FOR FURTHER INFORMATION CONTACT
AUSA VICKIE E. LEDUC at 410-209-4885
JANURARY 18, 2006
FOR IMMEDIATE RELEASE
Chapman Company Senior Vice President Daniel Baldwin Sentenced for Securities Fraud
Defendant Used Investors’ Money to Purchase Risky eChapman Shares Without Consent
BALTIMORE, Maryland - United States Attorney for the District of Maryland Rod J. Rosenstein announces that today U.S. District Judge J. Frederick Motz sentenced Daniel Baldwin, Jr., age 50, of Baltimore, to 18 months in prison followed by 3 years of supervised release in connection with his guilty plea on October 14, 2005 to securities fraud. Judge Motz also ordered restitution in the amount of $100,00 to be paid within 90 days. Baldwin tendered $50,000 to the court at the sentencing in partial satisfaction of the restitution order.
According to the agreed statement of facts presented to the court, Baldwin was senior vice president at The Chapman Company (TCC), a securities brokerage company located in Baltimore. In the spring of 1999, eChapman.com was created to offer on-line financial services. On November 15, 1999 eChapman filed a registration statement with the U.S. Securities & Exchange Commission (SEC) announcing that it intended to hold an initial public offering (IPO) of 3,333,333 shares of its common stock at a price of between $14 and $16 per share. The subsequent prospectus for the eChapman IPO stated that an investment in the company should be considered “speculative and risky;” that TCC had suffered financial losses in recent years; and that eChapman was expected “to continue to incur significant losses for the foreseeable future.”
According to the agreed statement of facts, in late December 1999 and January 2000, few institutional investors were willing to commit to purchasing large quantities of eChapman stock. The planned IPO was postponed several times, the size of the projected stock offering was eventually cut by more than 60% and the share price was lowered to a final offering price of $13 per share. Nevertheless, Baldwin and other TCC employees could not line up sufficient purchase commitments so that all of the 1.26 million shares finally offered in the IPO would be fully subscribed by its ultimate opening date. Eventually, 308,000 shares, or almost a quarter of the eChapman stock offered in the June 2000 IPO, were purchased by, or placed into the accounts of, TCC clients for whom Baldwin was their registered representative.
The agreed statement of facts further provides that although Baldwin did discuss the IPO, eChapman’s general business plan and at least some if its potential risks with some of his clients before they agreed to invest in eChapman, he placed eChapman shares into the accounts of a number of his TCC clients without their prior express authorization and often without discussing the eChapman investment with them. With respect to the clients listed in the Indictment, whose accounts received 17,525 shares of eChapman stock at a total cost of $227,825, Baldwin defrauded these clients by various means, including: failing to advise the clients of the risky and speculative nature of the eChapman offering; placing shares of eChapman stock in customers’ accounts when this investment was inconsistent with their previously stated investment objectives and tolerance for risk; selling clients’ positions in other, less risky securities or mutual funds without authorization to raise funds or using reserves of cash to purchase eChapman stock; and purchasing eChapman shares using the margin portion of some clients’ accounts without their knowledge or authorization, resulting in some of these clients incurring substantial margin interest charges.
The customer accounts in which Baldwin placed eChapman shares without authorization included IRA accounts, accounts of elderly persons and individuals who had specifically requested that their funds be used for only low or moderate risk investments. Many knew nothing about investing or the stock market.
The eChapman IPO “closed” and public trading in the stock commenced on June 20, 2000. eChapman opened on the NASDAQ at just over $9 a share, falling almost $4 from the $13 IPO offering price in the first moments of trading. By the end of the day, eChapman was selling at just over $7 a share -- down 43% from the $13 offering price. By late December 2000, eChapman was trading at less than $3 a share; in early 2002, it fell to mere pennies per share. eChapman’s stock was subsequently delisted from trading on the NASDAQ Exchange.
Some of Baldwin’s customers complained about his unauthorized purchase of the eChapman stock for their accounts and their resulting losses. Baldwin did not offer to cancel the transactions, but instead made material misrepresentations about the likelihood that the stock would increase in value. He failed to state material facts relevant to the likelihood that the stock would recover its lost value, in order to persuade the customers to continue to hold on to the stock. In particular, Baldwin did not acknowledge that there was virtually no market interest in the stock, and that the stock held its value at $7 in the summer and fall of 2000 only because eChapman was itself buying up the stock at a set price for its own account as part of an undisclosed stabilization effort.
In September 2002, Baldwin made false statements in an interview with two FBI agents, and testified falsely in October 2002 before a federal grand jury investigating the eChapman IPO. Specifically, Baldwin falsely represented that he had spoken to each of his clients and obtained their authorization before purchasing eChapman stock for their accounts.
United States Attorney Rod J. Rosenstein thanked the Federal Bureau of Investigation and the U.S. Securities and Exchange Commission for their investigative work. Mr. Rosenstein praised Assistant U.S. Attorneys Jefferson M. Gray and Craig M. Wolff, who prosecuted the case.