Chapman guilty of defrauding pension system and investors

Banker convicted on 23 counts but is cleared of seven others

August 13, 2004|By Michael Dresser | Michael Dresser,SUN STAFF

Investment banker Nathan A. Chapman Jr., who once moved in Maryland's highest political circles, was convicted in federal court yesterday on 23 counts of fraud and filing false tax returns.

Jurors concluded that Chapman, 46, was innocent of seven additional counts and could not reach a verdict on two others.

After seven weeks of testimony and two weeks of deliberations, the U.S. District Court jury decided that Chapman had defrauded both the Maryland state employee pension system and his shareholders. U.S. District Judge William D. Quarles Jr. allowed Chapman to remain free and scheduled sentencing for Nov. 1.

U.S. Attorney Thomas M. DiBiagio, whose office prosecuted the case, said that Chapman had "betrayed the trust" of the pension system, his investors and his employees.

"He did it because he could. He did it because he didn't think anyone would stop him. He was wrong," DiBiagio said.

DiBiagio said he could not estimate how severe a punishment Chapman faces because recent court decisions have raised questions about federal sentencing guidelines. The maximum sentence on each fraud count is five years and a $250,000 fine; the maximum penalty for false statements is three years and a $100,000 fine.

Chapman, a former chairman of the state university system's Board of Regents and a political ally of former Gov. Parris N. Glendening, is one of Maryland's most prominent African-American business executives. He was found guilty by a jury made up of 10 whites and two blacks - seven of them men, five women. The defense has accused prosecutors of improperly excluding black women from the jury.

Chapman stays quiet

As the jury foreman read out the verdicts shortly before noon, Chapman remained poker faced. When he left the courthouse in downtown Baltimore, he strode through a crowd of reporters and photographers without commenting.

Lead defense attorney William R. "Billy" Martin said his client was "extremely disappointed" by the verdict and promised an appeal.

"Mr. Chapman walked into this courtroom with his head held high. He walked out of this courtroom with his head held high," the lawyer said.

Martin said he talked with several jurors after the verdict and thinks they were confused about the distinction between breaches of financial responsibility and criminal activity. The jurors collectively declined to speak with reporters.

Many of the charges against Chapman, who had been hired by the state pension system to make investments, stemmed from the use of pension money to buy stock in his companies. The retirement system lost virtually all of that money as the companies faltered.

The jury fixed the amount of the loss at just more than $5 million and said Chapman had abused a position of trust by approving the investments - factors that could affect his sentence. The investments were made by Alan B. Bond, a New York money manager whom Chapman hired.

Prosecutors argued that Chapman pressured Bond to buy the stock and said the transactions were a flagrant breach of the two men's duty to put the pension fund beneficiaries' interests ahead of their own.

The trial focused in particular on Bond's purchase in June 2000 of 175,000 shares in Chapman's online brokerage company,, after other potential buyers declined.

Bond, who is serving a prison term in a separate fraud case, testified that Chapman pressured him to use pension money to buy the stock for $13 a share at a time when it was trading for $7.

Whistleblower praised

A former Chapman employee, Sonya Mitchell Marsh, testified that purchase orders were backdated to justify the higher price. Prosecutors said the transaction cost Chapman's and Bond's clients $1 million in one day.

DiBiagio singled out Marsh for praise yesterday, saying she had "the conscience and the courage to step forward" and blow the whistle on Chapman.

The government also charged Chapman with a second fraudulent scheme in which he took more than $500,000 in "business development" checks from his companies and used the money for personal expenses, including more than $200,000 in payments to mistresses.

Prosecutors put two of the women on the stand to testify that Chapman gave them expensive gifts and cash to cover their living expenses.

One of them was Debra B. Humphries, who at the time of their relationship was a Maryland pension system trustee.

Prosecutors charged that their affair deprived the retirement system of her honest services. They charged Chapman with mail fraud based on false financial disclosures she sent to the State Ethics Commission. Chapman was acquitted of those charges.

The government also charged Chapman with filing false tax returns for five straight years by failing to report the business development money as income. He was convicted of two of those counts.

Charges of witch hunt

The defense countered by attempting to put the government on trial.

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