A convicted fraudster who once managed pension funds for the Bermuda Government has settled US federal fraud charges filed by the Securities and Exchange Commission.

Mark Lay, 45, a Pittsburgh investment adviser, is serving a 12-year prison sentence after being convicted of fraud charges in relation to the loss of $216 million in a hedge fund he managed for the State of Ohio.

At conviction, Lay was ordered to pay $212.9 million in restitution and a $590,000 forfeiture from his earnings.

However, according to the Pittsburgh Tribune Review, under the terms of his settlement with the SEC, Lay will not have to pay back $1.5 million in fees and interest the SEC said he and his company MDL Capital earned as an adviser to the Ohio Bureau of Workers' Compensation during the period of the fraud in 2004.

"The SEC said it waived the payment 'based on the defendant's sworn statements of financial condition'," the Pittsburgh newspaper reported.

"Even if he secures sufficient funds later, Lay will not have to pay the $1.5 million, said David Horowitz, assistant director for the SEC's regional office in Philadelphia. He said Lay would be liable for $212.9 million in restitution and $590,000 forfeiture he was ordered to pay when he was convicted in the criminal case."

Under the SEC settlement, Lay neither admits nor denies the allegations that he violated securities laws.

The SEC case settlement awaits final approval of federal court in Pittsburgh.

"Lay agreed to be barred from doing business as an investment adviser, and the MDL's registration as an investment adviser will be revoked," the newspaper said.

The Ohio Bureau of Workers' Compensation was the sole investor in a high-risk hedge fund Lay set up in Bermuda. Lay was accused of repeatedly failing to tell bureau officials when questioned beginning in 2004, about the extent of the risk he was taking.

Prosecutors said Lay hid the extent of the risk he took with the fund and went beyond the limit state officials set for the agency's investments.

The charges involved included investment advisory fraud, two counts of mail fraud and conspiracy to commit mail and wire fraud.

Lay's defence attorneys argued that he was a scapegoat for a legitimate investment loss that wasn't a crime. The defence stressed that Lay didn't pocket any money.

MDL was hired in 2001 to manage $51.5 million of the Bermuda Government's Contributory Pension Fund and $18.3 million of the Island's Public Service Superannuation Fund.

Government fired MDL four years later for poor performance — having paid the company $557,924.48 for its services over that period.

Only a short while later, the company became embroiled in the Ohio scandal. The case emerged from the 2005 discovery that Republican donor Tom Noe was investing state money in rare coins. Noe is serving 18 years in prison.

MDL was one of a number of new fund managers recommended by Bermuda's pension fund consultant Tina Byles Williams (formerly Poitevien) in 2001.

Ms Poitevien, who has described Premier Ewart Brown's wife Wanda Henton Brown as a close friend and mentor, was appointed as consultant to the Public Funds Investment Committee (PFIC) in 2000.

Dr. Brown was reported in 2005 by the Pittsburgh Post-Gazette to have attended the opening of Mr. Lay's new offices in that city in 2003, something that the then-Deputy Premier declined to confirm at the time, stating that his lawyers had advised him not to comment to the media on the matter.

Ms Williams was the organiser of a lunch held in Washington in March 2002, when each invitees was asked to contribute $2,500 to Dr. Brown.