- The Washington Times - Thursday, June 26, 2003

The former chairman of the University of Maryland Board of Regents has been charged with fraudulently investing more than $5 million of state pension funds in his own company, the U.S. Attorney’s Office announced yesterday.

Nathan Chapman Jr., an investment banker with ties to former Gov. Parris N. Glendening, also “looted” $437,000 from three companies he ran and used the money to buy things for women he had “intimate relations with,” U.S. Attorney Thomas DiBiagio said.

Pension board trustee Debra Humphries also was charged in a separate indictment with perjury, for lying to a grand jury investigating gifts and payments Mr. Chapman gave her.

Mr. DiBiagio declined to comment on whether further indictments would follow, but said the investigation will continue.

“He used his position as an investment manager to enrich himself at the expense of the pension system,” Mr. DiBiagio said, announcing the 39-count indictment against Mr. Chapman, which included mail fraud, wire fraud, securities fraud and conspiracy charges.

Prosecutors said Mr. Chapman pressured one of his managers to invest more than $5 million from the pension fund in Mr. Chapman’s online investment-management and services company, EChapman.com — now called EChapman Inc. — in an attempt to boost the fledgling firm during an initial public offering. The indictment says the investment was a breach of fiduciary duties and resulted in the state pension fund immediately losing $1 million.

Mr. Chapman, 45, managed between $87 million and $259 million of the state’s $29 billion pension system before he was fired. The system, which is responsible for the pensions of more than 250,000 teachers, police officers, firefighters and other government workers, lost $4.7 million before Mr. Chapman’s investment firm was liquidated, Mr. DiBiagio said.

Mr. DiBiagio said one of the women received $246,000 in cash and gifts, including a car and a motorcycle. Mr. Chapman is also charged with giving Miss Humphries $46,000 in cash and gifts.

The U.S. Securities and Exchange Commission has also filed civil charges and a lawsuit against Mr. Chapman and three associates.

The maximum penalty for each of the mail fraud, wire fraud, investment advisory fraud and conspiracy charges Mr. Chapman faces is five years in prison and a $250,000 fine. The securities fraud count carries a maximum of 10 years in prison and a $1 million fine. If convicted, Mr. Chapman could also be required to pay back the money lost by the pension system and other clients, Mr. DiBiagio said.

Mr. Chapman, who hasn’t been arrested, is expected to appear for arraignment next Thursday, prosecutors said.

“We are confident that when all facts are fully aired, Mr. Chapman will be found innocent of these charges,” said attorney Lanny Davis, former special counsel to President Clinton and head of Mr. Chapman’s legal team. “He is proud of his accomplishments and has faith in the future.”

A Chapman spokeswoman said he will continue to run his businesses, but refused to comment on his relationship with Miss Humphries or the other charges.

A key part of the U.S. attorney’s probe has been the investment of millions of dollars of pension funds by a fund manager supervised by Mr. Chapman in companies controlled by Mr. Chapman.

The indictment charges Mr. Chapman with compelling the manager, Alan Bond, to buy stock in EChapman Inc. — formerly EChapman.com — using state pension funds, and filing false documents with the SEC.

Bond, who purchased much of the Chapman stock for the pension system, has since been sentenced in New York to 12 years for unrelated investment fraud.

Mr. Chapman invested money for the pension fund from 1996 until he was fired in January of last year, after trustees learned of an SEC investigation. Mr. Chapman also resigned last year as chairman of the state university system’s Board of Regents, although he continues as a member.

In addition to managing pension funds, Mr. Chapman was also hired to find minority-run investment firms for the state pension system. Among those chosen by Mr. Chapman, who is black, was Bond, who also is black.

Mr. Chapman is also charged with concealing Miss Humphries’ conflict of interest from the pension system board through false filings with the state ethics commission, Mr. DiBiagio said.

The SEC said its lawsuit against Mr. Chapman is in connection with the June 2000 initial public offering and later trading in EChapman.com. The lawsuit, filed yesterday in U.S. District Court in Baltimore, seeks anti-fraud injunctions, penalties, restitution and to bar Mr. Chapman and three associates from serving again as officers of public companies.

The SEC also named Earl Bravo, 55, of Baltimore; Demetris Brown, 47, of Woodstock; and Daniel Baldwin Jr., 46, of Randallstown. All three are executives in the Chapman companies.

The SEC charges that in an effort to rescue EChapman’s failing IPO, the four fraudulently backdated trades and placed nearly one-third of the IPO shares in the accounts of an advisory client. The SEC said the state pension system and investors lost millions of dollars because of the actions.

The Maryland Securities Division also filed a complaint yesterday, seeking restitution for investors in EChapman’s IPO, penalties, and the revocation of brokerage and investment-adviser licenses for Mr. Chapman, two associates and his companies.

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