McLEAN, Va. (AP) — U.S. Rep. Alan Grayson of Florida lost $18 million in a scheme that cheated him and about 120 other investors out of more than $35 million, according to court papers.
The Virginia man who ran the scheme, William Dean Chapman, was sentenced Friday in federal court to 12 years in prison. Prosecutors say Chapman used the money to fund a lavish lifestyle including a Lamborghini, a Ferrari and a $3 million home.
In most of the court papers, Grayson's identity is protected — prosecutors say only that an elected official with the initials A.G. was the primary victim — but documents twice mention Grayson by name. The Democratic congressman on Monday confirmed he is the A.G. mentioned in the documents.
Nothing in the court papers suggests Grayson was anything but a victim of the scheme. Grayson, a former trial attorney, said he has had a long record for picking winning stocks, which formed the basis for his personal fortune.
The scheme worked like this: clients would turn over their stocks to Chapman as collateral for a loan, and Chapman would let customers borrow about 90 percent of the stocks' value.
If the stocks did badly, borrowers could walk away and keep the money they were loaned. But if the borrowers' stocks did well, they would repay the loan with interest, and Chapman was supposed to return the stocks to the investor at their increased value.
But, according to court papers, Chapman sold the stocks and had no way to fulfill his obligations if a client's stock portfolio did well.
"That's why (Chapman) is going to prison for a long, long time," Grayson said. "At least in the end, some kind of justice was served."
In Grayson's case, his stocks performed astronomically well while they were entrusted to Chapman and his company, Alexander Capital Markets.
Lawyers for Chapman said it was the strength of Grayson's stocks that caused Chapman's scheme to crumble. Chapman and Grayson negotiated a payment plan, according to court records, but it was not enough to keep Chapman's positions from collapsing.
"Because the return on A.G.'s commodities investments were so astronomical, ACM could not meet its obligations under the loan agreements," defense lawyer Whitney Minter wrote.
In 2007, Grayson had $9.35 million in a stock portfolio that Chapman was supposed to be holding as collateral. In that year alone, the portfolio's value increased by 147 percent, to $23 million, according to a chart in the court documents.