Witness describes investment funds misuse

Convicted money manager testifies against Chapman

July 08, 2004|By Michael Dresser | Michael Dresser,SUN STAFF

Once the toast of Wall Street, Alan B. Bond still speaks in the imposing voice in which he commented on stock market trends as a television personality during the 1990s.

Yesterday that voice was heard in a far different venue - a federal courtroom in Baltimore where the convicted swindler described several years of using other people's money to benefit himself and Baltimore investment banker Nathan A. Chapman Jr.

Bond, 42, is a star witness in federal prosecutors' effort to prove that Chapman committed fraud by using his position as a money manager for the Maryland pension system to have state pension funds invested in companies he controlled.

The Harvard-educated Bond led an investment firm that managed money under Chapman's supervision. Appearing chastened by the fall from grace that landed him in federal prison, Bond testified that Chapman pressured him to buy stock in a Chapman company and said he could use state pension money to do so.

"I said, `Nate, are you sure? This is a potential conflict of interest,'" Bond said. He added that he carried out the purchases after Chapman assured him the investment was OK with his client.

Bond, who testified under a grant of immunity from prosecution for Chapman-related offenses, said he knew the investments were a violation of his fiduciary duty to his clients. "I was acting in my own best interest," he said. "I was acting in Mr. Chapman's best interest."

Bond said he reluctantly gave in to Chapman's pleas to invest clients' money in the February 1998 initial public offering of Chapman Holdings Inc. because he was trying to "manage the relationship" with Chapman.

From 1996 to 2002, Chapman operated a "fund of funds" in which money managers he chose invested money for the pension system. Bond was hired in 1997. "We were very pleased to have him as a client," Bond said.

Bond, who is serving 12 1/2 years for fraud, told the jury he was less pleased at the prospect of investing in three initial public offerings that Chapman launched between February 1998 and June 2002.

He testified that each time, Chapman put heavy pressure on him to buy hundreds of thousands of shares. After reading the prospectus for the first IPO, Bond said he concluded that it wouldn't be a "hot" stock.

Nevertheless, Bond said, he acquiesced to Chapman's wishes and ultimately bought nearly 300,000 shares in Chapman Holdings. He said he placed most of the shares in the pension funds of two Washington-area transit union locals but assigned 70,000 shares to a Chapman fund in which the Maryland pension system was the largest investor.

Bond said he asked Chapman whether it might be seen as a conflict of interest to use the pension money to buy Chapman stock. He said Chapman gave him permission to do so, telling Bond he had confirmed with a female trustee of a large client that it was acceptable.

Among other charges, Chapman is accused of defrauding the state pension system - the largest client of his investment fund - by depriving it of the honest services of Debra B. Humphries.

Humphries has admitted receiving cash payments and gifts from Chapman during a secret sexual relationship with him while she was serving on the pension board. Chapman, who is married, is also charged with looting his publicly traded companies to finance his affairs with Humphries and other women.

Bond said he also had misgivings about two subsequent Chapman IPOs but that in both cases he invested clients' funds in the stock. He said he felt added pressure to invest in the June 2002 offering of eChapman.com, an online brokerage company, because Chapman was one of a half-dozen clients who stuck with him after he was first indicted in 1999.

The former New York trader said the investments in Chapman stock - a departure from his investment strategy - contributed to his firing by his union clients.

In 2002, he was convicted by a federal jury in New York in one fraudulent scheme and pleaded guilty in a second. Apparently anticipating a withering cross-examination, Assistant U.S. Attorney Jefferson M. Gray led Bond through an unsparing airing of his dirty laundry, including a federal judge's finding that he lied at his trial.

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