Fla. firm cuts link to brokerage

Coleman Craten, accused of fraud, `permitted to resign'

2 suits `raised red flags'

City start-up's plan to merge with another company also fails

Securities industry

April 20, 1999|By Sean Somerville | Sean Somerville,SUN STAFF

Less than a week after allegations surfaced that Coleman Craten LLC defrauded Charles Schwab & Co. and a Howard County couple of nearly $1.2 million, a Florida trading firm has stopped doing business with the Baltimore firm.

Corporate Securities Group had executed securities trades for the downtown firm since it opened last year -- a typical arrangement for start-up brokerages like Coleman Craten, said Joel E. Marks, vice chairman of the Boca Raton, Fla.-based firm.

But Marks said yesterday that reports of two lawsuits containing the allegations in The Sun last week "raised red flags around here." After first saying that Coleman Craten "was terminated," Marks said the Baltimore firm "was permitted to resign."

The relationship ended as the Baltimore firm's plans for a merger with a Tampa, Fla., brokerage also unraveled.

Coleman Craten issued a two-paragraph statement yesterday announcing that it is "in the process of a merger with G. L. Barrett and Associates." Two hours later, Rick Barrett, the managing director of the Tampa brokerage, said the deal was off.

"After looking at the circumstances at this point, we've decided to disengage," he said, declining to offer additional comment.

Monica L. Coleman and John G. Craten, the Legg Mason veterans who founded the firm last year, did not return calls seeking comment yesterday.

It was not clear after the termination of the relationship between Coleman Craten and Corporate Securities Group whether Coleman Craten was able to execute stock trades.

Coleman Craten does not have the appropriate license with the National Association of Securities Dealers.

"I imagine it's going to be difficult for them to go anywhere right now," Marks said yesterday.

Marks said Corporate Securities Group will continue to respond to Coleman Craten clients' requests to sell and buy securities, but that it will not do business with Coleman Craten brokers.

CSG's action comes a week after Schwab alleged in a suit seeking $431,000 that Coleman Craten deposited a bad $650,000 check and drew funds against it; and a month after Jean K. Aziz and Dr. Shahid Aziz accused the company of a "Ponzi scheme" that defrauded them of $765,000.

The company attracted attention last year by announcing that it would open a luxurious financial club with a bar, restaurant and other facilities for clients. The company opened its doors with a lavish party in December after spending $300,000 on renovations at a city-owned building at 7 E. Redwood St.

Marks, the Corporate Securities Group vice chairman, said Coleman Craten approached its subsidiary J. W. Genesis Clearing Corp. last year -- a typical course of action for starting brokerages that are not yet licensed as broker-dealers.

Genesis agreed to clear trades placed by individual Coleman Craten brokers, in effect giving them a platform to sell and buy stocks for their clients. That arrangement would have lasted until Coleman Craten received its own license -- which never happened.

Marks said he was unsure when the arrangement began or how many Coleman Craten brokers Corporate Securities Group was working with because he did not have appropriate records available. But he said Coleman Craten has done very little trading.

"The volume with us has been minimal," he said.

When the firm opened last year, Coleman Craten said it had $500 million under management and that it had planned to hire 400 people by June. It is not clear how many people the firm employs.

"They came to us with a grandiose plan to build a big firm," Marks said. "They never got to that point."

Pub Date: 4/20/99

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