Coleman firm is ordered to liquidate

Bankruptcy judge finds there's little hope of a reorganization

Emergency hearing

The co-founder is being replaced with a trustee

May 14, 1999|By Bill Atkinson and Sean Somerville | Bill Atkinson and Sean Somerville,SUN STAFF

A federal bankruptcy judge issued an emergency order yesterday to force liquidation of Coleman Craten LLC, and to replace co-founder Monica L. Coleman with a trustee.

Judge Stephen E. Derby issued the order in response to a Towson couple's motion requesting conversion of the firm's Chapter 11 bankruptcy reorganization to a Chapter 7 liquidation. The couple has sued the firm and Coleman, alleging that they embezzled $2 million.

Derby -- citing a state attorney general's order Tuesday, which effectively halted the company's operations, critical press reports and a balance sheet with more than $5 million in debts and about $50,000 in assets -- said there was little hope of a reorganization.

"All of the objective factors indicate there is nothing here that is reorganization material," Derby said.

The judge also said his ruling relied on a provision in the federal bankruptcy code that makes stock brokerages ineligible to file for Chapter 11 reorganization.

Derby ruled after hearing testimony from Lori Simpson, the trustee in Monica Coleman's Chapter 7 personal bankruptcy case. Simpson said she believes that the firm's assets are being "flipped back and forth" among Coleman family accounts, according to a court document filed yesterday by investors James and Carol Hyde of Towson.

"There were bank records strewn around [Coleman's] house," Simpson testified, noting that she saw personal and company documents on chairs and tables and under beds. "The premises were -- to put it in the vernacular -- trashed."

"This gave me great cause for concern that assets might be moved," Simpson testified.

She also told the court that she discovered an unidentified account register with entries totaling $500,000 and a deposit slip from early May for $400,000.

The Hydes' motion alleged that Simpson said she was told by Coleman's father that Coleman has continued "to remove records" from the downtown financial firm's premises.

Simpson also said "written evidence exists of a pending scheme to hide assets and to frustrate" investigations by the Securities and Exchange Commission and the Maryland attorney general, the Hydes' motion states.

Simpson's testimony is the first indication that the SEC is investigating the case. A spokesman for the agency would neither confirm nor deny the existence of an investigation yesterday.

Cornelius Carmody, Coleman's attorney, said there was no evidence of destruction of records and no evidence that money was transferred. Citing press reports of his client's troubles, he called the matter "trial by journalism."

"There has been no clear and convincing evidence of any kind of fraud," Carmody said.

Carmody, who asked the judge to postpone his ruling until next week, called the case "an unsettling smoking gun that gives anybody pause."

The Hydes' motion is the latest installment in the saga of Coleman Craten, a 15-month-old financial advisory firm. Coleman and the firm face 10 lawsuits seeking more than $4 million, including three suits filed by investors who allege that she defrauded them.

On Tuesday, Maryland Securities Commissioner Melanie Senter Lubin ordered Monica Coleman and Coleman Craten to immediately stop selling securities and advising investors.

The order alleges that Coleman and the firm committed fraud and violated securities laws. It also seeks to fine Coleman, revoke her license and permanently bar her from the industry.

The securities agency has expanded its investigation of Coleman and has subpoenaed bank records of Coleman's mother, husband and son.

Coleman Craten filed for Chapter 11 reorganization Tuesday, a move that ousted a court-appointed receiver and restored Coleman's control of assets.

In the Chapter 11 case, the firm listed unsecured claims of $5,968,000 and assets of less than $50,000.

Coleman had filed for personal bankruptcy May 7 and estimated creditors to number between 16 and 49. She listed assets and debts ranging from $1 million to $10 million.

Nancy Alquist, the lawyer for the Hydes, called yesterday's ruling a victory. "It means there will be oversight of the morass that has become Coleman Craten," she said.

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