Dayton Daily News: Cordray Says Contract, Contribution Not Linked

Stepdaughter of Wachovia Securities salesman donated $10,000 to treasurer's campaign.

By Laura A. Bischoff
Staff Writer

COLUMBUS - Less than two weeks after Democrat Richard Cordray was sworn in as Ohio treasurer, the stepdaughter of the Columbus-based salesman for Wachovia Securities donated $10,000 - the maximum allowed by law - to Cordray's campaign.

Wachovia soon grabbed 37.5 percent of the state's bond trading business, a big leap for the St. Louis-based company, which had done a little less than 1 percent of the bond trading for the treasurer's office in the prior six years under Republicans Joe Deters and Jeanette Bradley.

Cordray, who is now running for attorney general, says there's no connection between campaign contributions and state contracts. He notes that shortly after taking office, his staff reviewed all the bond traders. Using objective criteria, a new approved trader list was developed.

Lindsey Kuty, 25, the stepdaughter of Wachovia's Montford S. Will, contributed the $10,000 to Cordray's campaign. When asked if the money came from his stepdaughter or from him, Will responded, "It came from her mother. It didn't come from me."

After the Dayton Daily News informed Cordray of the contribution, Cordray said his campaign would refund the $10,000 to avoid any appearance issues. He noted that he did not know Kuty or know anything about her contribution.

The Ohio Secretary of State's Office said the scenario may be a problem on two fronts. First, it's illegal to make campaign contributions in someone else's name. Second, state contractors face stringent limits on how much they can give: the maximum had been $1,000 but a law change in April 2007 set the bar at $2,000 from a vendor or their spouse within a 24-month period.

Will and his wife, Min Cha Lee, have contributed $659,940 to state and federal candidates and parties since 1990 with about two-thirds going to Democrats, according to records kept by the Ohio secretary of state and OpenSecret.org.

Lee, Will, Will's son and Will's business partner gave Cordray's campaign for Franklin County treasurer a combined $19,500 between 2002 and 2004. They did not contribute to Cordray's campaign for state treasurer.

Ohio State University law professor Steve Huefner, an expert on election law and campaign finance, said giving in someone else's name "would completely circumvent the contribution limits" and the public wouldn't be able to figure out who is buying access and influence.

Cordray's Nov. 4 opponent, Republican Mike Crites, said the contribution raises all kinds of red flags.

"Only when he was caught red-handed did Cordray return the money," Crites said in a written response to a Dayton Daily News inquiry. "Doesn't Richard Cordray know that funneling contributions through other people is illegal? Voters expect a candidate for attorney general to know the law."

Cordray responded, "We have raised millions of dollars in many separate contributions over the last several years and in any case that it is brought to our attention that there may be any question - even an appearance question - with a contribution, we step up and address it and return a contribution where we think there is any appearance question."

Cordray said he set up a competitive process to get the best investment experts with strong companies behind them. "The other piece of this is if you look at our results," he said. "They've been very strong and some of it is wanting to be evaluated on the merits of what we've done for the taxpayers of the state."

Will praised Cordray and the way he has managed the public's money.

"This treasurer, this is the first time in five treasurers that I've dealt with who acts like he's got half a brain in running this money. This guy did all the right things in picking the people who work with that account," Will said. "This has been a huge breath of fresh air and the people of Ohio should be grateful. They should say a prayer for this guy because he has literally made them more money than ever been made in that account in the past and it's been done the right way."

Outperforming benchmarks
Will has 39 years of broker experience, and he said his specialty is short-term management of public funds, such as treasury notes and public agency bonds.

Bloomberg Financial Services does not rank Wachovia among the top 10 bond broker firms by volume, but Wachovia Securities, which is owned by Wachovia Corp., is the third largest brokerage firm in the U.S. and has 1,500 offices across the nation.

Cordray's office said they consider more than just volume when picking a broker. His investment department looks for brokers who can provide competitive pricing, excellent trade execution history, responsiveness under deadlines and other factors, he said.

Neither the treasurer's office nor the public pension systems track how much money bond brokers make off their business. That's left up to the broker and whatever agency issues or sells the bonds.

Under Republican administrations in the treasurer's office between 2000 and 2006, the bond work was spread out over 50 firms, with Raymond James, UBS Paine Webber and Helston Securities being the top three.

Cordray changed the dynamic. On his watch, just 10 firms did bond work, with Wachovia, Raymond James and Cantor Fitzgerald leading the way. Under Cordray's administration the state's portfolios have exceeded their benchmarks, the standard against which investment performance can be measured.

"Despite this rapidly changing interest rate environment and the severe volatility in the financial markets, we have been successful at managing the state's various portfolios with record earnings and better performance than industry standard benchmarks," Cordray's office said.

Still, Wachovia did not make a similar leap in business with other large Ohio institutional investors, such as the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio.

STRS Ohio Investments Director Steve Mitchell said his shop added Wachovia to its approved bond trader list two years ago. In fiscal year 2007, Wachovia did about 3.4 percent of STRS' bond trading, and in fiscal year 2008 it did 1.1 percent, Mitchell said.

Typically, the public pension systems work with institutional salesmen based in New York or Chicago and with very large bond brokers such as Goldman Sachs, Mitchell said.
When asked if 37.5 percent of the treasurer's bond trading was an unusually high concentration for one firm, Mitchell replied, "I'd say so for that firm. I might not say it for Goldman Sachs."
Cordray said the pensions and treasurer's office are different animals. The pensions have a wider mix of investments, much larger portfolio and a longer outlook. The Ohio treasurer's office, with $18 billion in all its portfolios, is less attractive to the national offices, Cordray said.

OPERS and STRS, Ohio's two largest public pension systems, combined have $147 billion in assets.

When he first took office, he invited any and all bond brokers to make their pitch for treasury business. Cordray said, "We opened (it) to all comers. Anybody in the United States could bid on it. We got what bids we got."