A money manager who worked for Nathan A. Chapman Jr. testified yesterday that he sold off "Grade A" stocks in an account he handled for the Maryland pension system so that he could use the money to buy shares in Chapman's company at nearly twice the market price.
Alan B. Bond, one of the key witnesses in the federal fraud case against the Baltimore investment banker, said Chapman instructed him to purchase almost $5 million in shares in Chapman's new online brokerage company on behalf of several pension systems, including Maryland's.
Bond said that under pressure from Chapman, he bought $2.3 million of that stock at the $13 opening price even though the stock had since fallen to about $7. The pension systems took an "instantaneous" loss of about $1 million, he said.
Maryland's system, which provides pension benefits to roughly 90,000 retired state workers, police officers and teachers, went on to lose almost $5 million on the investment.
The former New York money manager wound up two days of testimony after more than three hours of cross-examination in which Chapman defense attorney William R. Martin challenged his credibility.
Martin pointed out that Bond was a convicted swindler whose testimony at his 2002 federal fraud trial in New York had been found to be perjury. Under questioning, Bond admitted that some elements of his testimony in Chapman's trial were the same account a judge and jury rejected two years ago.
Bond, who said he is working on a divinity degree through a correspondence course, testified that he accepts that his actions in two fraud schemes were criminal. He said that when he was fighting the charges two years ago, however, he believed they were not.
Under Martin's prodding, Bond also acknowledged that he had no explicit agreement with Chapman to buy the Chapman company stock in return for future business. Rather, he said, he believed they had an "understanding" under which they did "favors" for each other.
The prosecution is gambling that a jury in U.S. District Court will believe Bond's testimony because it is corroborated in large part by telephone records, trading logs and other documents. Chapman's defense team hopes the jury will give no weight to an admitted liar who is serving 12 1/2 years in federal prison for defrauding clients.
Martin expressed confidence yesterday that Bond had been discredited.
"We will continue to argue to this jury that he should not be believed, and if he is the star witness against Mr. Chapman, the jury will see through his lies and render a fair verdict," Martin said.
Chapman, who once managed hundreds of millions of dollars for the Maryland retirement system, is charged with defrauding the pension fund and other clients by directing Bond - a money manager he hired - to invest their money in companies Chapman controlled.
Among other charges, Chapman is accused of looting his own publicly traded companies to finance a lavish lifestyle.
Bond and Chapman are the key figures in an alleged scheme in which Chapman is charged with using pension funds to pump up demand for shares in three companies he took public between 1998 and 2000.
The largest losses to Chapman's clients resulted from the 2000 initial public offering of eChapman.com.
Bond testified that Chapman, finding little interest from other institutional investors, leaned on him to buy hundreds of thousands of shares when Bond was desperate to hang on to his remaining clients after an indictment in 1999.
Despite his misgivings about the stock's prospects, Bond said, he bought $2.6 million in eChapman.com stock on June 15, 2000, the day the price was set for the stock offering.
Bond testified that he was "frustrated" when Chapman told him after public trading began June 20 that he had to buy $2.3 million more in shares because other prospective buyers had not taken delivery.
He said Chapman expected him to buy the stock at its initial offering price despite the fact it had lost half its value in public trading. Bond said he was worried that the investment would "stand out dramatically" but that Chapman continued to insist on the $13-a-share price.
"He said, 'Don't worry about that; I've got you covered' and that there may be more money available in the near future," Bond said.
To pay for the Chapman stock, Bond said, he sold shares in such high-capitalization companies as Juniper Networks, Oracle and Nortel Networks. He said he would not have sold the shares to buy the more speculative Chapman stock had he not been under pressure to do so.
Bond said Chapman provided him with $10 million more in pension funds to invest the following month and that he used much of the money to buy back the same stocks he had sold to finance the eChapman.com investment.