Chapman Persuaded Investors Not To Sell

July 6, 2004 ( - A former Maryland state official, who allegedly defrauded the state pension system with investments in his own company, apparently urged investors not to sell their shares to help prop the company up through its financial difficulties.

Scott Maddox, testifying in the federal trial of Nathan Chapman, told jurors how the failing cost him all of his initial $100,000 investment.   Further, when he tried to get out, Maddox testified Chapman persuaded him to hold onto the stock, according to an Associated Press report.

At the trial, which began about two weeks ago, Maddox said he first tried to get out of the stock after it fell from $9 a share to $3 a share.   When Maddox put his intentions to sell in writing, he testified that Chapman persuaded him to hold onto the stock because a large stock sale could knock the price under a dollar and cause the stock to be delisted from the NASDAQ stock market.

The testimony of Maddox could have huge implications for Chapman’s actions while serving on the state pension fund’s board of directors.   Chapman was accused last year of illegally investing more than $5 million of Maryland’s state pension funds into his own company.   The former chairman of the University System of Maryland’s Board of Regents is charged with 39 separate offenses, including securities fraud, conspiracy, and mail fraud.

In addition to the $5 million pension investment (See Bad Investment Could Cost MD Millions ), Chapman also allegedly diverted $437,000 from his own firm and two predecessor firms, both publicly held, starting in 1998. The indictment says the money paid for jewelry, a BMW motorcycle, trips and other gifts and financial support for at least three women with whom he had intimate relations.  One of those women was a company vice president and another was Humphries, who became a state pension trustee in 1997 after Chapman pushed former Maryland Governor Parris Glendening to appoint her to the 14-member board.

The Maryland retirement system has about 250,000 active and retired members.   Chapman resigned from his post on the board last month.