THERE WAS NEVER much question that Maryland investment banker Nathan A. Chapman Jr. knew what he was doing as he defrauded the state's retirement system of nearly $5 million and looted hundreds of thousands of dollars from companies under his control. The nagging question was why his money-steering arrangements were not flagged by anyone supposedly monitoring the pension system. Mr. Chapman, who traveled in top political circles during the administration of former governor Parris N. Glendening (D), was convicted in federal court last week on 23 counts of fraud and filing false tax returns. Jurors found that he used state pension money under his management to invest in his own businesses, losing millions when his company's stock price plunged to pennies a share in 2000.

Gross conflicts of interest, to be sure, but hardly secret: Mr. Chapman readily disclosed that he was benefiting from the state investments that he controlled as a manager of Maryland pension funds. Yet nobody overseeing the system raised an eyebrow until federal authorities began investigating. Mr. Chapman repeatedly disclosed in reports to the Maryland State Retirement Administration that money managers he selected were investing state pension money in companies he controlled. He would ask them to. One of them, Alan Bond, was convicted in 2002 of six counts of fraud for diverting trading profits from clients' accounts into his own while assigning his losing trades to pension funds represented by three clients -- including Mr. Chapman's company.

So much for protecting the interests of more than 275,000 teachers, police officers and other government workers. Political interests seemed to matter more. As a close ally of Mr. Glendening who also served as chairman of the University System of Maryland's Board of Regents, Mr. Chapman enjoyed a special status that seemed to shield him from oversight. The state pension board of trustees appeared to bless arrangements that gave Mr. Chapman's trust favorable treatment even though he charged higher fees than other money managers.

Why did high-ranking investment employees who received his quarterly reports apparently fail to alert the state pension board, which had the power to fire Mr. Chapman but did not do so until federal authorities moved in? The trustees themselves raised no questions; neither did Mr. Glendening.

Significant improvements have since been made to the pension system. The General Assembly enacted legislation that added people with financial expertise to the pension board; a detailed investment policy was put in place, along with an independent consultant. Comptroller William Donald Schaefer (D), now also serving as board chairman, has taken additional steps to add professionalism to the operations. The total assets of the system have increased impressively. But Nathan Chapman should never have been allowed to inflict the damage he did in a state that had endured enough corruption already.