Chapman unlikely to testify as fraud trial nears close

Move means case could go to the jury Thursday

July 27, 2004|By Michael Dresser | Michael Dresser,SUN STAFF

Nathan A. Chapman's defense team has apparently decided not to put the Baltimore investment banker on the stand as it winds up its case in his marathon federal fraud trial.

The decision comes in spite of a ruling yesterday by U.S. District Judge William D. Quarles that essentially told Chapman's lawyers they could raise a key line of defense only by letting their client testify.

After a day of testimony that left both sides' mathematical skills in question, Chapman attorney William R. "Billy" Martin told Quarles the defense would wrap up its case today with testimony from two witnesses -- neither of them Chapman.

The move means the case is likely to go to the jury Thursday after 2 1/2 hours each of arguments by the prosecution and the defense.

Chapman, a former chairman of the state university system Board of Regents and a longtime ally of former Gov. Parris N. Glendening, is accused of multiple counts of fraud along with other charges.

Prosecutors allege that Chapman, who handled investments for the Maryland state employees' pension fund, swindled the retirement system out of millions of dollars by instructing a money manager he supervised to buy stock in companies Chapman controlled.

Other counts allege that he looted his companies by taking more than $500,000 in so-called "business development" checks and using much of the money for personal expenses including payments to mistresses.

Quarles handed prosecutors an important victory yesterday by ruling that the defense couldn't call witnesses to testify that Chapman might have allowed the investment of state pension money in his companies because of an honest misunderstanding about a Securities and Exchange Commission rule governing mutual funds.

Quarles accepted prosecutors' arguments that the rule did not apply to Chapman's investments on behalf of the pension system, which did not involve a mutual fund. The judge indicated that he would have allowed Chapman to raise the claim of a good-faith error. But taking the stand would expose him to wide-ranging cross-examination.

Yesterday's key witness revealed embarrassing errors in one of the most high-profile prosecutions brought by U.S. Attorney Thomas M. DiBiagio.

Charles Lundelius, a certified public accountant, testified that he found errors in a prosecution exhibit showing cash deposits by two of Chapman's acknowledged mistresses.

Calculator in hand, Lundelius showed that the government overstated the deposits -- alleged to have come from Chapman's corporate coffers -- by nearly $30,000 because of poor addition. "It's simple mathematics," he said.

But the witness seemed to stumble when he alleged that an FBI agent had included nonexistent "phantom" deposits -- along with others that were overstated -- in his report on the women's banking activity.

Under cross-examination by Assistant U.S. Attorney Jefferson M. Gray, Lundelius said he had not examined the deposit slips. Several times, Lundelius withdrew his charges after being confronted with records that explained the apparent discrepancies.

The prosecution also tore into the defense contention that payments to Chapman's mistresses could have come from $203,000 in ATM withdrawals from Chapman family bank accounts over a 4 1/2 -year period. Lundelius, who said he was being paid almost $40,000 to testify, admitted he didn't determine whether the withdrawals were made by Chapman or by his wife, Valerie.

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