Monica Coleman, the former stockbroker accused of defrauding investors of more than $3 million, is under criminal investigation by the Maryland attorney general's office.
Attorney General J. Joseph Curran Jr. said the investigation -- undertaken in the aftermath of last spring's collapse of Coleman's company, Coleman Craten LLC -- is aimed at deterring fraud by brokers and returning money to investors.
"There are strong indications that more than $3 million has been lost by investors," Curran said. "We allege that she did act as an unregistered investment adviser and that there were false filings. These are all securities violations, and those actions do rise to the level of defrauding investors."
Coleman Craten LLC, which touted financial planning and brokerage services in a stately downtown club, opened its doors at 7 E. Redwood St. late last year with a gala that featured violinists, champagne, caviar and big band music.
While the company spent lavishly on its debut and new home, brokers found their paychecks bouncing. Soon thereafter, employees, investors and contractors filed lawsuits seeking more than $4 million they said they were owed.
In May, the company and Coleman filed for bankruptcy protection, and the attorney general's Securities Division shut down the firm, alleging that Coleman and her company had violated securities laws. Coleman and the company are in liquidation proceedings.
Coleman and her company are now confronted by two attorney general investigations -- one criminal and one civil -- two bankruptcy cases and about 10 civil suits.
The criminal investigation was first disclosed by Coleman's lawyer, Cornelius Carmody, in documents filed in the case brought by the Securities Division.
Attempts to reach Coleman were not successful. In the past, Coleman has consistently denied wrongdoing.
John Craten, the company's co-founder and Coleman's former colleague at Legg Mason Wood Walker, said he is not the subject of a criminal investigation. He said he transferred his interest in the business to Coleman early this year.
"This was her idea and her company; in my mind, I was an employee," said Craten, who declined to comment further.
The criminal investigation comes as the bankruptcy trustee searches for assets to repay investors and creditors who are owed an estimated $5 million to $10 million.
"There are still pieces of the puzzle out there," said Lori Simpson, the bankruptcy trustee.
So far, Simpson has generated about $1 million from the sale of assets in the two bankruptcy cases.
Among those assets are Coleman's two waterfront homes in Pasadena that the trustee sold for $900,000.
The biggest creditors are a Towson couple who say they lost the $2 million in life savings they invested with Coleman.
Testimony in the bankruptcy case alleges that Coleman spent $400,000 of their money to renovate the company's offices and $300,000 for other expenses.
In a lengthy deposition on the company's operations, Justine Bivins, Coleman Craten's former chief operating officer, said Coleman falsely told the couple, James and Carol Hyde, that their money was safely invested.
"And Mr. Hyde said, `You know, Monica, you have our life savings and we're too old to go back to work,' " Bivins testified. "So I'm sitting there, I'm going, oh, my God! And so I look over at Mrs. Hyde and she's like crying, but very softly."
For her part, Coleman has accused Simpson of negligence, fraud and misrepresentation. Among Coleman's accusations are that Simpson falsely testified that she had uncovered evidence of a scheme to divert creditors' assets to family accounts, and thwarted a $5 million loan that, she said, would have saved the business.
Simpson denied the accusations. "This is just Monica's attempt to divert attention from her own misdeeds," said Martin Fletcher, an attorney for Whiteford, Taylor and Preston LLP who represents Simpson.
Although the Hydes are out the most money, the Securities Division, in civil charges filed against the company and Coleman, said Coleman fraudulently obtained $650,000 from brokerage Charles Schwab & Co. and used $300,000 of that money to pay off a mortgage on a beach home across the street from her former residence in Pasadena.
Charging that Coleman and her company "engaged in a misappropriation of investment monies," the division is seeking to fine Coleman, permanently shut her company, revoke her license and bar her from the securities and investment advisory business in Maryland.
The exact focus of the criminal investigation was not clear last week. Curran said only that the investigation continues and that it may touch on people other than Coleman. He declined to discuss possible criminal sentences.
"We're continuing to look at securities violations and civil sanctions that may or may not be available, and there may or may not be other persons involved," he said.