How a speculative frenzy embarrassed Charles Co.

August 15, 1994|By Joel Obermayer | Joel Obermayer,Sun Staff Writer

LA PLATA -- Last September when Frank Hamilton, the day bartender at Casey Jones Restaurant, was looking for a little financial advice, he turned to a lunchtime regular, Charles County Deputy Treasurer Stephen R. Johnson.

"I was thinking about refinancing my mortgage, and Steve said I should wait because interest rates were going down," Mr. Hamilton said. "He'd been reading up in financial journals. 'I don't want to give you advice,' he told me, 'but you ought to wait.' "

Mr. Johnson was more than just a bar-stool adviser -- at the time he was already backing up his words by investing $30 million of the county's money in speculative securities that are highly sensitive to interest rate swings, Charles County officials say.

Working virtually unsupervised because of his boss' extended illnesses, Mr. Johnson churned the money, making huge bets about the direction of interest rates, the officials say. In a single account, he made 128 trades worth $154 million in a 14-month period, says Samuel Ketterman, a Baltimore financial adviser hired by Charles County to sort out the investments.

But, officials say, Mr. Johnson's bets went bad. By July, when county commissioners figured out what was going on, he already had lost an estimated $2.8 million and had tied up the county's funds in his investments so thoroughly that the county was running out of cash to pay bills, officials say.

"He must have had a real juggling act, trying to keep track of what was coming and what was going," Mr. Ketterman said. "I've never seen anything like it."

After the flawed investment strategy was exposed, Mr. Johnson was fired. His boss, county Treasurer Thelma Bowie, resigned last week, citing health problems. And county officials are suing nine brokerage firms to have the trades reversed.

Mr. Johnson -- who has filed as a Democratic candidate for treasurer -- could not be reached for comment.

Some area residents say they aren't surprised by a scandal in local government. In the spring, an employee was convicted of stealing $2,000 from the treasurer's department. In 1993, the county administrator was caught pocketing fees at the county golf course, was fired, convicted of theft and ordered to pay more than $155,000. And a year earlier, a prominent landlord was jailed for collecting thousands of dollars in rent on rural homes owned by the county.

"I'm not surprised -- how could you be, with all the stuff that goes on down here," says Mike Meissner, who runs Murphy's convenience store in Port Tobacco.

Charles County, a largely rural county where John Wilkes Booth came to get his broken leg fixed after he shot President Abraham Lincoln, is trying to outgrow its roots these days.

In the southern part of the county, plantation-style manor houses co-exist with shanties. Farming, especially tobacco, is still a way of life, and the telephone book lists many extended families that trace their roots to Colonial times.

Meanwhile, northern sections of the county -- which has a population of about 110,000 -- are attracting "city people," who live in large, planned communities and commute to jobs in Prince George's County or Washington.

The soft-spoken, 44-year-old Mr. Johnson, who has a degree in history from Frostburg State University, spent about a decade working for small banks before landing a job in the treasurer's office in 1986 as a staff accountant. In the slow-paced office, he helped with the drudgery of processing county property taxes.

Gradually, he became known as a numbers specialist who could bring up figures from a county budget in a snap. And he began to speak the language of high finance. By December 1992, when he was named deputy treasurer, he was virtually in control of the entire department.

Ms. Bowie, 68, county treasurer for nearly 20 years, was often absent because of poor health. She had a leg amputated because of complications from diabetes, broke her hip, suffered from a heart attack and had other cardiovascular problems.

And that gave Mr. Johnson, a $35,000-a-year employee, a chance to begin his risky trading strategy with the county's operating funds, according to various sources.

By county law, the treasurer's office is supposed to put that money, which is used for expenses later in the year, into short-term U.S. government securities -- the most conservative of investments. But, says Mr. Ketterman, now the county's financial adviser, Mr. Johnson started putting much of the money into medium- and long-term speculative investments.

Officials say Mr. Johnson opened more than nine accounts with brokerage companies and started a trading frenzy. The officials estimate the size of the investments at $30 million, although the total fluctuated over time.

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