A June 29 article on the trial of investment banker Nathan A. Chapman was accompanied by a photograph showing him with lawyer Lanny Davis last summer. Davis no longer represents Chapman. At his trial on securities fraud and other charges, Chapman is represented by lawyer William R. "Billy" Martin. (Published 7/2/04)

A former employee of investment banker Nathan A. Chapman Jr. testified Monday that she was ordered to execute fraudulent transactions of a Chapman company stock in June 2000, as the share price fell sharply in the days after the company went public.

The testimony of Sonja Marsh came more than a week into the federal trial of Chapman, a former chairman of the University System of Maryland Board of Regents, on charges of mail fraud, wire fraud, securities fraud and other crimes.

Authorities have alleged that Chapman improperly arranged for investment money from the Maryland state pension fund, a portion of which he managed, to be used to prop up the price of the company he was taking public.

The buyer in the transactions Marsh described was a company controlled by Alan B. Bond of New York. Chapman had hired Bond's firm, first called Bond Procope Capital Management and later Albriond Capital Management, to invest more than $20 million from the state pension fund.

The indictment alleges that the fraudulent sales of eChapman stocks -- one transaction for 130,000 shares, the other for 45,000 shares -- resulted in an immediate loss of $1 million to Bond's investment portfolio, which included the state pension funds he was managing.

Marsh, who contacted federal investigators after she was fired, testified in U.S. District Court that she was instructed to falsify the sale date for two large transactions after the initial public offering of eChapman, indicating that they transpired when the shares were valued at $13 rather than $7.

Marsh testified that, in the months before eChapman went public, she raised concerns about the valuation of the company, saying the price "was too high to be believable."

Chapman told her not to worry, she said, telling her "he had favors that were going to be called in."

Under questioning from Assistant U.S. Attorney Jefferson Gray, she said that "several people" who persisted in expressing doubts "were terminated."

The stock became available to underwriters June 15, 2000, falling by $4 a share on the first day of trading. Marsh portrayed the offices in the days after as a "frantic" place with a virtual absence of trades taking place. When it opened to the general public June 20, the stock began trading at $9 a share "and it kept going down."

A week later, with pressure mounting on eChapman to settle its accounts, Marsh testified that she received handwritten instructions for a trade from Chief Operations Officer Earl Bravo. The transaction called for the sale of more than 100,000 shares to Bond's firm and was predated with a stock price of $13.

A "very sustained and heated exchange" with Bravo ensued, Marsh testified, but she eventually executed the trade at $13 a share. Another order followed, this time for "30,000 or 40,000 shares" for the same buyer, at the same price. This time she refused, she testified.

In the weeks and months that followed, she said, company employees deflected stockholders who wished to sell, in some cases sitting on orders rather than executing them and in other instances engaging in what she said was known around the office as "shake and bake."

When stockholders called to complain, Bravo and the company's brokers would decline to talk with them, instead transferring them to Chapman's telephone line, where they would be directed to his voice mail. The activity got its name, Marsh said, because "they were shaking the phone calls and baking the stock."

Marsh was fired March 13, 2001. Her termination letter said she had negligently processed trades that lost money for the company. She denied the allegation in court, saying the company's antiquated technology did not allow for trades to be processed expeditiously. She later contacted the federal Securities and Exchange Commission.

The trial resumes Tuesday, when Marsh takes the stand for cross-examination.

Nathan A. Chapman Jr., with attorney Lanny J. Davis last summer, is charged with mail fraud, wire fraud, securities fraud and other crimes.