State moves to shut down Coleman firm

Commissioner seeks to fine co-founder, bar her from industry

Danger to clients alleged

Coleman Craten files for Chapter 11, dislodging the receiver

Securities industry

May 12, 1999|By Bill Atkinson | Bill Atkinson,SUN STAFF

In a move that appears to halt the investment operations of Coleman Craten LLC, the Maryland securities commissioner yesterday ordered the troubled financial advisory firm and its co-founder Monica L. Coleman to immediately stop selling securities and advising investors.

Stating that Coleman and the firm committed fraud and violated Maryland securities laws, Commissioner Melanie Senter Lubin also is seeking to fine Coleman, revoke her license and permanently bar her from the industry.

"The whole purpose is to shut her down," said Attorney General J. Joseph Curran Jr. "Ms. Coleman misrepresented the investments she sold -- and misled her clients. For a broker to behave in this manner poses a great danger to the clients, who may not understand that their entire financial well-being may be at great risk."

Curran said the summary order issued by the commissioner, who is part of the attorney general's office, does not preclude further state action.

The order is the latest installment in a series of rapid-fire developments as the firm unravels. Earlier yesterday, Coleman Craten filed for Chapter 11 bankruptcy protection, a move that ousted a court-appointed receiver and restored Coleman's control of any assets.

The receiver had been named Friday by Baltimore Circuit Judge Joseph H. H Kaplan at the urgent request of a Towson couple, who accused Coleman and the firm of embezzling more than $2 million they had entrusted to her to invest.

Also Friday, Monica Coleman filed for Chapter 7 bankruptcy liquidation, which halted the scheduled auction of her two waterfront homes in Pasadena, one of them her residence.

In the Chapter 11 petition, filed in U.S. Bankruptcy Court in Baltimore, the 15-month-old firm listed unsecured claims of $5,968,000 and assets of less than $50,000.

Nancy V. Alquist, a lawyer representing James R. and Carol J. Hyde, the Towson couple that sought the receiver, said the bankruptcy filing was not a surprise.

"We are disappointed that the receivership is stayed, but we are happy that this matter will continue in a forum in which there is court oversight," she said. "Frankly, if we hadn't sought a receiver, we probably would have considered involuntary bankruptcy anyway. Bankruptcy is a fishbowl. There is oversight and accountability, and that is what we want."

The Chapter 11 filing puts the firm under federal jurisdiction, which effectively removes the receiver appointed by the Circuit Court and puts Monica Coleman back in charge of the firm's assets, bankruptcy experts said.

The receiver, G. Richard Gray, president of Hunt Valley-based Financial Conservators Inc., said he received notification of the bankruptcy midday yesterday. "I just cleaned out my things and went home," he said.

Cornelius J. Carmody, Coleman Craten's bankruptcy attorney, declined to comment.

According to the bankruptcy filing, the Hydes are Coleman Craten's largest unsecured creditors. They are listed as being owed more than $2 million.

Other creditors include John and Miriam Conelius of Savannah, Ga., listed as being owed $1.4 million; Shahid and Jean Aziz, a Columbia couple, at $700,000; Randall Jenkins, a former Coleman Craten broker, at $500,000; and John Craten, the firm's other co-founder, at $90,500.

The 20-page order, which was obtained by The Sun, says that Coleman, a former Legg Mason Wood Walker Inc. broker, persuaded investors to liquidate their investments and invest with her and the newly formed Coleman Craten. The order charges that Coleman violated securities laws by selling clients unregistered investments and guaranteeing above-market rates of return of more than 30 percent a year.

However, "investors experienced difficulty when they tried to withdraw their funds," according to a news release from the attorney general's office. In some cases, Coleman gave some investors checks representing withdrawals or interest payments on their accounts, but when those investors tried to cash the checks, they were returned because of insufficient funds, according to the release.

Coleman violated securities laws because neither she nor the firm was "lawfully" registered with the state as an investment adviser, but conducted a financial advisory business in Maryland anyway, the order states.

The order states that Coleman misrepresented her credentials and financial status to investors.

It also says that Coleman gave investors copies of a business plan for Coleman Craten that included income projections of $25 million for 1999.

Coleman made verbal representations that the business was prospering and that it could "reasonably expect to earn the kinds of above-market rates of return being promised to investors," the order said.

Coleman has 15 days to answer the charges contained in the state's order, and she and the company can request a hearing to contest the order.

Ellyn Brown, a Baltimore securities lawyer and the former state securities commissioner, said a move such as the state has made to permanently bar Coleman is rare.

"It is extremely unusual to see this on the `legitimate' side of the industry," Brown said. "This simply would not happen to someone of this background and credentials absent a very strong collective presentation of evidence that something is terribly wrong."

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