Pension fund probe revived

State records of contracts with stock firm released

Chapman investments at issue

U.S. subpoena may force board members to testify

August 28, 2002|By Gail Gibson and David Nitkin | Gail Gibson and David Nitkin,SUN STAFF

Federal authorities have revived an investigation into the state pension fund's relationship with Nathan A. Chapman Jr., a probe that traces to at least April 2000 when FBI agents interviewed then-state Treasurer Richard N. Dixon about Chapman's activities, records released yesterday show.

A federal grand jury has ordered the State Retirement and Pension System of Maryland to turn over all records related to its contracts with the investment firm operated by Chapman, who is chairman of the University System of Maryland's Board of Regents and an ally of Gov. Parris N. Glendening.

The federal subpoena, issued late last month, signals the latest trouble for Chapman, who was fired in January as manager of about $175 million in state funds after the pension board learned that some of Chapman's transactions were under investigation by the Securities and Exchange Commission.

In particular, securities officials are examining firms that reported to Chapman at the same time they were investing state money in his company, eChapman.com.

Records show the state bought shares of Chapman's company at a price higher than they ever commanded on the open market. The stock later tanked, leaving the $26 billion pension fund with a loss of $5.3 million.

A top official of one of the firms, Alan Bond, was convicted last month in a federal court in New York in an unrelated kickback scheme.

Chapman, 44, did not return phone calls yesterday seeking comment.

Pension fund officials said they are fully cooperating with the probe. "I want to turn over everything. We don't have anything to hide," said Maryland Comptroller William Donald Schaefer, the pension board chairman.

Board members have discussed the possibility that they could be asked to testify before a grand jury, Schaefer said, adding that he knows of no trustees or other officials who have been approached.

But Joseph Coale, a spokesman for the board, indicated that some state pension officials may have been contacted.

"I'm not going to say no, but I can't say yes," Coale said. "The proceedings of a grand jury are supposed to be secret. To the degree we have been asked, we've cooperated, both with documents and personnel."

George R. Tydings, a trustee of the pension board, said an assistant attorney general asked all board members last month to review their files for documents showing any contact with Chapman.

"I wrote back and signed a legal document that said I had no contact with him whatsoever," Tydings said. "I am sure that nobody is going to be hiding anything. I don't think there's anything to hide, except for disappointment."

Schaefer and state Treasurer Nancy Kopp said the pension board was starting the process of hiring attorneys to recoup losses from the Chapman investment and others.

The scope of the federal probe was unclear yesterday. The grand jury subpoena, first reported yesterday in the Washington Post, indicated that investigators were interested in transactions in which firms selected by Chapman used pension funds to buy stock in eChapman.com that led to the $5.3 million loss.

Officials with the U.S. attorney's office in Baltimore did not return phone calls seeking comment. Special Agent Barry A. Maddox, a spokesman with the FBI's Baltimore field office, said he could "neither confirm nor deny" the pension fund investigation.

Records released yesterday by the pension board show that investigators first raised questions about Chapman's dealings with the state pension fund nearly two years ago, soon after Bond was indicted.

In summarizing key events surrounding the loss of the Chapman-controlled funds, a state audit report noted that on April 14, 2000, during a closed meeting of the pension board's investment committee, "Mr. Dixon stated that the FBI had questioned him about Chapman."

The report offered no details, and Dixon said yesterday he had little recollection of the agents' questions. Dixon, who as treasurer was one of the most powerful figures in state government, also served as chairman of the pension board.

"It's been so long ago. It was just general questions," Dixon said. He said he had not been questioned recently.

Asked whether the FBI agents asked generally about the fund's investments, Dixon said: "No." Asked whether FBI agents asked directly about Chapman's activities, Dixon said: "Yes."

In mid-2000, Dixon succeeded in getting the pension board to cut the allotment of funds to be invested by Chapman's firm by $100 million, roughly half of the total the company had been investing for the state at the time.

But two months later, the board voted - over Dixon's objections - to restore Chapman's funds. A former adviser on the board's investment committee, Howard P. Colhoun, has said he believes that reversal came after Chapman enlisted the support of Glendening administration officials. The governor's office has denied any involvement.

This is the second high-profile investigation of a state agency launched in recent months by U.S. Attorney Thomas M. DiBiagio.

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