ProgressOhio

The shadowy confluences of Zuheir Sofia

Former OSU Trustee, OPERS Board member, Bank Commission Member

Friday afternoon, in as close to a “gilded hall” as Columbus gets, John McCain was scheduled to be hosted at a reception next to former U.S. Senator Mike DeWine and former Huntington Bank honcho Zuheir Sofia in the Columbus Club where legend has it Presidential opponents Warren G. Harding and James M. Cox once had dinner on the same night.

[Note: Press were notified the event was cancelled late yesterday, although as of Thursday night it was still on the McCain website. johnmccain.com

But gone are the days of bi-partisanship and a code that the elite club’s own website describes as declaring that “neither the house nor the grounds of the Club shall be used for any political purposes." columbusclub.com

So just who is Zuheir Sofia who was powerful enough to bend such austere rules?

• A former Huntington Bank honcho who now consults on investing in foundations, retirement funds and financial institutions. He has also served on some of Ohio’s most powerful boards involving foundations, retirement funds and banking.
• Dominion Homes Board Member whose tenure included a well-publicized scandal of mortgage loans that triggered an investigation over Huntington Bank/Dominion loans.
• A former OPERS Board member whose resignation came within days of news of the Dominion mortgage scandal.
• A former Ohio Bank Commission member who resigned again within days of stories in the Dispatch about the Dominion scandal.
• Former Ohio State University Trustee Chair (as gilded as “Buckeyeville” gets) who also serves on the Board of Lancaster Colony Corp. with a former OSU President.

The confluence of Zuheir Sofia’s many spheres of influence center on power indeed.

Predatory Mortgage Lending: The Dominion Board and Huntington Ties

In the fall of 2005, Dominion Homes, whose Chairman Douglas Borror served alongside Zuheir Sofia on the Ohio State University Board of Trustees, was in trouble. Sofia, former head of Huntington Bank, had joined the Dominion Board on May 6, 2003, when Dominion increased its Board from seven to nine members.

But on September 18, 2005, the bottom started to empty out. The Columbus Dispatch ran a series called “Brokered Dreams” about high-risk mortgage lending in upscale suburban homes – and Dominion was the featured poster child of bad Ohio builders. Mr. Sofia, who was chair of the OSU Trustees in 2003-2004, was at the time of the Dominion scandal a member of both the Ohio Public Employees Retirement System appointed by the Ohio General Assembly and a member of the Ohio Bank Commission appointed by then-Gov. Bob Taft.

• Dominion Investigation leads to Sofia’s Resignation from Ohio Bank Commission within Days of Articles:

On Valentine’s Day 2006, the Dispatch continued its series on the Dominion investigation into Federal Housing Authority-backed loans by Dominion buyers.

A series of headlines appeared in the February 19, 2006, Sunday Dispatch including “Refinancing into foreclosure,” “Baited with promises, they refinanced; now they’re fighting to save their house” and “Plagued by Debt.”

The story took on added significance, given the high profile of Dominion Homes’ Douglas Borror and his close ties to the Wolfe family.

Very quietly, Zuheir Sofia resigned from the Ohio Bank Commission.

The March 15 Ohio Senate Journal dated his replacement as starting his term February 17, 2006, just two days before the major February 19 Sunday expose’ on Dominion Homes.

• Huntington appears to be the only holdout on Dominion’s questionable loans:

On May 14, 2006, the Dispatch led off with a story by Geoff Dutton and Doug Haddix that government auditors had indeed found that one in four of Dominion Homes mortgages had problems.

Among the lenders investigated – Sofia’s former employer Huntington Bank -- which wrote 2,346 FHA mortgages during the audit period of which HUD found 20 improper mortgages totaling $2.2 million.

A May 11 story quoted a Senior Vice President with National City Mortgage as stating that it severed its relationship with Dominion Homes in 2004, partly because of high defaults.

Colony Mortgage characterized Dominion loan customers as “marginal buyers” and said it had severed ties with Dominion Homes in 2005.

Of the three troubled loan entities, Huntington Bank was the only institution not on record in the article as severing its ties with Dominion Homes.

