Alan Brian Bond had it all. He lived an opulent lifestyle that included shopping sprees at Saks Fifth Avenue, sprawling homes in New Jersey and Florida, and a fleet of 75 luxury and antique cars. But these days, home is a cell located in rural New Jersey. Bond made his name managing more than $600 million in public and private pension funds and by appearing regularly on PBS’ Wall $treet Week with Louis Rukeyser. But that all came crashing down after prosecutors swooped in, seized his assets, and convicted Bond of numerous securities violations.
Bond’s story is one of a financial Icarus who played fast and loose with the rules and flew too close to the sun. This son of a schoolteacher graduated with a bachelor’s degree in economics from Dartmouth and an M.B.A. from Harvard. He learned the ropes at one of Wall Street’s top firms, Goldman Sachs, but was accused of inflating his expense account and was fired in 1989, according to testimony at his trial. Two years later, he partnered with John and Ernesta Procope, owners of E.G. Bowman Co., one of the nation’s largest black-owned insurance companies, to form Bond, Procope Capital Management. With this move, Bond transformed himself into one of Wall Street’s all-stars.
But according to prosecutors, Bond conspired with a broker to inflate the fees of his clients’ stock transactions in exchange for keeping part of the proceeds from a kickback scheme that totaled nearly $7 million from 1993 to 1998. The Securities and Exchange Commission claimed Bond and broker Robert Spruill defrauded Bond’s clients by charging extra for over-the-counter stock trades and pocketing the money. The proceeds of this scheme were used to fund Bond’s lavish lifestyle.
After the Procopes terminated their partnership with Bond, he relaunched the firm as Albriond Capital Management. (Ernesta Procope had no comment.) Despite pleading guilty to the charge, Bond’s firm continued to manage some $600 million for about 25 clients, including the National Basketball Association, City University of New York, and the Washington Metropolitan Transit Authority.
To make matters worse, prosecutors charged that while out on bail and facing securities violations in 2000, Bond masterminded a “cherry-picking” scheme to pay for his high-priced legal team. Authorities said Bond illegally allocated profitable trades to his own personal account and steered the vast majority of unprofitable trades into clients’ accounts. As a result, Bond’s clients lost nearly $57 million, while Bond gained approximately $5.5 million, an investment return of more than 5,500%.
When prosecutors came after Bond, his assets were frozen and his firm shut down. The former highflier was forced to rely on the services of a public defender. His bail, backed by a mortgage on his parents’ home, was yanked after the second charge, and U.S. District court Judge Leonard B. Sand ordered Bond to be detained pending a sentencing hearing. On Oct. 11, 2002, Bond pleaded guilty to 10 counts including conspiracy, investment advisory fraud, and filing a false tax return. Facing a maximum of 45 years, Bond was sentenced to 12 years and seven months in early 2003. (Correspondence to the Fort Dix, New Jersey, federal correctional facility requesting to interview Bond was unsuccessful, and calls to Bond’s wife, Sheila, were not returned.)
Bond is one of several African American Wall Street stars who have fallen from grace. Many represent a who’s who from the BE 100S and have been indicted and, in some cases, convicted of charges ranging from investment advisory fraud to money laundering. For example, Raymond McClendon of Pryor, McClendon, Counts & Co. Inc. — a former BE 100S company — and former city of Atlanta investment officer Theresa A. Stanford were convicted on charges that the two ran a scheme to cheat the city of Atlanta out of $15.3 million in investment profits between 1992 and 1994. McClendon was convicted in 2000 and sentenced to a six-year, eight-month prison term as well as levied a $1.5 million fine. Stanford was sentenced to a three-year, 10-month prison term and ordered to pay $120,000 in restitution to the city of Atlanta. Others who have come under scrutiny include former power brokers like Kevin Ingram, a celebrated trader who made BLACK ENTERPRISE’s “Top 25 Blacks on Wall Street” in 1996 and was convicted and served time for money laundering several years later, and Nathan A. Chapman Jr., currently on trial, who recently stood before a judge answering tax and investment-advisory fraud allegations.
A few were cleared of criminal charges but still paid a high price. For instance, San Francisco financier Calvin Grigsby, former CEO of Grigsby, Brandford & Co. and another alum of BE’s 1996 ranking of Wall Street players, was charged with bribery and using his bond business to steal more than $1 million in public funds to finance everything from political contributions to expensive cars and Super Bowl tickets. In 1999, a federal judge in Miami threw out the embezzlement charges, but the damage of the trial and declining business compelled Grigsby to shut down his investment bank. Grigsby was cleared of all charges.
