Columbus Dispatch: Dann leading fraud crusade

Attorney general taking aggressive approach to protect state pensioners
Sunday, March 11, 2007
James Nash
THE COLUMBUS DISPATCH

Photo caption: Attorney General Marc Dann represents more than 1 million pension-fund shareholders.
[Rumor has it that Mr. Dann is planning to stop by the STRS Board meeting on Thursday, March 15, and address the Board. Beware of the Ides of March!]
Columbus is a long way from Wall Street, but only two months into his term, Ohio Attorney General Marc Dann has attracted notice in some boardrooms with his aggressive posture on cases alleging corporate wrongdoing.

Dann, a scrappy Democrat whose own Youngstown law practice dealt with divorces and other routine legal matters, now represents more than 1 million active and retired pensioners who collectively have $150 billion invested in state pension funds.

The funds, in turn, have vast powers to browbeat and sue companies that fraudulently hype their stock, backdate stock options to their executives and engage in other malfeasance. Dann has already shown that he’s willing to harness that power more than many of his predecessors, some observers said.

"It’s certainly a new approach that Marc Dann is taking as Ohio’s highestranking law-enforcement official," said Howard Bobrow, a corporate-finance lawyer with the Kahn Kleinman law firm in Cleveland. "He’s going to use his role as, in his mind, protecting people’s rights."

Since taking office in January, Dann has:

• Settled a 4-year-old case against AOL Time Warner accusing the media giant — which dropped AOL from its name in 2003 — of fraudulently inflating its stock price during its 2001 merger.

• Publicly accused a special committee of UnitedHealth Group of dragging its feet in investigating alleged stock-option backdating by the Minnesota company’s ousted chief executive. Dann also demanded to personally meet with the special committee; he was rebuffed.

• Looked into antitrust concerns raised by a Hong Kong company’s planned purchase of Ohio-based vacuum manufacturer Hoover. Dann decided against attempting to block the acquisition.

• Gone to court to demand documents from insurance broker Marsh & McLennan that Dann suspects will show a pattern of price-fixing to the detriment of Ohio employers.

• Filed a friend-of-the-court brief along with 21 other attorneys general in a case that could raise the bar for investors to recover losses in securitiesfraud cases.

In that brief, Dann and other attorneys general are explicitly taking on the federal Securities and Exchange Commission, which sided with Tellabs Inc., an Illinois telecom company accused of misleading investors. The SEC is asking the U.S. Supreme Court to raise the legal bar for stockholders to win lawsuits accusing companies of stock fraud.

In an interview, Dann said Ohio is taking a leading role in the Tellabs case because the federal government is abdicating its responsibility to protect shareholders from corporate wrongdoing.

"The responsibility for holding corporations responsible for their actions — both fraud and environmental regulations — has shifted from the federal government to the states," Dann said. "This is a pendulum."

At the state level, Dann wants to move Ohio from the middle of the pack to the front in using the investment clout of the state’s pension funds and Bureau of Workers’ Compensation as a stick in the eye of executive malfeasance.

Nationally prominent securities lawyer William S. Lerach, whose San Diego firm has represented Ohio and many other states in cases against Enron Corp., AOL Time Warner and other companies, said Dann taking a role in the AOL Time Warner case helped clinch the settlement.

"We couldn’t have done it without Marc Dann’s personal involvement at the end of the day," Lerach said. "He said this was extremely important to the state and he asked to be personally involved in the details of the case."

Lerach, whose work on the AOL Time Warner case began under former Attorney General Jim Petro, declined to compare Dann’s approach with his predecessor’s.

Dann’s more hard-charging style has drawn comparisons with that of former New York Attorney General Eliot Spitzer, now that state’s governor. Spitzer made his name aggressively policing corporate behavior, from the marketing of prescription drugs to record labels paying radio stations to air their songs.

Spitzer’s position in the state where U.S. financial markets are headquartered gave him a natural perch from which to attack corporate practices. Dann doesn’t have that advantage, but he said the state pensions’ wide-ranging investments give him standing to take on many cases.

Richard Baker, spokesman for the state’s largest pension fund, the Ohio Public Employees Retirement System, said the fund is always willing to go after companies that cheat pensioners out of their money.

"You can only swing at what gets thrown over your plate," Dann said. "We’re going to take a close look at whatever comes our way."

jnash@dispatch.com