Since the Coingate book was
published last year there have been some published articles, primarily in the Blade, that raise a number of questions
and concerns about the book’s conclusions. I’ve avoided commenting for some
time, but the most recent assertions require a response. Instead of directly
addressing the specific statements, I’ve chosen to respond thematically.
Links/
References
The original Blade
article on the Coingate book, December 31, 2017 is http://www.toledoblade.com/Books/2017/12/24/Author-argues-Tom-Noe-Political-prisoner-in-Coingate.html
The Blade
story on Governor Kasich’s request to the Parole Board, July 27, 2018 is http://www.toledoblade.com/Politics/2018/07/27/Governor-urges-hearing-in-Noe-clemency-bid.html
The Blade’s
editorial on the Kasich request, August 2, 2018 is http://www.toledoblade.com/Editorials/2018/08/02/No-clemency-for-Tom-Noe/stories/20180802151
The Blade’s editorial
criticizing Prosecutor Bates’ decision in a criminal case, February16, 2018 is http://www.toledoblade.com/Editorials/2018/02/16/The-law-is-mocked.html
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Q- Is $13 Million Missing?
A-
No. And This Isn’t An Honest Question
“Where is the money…he owes $13 million to the
state of Ohio…”
This is Lucas County Prosecutor Julia Bates’ response
to Tom Noe’s clemency request.
Where the money went is indeed a puzzle, but definitely not the
one it’s represented to be. My commentary has four parts.
1- The Prosecutors Know Where Every Dollar
Went
I don’t have a detailed answer for where the supposedly
“stolen” money went, but I know someone who does: Julia Bates.
What Mrs. Bates doesn’t want to mention in her complaints
about missing money is that her office had access to not just Noe’s coin fund
accounting but also to all of his business and personal accounts. And they had
this material from the time before he
received money from the state. Once in possession of all this financial
information, the prosecutors (and other state investigators) hired a team of
forensic accountants to go through the books to look for any activity that
might be criminal, whether with cash, checks, coins, or other assets. We know
that this analysis was very careful and specific to even small items because a
lot of rather trivial detail, for example landscaping bills, was presented at
trial.
Given all this, how could Noe have managed to make a large
amount of money disappear? Even a smaller amount such as $100,000, not to
mention the entire alleged $13 million? Repeatedly at trial, prosecutors showed
money moving from a coin fund to a Noe business or personal account and from
there to some personal use. In the circumstances that existed when Noe’s books
were audited, there’s no doubt that any transaction that couldn’t be fully
reconciled in this way – known beginning point to known end point -- would have
been flagged as suspicious and likely theft. But there was no testimony at
trial about money that went from the coin funds to Noe and then vanished. That
would have been a big deal – a lot more important than the landscaping bills.
How could the team of experienced professional accountants
not have noticed a vast sum that simply vanished into some untraceable rabbit
hole?
The answer is simple: 1) they didn’t miss any transactions
of importance; and 2) they could in fact have shown where all the money went if
the prosecution hadn’t been so interested in selling the jury – and the public
-- on the missing money theme.
2- The Prosecutors Have Hidden (and Maybe
Destroyed) the Accounting
Mrs. Bates and her colleagues not only didn’t want to show
where the money went, they wanted to make it impossible for anyone else to
trace it.
In fact, early on Mrs. Bates and her colleagues in the
“State Task Force”[i]
worked hard to make sure there was no visible overall audit of Ohio’s
investment in Noe’s coin funds.
In June of 2005 the Auditor of State
contracted with an external firm to do a special audit of the coin funds. The
charge to the firm was broad but specific: identify all assets (including
coins, collectibles, accounts receivable, real property etc.); review all
transactions for discrepancies; and identify any discrepancy between the value
of the funds’ assets and the initial investment made by the OBWC.
However, when the audit was released,
in February of 2006, it almost entirely ignored the original charge:
there was no identification of all assets, no review of all transactions, and
no information on valuation vs. initial investment. Also ignored were 5 coin
fund affiliates in 5 different states. The focus was limited to only one
budget category at one location: coin inventories at Noe’s office in
Maumee.
