Firm seeking city funds had wild ride in '93

April 28, 1994|By This article was written and reported by Sun staff writers Kim Clark, JoAnna Daemmrich and David Conn.

The Chapman Co., which last year assured city officials it would be a safe place to invest up to $10 million in pension money, lurched on a wild financial ride in 1993 -- from heady expansion to layoffs and losses.

By year-end, the local brokerage company, which had promised the city double-digit annual returns, had lost $438,000. Most of the desks in the company's new, marble-decorated office atop the World Trade Center -- labeled by employees the "Taj MaChapman" -- were empty. And the company's capital had fallen drastically, threatening its authority to trade stocks, according to a filing with the Securities and Exchange Commission.

That volatility, say nearly a dozen current and former employees, raises questions about the city's proposed investment in a small, privately held company with a spotty record of profits.

Even some supporters of company President Nathan A. Chapman Jr., including Chapman Co. investor Samuel Hopkins, concede that the deal could be in conflict with laws requiring pension funds to make only "prudent" investments. While Mr. Hopkins favors the deal, he says it can only be justified if the city looks beyond the financial return and considers benefits such as strengthening minority-owned companies.

The company's financial problems have surprised top city officials, who were unanimous in supporting the deal last year. Many officials, including Mayor Kurt L. Schmoke and Council President Mary Pat Clarke, are now counting on another look at the proposal to help them determine its fate.

"The entire proposal must be reviewed again by the [pension] trustees," Mr. Schmoke said. "The strength of the business and the judgment of Mr. Chapman are matters that the trustees will have to look into."

Mr. Chapman says that his company bounced back to profitability this year and that the city's investment is still justified. "In many ways, the company is much better off" -- having proved its resilience -- than it was when the city first considered the investment, he said.

He blames his company's losses on the city's failure to release the $10 million after the deal won unanimous -- but conditional -- approval in March 1993. Last year's ambitious expansion was designed to take advantage of the money, Mr. Chapman said, adding, "I thought it was a done deal."

Described by acquaintances as a master salesman, Mr. Chapman is glib, forceful, hard-working and always optimistic.

In fall 1992, as he prepared to ask the city pension board to invest in his company, he had reason to be buoyant.

His shrewd idea -- creating a brokerage company that specializes in serving minority businesses and investors -- appeared to be turning into gold. He had fought through the investment industry's old-boy network to create a growing and, finally, profitable company.

A 'Great salesman'

Even those who might have reason to be critical of him praise his accomplishments. John B. Slaughter II, a Wheat First Securities broker who was fired from his Chapman Co. job in 1989, says Mr. Chapman "is a great salesman and had a great idea."

But the seeds of the company's expansion and near-disaster were planted at the same time: when Mr. Chapman proposed the multimillion-dollar investment by the city pension board.

Those familiar with Chapman Co. finances, including employees and stockholders, such as Mr. Hopkins, say the company lost hundreds of thousands of dollars last year because Mr. Chapman had convinced himself the city would provide the money long before he persuaded the city.

Most of the current and former employees who agreed to be interviewed did so only on condition that they not be identified, because they were concerned about jeopardizing their jobs with Chapman Co. or with new employers.

A Concerned about safety

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.

City trustees -- who handle about $2 billion in pension funds -- are so concerned about safety that they require those managers to invest only in companies with "long and prosperous reputations" and to hold no more than 1 percent of any company's shares.

So Mr. Chapman had a tough selling job in asking the city to make a large investment in a company with a relatively short -- and not very prosperous -- history.

Helping Mr. Chapman's cause was a new ally on the pension board. The chairmanship had recently been taken over by Baltimore Comptroller Jacqueline F. McLean.

Mrs. McLean had won election to the third-highest position in city government in 1991 on a platform of encouraging minority businesses like Chapman Co. And she had strong financial support from black business leaders, including Mr. Chapman -- one of her biggest fund-raisers -- and his employees and friends.

Despite the uncertain prospects for his deal with the city, Mr. Chapman immediately started acting as though the money was in his pocket.

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