The amount of money clients entrust to Downtown money manager Mark D. Lay has been slashed by more than half since last summer, when the Aliquippa native's firm was rocked by allegations it was responsible for more than $200 million in losses in an Ohio state fund.

Meanwhile, Mr. Lay and his MDL Capital Management face new allegations in an amended lawsuit filed this week by Ohio Attorney General Jim Petro.

MDL's assets under management have plunged from $2.8 billion at the end of 2004 to approximately $1 billion, according to a report MDL recently provided to the Beaver County Employees Retirement Fund. MDL told the $156.4 million pension fund it has 16 employees vs. 30 a year ago.

Clients unhappy with subpar performances were deserting MDL even before the Ohio Bureau of Workers' Compensation disclosed in June it had lost about $215 million of the $225 million it had invested in a Bermuda-based fund managed by MDL. The investment firm had managed more than $4 billion in 2002, but its assets under management have fallen ever since.

Mr. Lay could not be reached for comment.

The Beaver County pension fund is among the clients that have stuck by MDL since the scandal unfolded, despite the fact that MDL's results have fallen well short of the index they are measured against.

"We give managers their due, their time. There's going to be ups and downs," said county controller Richard W. Towcimak. "I can't speak for how other people react to things. We're giving him his due."

According to Beaver County records, MDL's results have fallen more than 1 percentage point short of a benchmark Lehman Bros. bond index for the one-, two-, three- and five-year periods ended Dec. 31. The shortfall is significant in the staid world of bond investing, MDL's specialty.

The poor performance prompted the county pension fund to put MDL on its watch list in early 2003, where it has remained ever since.

Mr. Towcimak said the pension fund recently decided to keep $27.6 million invested through MDL, but to divide it between stocks and bonds on a 60-to-40 percent split. The vast majority of MDL's clients hire the firm to invest in bonds and other fixed income investments.

Clients that have left MDL include the Allegheny County Retirement Board, which withdrew $22.4 million in June.

Mr. Petro originally sued MDL, Mr. Lay and other MDL officials in June over losses in the Ohio fund. The amended complaint, filed Wednesday in federal court in Columbus, Ohio, adds charges of fraudulent inducement, negligent nondisclosure and constructive fraud. It seeks recovery of the $216.3 million the Ohio fund lost, the latest estimate of the fund's losses, as well as punitive and other damages, interest and costs.

The losses resulted from the bureau's investing $225 million in the MDL Active Duration Fund. The fund sought to outperform bond markets through leveraged investments that allowed MDL to place a bet on the direction of long-term interest rates. Under the investments, each $1 invested gave MDL and Ohio the chance to earn substantially more than $1 -- or lose a substantially larger amount -- depending on how their hunch played out. MDL's hunch was wrong. Long-term rates failed to follow increases in short-term rates engineered by the Federal Reserve Board.

At issue is whether MDL violated investment guidelines specified in fund documents that limited how much risk the firm could take on. Ohio alleges MDL far exceeded the limits and failed to tell Ohio officials. When MDL proposed revisions in the rules that would give the firm more leeway, Ohio did not go along, but MDL continued assuming more risk than was allowed, according to the lawsuit.

In the past, Mr. Lay has maintained everything his Bermuda-based investment fund did was done with the knowledge and approval of the Ohio agency.

"It is highly unfortunate, unfair and damaging to MDL Capital that inaccurate reporting and political interests in Ohio are promoting misinformation and painting MDL's successful track record in a false light," Mr. Lay said in a June 10 statement.