And, although others involved in the
coin funds appeared to have made very much the same kinds of transactions as
those for which Noe was indicted, only he was charged with theft.
How did this happen? Who changed the
request to the external firm? Was the full audit done and then discarded?
There’s apparently no way of knowing.
Freedom of Information requests to the
various state agencies turned up zero records on this subject. Follow ups
affirmed the lack of information.
Bates’ office didn’t even respond to a
query about the change in the audit.
So the records are destroyed – or
perhaps are just well hidden from public view.
There was a summing up of the State’s
investment that was published in April of 2014 by the Office of the Inspector
General (IG) -- after many years of pressure from the press.
Even so, this summary isn’t an audit. It´s not possible to trace
money from one place to another or analyze sources and expenditures. When I
asked for the underlying information, the IG’s office replied that they didn’t
have it, that they just took the numbers given to them by the liquidator and
others. (To be fair, the current IG and staff are different from the ones who
made this decision.)
3- Debt and Theft Aren’t the Same Thing
The state’s case against Noe rests entirely on what it
called “Unsupported Inventory Purchases.” These were cases in which Noe claimed
to have sold to the state a coin or coins that he didn’t actually possess.
These were in effect loans, and Noe did have a contractual right to loan money from the funds to
himself. But, it’s also true that Noe didn’t report these transactions
accurately to the OBWC and for that reason the charge against him of “tampering
with records” is incontestably valid.
Still, there’s another point. Noe’s own accounting, his
official books, showed these transactions correctly and showed the coins not in
inventory but as debts that Noe owed to the funds. If things hadn’t fallen
apart when they did, he’d have had to repay when the funds closed in 2009 and
2013 (and at the coins’ future value, which would have been much higher than
the amount he borrowed).
It’s important to note that the sum of the Unsupported Inventory
Transactions wasn’t the total of theft. Rather, assuming one rejects the
validity of the loans, the only amount that could be called theft was the net
of Noe´s debt to the funds after the sale of his assets, which the state
controlled from May of 2005 onward (he was allowed some expenditures, for
example for legal fees, but only with court approval).
So what was the net? The difference between the value of
Noe’s seized assets and what he owed?
This number is apparently unknowable, at least to those not
involved in the prosecution. The accounts were so muddied in the liquidation
and the reporting of the liquidation that it’s impossible to do even a rough
calculation. However, eyeballing it one can assume the amount recovered from
Noe was certainly in the multiples of millions.
Before going on to talk about where the money went, one
point needs to be emphasized – the amount that Julia Bates cites as the amount
that Noe “stole” is simply and obviously not correct and does not represent, as
she and others consistently emphasize, the actual loss to the OBWC. Basic
arithmetic shows this to be wrong. And simple logic says that using the
Unsupported Inventory Purchases as the amount “stolen” is deliberately
misleading.
Here’s how the math should work:
1)
Let x = the amount of Noe’s unsupported
inventory transactions
2)
Let y = the amount of Noe’s assets the state
seized and could apply to any loss; and
3)
Then z, the amount Noe needs to reimburse the
state (what he owes, his debt), can be calculated as x-y=z
However, the prosecutors (and the Blade) have treated y as irrelevant and x as equal to the
unsupported inventory transactions and
also to the “missing money,” and also
to the amount “owed” to the state. These numbers simply can’t all be the same
thing.
It’s hard to imagine that sophisticated people are confused
about these numbers. Instead, it seems clear that the loose way they are
presented to the public is intended to rationalize errors in the way the
various state authorities pursued the case.
So why was the recovery less than the amount taken?
One guess, based on observational evidence, is that Noe’s
personal and business assets were sold for much less than their true value. As
mentioned in the book, the liquidation appears to have been designed for speed,
and one rarely gets good value in such cases.
Another guess is that a significant part of Noe’s assets
were comingled with assets owned by the coin funds and, since all recovered
monies were going to the same place, the liquidators and state investigators
didn’t make a serious effort to distinguish ownership. I saw no indication that
the prosecutors insisted on careful separation of financial categories.
