Florida congressman Grayson a victim of $18 million stock scam

Victims of $35 million scam put up securities as collateral for loans – and the stocks were sold without their permission

Dec 12, 2013 @ 12:57 pm

By Mark Schoeff Jr.

One of the wealthiest members of Congress was the most prominent victim of a stock fraud that blew up, sending its perpetrator to jail.

Rep. Alan Grayson, D-Fla., lost $18 million in a scheme conducted by William Dean Chapman of Sterling, Va., who offered loans to customers who used their stocks as collateral. Mr. Chapman, who was sentenced to 12 years in prison last week, defrauded his clients of $35 million in an operation that totaled $270 million.

The fact that Mr. Grayson was ripped off shows that it isn't just retirees and mom-and-pop investors who get cleaned out by fraudsters, according to a spokesman for state regulators.

“If Alan Grayson can fall victim to a scheme, anyone can,” said Bob Webster, director of communications at the North American Securities Administrators Association. “Wealth does not protect you against financial fraud.”

Mr. Grayson first invested money with Mr. Chapman in 2003, before he was elected to Congress.

Mr. Chapman was supposed to hold onto Mr. Grayson's stock and return it, along with any gains, when the congressman's loan matured.

But Mr. Chapman sold Mr. Grayson's stock without the congressman's permission, and he wasn't able to repay him, according to Lauren Doney, the congressman's spokeswoman.

Mr. Chapman's attorney Pleasant Sanford Brodnax III of the Law Office of Pleasant Brodnax III didn't return a phone call seeking comment. His loss was first reported by the Associated Press.

Prosecutors accused Mr. Chapman, the owner of Alexander Capital Markets, of selling 122 clients' stock collateral rather than engaging in legitimate hedging.

Over time, the fund was unable to return stocks or cash when loans came due, and the company became insolvent in April 2008. Nonetheless, Mr. Chapman continued to make loans, using the proceeds to pay other borrowers and operating costs. In addition, he used some of the money for personal purchases, such as a $3 million home in the Virginia suburbs of Washington, condominiums in Florida and the Caribbean, and Lamborghini and Ferrari sports cars.

The downfall of Mr. Chapman's fund started when Mr. Grayson's stock achieved remarkable performance, according to court documents.

Mr. Chapman contributed $3.8 million to the fund, but it wasn't enough to keep up with Mr. Grayson, whose return on equity for his securities in 2007 was 1,372%, according to a court document.

“The monies owed to one spectacularly successful investor, A.G., ACM's inability to obtain further capital beyond Chapman's $3.8 million, and, most importantly, Mr. Chapman's lack of complete transparency with borrowers after 2008 provide context to the fraud committed by Mr. Chapman,” a court document states.

In other documents, court officials identified “A.G.” as Mr. Grayson.

Mr.Chapman initially sought to do business with Mr. Grayson because he brought big assets to the table.

Mr. Grayson is the 21st wealthiest member of Congress and has a net worth of $16.69 million, according to a survey by the publication Roll Call.

“Chapman saw the relationship as an amazing opportunity because the deals with A.G. were so large,” a court document states.

Although Mr. Grayson knows how to pick stocks, he chose poorly in selecting the person with whom to do business.

“Here's someone who has financial acumen, knows what he's doing and still stumbled into a scheme,” Mr. Webster said. “You never know when you're going to run up against someone who's out to do harm.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

May 02

Conference

Women Adviser Summit

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Is Fidelity competing with retirement plan advisers?

As the Boston-based mutual fund giant expands the products and services it brings to the retirement market, some financial advisers say the firm is encroaching on their turf.

Gun violence hits investment strategies, sparks political debates with advisers

Screening out weapons companies has limited downside.

Whistleblower said to collect $30 million in JPMorgan case

The bank did not properly disclose that it was steering asset-management customers into investments that would be profitable for JPMorgan Chase.

Social Security underpaid 82% of dually entitled widows and widowers

Agency failed to tell survivors that they could switch to a higher retirement benefit later.

If Finra eases firm oversight of outside business activities, broker-dealers could lose revenue

Brokerage firms would no longer be able to charge reps for supervising nonaffiliated RIAs.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print