Lawyer says pension trader did not churn client accounts

He denies that Bond tried to run up commissions

October 05, 2002|By Michael Dresser | Michael Dresser,SUN STAFF

Breaking weeks of silence, the lawyer for convicted swindler Alan B. Bond said yesterday that his client didn't try to run up commissions while trading stocks for the state pension system, as some experts have suggested.

Lawyer Jeffrey Pittell acknowledged that Bond's "aggressive" trading under the supervision of Baltimore money manager Nathan A. Chapman Jr. could be seen as evidence of "churning" - the fraudulent practice of trading excessively solely to generate commissions.

But Bond didn't do that, Pittell said.

"He wasn't churning the accounts. No client has ever accused him of [that], at least as far as I know," Pittell said. "None of the criminal allegations charge that he defrauded his clients by churning."

Records obtained from the state pension system show that Bond's Albriond Capital Management bought and sold the same stocks repeatedly, The Sun reported this week.

In some cases, he traded the same stock for the pension fund account more than 50 times within a six-month period. Often, he bought a block of stock only to dump it at nearly the same price within days - or even on the same day.

Chapman, until he was fired in January, was a money manager for the $27 billion pension system who hired "sub-managers" to invest hundreds of millions in system assets. Bond's firm was one of the sub-managers Chapman chose and supervised.

Pittell said that all of Bond's clients, including Chapman, were fully informed of his stock market transactions.

"If there was a problem, the clients should have notified him," Pittell said.

The Sun previously reported that Bond, while under Chapman's supervision, used more than $5 million in pension money to buy stock in companies controlled by Chapman. Pittell declined to discuss those transactions, which are the subject of investigations by federal prosecutors, the Securities and Exchange Commission and state securities regulators.

Bond was convicted in June of federal fraud charges of "cherry-picking" his stock market transactions. Prosecutors showed that he assigned the profits from favorable trades to his own account while steering the losses from bad trades to his clients, including a fund managed by Chapman.

Prosecutors estimated the loss to the Chapman fund at $40 million - the largest share of which would have been Maryland pension system dollars. During that same period, Bond increased the value of his own brokerage account by $6.6. million, according to the indictment.

Bond remains jailed in New York awaiting sentencing. He is still to be tried on charges filed in 1999 that he took kickbacks from brokers.

Pittell, a lawyer in Great Neck, N.Y., declined to discuss the cherry-picking case. He did address the suspicions of churning raised by securities experts in a Sun article earlier this week.

He said Bond followed a strategy of aggressively trying to anticipate market swings. And he said much of the trading can be explained by an agreement under which Bond had to remain fully invested in stocks instead of keeping a cash reserve. Each time Bond sold a stock, he had to buy another, Pittell said.

"That's why the portfolio turnover ratios might seem high and someone looking at it might think it's churning," he said.

Pittell noted that Bond was not compensated on the basis of how many shares he traded. He said prosecutors had not raised churning as an issue in the trial and denied his client had been "in cahoots" with Neuberger Berman, a brokerage firm that has been sued by victims of the cherry-picking fraud.

Maryland pension officials have said they did not know about Bond's aggressive trading and had relied on Chapman to monitor his activities. Chapman has declined to comment except to deny that Bond had been churning.

Steven Gershman, a certified securities fraud investigator with the Towson-based firm of KAWG&F, said the trading records of Bond's firm should have put Chapman on notice that something was wrong. Even if churning was not the intent, he said, the records should have prompted a question.

"There's only one question you could ask: `Why are you buying and selling so much?' " he said.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.