Of course, there were also huge legal bills, likely over $1
million (the prosecutors would know about these because payment had to be
approved by the court).
Cold the remainder be in ex-wife Bernadette Restivo’s house
in Florida as the Blade suggests? On
to that next.
From the Blade- “Noe’s ex-wife, who
has decamped to a $5 million home in Key West, Fla.,…”
Some part of Noe’s uncaptured assets could in theory have resided in
the house in Florida.
But not much.
As any homeowner not in the billionaire category will tell
you, the value of your house and the value of your equity in the house are
almost always two very different numbers. Most mortgages require just 20% down
payment, and people usually don’t use a higher percentage for reasons of
financial leverage and tax benefits. So it’s likely that the Noes’ equity was
never more than $1 million or so.
Beyond that, I’ve been told but can’t verify that the house
was further mortgaged to pay legal bills. For sure there was a lawsuit over the
legal bills and for certain this was the only important asset that at that time
remained to Noe and his then wife. Thus, the argument that some important part
of the equity went to the lawyers seems logical.
Could Noe have put a chunk of coin fund money into the house
in order to keep it beyond the law? Yes, but not without the prosecutors
knowing it – in addition to having access to all the checking accounts they had
his tax returns which would have included the mortgage statement. And if they
had traced a lot of coin fund money to the house, you can be sure they would
have mentioned it at the trial. But they didn’t.
In fact, the evidence I’ve seen is that the expensive house
the Blade mentions was sold long ago,
that the proceeds went to debts (including mortgages), and that Bernadette
Restivo is living very modestly.
In sum, no matter how it’s calculated, the state can’t claim
that it has lost anything significant, certainly not anything in the order of $5
million, to Bernadette Restivo’s current residence. It’s absurd to suggest
there’s a lot of money there, but that doesn’t stop the Blade from regularly doing it.
Q- Did Noe Ever Have a Cayman Islands Bank Account?
A-
No. This Is a Dishonest Smear
From Julia Bates- “The person who is in prison is not the same
person who was buying wine, condos, and flying to the Cayman
Islands.”
No.
The Cayman Islands story concerns a letter purportedly from
a banker in the islands thanking someone for referring Noe to him. The clear
implication was that Noe had an account there. The source of the communication
to the Blade was unknown.
The Blade sent the
letter to the federal prosecutor and asked for comment. They got none. The
federal lawyers knew that commenting on an anonymous and unsubstantiated
accusation would not merely give this particular story legs but would also set
a terrible precedent in which malicious and anonymous accusers could get
publicity without demonstrating any validity.
Mrs. Bates, on the other hand, was willing to talk about the
unverified charges at some length, venting on the “where’s the money theme.”
Her excursion into the news in this case was particularly notable because
shortly afterward she criticized Noe and his lawyers for a press conference on
the profitability of the funds. She described their modest assertions as sending
“spin out into the world,” and implied they were trying to influence the jury
pool.
Certainly, Noe’s lawyers were trying to offset an avalanche
of negative press attention, an important part of which suggested he had lost a
large amount of money for the state.
By comparison, Bates’ effort with the Cayman Islands story
was definitely spin and, with the splashy headlines and striking quotes in the Blade and elsewhere, had an effect that
was almost certainly far more substantial and more lasting. It would be
surprising if all of the jurors hadn’t known about it.
The Blade story on the Cayman Islands allegations was widely
described as appearing “above the fold,” i.e. in a headline. However, according
to people I talked to, a subsequent report in the same paper that the document
was probably fake and unlikely to be acted on was contained in a very short and
not prominently placed story (I can’t verify because it’s not on Google). In
any case, there were no charges filed by either state of federal law
enforcement, a certain indicator of lack of substance.
Being a prosecutor is an extremely tough job. You have to
constantly walk a very fine line. There are considerable dangers both to
individuals and to the public if you’re either too aggressive or too lenient.
And the evidence is rarely clear cut. It’s very challenging work and doubtless
mentally exhausting – any reasonable person honors and respects those who do
this not particularly remunerative work.
