updated 7/8/2008 6:53:16 PM ET 2008-07-08T22:53:16

Nineteen convictions, two acquittals and a bevy of changes in how business is done in the state’s capital.

Those are the results of a three-year investigation into an investment scandal at the Ohio Bureau of Workers’ Compensation.

The sentencing of investment adviser Mark Lay to 12 years in prison on Tuesday marked the close of the last pending criminal case related to the investigation.

“We’re not ready to close the books yet,” state Inspector General Tom Charles said. “We’re happy that this part is done and the sentence is complete and we can make some decisions after that.”

Lay was responsible for the bulk of $300 million in investment losses at the workers’ comp bureau, costing the state $216 million in a high-risk hedge fund he set up in Bermuda.

U.S. District Judge David D. Dowd Jr., who sentenced Lay after the second day of a lengthy sentencing hearing, ordered Lay to be taken into custody immediately. He was led away in handcuffs. His mother shouted, “It’s going to be OK, babe, we’re here.” Lay faced 27 years in prison.

Dowd also ordered Lay, chief executive and founder of the now defunct MDL Capital Management of Pittsburgh, to pay nearly $213 million in restitution and a $590,000 forfeiture. The forfeiture is the amount of money the jury determined he earned from his work on the hedge fund.

Lay, 45, was convicted in October of repeatedly failing to tell bureau officials when questioned beginning in 2004 about the extent of the risk he was taking.

Lay’s defense attorneys argued that he was a scapegoat for a legitimate investment loss that wasn’t a crime.

“I do accept full responsibility for all trading involved in the case with the Bureau of Workers Compensation. ... I made mistakes — no question about it,” Lay told Dowd before sentencing.

The scandal known as “Coingate” began with the 2005 revelation that the bureau was investing $50 million in rare coins through Republican donor Tom Noe, who is serving 18 years in prison for theft and other crimes on charges that he stole from that investment.

It included former Gov. Bob Taft, who pleaded no contest to ethics charges and was fined $4,000 for failing to report golf outings and other gifts on his disclosure forms.

In the wake of the scandal, Democrats won four of five statewide offices in the November 2006 election, including the governor’s office.

Lay’s defense team on Tuesday stressed to the judge that Lay didn’t pocket any money, like Noe did.

“He didn’t benefit from this,” said attorney Richard Kerger. “Failing to anticipate which way the market goes is not an offense.”

Prosecutors said Lay hid the extent of the risk he took with the fund and went way beyond the limit state officials set. The state invested $225 million and lost all but $9 million. Lay heavily leveraged, or borrowed against, the fund, which caused almost $213 million of the $216 million loss.

He was convicted of investment advisory fraud, two counts of mail fraud, and conspiracy to commit mail and wire fraud.

“Lay should have stopped the bleeding,” assistant U.S. Attorney Benita Pearson said. “He should have stopped the unnecessary losses.”

Dowd took into account at least 23 factors to determine the sentence, including the loss to Ohio workers and Lay’s lack of a criminal record. In ordering Lay to be taken into custody immediately — an unusual action in a white-collar crime case — Dowd cited trips Lay took to New Jersey to visit his girlfriend in the months following his conviction.

An appeal was being filed immediately along with a request to delay the prison sentence pending the appeal, Kerger said.

“The amount of the loss drove this thing,” Kerger said after the hearing. “If he hit some lady over the head and took her purse, he would have gotten less of a sentence.”

The state settled a civil lawsuit against Lay in April when he agreed to pay $5 million.

Overall, prosecutors accepted 17 pleas and won two of three trials, failing to convict two brokers who were accused of giving bribes to Terrence Gasper, the bureau’s former chief financial officer. Gasper was sentenced to more than five years in prison.

Fallout from the scandal was wide-ranging.

In recent years, the workers’ comp bureau rebuilt its investment division and revised investment policy for its $22 billion injury insurance fund. Lawmakers and a new governor, Democrat Ted Strickland, also created a new, more independent board of directors to replace an oversight commission that had been faulted during the scandal with rubber stamping the agency’s politically motivated investment decisions.

A sweeping new state law created an 11-member Workers’ Compensation Council to keep tabs on the agency and expanded the state Inspector General’s office to include a full-time deputy assigned to the workers’ compensation bureau and its sister agency, the Industrial Commission.

A new office under the state auditor also was created to oversee the more than 100 internal auditors serving on the staffs of state agencies.

Lawmakers also responded to the scandal by changing Ohio’s campaign contribution rules, placing stricter caps on lobbyists seeking to influence government contracts.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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