• Sofia quietly replaced on OPERS Board after Huntington Bank, others face fines for Dominion loans within Days of Dispatch report:

Once again, on June 6, 2006, the Dispatch reported on Dominion Homes’ troubles in an article reporting that National City Mortgage and Huntington National Bank could face fines and other penalties for “improperly dumping $265 million in troubled mortgages into a government insurance program” related to Dominion Homes.

Within days, Mr. Sophia left another major Ohio government board.

On June 8, the Ohio Senate Journal reported that former Ohio Senate Chief of Staff James Tilling was jointly appointed to the OPERS seat vacated by Zuheir Sophia by the House and Senate for a term beginning immediately – the vacancy occurred just two days after the Dispatch disclosure.

Mr. Sophia in the course of six months had resigned two highly coveted Ohio government appointments both within days of articles about Dominion Homes loans and the involvement of Huntington Bank – his former employer.

Student Loan Scandal, Sofia and the OSU Trustee Club

It is little secret that the OSU Board of Trustees is Columbus’ secret power club. Trustees are not paid -- other than expenses -- yet it is for many the most coveted gubernatorial appointment. Because of the prestige, those who make the Scarlet and Grey Board are often among the biggest donors or fund-raisers for the governors who appoint them. George Voinovich made Zuheir Sophia a member.

To give you a feel for the institutional exposure of the OSU trustees, a Business Week search of Zuheir Sofia’s ties is a web of OSU and Ohio Who’s Who, and Mr. Sophia, unknown to most Ohioans, is very well known to the Ohio corporate elite. Among the Boards he has served on according to his Banker’s Commission disclosure form:

• Lancaster Colony Corp (Marzetti’s among other food products): Sophia serves alongside former OSU President Edward H. Jennings.
• OSU: Sophia has served with former Ohio Speaker Jo Ann Davidson, Daniel Slane (Slane Company), Tami Longaberger (Longaberger Baskets), Leslie Wexner (The Limited), Dimon McFerson (Nationwide Insurance), John Ong (Goodrich Corp.) , G. Gilbert Cloyd (Proctor and Gamble) and Robert Shottenstein (MI Homes) among others.
• Dominion: Sophia serves with Douglas Borror who also serves on the OSU Board of Trustees and Betty Montgomery, Ohio’s former Attorney General.

Again, there is clubbiness – an almost social aspect – to this level of service. The question is whether this could lead to conflicts or problems.

For example, in April of 2007, Ohio Attorney General Marc Dann launched an investigation into student loan consolidation at major Ohio Colleges and Universities modeled after a similar probe by New York Attorney General Andrew Cuomo.

At issue are allegations that student loan brokers paid kickbacks and enticed College and University Alumni Associations to steer student loan business.

Once again, Zuheir Sophia is tied up in the storm.

• Student Trust, Inc. and student loan steering: On January 6, 2004, according to Student Trust’s press release, Ohio State University’s Alumni Association entered into a contract with Student Trust Loans. “This is an excellent opportunity to provide our alumni, especially those who are leaving the University…a service that can really help make ends meet,” OSU Alumni’s Chris Vlahos, Vice President for Membership and Marketing, said at the time.

The agreement was an exclusive contract with the OSU Alumni board to allow loan consolidations and the alumni board has since indicated receiving $35,000 in compensation.

The CEO of Student Trust, Inc. is Tom Green, founder and president of Sallie Mae Solutions, who has a B.A. in Business Administration from none other than The Ohio State University.

And the Chair of the OSU Board of Trustees when OSU Alumni Association signed the contract in January 2004 was none other than – Zuheir Sophia.

So let us read through the shadows on this transaction.

The chair of the trustees, Mr. Sophia, is an expert in banking, loans and financial institutions during the period when the alumni association signs an exclusive contract with an OSU grad for loan consolidation marketing to its members – the loan steering under investigation. And according to a statement from the OSU Alumni Association, on Friday May 4, over 910 OSU alumni took out loans from Student Trust, Inc. Not a bad take for Mr. Green and company.