But even more dangerous than veering too far to one side or
another is asserting that you don’t make mistakes. Once you take too many steps
down the path of invulnerability, additional warped results are inevitable.
Dumping the Cayman Islands insinuation into the news not
once but twice is, in my opinion, an indication that Bates has started to think
of herself as faultless, a self-belief that is the only explanation for why she
is willing to rationalize deliberately misleading statements.
Really, the only accountability an elected prosecutor has in
a situation of egregious error is to the voters, and that’s only a reality if
she or he takes actions that are so extreme as to draw criticism from the
media. That has actually happened to Mrs. Bates in a
different case, but it seems to have had no effect.
There’s something terribly wrong here.
Q- Was the Triply Conflicted Julia Bates the Only Possible Prosecutor?
A-
No.
From Julia Bates- “I was the only Democrat in the whole circle of this case…You could make the argument that it would be better for the Democrat to do it so there could be no claims of sweetheart deals.”
Mrs. Bates showed herself not to be overly concerned about
the appearance of impropriety when she agreed to prosecute Noe’s case despite
her many and serious conflicts of interest: she was an elected official
representing a local political party against which Noe and his wife had long been
in relentless battle; Noe had worked hard to defeat her husband, who was a
supervising judge in the court where Noe was tried; and her stepdaughter and
son-in-law were reporters for the consistently and prolifically anti-Noe Toledo
Blade.
Even so, there is one appearance of impropriety that seems
to bother her – the idea that a prominent Republican would be investigated and
prosecuted entirely by other Republicans.
I actually think she has a good point here. The public would
very likely have been suspicious if an active Republican like Noe had faced
only elected Republicans in his legal process. If Noe had been acquitted the
reaction might have been quite strong.
Unfortunately for Mrs. Bates, and as mentioned in my post
from January of this year, this second point doesn’t justify her own decision.
She wasn’t the only Democratic county prosecutor in Ohio or even the only one in
a major urban area. The trial could have been moved to Cleveland, a city where
media coverage of Coingate was vastly lighter and far more balanced than in
Toledo, and therefore a place where it would have been possible to empanel a
truly unbiased jury. Other locations for the trial would have been possible as
well.
Bates’ “I had no choice but to be the prosecutor” argument
is nonsense.
Q- Was There a GOP Conspiracy of Silence?
A-
No. This is a Confection of Baseless Speculation
From the Blade- “Noe’s scheme was laced with political intrigue as prosecutors maintained that the former Lucas County Republican Party chairman used his political influence to get the unusual investment deal that put him in a position to commit his crimes.
“To date, Noe has yet
to say who else knew of or approved of his scam, which went on from 1998-2005.
If he expects to earn a clemency bid, Noe should come clean about his enablers.
It defies common sense to believe no one was aware of or aided him in his
dealings.
“Republican party
operatives in Columbus and in Lucas County escaped largely unscathed from the
scandal. Did newly elected county party chief Mark Wagoner appeal to Mr. Kasich
on Noe’s behalf? Can then-senator and now Republican gubernatorial nominee Mike
DeWine fill in some of the blanks in this tale? It is time not just for Noe,
but for Ohio’s Republican establishment to come
clean.”
My first comment here is that the Blade is using a little sleight of hand to introduce as a
conclusion of the legal process something that was in fact never even alleged
by the prosecution. The Lucas County prosecutors did not in fact “maintain”
that Noe used political influence to get the OBWC investments. This charge was
not in the indictment and not presented at trial.
There’s a simple reason political corruption wasn’t alleged
– the prosecutors had no evidence at all that it was true. And, though
prosecutors can sometimes benefit from a judge’s lack of vigilance to infer
negative things about someone in the press or even during a trial, presenting
the occasional veiled inference as an actual fact is quite different, and
that’s why it wasn’t done.
The Blade’s
conspiracy theory, which might be labelled “Deep State, Jr.,” sounds good when
it’s first presented. It shares a provocative and shiny shell with many such
stories. But the logic of the narrative falls apart when you start to
deconstruct it – another signature characteristic of conspiracy theories.