And in one of the most publicized cases in the last decade, Joseph Jett was cleared of charges by the SEC that he made phantom trades. But he was sanctioned for bookkeeping violations and barred from securities trading.
There’s no doubt that the federal authorities have turned up the heat throughout the financial community. In 2003, there were 679 cases filed by the SEC against individuals or firms for securities violations, up 13.5% from 2002. This increased scrutiny is primarily a result of a string of corporate misdeeds that began with Enron in 2002 and worked its way through the nation’s largest mega-corporations. And although nearly all the white-collar crimes allegedly committed by African American suspects pale in comparison to those reportedly committed by Enron’s Kenneth Lay or ex-WorldCom CEO Bernie Ebbers, the entire black financial community feels the heat.
According to Marquette Chester, chairman of the National Association of Securities Professionals, the actions of a few can have an unfair impact on the entire black investment community. “I think that the investment community, regardless of race or color, is an industry where trust and integrity and ethics play a large role, so whenever one of our fellow colleagues is involved in a situation where that trust has been violated, it does have a ripple effect on all of us,” Chester asserts. “So there’s a little bit of a concern about all of us being tossed into the same pot, and people who probably are reluctant to encourage diversity and inclusion using it as an excuse for something they didn’t want to do in the first place.”
The real victims, however, are investors who have lost their hard-earned money. In many cases, it is virtually impossible for individuals, institutions, and enforcement officials to detect these complicated scams committed by insiders. Just take a look at how Alan Bond bilked millions from unsuspecting customers. In Bond’s cherry-picking scheme, he developed a highly sophisticated operation. He typically waited until late in the trading day, or until after the securities markets closed, to tell his broker-dealer which accounts to direct trades. By delaying his instructions, Bond was able to determine whether his trades were profitable or unprofitable. The SEC complaint alleged that he directed 17% of his unprofitable trades to his own account, while directing 83% of the unprofitable trades to his clients’ accounts.
Such swindles have taken a human toll. In an unrelated case, Roy Grace, a 50-year-old widower, alleges that one money manager cheated him out of $100,000 from his deceased wife’s insurance policy. He was investing the money to secure his children’s future. Laments Grace: “First of all, the experience of losing my wife, and then … I trust another African American who s
eems legit. He gave me all these references. Everything seemed legitimate on the surface, and I want to do what I can in the black environment, and then when this happened — it was devastating.”
BE spent more than a year reviewing court transcripts and interviewing Wall Street insiders, prosecutors, and individuals like Grace. On the following pages, we provide you with an in-depth look at these fallen stars, detailing their use of complicated transactions to gain wealth and power as well as their eventual downfall.
Nathan A. Chapman:Fall of a Power broker
Chapman began his career at accounting firm Peat Marwick Main & Co. ,where, among other things, he audited large investment banking firms. He later joined Alex. Brown & Sons Inc., where he handled retail and institutional accounts. After only three years at Alex. Brown, Chapman left the venerable firm in 1986 and founded the first of his companies, The Chapman Co., a Baltimore investment banking firm that would eventually rank among the BE 100S. He also served as chairman of the board of regents of Maryland’s state university system.
On June 15, 2000, the power broker launched an initial public offering of eChapman.com at $13 a share. But on June 20, its first day on the market, it opened at a meager $8. By the end of 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 of his life behind bars. “If convicted, [Chapman] will face long periods of incarceration in prison with other criminals such as drug dealers and bank robbers,” says DiBiagio. Calls to William R. Martin, the Washington, D.C.-based attorney representing Chapman, were not returned.
Kevin Ingram: Terrorist Ties?
Kevin Ingram, 45, perhaps the most notorious of the fallen stars, is in a category unto himself. Famous for his lavish parties and showering his women friends with extravagant gifts, Ingram was charged in 2001 with money laundering in affiliation with a deal to illegally sell weapons to foreign entities that may have ties to terrorist organizations.
The Philadelphia native was a high-flying Goldman Sachs bond trader, mentored by former Clinton administration Treasury Secretary Bob Rubin and Sen. Jon Corzine (D-N.J.), who made a name for himself by successfully restructuring underperforming assets at the brokerage giant. Ingram became a highly sought-after trader. By September 1998, he was working for Deutsche Bank and was head of the mortgage-backed securities desk when he was released amid a market downturn caused by the dotcom crash. But with Rev. Jesse Jackson’s Wall Street diversity initiative in his corner, Ingram was able to negotiate a lucrative settlement reportedly worth between $5 million and $30 million.
Ingram would then launch an Internet-based bond-trading house and invest his money in several ventures. One of these businesses was a construction firm that involved now 60-year-old Jersey City, New Jersey, resident Diaa Mohsen.
