A key government witness testified Wednesday that investment banker Nathan A. Chapman Jr. promised to give him Maryland state pension money to manage if he bought stock in a company that Chapman was taking public.
Alan B. Bond, an investment adviser whose dealings with Chapman are central to an alleged fraud that cost the state pension fund nearly $5 million, testified in U.S. District Court here after being granted immunity. He was convicted in two unrelated financial crime cases and is serving a prison sentence of more than 12 years.
In five hours of testimony, Bond described the deepening financial ties between his firms and companies controlled by Chapman, who managed more than $100 million in Maryland pension assets.
Bond said that, as his own investment advisory firm struggled, he became increasingly reliant on Chapman's willingness to hire him to manage Maryland pension money. At the same time, he said, Chapman was pressuring him to invest -- sometimes with money from the pension fund -- in eChapman.com and two other companies that Chapman had taken public.
The testimony came in the fourth week of Chapman's trial on charges of wire fraud, mail fraud, securities fraud and other offenses. Prosecutors allege that Chapman, the former president of the University System of Maryland Board of Regents, compelled Bond to buy eChapman.com stock with pension funds despite restrictions that should have prevented such investments.
In late 1999, Bond was indicted by a federal grand jury in New York in the first of the two unrelated cases. His partners at Bond Procope Capital Management had abandoned him, and his clients were fleeing by the time Chapman asked him to buy 300,000 shares of the eChapman.com at its initial public offering, he testified.
Bond, 42, had invested heavily in Chapman's two previous public offerings -- investments that had cost him the business of his largest client, a Metro employee pension fund, which lost $2.2 million, according to other testimony. Bond said his chief operating officer had expressed concern over "the entire nature" of his relationship with Chapman. But, Bond said, "At this point in my firm's development, Mr. Chapman was a very important client."
Chapman managed more than $100 million of pension fund assets that were in a trust for which one of his companies was the primary investment adviser. He hired "sub-advisers" to manage the trust's assets. Among those sub-advisers was Bond, who by 1999 was managing more than $20 million from the trust.
Even so, Bond said, he did not want to invest in eChapman.com, a stock that he said did not fit with his firm's investment strategy and that he did not expect to perform well.
But Chapman insisted that he invest, Bond said.
"He reassured me that he would address the issue, that he would take care of it in the sense that he had some additional money he could make available to us," Bond said.
Bond testified that the money was to come from the trust that included the state pension funds. The testimony came toward the end of the day, and Assistant U.S. Attorney Jefferson M. Gray did not explore the issue in detail.
Bond eventually agreed to buy 200,000 shares of the stock for $2.6 million. Although it didn't come up in testimony Wednesday, Bond later purchased additional shares, according to documents.
According to the indictment, Chapman gave Bond an additional $10 million from the trust to invest in July 2000, a month after the public offering.
Gray spent more than 30 minutes asking Bond about his criminal record and other legal and ethical issues that might figure prominently in cross-examination Thursday.
Bond, once a regular on the PBS program "Wall Street Week With Louis Rukeyser," detailed his criminal convictions in the unrelated cases in New York. He is incarcerated at Fort Dix, N.J.
Bond testified that federal prosecutors in New York have said they do not plan to seek to have his sentence reduced because of his cooperation in the Baltimore case.