Timing of deal between banker, Chapman eyed

Pensions sub-manager bought eChapman shares, later got millions to invest

`Quid pro quo' perception

N.Y. man's firm called `top of the list'

steering money as reward denied

September 24, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

Just a month after a New York investment banker paid top dollar to buy stock in a company launched by Nathan A. Chapman Jr., Chapman gave the banker millions to invest for Maryland's pension system - a deal potentially worth more than $45,000, newly released records show.

The banker, Alan Bond, was already handling about $40 million in state pension investments under Chapman's supervision when Bond used $5 million of that money to buy stock in Chapman's new online brokerage, eChapman.com.

Bond paid $13 a share for the stock in June 2000 - $4 more than it ever drew on the open market - and it is now worth pennies a share, The Sun has previously reported.

Records released last week show that in July 2000, Chapman gave Bond's Albriond Capital Management another $10 million in state pension money to invest - in spite of the fact that Bond had been indicted on federal kickback charges seven months earlier. Albriond stood to make about $45,000 a year managing the additional $10 million if the investments did well, though the firm earned less as the stock market foundered.

Chapman denies that steering the extra money to Albriond was a reward for its investment in eChapman.com. "If you look at the best-performing managers I had the year before, Albriond was probably at the top of the list," he said.

But an expert on securities law said the timing of the transactions is troublesome.

"It creates the perception there's been some quid pro quo," said Lisa Fairfax, a professor at the University of Maryland law school. "I would think it would be at least enough to warrant some further investigation."

Bond has been in jail since his conviction in New York as a stock market swindler in June. His lawyer, Jeffrey Pittrell, declined to comment yesterday.

Chapman, who began investing for the Maryland retirement system in 1996, was fired in January after state officials learned that the Securities and Exchange Commission was investigating the use of pension funds to buy stock in companies he controlled. The U.S. attorney's office in Baltimore has since launched an investigation.

The probes are sensitive because Chapman is a friend and political supporter of Gov. Parris N. Glendening, who named him to the state university system's Board of Regents and successfully pushed for his selection as chairman. He is still chief executive of eChapman.com, which continues in business, though its stock has been removed from the Nasdaq trading list.

Chapman, 45, operated a so-called "fund of funds" for which he chose a group of minority "sub-managers" who made the investments on behalf of the state pension system. The $27 billion system provides benefits for 89,000 retired state employees and teachers.

He said Bond had been investing in companies he controlled since 1998, when Albriond bought $560,000 worth of stock in the initial public offering of Chapman Holdings Inc. Chapman acknowledged that he did not seek the pension board's prior approval of the transactions but insists he was under no obligation to do so.

Albriond's ownership of that stock, as well as its later holdings in eChapman.com, was listed in Chapman's reports to the pension board. Chapman contends that disclosure "cured" any conflict of interest.

Disclosure overlooked

Pension system officials said their staff overlooked the reports' disclosure of the investments in Chapman's companies. But they said Chapman should have asked their permission before allowing a sub-manager to invest in his companies.

In December 1999, Bond was indicted in New York on kickback charges, but Chapman kept Albriond as one of about a dozen money managers investing pension money. Bond has not been tried on those charges.

Chapman said he kept Albriond after that indictment because Bond gave him "reasonable explanations" for the charges he faced.

"He would hardly be the first minority to be indicted [and] to later be found innocent," Chapman said. He said he discussed that decision with Maryland pension officials at the time, and they did not object. "I gave them what my thinking was on the issue, and I didn't hear any more about it," Chapman said.

Chapman said he fired Albriond after Bond was indicted in August of last year in an illegal "cherry-picking" scheme. Federal prosecutors contended that Bond kept the proceeds of good trades for himself and apportioned losses to clients, including the Maryland pension fund.

By that time, Chapman said, Albriond's performance had declined, and Bond could not be reached. He and Bond have not talked since then, he said.

Bond, a one-time regular on Wall Street Week with Louis Rukeyser, was convicted of the cherry-picking charges in June. His sentencing, scheduled for Sept. 9, was postponed, raising speculation that Bond might seek to cut a deal.

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