The investigation that resulted in Ingram’s arrest originally focused on two Jersey City men, Mohammed Rajaa Malik, 55, and Mohsen, who authorities suspected of procuring arms for a former foreign military official. Court documents allege that the two men negotiated a deal to buy missiles, night-vision goggles, grenade launchers, and guns from an undercover agent posing as an illegal arms dealer. In June 1999, Mohsen unwittingly introduced Ingram to an undercover agent. Following this introduction, Ingram laundered $100,000 and $250,000 for federal agents on two occasions in 1999, pocketing a 9% cut.
The end came in Fort Lauderdale, Florida. An undercover agent had approached Ingram the previous week asking him to launder $16 million, $2.2 million right away. Ingram, stipulating a 25% cut, made an agreement with the undercover agent. Ingram and his pilot, Walter Kapij, 46, of Wethersfield, Connecticut, told the agent that to accomplish the transaction, they had chartered a Learjet to transport the cash to the Netherlands. At that point, Ingram and Kapij were arrested.
Ingram pleaded guilty to money laundering, but after cutting a deal with prosecutors in which he testified against Malik and Mohsen, he served 18 months at a minimum-security facility in New Jersey and paid a $20,000 fine. All other charges were dropped.
Ingram was recently released from prison.
Michael E. Sawyer: Money Manager Or Crook?
While Sawyer’s attorneys say
Court documents state that the 37-year-old made false claims to potentia
l clients, saying he managed more than $100 million for institutional investors to gain their trust — and their money. But instead of investing these funds, he allegedly used it to purchase high-end cars (including a Ferrari and a Mercedes-Benz), jewelry, and other luxury items.
According to authorities, in 2000 Sawyer conned one investor out of $50,000 under the guise of an investment in a venture called Last Mile Holdings Inc., a technology investment company in which Sawyer billed himself as a principal. Authorities also state that he falsely claimed that Peregrine Capital Management was a private equity firm that oversaw $500 million in investments. Sawyer is also charged with falsely presenting himself to another investor as a securities broker specializing in U.S. Treasury bonds who managed more than $100 million in funds. Rather than purchase the securities, Sawyer is charged with using the money for his personal use.
Grace, an African American engineer who resides in Houston, claims to be one of the investors swindled by Sawyer. According to Grace, who is included in the complaint against Sawyer filed by the U.S. attorney’s office in Chicago, Sawyer contacted him and persuaded him to invest $100,000 in a bond offering that would yield an annual 10% rate of return. Grace is charging Sawyer with using part of the funds for personal use and $30,000 of it to pay a prior investor in the alleged scheme.”We were looking for something low risk, which we thought the Treasury bonds would be, but with a decent return, and that’s what Sawyer was assuring,” Grace says.
While Sawyer and his team prepare for their legal battle, Grace is not optimistic about getting his money returned. “This is what the FBI told me: ‘Don’t count on it,'” recalls Grace. “And that’s been a hard thing to swallow.”
On Feb. 5, 2004, U.S. District Judge Ronald A. Guzman rescheduled Sawyer’s trial for Oct. 18, 2004, after Sawyer replaced his attorney. “Mr. Sawyer maintains his innocence,” says his current attorney, Chicago-based Shelly B. Kulwin of Kulwin & Associates L.L.P. “We anticipate going to trial in the fall and feel he’ll be exonerated.”
Joseph Jett: Can He Clear His Name?
It’s February 2004 and Orlando Joseph Jett is in a setting all too familiar: testifying before the SEC. Once again, he’s explaining his version of a 10-year-old scandal that brought down brokerage giant Kidder, Peabody & Co. and rocked Wall Street.
Jett, who represented himself at the hearing, argues vehemently to overturn a 1998 ruling by an SEC administrative law judge that he violated record-keeping laws by executing phantom trades and recording nonexistent profits on Kidder’s books in 1994. At that time, Jett was required to pay restitution for $8.2 million in gains to the SEC and a $200,000 fine, although the judge found that the agency failed to prove he committed securities fraud because the transactions did not involve buying or selling bonds on an exchange.
Kidder and the SEC accused Jett of concealing a computer accounting glitch that allowed him to report unearned profits — to the tune of $339 million. Jett accused Kidder and its parent, General Electric Co., of racism, asserting that he was merely a scapegoat for an already financially troubled trading firm. GE recorded a $210 million charge to net earnings based on what it described in its Aug. 15, 1994, 10-Q filing with the SEC as false trading profits. This would prove to be the final straw for the brokerage firm that had already racked up a series of disappointing financial results. Before the end of that year, GE dismantled Kidder and sold its assets to PaineWebber Group for $670 million.
