03/06/02

Cincinnati

- After receiving coveted work from the state treasurer's office, broker Frank Gruttadauria gave $50,000 to the Hamilton County Republican Party, which was helping finance Ohio Treasurer Joseph Deters' campaign for state office.

Gruttadauria's money went into the county party's operating account, which can legally accept unlimited donations from undisclosed donors.

Deters said he "never, ever solicited a dime" from Gruttadauria. The solicitation, however, came from someone connected to Deters: Eric Sagun, a fund-raiser employed by both Deters' re-election campaign and the Hamilton County party.

Sagun emphasized that his fund raising was legal. And Deters defended Sagun as "the most ethical fund-raiser I've dealt with, which is why we like him." Deters said he did not know Sagun had asked Gruttadauria for money.

"I have never discussed that with Gruttadauria in my life. Nothing like that," Deters said.

"My discussions with Frank Gruttadauria have been about the Reds and the Indians, and our kids," Deters said.

The size of Gruttadauria's donation, and the secrecy surrounding the account in which it landed, renew concerns about loopholes in Ohio's campaign finance laws and raise new questions that Deters could be exploiting them, according to a government watchdog group.

Gruttadauria wrote his personal check to the Hamilton County GOP in December, just weeks before his Jan. 11 disappearance led federal officials on a nationwide search for the man who confessed in a note that he had defrauded clients out of millions. He was on the lam for a month, turned himself in, and is now in the Trumbull County Jail.

Deters said he did not provide Sagun with Gruttadauria's name, and he pointed out that the state - unlike dozens of private citizens - made millions on deals Gruttadauria arranged.

Still, Deters conceded that political connections helped Gruttadauria land the state business.

In 1999, Gruttadauria hired Republican consultant Andy Futey - a longtime Deters political adviser. Futey said he helped Gruttadauria assess "the political landscape" in Columbus and arranged an informal meeting for him, Deters and Gruttadauria over beers in Cleveland.

Deters said that, helped by recommendations from Futey and Cleveland business leaders Deters would not name, Gruttadauria qualified for state work soon after. Since 1999, the SG Cowen Corp. and Lehman Brothers Inc., where Gruttadauria was a branch manager, completed a combined $5.9 billion in trades for the state treasurer's office.

Deters said his investment advisers characterize Lehman as "one of the best in the business," and that they found nothing improper in deals Gruttadauria arranged for the state.

Gruttadauria had done no work with previous state treasurers, according to records and interviews.

How much Gruttadauria profited from his work with Deters' office is impossible to estimate, say experts, but it probably generated "a pretty nice" bit of extra spending money, said Lehman spokesman William Ahearn. He collected referral fees as an "introducing broker" between the state and his firms as they competed for fixed-income securities business.

Ohio Citizen Action campaign finance director Catherine Turcer said the apparent links between Deters, Gruttadauria and the donation are troubling.

"When you look at large contributions and wonder, is there a quid pro quo, it can be very complicated to discern," she said. "But this is like that old Mitch Miller show, where you follow the musical notes. In this case, it's not beautiful music."

Sagun refused to say whether he knew about the business Gruttadauria was doing with Deters' state office when he approached him for the donation. Nor would he say what, or who, prompted him to solicit Gruttadauria.

"I have multiple clients that I work with and there's all kinds of relationships," Sagun said. "I don't see any reason to discuss relationships between different clients."

Gruttadauria, of Gates Mills, is accused of defrauding clients out of nearly $300 million while employed at Cowen and Lehman.

After Gruttadauria's disappearance, Hamilton County officials feared that his donation might have come from questionably obtained money.

Rather than calling the local prosecutor, the party called Deters, an ex-county prosecutor, for advice.

"I said, 'Look, this is what you should do,' " Deters said. " 'Don't spend the money. Keep it there, and call the FBI.' My understanding is that's exactly what they did."

The FBI's Cleveland field office, which is running the Gruttadauria investigation, told party officials to hold on to the money and wait for further instructions.

Gruttadauria could not have given so generously if he had given to a public fund.

Under Ohio law, individual donors can give only $5,000 in a calendar year to a county political party's state candidate fund, or $2,500 per election cycle to a statewide candidate's election campaign, and donors' names, must be disclosed. There are no limits on giving to county party operating funds.

Citizen Action's Turcer said Ohio should either outlaw operating accounts or force parties to disclose their contents.

"I think at this point we can safely say the system has a disease," she said.

Chip Gerhardt, executive director of the Hamilton County Republican Party, declined to discuss how Sagun may have decided to call Gruttadauria, who had no history of political generosity. He said his party "is widely regarded as one of the most successful political fund-raising organizations in the state, if not beyond. It is not unusual for us to get donations from around the state."

Gruttadauria has given no donations to Ohio's other large county parties, according to officials in Columbus, Cleveland, Dayton, Akron and Youngstown.

Because Gerhardt refused to disclose other donors to the operating fund, it is unknown whether anyone else doing business with the Treasury has donated to the account.

It is known, however, that Deters was the primary beneficiary of the party's fund-raising efforts. Of the $284,262 raised by the party's state candidate fund last year, Deters received $203,622. The $80,640 balance went to other candidates and causes, including two of Deters' fellow Cincinnati Republicans, Gov. Bob Taft and Secretary of State Ken Blackwell.

County parties fiercely protect their operating accounts from the public eye. Sen. Jeff Jacobson, who helped write Ohio's most recent campaign-finance reforms, said disclosing the contents of operating ledgers never even entered the discussions. As for revealing the contents of the operating account of the Montgomery County GOP, of which he is chairman, Jacobson said: "I would die first."

Gruttadauria's case is to go before a grand jury today.

Under federal law, prosecutors must present a case to a grand jury within 30 days of a person's arrest. But Gruttadauria's attorney, Roger Synenberg, and federal prosecutors agreed yesterday to waive the time standard. Gruttadauria also signed the waiver. In some cases, the move means a suspect is cooperating with authorities. But Synenberg and federal prosecutors refuse to say whether Gruttadauria has met with the FBI.

Plain Dealer reporters John Caniglia, Joel Rutchick and Teresa Dixon Murray contributed to this report.

Contact Julie Carr Smyth at:

jsmyth@plaind.com, 800-228-8272