TOLEDO, Ohio (AP) – In the late 1990s, Ohio came up with a novel way to invest money from its workers’ compensation fund: It bought $50 million worth of rare coins.

The state made a mint. But the investment has also yielded a scandal.

At least 121 coins worth an estimated $400,000 are missing. The man in charge of the investment has come under heavy scrutiny, with the Democrats alleging he got the state’s business in return for campaign donations to the Republicans. And Ohio’s government watchdog is investigating.

The GOP adamantly denies there was any favoritism, but Democrats hope the issue will help them topple the Republican machine that has dominated Ohio government since 1994.

The idea of buying rare nickels, dimes and quarters dates to the 1990s, when the Ohio Bureau of Workers’ Compensation was looking to hedge its investments in stocks and bonds. The $16 billion fund pays medical bills for Ohio workers injured on the job.

The man entrusted to direct the rare-coin investments was Tom Noe, a respected coin expert who also heads a committee that helps states select designs for commemorative quarters. Noe and his team of collectors began scouring coin shops around the country for currency they could buy on the cheap and turn around and sell for a profit.

Their purchases included a 1792 silver piece worth about $2 million. They also bought gold coins minted in 1845 and 1855.

The investments proved quite lucrative, at times even outperforming the stock market. They made $19.1 million – a nearly 40 percent gain. Noe received $3.8 million in commissions. After the commission, the state cleared a profit of $15.3 million.

Coin dealers say they know of no other state that has invested in rare coins.

“I consider it more risky than things like stocks or bonds,” said Patrick Heller of Lansing, Mich., treasurer of the Industry Council for Tangible Assets, a trade association.

“It has boom times and down times.”

Questions about the investment surfaced in April when The Blade newspaper of Toledo found that the two 1800s-era gold coins had disappeared. Noe said they were sent to a Colorado coin dealer but got lost in the mail in 2003.

The newspaper then reported that 119 other coins were missing. Noe said he thought the coins had been stolen by the Colorado dealer, whom he hired to assist with the fund. Colorado authorities are investigating.

The state has responded by announcing plans to sell off its coin collection.

Noe also was criticized for hiring a California coin dealer who had been convicted of faking a coin transaction a decade earlier.

No charges have been filed, but in the past week, Noe resigned from the Ohio Turnpike Commission and the board overseeing state universities. Republicans are distancing themselves from Noe, a prodigious fundraiser for the party.

He helped raise more than $100,000 for President Bush’s re-election and has given money to Gov. Bob Taft and former Gov. George Voinovich, now a U.S. senator. Since 1994, he has given GOP candidates more than $70,000.

“The man knows everybody,” said Republican Larry Kaczala, the Lucas County auditor. “He’s one degree of separation from everybody in the state.”

Noe is being investigated by federal authorities in an unrelated case. Federal prosecutors in Cleveland want to know whether he tried to bypass election-donation limits by giving friends money that they then contributed to Bush’s campaign.

Noe, who is from suburban Toledo, turned down interview requests.

Jeremy Jackson, spokesman for the Bureau of Workers’ Compensation, disputed any suggestion that Noe was hired in return for his campaign contributions. He said the agency’s independent oversight commission selected the fund managers and that “there are checks in place that guarantee this is not a pay-to-play environment.”

The Democrats think the scandal could give them an edge in next year’s race for governor and other offices.

“The more that people see the pay-to-play environment in Columbus, the more disgusted they’re going to become over how the state has been managed,” said state Sen. Marc Dann. “It just goes on and on and on.”

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