“There was race involved,” Jett told BE in an exclusive interview. “The media’s fascination with a black man managing that amount of money, in that position, on Wall Street, just kept the focus on me. So a story that would have died in two weeks ended up having a lifetime of five years, even 10 years. People still discuss it today.”
Jett, who has an M.B.A. from Harvard and a chemical engineering degree from MIT, arrived at Kidder in 1991 eager to prove himself. During that time, he made few friends. “I was at Kidder, marching through that company, saying to everyone, ‘I’m not here to be liked. I’m here because I’m more effective than you are, I’m smarter than you are, and I can prove it with the numbers I present,'” says Jett.
At the end of his
first year, he earned a $5,000 bonus — meager by Wall Street standards. After that, his profits began to rise dramatically. In 1992, he earned a $2.1 million bonus, and by 1993, his bonus skyrocketed to $9.3 million, earning him a promotion to head of the department. “It was unbelievable that someone could trade as much as I did,” Jett says. “I handled a $37 billion portfolio. The amounts of the trades I did were numbered $2.2 trillion.”Jett and his team were trading not only the full bond issued by the government, but also separating these bonds into their separate interest payments, or strips, and trading those as well. These complicated transactions were made even more complex when Jett and his team reportedly began trading these securities on a forward basis, booking into their computers trades that were due to take place at some future date rather than on that date. Even though the transaction hadn’t taken place, the Kidder computers immediately calculated the transaction as being profitable. This led to Jett’s huge bonuses — and legal woes. Kidder’s profits swelled, but its management team discovered what amounted to a shortfall of approximately $350 million. Its response was to launch an investigation into the way Jett was stripping and reconstituting bonds.
This investigation led to arbitration proceedings with Jett and his attorney against Kidder. In the end, Jett won and Kidder was sold off to PaineWebber. In August 1998, a second case brought by the SEC again cleared Jett of fraud, but he was sanctioned by that body for record-keeping violations and was ordered to pay back more than $8 million. “My [former] managers aren’t sophisticated enough technically to understand what I am doing, and it’s probably one of [the] few occurrences in American history where white men stand up and say a black man is too smart for them,” says Jett. “The Securities and Exchange Commission went out of their way to find a judge who had no background in mathematics, no background in business. She didn’t understand the math and so she followed the General Electric argument to the letter. … I would say that she also said I didn’t commit fraud, but she said that there were books and records violations and therefore wanted me to pay a $200,000 fine.”
While the SEC would not comment on the Jett proceedings, officials referred to the March 5, 2004, Opinion of the Commission, which states that Jett has not shown that racial discrimination occurred. The document also states that the law judge’s decision makes clear that she “examined the record for, and did not find, evidence of discriminatory treatment in the firm’s dealings with him that would bear on its approval or knowledge of the forward recon strategy.” The SEC also goes on to state that the discrimination claims Jett makes were vague and unsubstantiated.
Jett says he’s still waiting for resolution for a case that will probably end up going to the 3rd Circuit Court of Appeals. While the decade-long battle continues, Jett seeks to pick up the pieces and repair his shattered reputation. He currently manages an offshore hedge fund, the value of which Jett wouldn’t disclose. Though he is optimistic about the future, it remains to be seen if this once-bright star can recapture his former luster.
Despite his own troubles, Jett, who was classmates with Bond at Harvard Business School and Ingram at MIT, says it was devastating to see what happened to both of them. “Bu
t, one must understand that there are two standards of laws in this country,” says Jett. “There is a standard of law where if you are white, you get away with it. If you are black, you end up in jail. … You talk about Alan Bond cherry-picking. Let’s look at Jack Welch [former CEO of GE] taking a corporate jet, boondoggles everywhere, apartments paid for.…He gets away with all of it.”
But the actions of Bond and others irreparably damaged a number of investors’ nest eggs as well as had an adverse impact on African Americans on the Street, particularly the black-owned investment firms. Christopher Williams, CEO of Williams Capital Group L.P. (No. 1 on the BE INVESTMENT BANKS list with $126.3 billion in total managed issues), says while there are charges against African Americans, there are people of other races who have faced similar allegations. He asserts that these isolated cases should never speak to the integrity of an entire group. “I would hope that the pension funds and plan sponsors would look at each individual and each organization separately, judging them on their own merit,” he maintains. “I would hope that [these indictments] do not have an impact because there are good and bad people in the industry and there will continue to be good and bad people in the industry.” B
— Additional reporting by K. Terrell Reed, Jeffrey McKinney, and Matthew S. Scott