AFFLICTING THE COMFORTABLE: JOURNALISM AND POLITICS IN WEST VIRGINIA

27. Three Words Again

Chapter 27 THREE WORDS AGAIN ON DECEMBER 12, 1988, one month after Gaston Caperton had been elected West Virginia's new governor, Fanny Seiler reported in the Gazette that a surplus of nearly $53.4 million had been mysteriously lost from the state's Consolidated Investment Fund. The state treasurer's office had had problems before. In 1875 the House of Delegates impeached Treasurer John Burdett on charges of accepting kickbacks from a Charleston bank in exchange for keeping at least forty thousand dollars in state funds in that bank. One hundred years later, in 1975, State Treasurer John Kelly pleaded gUilty to extortion and went to prison. He admitted to receiving payoffs for maintaining state funds in various banks around the state. At that time the FBI reported that there was no formal policy for investing state monies and, on average, between $70 million and $170 million sat idle in non-interest-bearing accounts in banks at all times. State planners decided that reforms were in order. Kelly's successor, Larrie Bailey, began a program that, in time, evolved into what was known as the Consolidated Investment Fund. As envisioned, the fund was intended to be a clearinghouse for state investments, with the treasurer's office handling transactions for other state agencies. Under the terms of the new statute, county and local governing bodies were extended this service as well. The State Board of Investments, composed of the governor, auditor, and treasurer, served as the administering body for the fund. As a means of maintaining solvency, the legislature placed restrictions on the types of securities the board could invest in. The fund was not to engage in stock market speculation or similar risk-prone ventures. But as often hap- 288 CHAPTER TWENTY-SEVEN pens with the best-laid plans, something went awry. What had been a vision of unending streams of money turned into a nightmare of hellish proportions. The discovery of the missing $53.4 million was made by the legislative auditor. Precisely when the losses occurred, however, was not known. Associate Treasurer Arnold Margolin, who had assumed his position with Treasurer A. James Manchin in 1985, said the losses took place- without his knowledge - between August 1984 and December 1986. Another team of auditors from the accounting firm of Touche Ross and Company, of Pittsburgh, had also been examining the treasurer's records and was expected to disclose even larger losses in its report due out in a few weeks. Manchin confirmed this fact the day after Seiler's report on the missing funds appeared in the Gazette, admitting that as much as $150 million might be a more accurate figure. The state investment pool was then valued at $1.7 billion . As finally reported by Touche Ross, the actual losses amounted to $279.1 million. Manchin, the constitutionally designated custodian of state monies, refused to accept responsibility for the missing funds. He pOinted the finger at Margolin. Under Margolin the fund had generated income at a rate of almost 14 percent during 1986, which, according to the treasurer, was the best yield in the country. Manchin had declared Margolin a financial wizard in press reports and speeches. But after the story broke, the treasurer took a different stance, and as the pressure mounted, Margolin was made the official scapegoat. "I never knew what was going on there," Manchin said. "I just trusted my expert." Margolin, he added, should have maintained closer oversight of his investments director, Kathy Lester. Margolin, who had served as a top financial assistant to Governor Rockefeller before moving to the treasurer's office at the beginning of Moore's third term, was vacationing in Florida when the investment scandal first broke. He had accepted the position of administrative assistant to incoming Governor Caperton and was scheduled to assume his new duties upon his return to Charleston. When Margolin got back home, he too refused to accept responsibility for the losses. He also tendered his resignation to Caperton. THREE WORDS AGAIN 289 In a full-page interview with members of the Gazette staff, Margolin said it was a mystery to him why the various auditing firms had not uncovered the losses earlier. "We're the only program in state government to my knowledge where the audit is all the time. The legislative auditor, as a practical matter, has offices within our office." During the period of time when the shortages occurred...