COLEMAN CRATEN FALL:

Investors Buy Into Promises

by Lisa McChristian
     FEW BUSINESS FAILURES have received the attention accorded Coleman Craten, LLC. The high-flying investment “club,” once in swank quarters, is now in Chapter 7 bankruptcy proceedings, as is owner Monica Coleman.
     On June 23, the company’s luxurious furnishings, computers and phones, and even a 40’ U-shaped mahogany bar were auctioned off, putting $90,000 into the creditors’ kitty--against the firm’s total estimated indebtedness of about $6 million.
     In hindsight, the short-lived company’s downfall appears to have been easily predictable. According to the Maryland Securities Commissioner’s Summary Order to cease and desist all activities, Coleman and her company violated the Maryland Securities Act by functioning as unregistered broker-dealers and investment advisors.
     The Order further charges that Ms. Coleman promised some investors they would receive above-market rates of return (more than 30% annually) and would receive investment incentives such as personal guarantees of payment and payment of costs associated with liquidating other investments.
     Some investors were also told they could liquidate and withdraw their investments at any time without penalty and that their investments were risk-free.
      Though in hindsight such extravagant promises should have been warning signs, investors were willing to believe them. The company’s seeming prosperity, along with Ms. Coleman’s appearance of wealth, including several waterfront homes, her claims of owning several small businesses, and her substantial gifts to charity, apparently helped sway doubters.
      The company began to unravel almost immediately. Investors had difficulty withdrawing their funds from the company. Those who had been promised monthly payments began experiencing delays. Checks issued by Coleman Craten representing investment withdrawals or interest payments were frequently returned for insufficient funds.
      “Ms. Coleman misrepresented the investments she sold...and misled her clients,” Attorney General J. Joseph Curran, Jr. said in a statement to the press. “For a broker to behave in this manner poses a great danger to the client who may not understand that their entire financial being may be at risk.”
      Coleman and partner John G. Craten brainstormed the idea of a financial club while both were employed at Legg Mason, Inc. Before Coleman Craten LLC was formally created, investors were encouraged to liquidate their investments with Legg Mason and invest with Coleman Craten.
     Coleman Craten threw an extravagant party on Dec. 5, 1998 to introduce itself to Baltimore’s business community. The financial club, which occupied several floors at 7 East Redwood Street, contained lavish offices, a bar/restaurant, a library and an elaborate gym. The renovations cost an estimated $300,000.
      As of this writing, 11 lawsuits are pending against Coleman Craten. One suit, from Charles Schwab & Co., alleges that Coleman Craten deposited a bad check for $650,000 with Schwab and then attempted to draw funds against it over a one-month period.
     
     


Attorney General Curran advises anyone who invested with Coleman Craten LLC to contact the Maryland Division of Securities at (410) 576-6417.


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This story was published on June 30, 1999.