Stock purchases concern legislators

Former pension fund money manager still plans to lead regents

`Unfortunate' timing

March 23, 2002|By Michael Dresser and Alec MacGillis | Michael Dresser and Alec MacGillis,SUN STAFF

Leading legislators said yesterday that they were troubled about questionable transactions by managers chosen by Baltimore investment banker Nathan A. Chapman Jr. when he was investing money for the state employees' pension fund.

Some called for his resignation as chairman of the University System of Maryland's Board of Regents because of the purchase of shares in a company he controlled using pension money - a transaction they called a conflict of interest.

Chapman, the board's chairman since 1999, said yesterday that he plans to remain in the post and sees no link between that position and his business activities.

Lawmakers said they were concerned about a report in The Sun describing how money managers selected by Chapman to invest funds for the state pension board used $5.1 million of that money to buy stock of eChapman.com at a price far higher than it ever fetched on the open market.

"If the allegations are true ...," said Sen. Robert R. Neall, a leading General Assembly supporter of the university, "he has to step down."

The Anne Arundel County Democrat said there appears to be "substantial evidence of improper behavior" and urged a thorough investigation.

Other leading Democrats were less certain that Chapman's actions as a pension fund money manager - a role that ended with his firing in January - should affect his service on the Board of Regents.

A fellow regent lamented the timing of the revelations - coming as the board is in delicate negotiations to lure William E. "Brit" Kirwan, the former president of the University of Maryland, College Park, back to the system as chancellor.

Yesterday, Regent Joseph Tydings, a former U.S. senator, called the investigation into the Chapman stock purchases "unfortunate." Tydings stopped short of calling for Chapman to step down as chairman, noting that elections for board officers will be held in August.

"The whole thing is most unfortunate for everyone concerned - the system, the regents, Mr. Chapman," Tydings said.

The stock in eChapman.com, purchased by two money managers for Chapman Capital Management, cost the pension fund $13 a share. It closed yesterday at 16 cents, exposing the $27 billion retirement system to the potential loss of more than $4 million.

Senate President Thomas V. Mike Miller noted that Chapman's actions are under investigation by the federal Securities and Exchange Commission.

"I find the actions extremely troubling. I don't know that there's a correlation between what his company is alleged to have done and his role on the Board of Regents," Miller said.

Del. Howard P. Rawlings, chairman of the House Appropriations Committee, said Chapman should remain on the Board of Regents while the transactions are under investigation.

"The issue of whether he remains as head of the Board of Regents is whether he has done anything illegal or unethical," the Baltimore Democrat said.

Sen. Barbara A. Hoffman, chairwoman of the Budget and Taxation Committee, said the investment in e.Chapman.com stock was "conflicted on its face." The Baltimore Democrat said it was up to the governor and the Board of Regents to say whether Chapman should give up his unpaid state position.

Republican lawmakers didn't hesitate to suggest the resignation of Chapman, a longtime ally of Gov. Parris N. Glendening who named Chapman to the board in 1995.

"It appears to be a clear conflict of interest," said House Minority Leader Alfred W. Redmer Jr. He said that if the account in The Sun is true, Chapman should resign.

The report was based on documents obtained from the state pension board under the Freedom of Information Act. Chapman has agreed that the transactions took place, but denied they constitute a conflict of interest.

Chapman questioned the motives of some of his critics.

"Being the first African-American chairman and the youngest chairman of the Board of Regents is very difficult," he said. "There are people who are extremely supportive and sometimes people who seek to undermine your position."

Michael Morrill, a Glendening spokesman, said he had no opportunity to speak with the governor about Chapman yesterday because Glendening was tied up in negotiations with Peter G. Angelos about attorney fees in the national tobacco settlement.

The revelations come as Chapman and other regents are trying to wrap up negotiations with Kirwan, who was offered the chancellorship Monday.

Kirwan, the president of Ohio State University, has said he will decide over the weekend or next week whether to take the offer.

Tydings predicted that Chapman's SEC investigation would not affect Kirwan's decision.

"The timing is most unfortunate, and I'm deeply concerned about it, but I don't feel the publicity will affect the decision of Brit Kirwan," Tydings said. "He knows the state, he knows many of the regents, he's worked with them personally. He'll make his decision based on the whole picture."

Freeman A. Hrabowski III, the president of the University of Maryland, Baltimore County, said he hoped Chapman remains regents chairman.

"Nate has been very supportive of the presidents, he's worked to encourage cooperation among the campuses," Hrabowski said. "I've talked to other presidents and people think he's conducted himself with integrity, that he's doing a fine job."

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