Wall Street Rogues - Page 4 of 9

Wall Street Rogues

the trading day, shares were selling at $7 3/8, down 43% from the original offering price. Authorities claim that in an effort to rescue his failing IPO, Chapman persuaded money manager Bond to buy more than $4.5 million worth of eChapman.com shares at the higher rate, even when it was as low as $7 per share. Bond was charged with using state pension system funds that were invested in a tax-exempt pooled unit trust for employee benefit plans. Chapman Capital Management, a sister firm, advised this trust for which Bond was a subadviser.

Prosecutors estimate their client, the State Retirement & Pension System of Maryland, lost $4.72 million. According to authorities, once Chapman and Earl U. Bravo Sr., an associate, ceased their efforts to manipulate the price of eChapman.com, the price dropped dramatically. By the close of trading on Dec. 1, 2000, eChapman.com’s price had fallen from $6.50 to $3.91 a share — a 60% drop. As of June 2004, eChapman.com was trading at $0.01. on 39 counts including mail fraud, wire fraud, securities fraud, and conspiracy. That same day, the SEC filed securities fraud charges against Chapman, three of his associates (Bravo, Demetris B. Brown, and Daniel Baldwin Jr.), and three of his companies (eChapman.com Inc., The Chapman Co., and Chapman Capital Management Inc.). In addition, a civil lawsuit seeks antifraud injunctions, civil money penalties, disgorgement of ill-gotten gains (including salaries, bonuses, and commissions), and a permanent bar from service as an officer or director of a public company.

According to the indictment, Chapman is charged with using the money for himself and his girlfriends. According to the U.S. Attorney for the District of Maryland, Thomas DiBiagio, Chapman allegedly gave one girlfriend a monthly stipend of $4,000, $10,000 toward the purchase of a Nissan Altima, and $9,956 toward the purchase of a BMW motorcycle. A different girlfriend allegedly received more than $46,000 in cash and other gifts, and a vacation to Hawaii. A conviction on the criminal charges could mean up to five years of imprisonment for Chapman and a $250,000 fine for each count. A securities fraud count for filing false documents with the SEC carries up to 10 years and a $1 million fine. He also could be made to pay restitution to the pension system and other clients.

But Chapman’s legal woes have taken a turn for the worse. In March 2004, a federal grand jury returned a superseding 36-count indictment against Chapman. Three months later, the federal government filed a second superseding indictment against him, dropping one count of mail fraud. The 35-count indictment accuses Chapman of wire fraud, mail fraud, investment advisory fraud, making false statements to a federal government agency, and making false statements on tax returns from 1997 to 2001. It also charges Chapman with making false statements in connection with a home mortgage application and engaging in monetary transactions with property derived from the mortgage fraud. If the charges hold and the maximum sentences are handed out, Chapman, 46, could potentially spend the rest