Ironically in the February 4, 2004 OSU Trustee minutes, one month after the Student Trust, Inc. agreement, OSU President Karen Holbrook reported to the Trustees:

“Ethical activities and issues are consistently in the press. The abuse of business ethics has been most widely reported, but fraudulent activities in government are also frequently in the news….There have been examples in our own state of falsified travel vouchers, the acceptance of gifts, embezzlement, and fraud.”

President Holbrook went on to tell Trustees including Mr. Sophia: “As you all know, we have been wrestling with an ethical decision related to the acceptance of funds from tobacco companies. The absence of ethical behavior is a systemic problem that pervades all institutions. Tolerance of unethical behavior has grown and rationalization for gaming or cheating the system is offered to justify the conduct. We must hold discussions about how we sustain a highly ethical environment. We need to assure that ethical behavior flows through all of the academic experience. Karen Holbrook, President Ohio State University OSU Trustee Minutes 2/4/04.

The exclusivity of the Student Trust, Inc. arrangement, coupled with Mr. Sophia’s background, creates some very serious questions about his many hats. At this time, there is no direct tie reported, but there is a curious confluence of events given Mr. Sophia’s background in loans and finance, connections and his role at the University during this time period.

Conflict of Interest?

Sophia Advises Investment for Foundations and for the Financial Sector

There are also questions that cannot be answered involving the type of advice and influence Mr. Sophia provides in his role as an investment advisor. Mr. Sophia’s disclosure form for the Ohio Banking Commission includes the following potential areas of conflict:

• L &S Partners Inc.: The web-site lists this as a Hedge Fund focused on the Financial Sector for accredited investors. Did this include funds or advice that went toward Student Trust, Inc. or its investors, and if so, did this happen at the time he was an OSU Trustee? Did any of these funds back companies involved in Dominion’s loans or secondary mortgage companies?
• MBO Cleary/ Cleary Gull, Inc: The web-site for this company includes Investment advisory services for retirement plan sponsors; investment advisory services for foundations and endowments and financial advisory services for middle market companies. Did these include investors or funds that dealt in any way with OPERS? Did these include investors or funds involved in OSU’s endowment or foundation?

Mr. Sophia’s ethics statement does include a Statement of Interest that says, “I am not aware that any other entities which I am affiliated are or will seek business with the Ohio Banking Commission, OPERS or OPERS Deferred Compensation.” In the case of OSU, Trustees are not compensated and therefore do not file public Ethics Statements or include such Statement of Interest forms.

But the fact remains, that his resignation within days of the Dominion/Huntington Dispatch articles, happened not once, but twice, which hardly seems coincidental.

Three Boards and a cloud of dust.

Zuheir Sophia was supposed to stand Friday next to Presidential Candidate John McCain and former U.S. Senator Mike DeWine unscathed while families have lost homes and life savings and student loan steering is under investigation at Ohio State.

An insider’s insider, Mr. Sophia finds himself at the center of concentric circles of two of the largest financial scandals facing Ohioans and our nation – the predatory mortgage lending practices of banks and developers, and the student financial aid scandals now rearing in Ohio’s largest University. The question is whether this is a confluence of incredible coincidence, or a consequence of the many hats he wears.

Clearly, the timing of Mr. Sophia’s resignation from both the Ohio Bank Commission and the OPERS Board were timed within days of Dispatch articles on the Dominion/Huntington mortgage scandal. Yet, twice these high-profile changes went largely un-noticed by media and post-Noe politicos.

It appears his reputation among his friends is secure, and Ohio’s elite do not believe there are sufficient ties to distance themselves – but why then do we have these board resignations? And how soon we forget the last time we saw a connected donor, who served on many state boards, and had many conflicted business associations that led to lost money and public scandal. The gilded Club roared loud at Jim Drew and The Blade when Noe stories first rolled out.

The question, we must all ask ourselves is, have we learned the lessons of Tom Noe? Or is he just a symptom of an Ohio leadership problem which won’t go away? Do those Ohio leaders “in the gilded clubhouse” put friendship over obvious questions that deserve some scrutiny – or at a minimum a few critical questions given these fact patterns.

Clearly based on where Mr. Sophia was supposed to stand Friday, and who he is standing with – his friends, and Sen. McCain, hope he has good answers to these questions.