To many in the financial world, it was big news when New York prosecutors indicted money manager Alan B. Bond in 1999 on charges of defrauding pension systems.

But in Maryland, trustees of the state pension system reacted with a shrug. The pension board never discussed the indictment, members acknowledge, though the system had about $30 million in Bond's care.

The federal charges against Bond - prominently reported in such newspapers as The New York Times and The Wall Street Journal - prompted at least a half-dozen of his other clients to fire him. Maryland's trustees say they never considered letting him go, despite the potential risk to a pension fund that provides benefits to more than 80,000 people.

Pension system officials will get a chance to explain their inaction at a hearing tomorrow in Annapolis of the General Assembly's Joint Pension Committee.

Several experts interviewed by The Sun found the board's passivity an inexplicable failure of fiduciary responsibility.

Keeping Bond as a money manager after his indictment was an "egregious" oversight, said James D. Cox, a professor of corporate securities law at Duke University.

"To the extent that any of the trustees knew about this, they were either really asleep at the switch or turned a blind eye," Cox said. "With either one, it's an extreme case of misfeasance on their part."

Donald C. Langevoort, a Georgetown University law professor, called the indictment a "red flag" that demanded careful consideration by the trustees. "At the very least, they should have ordered a full investigation, should have done their homework," he said.

The inattention to the indictment illustrates a persistent lack of oversight of Bond and the man charged with supervising him for the $26 billion pension system, Baltimore investment banker Nathan A. Chapman Jr.

And the board's de facto decision to keep Bond would prove costly.

A few months after he was indicted in December 1999, Bond launched a second illegal scheme - this time, one in which the Maryland system was among the victims. Bond defrauded the state system of at least $5 million, and possibly far more, according to testimony that led to his conviction on those charges this summer.

Bond lost an additional $4.5 million of the system's money in a possibly illegal stock deal under investigation by federal authorities, pension records show.

The State Retirement Agency's official line is that Chapman bears the primary blame for the system's losses because he was the person who hired and supervised Bond. "The agency would hold that if there were problems or concerns, then they should have been brought to the attention of the agency by [Bond's] manager, Mr. Chapman," said Joseph M. Coale, pension system spokesman.

Experts in fiduciary duties say that although Chapman may be at fault, the ultimate responsibility for oversight of a pension system lies with its chairman, other trustees and top staff:

  • Richard N. Dixon, state treasurer and chairman of the pension board until leaving office in February. The strong-willed former stockbroker controlled the board's agenda and never put the Bond indictment on it for discussion.

    He apparently did ask the system's chief investment officer to question Chapman about the indictment. When Chapman replied that the charges were "trumped-up," Dixon allowed the matter to drop.

    Cox, the Duke law professor, called Dixon's conduct "inexcusable," saying he should have ordered a thorough investigation. "That's the job of the chairman."

    Dixon maintains that he had no more responsibility than any other member of the board did: "The obligation is on all trustees equally."

  • Board members - a mix of state officials, investment professionals and government employees elected by pension plan participants. Several trustees knew of the indictment but failed to raise it as an issue before the board.