Investors say Chapman falsely listed them as venture underwriters

At trial, two recall shock on seeing wishes ignored

July 01, 2004|By Stephanie Hanes | Stephanie Hanes,SUN STAFF

Executives at two investment firms said yesterday that they told Nathan A. Chapman Jr. they could not be involved in his new Internet company -- and were later shocked to see that they were falsely listed as underwriters for the high-risk venture.

It all happened at the tail end of the bubble in 2000, they testified, not long after Chapman, a well-known African-American investment banker, had started calling contacts hoping to convince investors to underwrite his newest undertaking -- the public offering of his online brokerage.

As part of that effort, Chapman spoke to Howard Mackey, of the firm M.R. Beal & Co., and to Malcolmn Pryor, of Pryor, Counts & Co., and asked for help, the two men testified.

Mackey and Pryor said that although they were excited about a minority-owned Internet company going public, they told Chapman they could not support his venture because it did not fit in with their traditional investment strategies.

"We had made it clear that we had not agreed to participate, were not going to participate," Mackey told the jury.

Yet both firms found their names on the venture's list of underwriters, investment banks that have pledged to buy shares in the new company.

The list is a public record used to demonstrate investor confidence in the venture.

To federal prosecutors, the list is an example of the fraud that surrounded Chapman's efforts to make his Internet company public.

To the defense, the inaccuracies were simply a mix-up or, at worst, a matter for civil courts to resolve.

Chapman is standing trial in U.S. District Court in Baltimore on charges that he defrauded the Maryland employee pension system and other clients.

Prosecutors have said the fraud took place as Chapman tried to save his failing company,

Defense attorneys have said his efforts were the legal acts of a dedicated businessman struggling to survive a market bust.

Mackey and Pryor said their experiences with Chapman in 2000 were unlike anything they had encountered in decades of investment work.

They said they never signed an agreement to be underwriters for Chapman and never returned any of the forms typically associated with underwriting. Neither company wanted the liability of being responsible for shares of high-risk Internet stock, they said.

Yet they kept receiving correspondence -- and in once case, stock shares -- from the Chapman company as if they were underwriters.

Defense attorney William R. "Billy" Martin suggested that there had been an error.

"Have you uncovered any evidence to show that this was anything but a mistake?" Martin asked Mackey.

There was a long pause.

"Are you asking what I think or what I uncovered?" Mackey responded.

"What you uncovered," the defense lawyer said.

"No, I have not uncovered anything," Mackey said.

Prosecutors are scheduled to continue presenting their case today.

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