifies that any disputes have to be decided in a Bermuda court. The wording of the contract also appears to hold MDL free from liability for losses.

Bureau officials yesterday said the Bermuda provisions were “extremely out of the ordinary and that Mr. Gasper acted alone and without authority of the agency’s Oversight Commission.

“It was one of the first things that came to our attention,” said bureau spokesman Jeremy Jackson, referring to when the bureau said it learned about the losses in the fall. By that time, the fund was a year old and $215 million in the red.

Attorney General Jim Petro announced yesterday he had sued MDL and several of its principals because of the failed investment. The suit alleges fraud and breach of contract.


Several government entities have said they lost millions with MDL, including the Illinois and Chicago public school teacher pension funds and the government of Bermuda, which said it lost $70 million with MDL.


Founded by shipwrecked English colonists in 1609, Bermuda has recently acquired a reputation for attracting troubled companies. The British territory is the center for many of America’s recent financial scandals, including conglomerate Tyco’s accounting shenanigans and a financial scandal that knocked $2.7 billion off the value of American Insurance Group.

Theatre scholars believe that Shakespeare set his play The Tempest in Bermuda. How appropriate: this scandal has, to quote the immortal Bard, “A very ancient and fish-like smell.” (The Tempest, Act II, scene 2)