The money manager, Alan B. Bond, would go on to steal millions from the pension fund. But top officials said it wasn't their responsibility to let him go - pointing the finger at Nathan A. Chapman Jr., the Baltimore investment banker who hired Bond to invest pension funds.
The Howard County Democrat and other legislators expressed frustration as Peter Vaughn and Carol Boykin, executive director and chief investment officer of the $26 billion fund, defended the state retirement agency's oversight of Chapman and Bond.
Comptroller William Donald Schaefer, chairman of the pension board, told lawmakers he shared their concerns. In the most explicit terms he has used so far, Schaefer criticized Vaughn's performance in keeping the trustees informed.
"That's the job of the executive director - to tell me and tell the board there's trouble brewing somewhere," he said.
Schaefer and other officials stressed that Maryland pensioners would not be hurt because the losses in the Bond case are only a small portion of the system's assets.
Nevertheless, Boykin said, "the system was harmed from a perception perspective."
Several months after his 1999 indictment in New York, Bond launched a "cherry-picking" scheme: He steered returns from profitable trades to his account and losses from losing trades to his clients' accounts.
The Maryland pension system's losses have been estimated at $5 million to $30 million.
Chapman was fired in January after the trustees learned that he had permitted Bond to invest about $5 million in pension money in Chapman-controlled companies. The investment, which experts have called a clear conflict of interest, cost the system about $4.5 million.
Legislators at yesterday's hearing expressed amazement that pension system officials failed to act quickly after the first indictment to remove system assets from Bond's care.
"It seems to me you would have been horrified by that," said Sen. Donald F. Munson, a Washington County Republican.
Lawmakers were openly skeptical of Boykin's contention that there was nothing pension officials could do to put pressure on Chapman to fire Bond. Kasemeyer pressed Boykin about whether officials had ever asked Chapman to stop doing business with the indicted manager.
"It was not in our purview," Boykin replied.
Committee members were scornful when Boykin told them Chapman had assured her shortly after the indictment that the charges against Bond had been "trumped up."
"That's like Al Capone saying Frank Nitti is not a bad guy," shot back Sen. Nathaniel J. McFadden, a Baltimore Democrat.