Feds Probe Deeper Into MD Pension Investments

June 24, 2003 (PLANSPONSOR.com) - Federal prosecutors have broadened their probe into possible financial malfeasance of the Maryland state retirement system, issuing two new subpoenas in the case.

Issued by the US attorney’s office in Baltimore, the two subpoenas seek information about the financial dealings of former money manager Nathan Chapman and a member of the $25-billion pension fund’s trustees, Debra Humphries.   The subpoena asked for copies of financial disclosure forms and any correspondence to or from Humphries regarding such forms. No one else on the 14-member board of trustees was mentioned in the subpoenas, according to a Baltimore Sun report.

Federal prosecutors have been investigating Chapman’s dealings with the state pension system since at least last summer. Chapman invested money for the pension fund from 1996 until he was fired in January 2002 after the trustees learned that the US Securities and Exchange Commission (SEC) was looking into the investment of state pension funds entrusted to him in stock of his own companies.   Overall, it is estimated that the state’s retirement fund lost as much as $4 million because of pension dollars committed to 395,000 shares of eChapman.com at $13 a share – almost a third of eChampman.com’s outstanding stock – as part of an initial public offering (IPO). Shares are now worth $0.17.  

The Chapman stock was purchased for the system by two money managers chosen by Chapman – most of it by Alan Bond, who has since been convicted in New York of unrelated federal fraud charges and sentenced to 12 years in prison.

One of the subpoenas indicates that the investigation is continuing and that Chapman remains the subject of prosecutorial interest. It requested copies of any letters showing when the pension system staff received quarterly reports for several Chapman-related companies. The subpoena also sought quarterly reports of other money managers that have not been tied to the investigation.

Humphries Inquiry

The subpoena dealing with Humphries asks for any materials provided to board members about their financial disclosure obligations and other duties.   This material that might be relevant if prosecutors were looking into whether a trustee had failed to abide by those rules.

On the pension board that oversees the pension funds of more than 250,000 teachers, police officers and other active and retired government workers, she has been one of the strongest advocates of entrusting more money to minority-owned companies such as Chapman’s. She serves on the board’s Investment Committee and is chairwoman of a subcommittee on minority investments.

When the investments in Chapman stock were reported to the trustees, Humphries – who serves as a senior fixed-income manager at Potomac Asset Management – was among those who opposed the successful motion to fire Chapman immediately. Her financial disclosures for 1998-2001 show that she had no investments, debts or real estate holdings that would require disclosure.