Pension trustees question McLean plan

March 06, 1994|By Kim Clark | Kim Clark,Sun Staff Writer

Just a year ago, city pension trustees endorsed what might have been Jacqueline F. McLean's most important accomplishment as comptroller -- a plan to invest $10 million in a black-owned brokerage firm.

But now, as Mrs. McLean's career lies in shambles, that proposal also is in trouble. City officials are rethinking the proposed investment in the Baltimore-based Chapman Co. because of Mrs. McLean's legal problems and new concerns that she advanced the plan using a pattern of secrecy and deception.

"There is no way I will vote for this now with all that is going on with Jackie," says William E. Dix, a pension trustee who voted for the investment last year.

Although some trustees say the Chapman proposal is being unfairly tainted, others say they are reconsidering because of:

* Allegations of unrelated misconduct against the comptroller, who chaired the pension boards that approved the investment initially. Mrs. McLean was indicted Feb. 25 on charges she stole more than $25,000 from the city and improperly arranged a lucrative city lease of a family-owned building.

* Indications that she misled fellow trustees about company owner Nathan A. Chapman Jr.'s role as a campaign fund-raiser.

* Allegations that she also misled trustees in selecting a consultant to evaluate the Chapman proposal.

* Uncertainty about whether the unprecedented proposal -- which would give city retirees a major stake in a young, privately held company -- is as safe as the consultant indicated.

Neither Mrs. McLean, who has been on a leave of absence from her city post since Dec. 20, nor her attorney responded to calls and letters requesting interviews about the Chapman plan.

Several of the 13 city pension trustees continue to defend the proposal, saying that regardless of Mrs. McLean's role, retirees would benefit from an investment in the 7-year-old Chapman Co., which has offices in six states and reported making about $1 million in 1992.

"In my heart, I know it is a good deal," says trustee George F. Eckert.

Mr. Chapman continues to argue for final approval, calling the plan "the most looked-at transaction ever" considered by the pension boards. Strengthening his company would help minority businesses as well as give retirees a hefty profit, he said. Only racism is holding back final approval, he said.

Last year, the investment was approved unanimously by city pension trustees and received unanimous -- but conditional -- approval by the Board of Estimates. Now, it is being reviewed by the city's lawyers and must win final approval -- no longer assured -- from pension trustees and the Board of Estimates. Although City Council President Mary Pat Clarke supports the plan, Mayor Kurt L. Schmoke is withholding judgment until city lawyers clear it. Both sit on the Board of Estimates.

Mr. Schmoke has called the idea of using city funds to invest in minority business "a ray of light." But, he says, he is bothered by the way the pension boards handled the proposal. And he's worried about the legality of having the city's pension fund hold a big stake in a local company.

"It is a unique deal and deserved an awful lot of scrutiny," he says. "I felt the issue was really a matter of law."

Prudence required

From the start, the Chapman proposal was sure to attract criticism in the cautious world of pension fund management.

Pension boards, bound by law to handle retirees' funds prudently, usually parcel out money to professional investment managers who buy bonds, real estate, or stock in big, publicly traded companies such as General Motors Corp.

The city trustees -- who handle about $2 billion in pension funds are so concerned about safety that they allow their stock

pickers to invest only in companies with "long and prosperous reputations" and to hold no more than 1 percent of any company's shares.

@4 The Chapman proposal broke with such traditions.

Considered riskier

The terms called for the retirement system to loan the Chapman Co. as much as $5 million and to buy another $5 million in preferred stock for a 30 percent share of the small, private firm -- which made its first profit in 1991.

Such alternative investments are generally considered riskier than conventional investments. Small companies tend to be more vulnerable to recessions. And it can be difficult to sell shares of companies not traded in public markets such as the New York Stock Exchange.

In addition to the general concerns about alternative investments, some trustees also worried about political opposition to the Chapman proposal.

The investment had to be approved by the five-member Board of Estimates, which is controlled by Mr. Schmoke. Mr. Chapman had been treasurer for Mr. Schmoke's rival in the 1987 mayoral primary, Clarence H. "Du" Burns.

Chance to do well

But these concerns melted as Mrs. McLean and the consultant assured the trustees they had a chance to do well by doing good. The Chapman proposal promised a 15 percent annual return as well as help for a local company.

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