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Former insurance agency head admits embezzling $900,000 Schmidt pleads guilty to taking $917,393 from Charter Group

Hamilton A. Schmidt sat quietly in Baltimore County Circuit Court yesterday, recalling a day over 20 years ago when he waited for hours in another courtroom, defended himself over a traffic ticket and won.

"It was the principle," he said.

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Moments after that reverie, Schmidt, 41, pleaded guilty to the fraudulent misappropriation of $702,393.32 and the theft of $215,000 from Charter Group Inc., the company he helped build into one of Maryland's largest independent insurance agencies -- and the company he ultimately destroyed.

"Are you pleading guilty because you are in fact guilty?" Judge James T. Smith Jr. asked.

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"Yes," Schmidt responded impassively.

That simple answer, the result of a plea bargain, punctuated the strange and tragic fall of Hamilton Schmidt, Towson-based Charter and its former employees.

About 100 workers lost their only retirement savings after Schmidt vanished on Sept. 14, 1993, and auditors discovered about $1 million missing from the company.

Before Schmidt resurfaced and surrendered to police a year and a half later, Charter's assets were sold, the company fell into bankruptcy, the employee stock-ownership plan collapsed and Schmidt was no longer Charter's chief executive officer.

The state attorney general's office recommended that Schmidt pay nearly $540,000 in restitution for money stolen from Charter and the employee stock ownership plan and for money owed to insurance companies whose premiums were misappropriated. Schmidt has agreed to pay about $215,000.

"He pled guilty because he recognizes and acknowledges he made mistakes," said his attorney, Steven A. Allen.

Prosecutors could have recommended up to 20 years in prison for theft and misappropriation by a fiduciary, but as part of the plea bargain, prosecutors asked the court to sentence Schmidt to a maximum of seven years, all but three years suspended, followed by five years of probation. A sentencing hearing is to be held Feb. 15.

"If you're an insurance agent, and you misuse money, you're going to be prosecuted," said Assistant Attorney General Michael DiPietro. "That's the real message here."

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For former Charter employees like former Vice President John C. Kidd Jr., it wasn't enough.

"The criminal justice system in America, in my opinion, is not exactly stellar, especially in the quote, unquote white-collar crime area," he said. "They don't view that the same way as someone who goes into a 7-Eleven with a handgun."

In January 1990, when Schmidt became Charter's president, it was a profitable company, an agency that collected insurance premiums from customers, forwarded the money to insurance companies and collected a commission for acting as the go-between.

But Charter began to lose business over the following three years, according to a nine-page report by the attorney general's office. Instead of informing Charter's board of directors of the firm's deepening cash crunch, the report said, Schmidt "concealed it by presenting false and misleading revenue figures."

To keep the company afloat, Schmidt used the premiums owed to insurance companies to pay for Charter's operating expenses, prosecutors said. Schmidt tried to buy more time by paying overdue premiums to insurance companies with premium money collected later, prosecutors said.

To make matters worse, according to the report, Schmidt tried unsuccessfully to persuade four Charter employees to invest $100,000 each in the company, calling it "a great opportunity for key people to show confidence in the firm."

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Meanwhile, prosecutors said, Schmidt stole money from the company.

In his first year as president, he gave himself unauthorized bonuses to supplement his annual salary, for a total of more than $262,000 and $147,000 of which the board was unaware, according to the report. Later, it said, he withdrew more than $200,000 from the company, booking the funds as "short-term loans."

To replace that money, he borrowed $100,000 from a friend, a New York City schoolteacher, and without authorization sold shares of his Charter stock to the employee stock ownership plan for $150,000, according to the prosecutors.

Schmidt continued this practice well into 1992, taking an additional $223,500 from the company and using part of it to repay his New York friend, the report said. Then he borrowed another $55,000 from the same friend, which he used to help pay off his "loan" from the company, prosecutors said. To pay the balance of the "loan," he ordered -- without authority -- a $110,000 check from the employee stock ownership plan to Charter, according to the report.

When questions were raised about the check, Schmidt ordered the transfer of shares of company-owned treasury stock to the employee stock ownership plan and that the transaction be back-dated, the prosecutors said.

What this meant, according to the report, is that Schmidt used the company to pay off his personal loans and, in the process, he drained the employee stock ownership plan, which had more than $500,000 in cash and securities when he took over as president.

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Nonetheless, he continued making unauthorized withdrawals from the company amounting to $105,000, according to the prosecutors. "At this time, however, all money in the [employee stock ownership plan] had been used to cover his previous years' unauthorized 'loans' from the company," the report said. "Having no other source of funds to stave off the inevitable, [Schmidt] was at the end of his rope."


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