State's pension board dismisses Chapman's firm

Performance poor

SEC investigating regent's company

February 09, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

The state pension board has dropped a firm run by Baltimore investment manager Nathan A. Chapman Jr. as manager of about $175 million in retirement funds after learning that the company is under investigation by the federal Securities and Exchange Commission.

Chapman Capital Management, whose chief executive is chairman of the University of Maryland Board of Regents and a close ally and financial backer of Gov. Parris N. Glendening, had been expected to be terminated because of poor investment performance.

According to several trustees, the board acted after being briefed by the SEC's counsel, who told them federal regulators were looking into allegations that a fund manager chosen by the Chapman firm had invested state pension money in stock of Chapman's own parent company, eChapman.com.

Trustees were told by their lawyer that the pension fund might have unknowingly paid more than the market rate for the stock, now worth little, they said. "This doesn't pass the smell test," said one trustee, who, like the others, spoke about the closed-door meeting on condition of anonymity.

The board's action came as it also reported that it ended 2001 with $28.4 billion in assets, down 12.8 percent over the past 12 months - performing worse than the Standard & Poor's 500 index.

For eChapman.com, the nation's first publicly traded African-American-owned investment firm, the loss of the state's business represents a potentially fatal blow. The money Chapman Capital invested for the state accounted for about one-fifth of eChapman.com's dwindling revenue last year.

Calls to Chapman and his company seeking comment on the committee action were not returned. Officials of the SEC and the National Association of Securities Dealers said they do not comment on pending investigations.

Yesterday's public firing of Chapman Capital ratified an action taken behind closed doors last month, when board members were briefed on problems at the firm's troubled parent corporation.

News of the initial dismissal was tightly withheld while the fund liquidated much of the portfolio that had been managed by Chapman Capital. As of last night, even the governor's office had not been informed, according to Glendening spokesman Michael Morrill.

The $174.4 million managed by Chapman Capital was a small part of the state pension fund. Board members estimated the state's loss on its eChapman stock was in the hundreds of thousands of dollars - not enough to endanger any retiree's pension, but another embarrassment for a system whose investments are down about $4 billion over the past 18 months.

Board members also learned yesterday that the fund's losses on its investments in Enron Corp. stock and bonds come to about $30.1 million - far less than the losses in Enron of some other big public pension plans.

Chapman Capital was entrusted with state money to invest through smaller minority money managers, who were to seek out domestic emerging companies - many minority-owned. Together, those funds made up the Chapman Minority Trust, in which the pension system is the largest investor.

According to one pension board member, the Chapman Trust accumulated about 30 percent of eChapman.com's stock - making the state fund one of the company's largest shareholders.

It was not clear yesterday whether the board had been able to liquidate the part of Chapman Capital's portfolio invested in eChapman.com stock. Shares were trading at 25 cents yesterday.

Chapman Capital's record as a money manager has long been debated within the pension board, but the firm had withstood attempts to fire it. The firm's recent performance had it on the chopping block even before the SEC news.

Over a three-year period, the term the board uses to judge whether to renew a money manager, the firm lost 2.2 percent of assets, compared with a benchmark of a 0.4 percent gain. Over the past year, the Chapman trust lost 18.8 percent of its value while the S&P 500 was dropping 11.9 percent.

Nathan Chapman left a meeting of university regents yesterday half an hour into its public session at the University of Maryland, Baltimore County, saying he needed to attend a birthday celebration for his daughter. That board then met at length behind closed doors after its public session.

Morrill said the governor didn't know enough to say whether Chapman's service on the regents would be affected. Glendening "doesn't know if it has any validity or any bearing on anything that he's involved with," Morrill said.

A review of the eChapman.com stock shows that its value fluctuated sharply over the past three months. The per-share price dipped to about 25 cents around Christmas, then suddenly peaked at nearly $2 in late December and early January. Since then it has steadily declined to its current level.

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