As noted in the book, the Blade’s conspiracy assertion puts Noe in the impossible situation
of trying to prove a negative. Since he can’t prove that he didn’t have
partners, the Blade can forever claim
that he shouldn’t be freed because of the unproven but nevertheless vividly
imagined conspiracy. (I should add that the Cayman Islands smear is similar –
Noe has no way of proving he didn’t have an account there.)
The Blade wants
Noe to confess to being part of a vast political arrangement, a complicated
plan that, in the eyes of the paper’s editors, must have involved pretty much
all leading Republicans at the time. Like most things that are technically
possible, this one can be argued. But no matter how many words are sent into
the lists, the assertion remains very doubtful. Especially given that twelve
years later no evidence has emerged to support it.
If the suggestion is that there was a payoff, the facts
destroy the theory right away. As noted above, the prosecutors had access to
all of Noe’s records – including business and personal – from before the state funds were transferred
to him. If state money had gone from him to politicians, even by a circuitous
route, the accountants would have seen it and a charge of political corruption
would actually have been levelled. It’s important in this context to remember
that, although some of the investigators were Republicans, the Democratic
prosecutors from Lucas County were in the thick of things with access to all
the documents and would likely have been thrilled to indict a bunch of their
political rivals.
Alternatively, what if the Republican Party has been
operating under some Buckeye version of omerta
and Noe was pledged in blood or whatever to keep quiet no matter what? No
squealing on fellow GOPers!
Well, maybe for a short prison sentence. But for a ten year
minimum with no parole on a RICO charge? That’s a pretty big fall to take.
And, is it all probable that Noe would have chosen to
maintain the honor of the lodge when his brothers in politics were busily
throwing him under the bus in the most public possible way? What’s your
incentive to hang with the code of silence when your supposed brothers in honor
are turning you over to the cops?
Mafia references aside, when examined carefully, the
conspiracy theory looks like total nonsense. It persists only because,
essentially by definition, it can’t be disproved.
Finally, one should watch out for Occam’s Razor – the idea
that the simplest solution is usually the most likely. In this case, what’s
most logical is that politically connected people at the OBWC decided to trust
Noe because he shared their political connections. Nothing more complicated
than that. Remember, OBWC was investing less than 1/10 of one percent of its
portfolio in a type of asset that’s been historically documented to appreciate
over time, albeit irregularly. This is by definition not an unreasonable risk.
Q- What the Larger Message?
A-
The Issue is Trust in Government, But the Prosecution
Is the Problem
The prosecutors (and also the Blade) have argued that an important part of the Noe case is in its
relationship to trust in government. Clemency, they say, shouldn’t be
considered because it would undermine the public’s faith in the honesty and
efficacy of government.
But this argument cuts two ways. Prosecutors are also a part
of government – by any reasonable measure a far more important part than a
transient entity that temporarily invests some funds for a state agency.
In this context, it’s reasonable to ask (among other
things):
- Why did the prosecutors lie to a judge in the effort to get a search warrant for Noe’s business?
- Why did the prosecutors seek a search warrant when they knew they already had access to the materials in question?
- Why did the prosecutors choose to hide the crucially important overall accounting from the jury?
- Why did the prosecutors hide the same information from the public (perhaps by destroying it)?
- Why do the prosecutors choose to represent to the public a number for Noe’s debt to the state that they know to be inaccurate – most probably substantially so?
What’s the justification for all this egregious behavior? To
an open-minded observer, the entire motivation appears to be based not on
justice but on politics.
The public expects fairness in judicial processes – that’s much
more a part of “trust in government” than what’s just technically legal.
There’s an extremely important trust in government issue in
the Coingate saga that’s going unnoticed.
[i]
At
some point in mid-May various public entities interested in the coin funds
created an informal “State Task Force” (STF) to coordinate their work. Members
included the offices of the AG, the Inspector General (IG), the OBWC, federal
prosecutors from northern and southern Ohio, the state highway patrol, and
prosecutors from Lucas and Franklin Counties (Toledo and Columbus).