Pension board may hire consultant

THE BALTIMORE SUN

The Maryland pension board is moving to hire a consultant to evaluate the performance of the retirement system's staff after lapses in the oversight of Nathan A. Chapman Jr.'s investments, state Treasurer Nancy K. Kopp said yesterday.

Kopp, vice chairwoman of the pension board, said she expects its executive committee to take up a proposal to hire a consultant next week. "I'm pushing as hard as I can to get a detailed, objective review of our procedures," she said.

The proposed review would apparently include a look at the roles of Executive Director Peter Vaughn and Chief Investment Officer Carol Boykin in dealing with the Chapman matter. Vaughn has headed the pension system staff since 1993. Boykin -- who worked for Chapman in 1993-1994 -- has overseen the agency's investments since 2000.

Kopp's disclosure came as top legislators and pension trustees agreed that the system's top executives dropped the ball in their supervision of Chapman, a former money manager for the pension system who permitted money managers he hired to invest in companies he controlled.

For the past week, the system has been buffeted by reports its staff missed multiple signals that Chapman was allowing pension money entrusted to him to be invested in a manner that was an apparent conflict of interest. The system lost $5.4 million on the investments, which are now the subject of investigations by a federal grand jury and U.S. securities regulators.

The state securities commissioner has launched her own probe of the Chapman case, according to a source that spoke on condition of anonymity. Commissioner Melanie Senter Lubin declined through a spokesman to comment.

Chapman has contended that any conflict of interest was "cured" by his disclosure of the investments in reports to the pension system, which apparently were not reviewed by the agency's staff.

However, a former Maryland securities commissioner said the investments were "a core violation" of federal law rather than "technical missteps."

"In some areas of the securities law, disclosing a conflict of interest is sufficient and a client can decide whether he or she cares about the conflict," said former commissioner Ellyn L. Brown. "This is not one of those kinds. This is self-dealing and the pension fund couldn't waive this conflict of interest."

She said Chapman had a fiduciary obligation to know what his sub-managers were doing. "If he didn't know ... , he was violating his fiduciary duty. If he did know, he was violating his fiduciary duty," she said.

The investigations into Chapman are politically touchy because of his ties to Gov. Parris N. Glendening, who named him to the state university system's Board of Regents.

Until he was fired in January, Chapman had managed hundreds of millions of dollars for the pension system since 1996 as head of a so-called "fund of funds." He chose and supervised minority sub-managers to invest the money.

In 1998, Chapman permitted one of the sub-managers to invest $560,000 in his Chapman Holdings Inc. In June 2000, two sub-managers invested more than $5 million in his online brokerage, eChapman.com.

Documents released this week have raised questions about the roles of Vaughn and Boykin in monitoring Chapman's use of system money.

In a March memo to Vaughn, Boykin reported that Chapman told her in August 2001 that sub-manager Alan B. Bond had invested in eChapman.com. Boykin said she took that to mean Bond had used his own money rather than pension funds.

Boykin also said her further inquiries into Bond's investments were stymied when she was ordered to back off investigating them. Pension fund spokesman Joseph M. Coale said that instruction came from Vaughn but was misinterpreted by Boykin.

The executive director and other top officials of the retirement agency are hired and can be fired by the pension board -- a body structured to be independent of the governor's office and the General Assembly.

Trustees and legislative leaders said yesterday that agency managers should be held accountable, but that it would be premature to say whether Vaughn and Boykin should keep their jobs. "I don't want to act precipitously and unfairly," said Kopp.

Her cautious view was endorsed by other trustees and legislative leaders. Del. Howard P. Rawlings, chairman of the House Appropriations Committee, said the move to hire a consultant was "very appropriate."

Minutes of a closed-door meeting in January at which the board's investment committee learned of the Chapman investments show that trustees questioned whether Boykin's former employment by Chapman raised concerns.

Boykin served as vice president and fixed income portfolio manager of Chapman Capital Management for one year, leaving in September 1994 due to an "economic layoff," according to the resume she gave when the pension system hired her in October 2000 at an annual salary of $103,640.

The minutes show Boykin told the committee that after she was laid off, Chapman did not pay her a $10,000 bonus she felt she was owed. She said she got the bonus after hiring a lawyer and agreeing that she would not discuss anything that happened at the Chapman firm while she worked there.

Trustees were apparently satisfied by the explanation. "No one has any concerns," said a notation in the minutes.

Boykin has referred all questions about the Chapman case to Coale. He said yesterday that Boykin's supervision of Chapman "was not compromised in any way as a result of her brief employment by Mr. Chapman nearly a decade ago."

Boykin's efforts received support yesterday from trustee G. Bruce Harrison, who represents police officers on the pension board. "I would commend her as being the only one raising questions with Mr. Chapman," he said.

Chapman yesterday disputed Boykin's characterization of her termination as a layoff. "I'll say that Carol's dismissal had absolutely nothing to do with money," he said.

Sun staff writers Greg Garland and William Patalon III contributed to this article.

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