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Blackwell in Blind-Trust Bind: Ohio Has No Provision to Mask Stock Holdings

Posted on: Tuesday, 11 April 2006, 15:00 CDT

By Mark Niquette, The Columbus Dispatch, Ohio

Apr. 11--Republican gubernatorial candidate J. Kenneth Blackwell has said he's moving his investment portfolios to a blind trust to avoid any potential conflicts of interest.

But there's a problem with that plan: Ohio law doesn't allow fully blind trusts, according to a 2005 Ohio Ethics Commission advisory opinion.

The issue surfaced last week after Blackwell, the secretary of state, disclosed he owned stock in voting-machine maker Diebold -- as well as in companies that make slot machines and the so-called morning-after pill, even though Blackwell is opposed to abortion rights and the expansion of state-sponsored gambling.

Blackwell said in a letter with his annual financial-disclosure filing that his portfolios are managed in a "handsoff manner" and that he doesn't approve investment decisions.

He also said his accounts have been consolidated under management by Merrill Lynch "in preparation for the establishment of a full blind trust agreement" in 30 or 60 days.

Blackwell is proposing a legal arrangement in which he cannot control investment decisions. However, since Blackwell would have knowledge of his holdings at least to file his annual financial-disclosure statement, the plan does not meet the definition of a fully blind trust.

Alex Knott, political editor of the Center for Public Integrity, a government watchdog based in Washington, said a blind trust isn't blind if public officials have to disclose their holdings.

"Blind trusts sound good to the public because it creates a perception that you care more about your constituents than your portfolio, but since most of these blind trusts are never blind, there's no way to ensure that," he said.

State law requires public officials to disclose the source of all income, in- cluding estates or trusts, in which the officials have an investment of more than $1,000 in a calendar year.

Ohio has no legal provision that recognizes or provides for the creation of truly blind trusts, the Ethics Commission said in a footnote in its advisory opinion last year.

"Consequently, the ethics law does not recognize a method by which blind trusts, and their assets, can be disclosed in a manner that is consistent with the purpose in creating a blind trust," the opinion said.

When asked about Blackwell's plans in light of the ethics opinion, his campaign released a statement: "Secretary Blackwell is continuing to develop a blind trust arrangement consistent with Ohio filing requirements." Blackwell's campaign previously had not been answering questions from The Dispatch, which reported last week about the investments.

Attorney General Jim Petro, Blackwell's rival for the Republican nomination May 2, has said he considered a blind trust when he was elected state auditor in 1994, but also concluded Ohio law does not allow it.

He said his wife picks stocks "scrupulously" to avoid conflicts and that he has shifted more of his portfolio to mutual funds, where a manager makes all the investment decisions.

Presidents have voluntarily placed their investments in blind trusts since at least the 1960s. Federal law and some other states allow blind trusts, but they have caused controversy. Some ethics officials discourage them as a result.

The problem: Although a blind trust is designed to prevent public officials from knowing what their holdings are to avoid conflicts, there's no way to verify that, said R. Roth Judd, executive director of the Wisconsin Ethics Board.

"They're usually set up in a way the holdings are blind to the voters and taxpayers but seem to be known to the person organizing the trust," Judd said.

U.S. Senate Majority Leader Bill Frist, for example, is being investigated after selling stock from HCA Inc., his family's health-care company, shortly before the price fell -- even though it was in his blind trust.

Legislation is pending that would require members of Congress and staffers to report all trades of stocks, bonds or commodities of more than $1,000 within 30 days.

Bob Stern, president of the nonpartisan Center for Governmental Studies in California, said that state has allowed blind trusts since the 1970s.

The key is that the trustee of the trust must not be connected with the public official, must notify the public when a stock is sold and cannot tell the official how the proceeds are invested, he said.

But Stern and Judd said the best course for public officials is to invest in mutual funds because they cannot control the individual stock selections.

"I don't think blind trusts tend to foster confidence in government," Judd said.

mniquette@dispatch.com

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Source: The Columbus Dispatch, Ohio

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