Editor's note: Any "Elder Cleansing" involved with this guy? Lucius Verenus, Schoolmaster, ProbateSharks.com
Chicago money manager Stephen Coleman charged with fraud
Stephen Messiah Coleman, Chief Investment Officer of Daedalus Capital LLC at his home in Chicago on Wednesday, May 7. (Zbigniew Bzdak / Chicago Tribune / May 7, 2014)
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Illinois regulators have charged Daedalus Capital LLC founder and chief investment officer Stephen Messiah Coleman with fraud, claiming in a civil action that the money manager sold improper investments and acted as an unlicensed adviser.
Coleman had earlier been the subject of an investigation by Missouri securities regulators. He moved to Chicago two years ago from St. Louis and has been running advertisements in theater programs, promising to double investors’ money in five years or less regardless of market conditions.
In a “temporary order of prohibition” dated May 16, the Illinois Securities Department prohibited Daedalus for selling securities, namely the Deuce and Alpha, for 90 days effective May 16 subject to further order from the state. Coleman has 30 days to request a hearing after having been served the order. If he doesn’t, the order can become final.
“On the Illinois matter, I have no comment today,” Coleman said Friday morning. The Illinois securities division, which brought the charges, also declined to comment on Friday.
Missouri, where Coleman had lived for most of his life, had prohibited him from selling securities. That state’s securities commissioner had found that Coleman had committed fraud, a ruling that a division spokesman said was upheld by circuit and appeals courts in the state. But an administrative hearing commissioner looking into whether Coleman had violated professional conduct standards rejected charges in 2010 that Coleman had misled people who invested in a related company, saying financial arrangements were disclosed in documents. In another legal proceeding in 2012, a Missouri county court ruled that no evidence was presented that Coleman’s investors lost money, but it fined him and Daedalus $50,000 and found he committed fraud after selling unregistered securities and acting as an unregistered investment adviser, in violation of securities laws.
Illinois is charging him with fraud in the offer and sale of securities; the offer and sale of unregistered securities; fraud in offering investment advice; and acting as an unregistered investment adviser.
Deuce is a "debt security" that seeks to double its money in five years. A copy of the Deuce agreement on Daedalus' website prominently states that the security isn't registered with the SEC or any state securities laws.
Coleman has accepted $346,000 from four Deuce investors, but the vehicle has an undisclosed $248,404 unfunded liability, Illinois said in its eight-page order.
Coleman and Daedalus “omitted to inform investors that they had insufficient assets to cover projected liabilities to current investors,” Illinois said.
Daedalus had assured at least one Deuce investor in January that it was “highly confident” that it would be able to fulfill its obligations, the state of Illinois said.
Although the Deuce agreement, as well as that for Alpha, discloses that the state of Missouri had fined Daedalus $50,000 for selling unregistered securities, the agreement failed to say that the penalties were unpaid, the state of Illinois pointed out. The Deuce and Alpha agreements also didn’t mention federal tax liens filed against Coleman, the state said.
Securities sold in Illinois must be registered unless they receive exemptions.
“Daedalus is not using an exemption from registration,” Illinois securities regulators quote Coleman as saying under oath in February 2014. “We did not seek registration of the Deuce because it is borrowed money, like a bank loan.”
Another Daedalus investment is Alpha, which invests in up to five stocks. Coleman told the Tribune on May 7 for a story that ran May 18 that clients give him their usernames and passwords to allow him to manage money in their accounts, a practice known as proxy trading. Coleman said that was one reason he didn’t need to be registered.
In its May 16 complaint, the state of Illinois says it’s typical industry practice to file a limited power of attorney with a broker dealer granting the money manager the power to execute trades in the customers’ accounts.
The state of Illinois said Coleman essentially misrepresented himself as the account’s owner. The state said it suspects that Coleman did so because he was afraid that the broker dealer might not do business with him given his past history with regulators.
Also, by acting in such a manner, Coleman was acting as an investment adviser despite not being registered, the state of Illinois said.
Coleman, who declined to comment on Illinois’ actions, on Friday called the Missouri actions “a rigged game.”
“This was nothing simple or benign,” he said. “It was evil in my eyes.
“Do not get lost in the muck,” Coleman told the Tribune on Friday. “The truth that brought Daedalus to your attention endures: Daedalus Capital LLC promises a return of 100 percent or more to our clients, in five years or less, regardless of general market conditions."
byerak@tribune.com
Coleman had earlier been the subject of an investigation by Missouri securities regulators. He moved to Chicago two years ago from St. Louis and has been running advertisements in theater programs, promising to double investors’ money in five years or less regardless of market conditions.
In a “temporary order of prohibition” dated May 16, the Illinois Securities Department prohibited Daedalus for selling securities, namely the Deuce and Alpha, for 90 days effective May 16 subject to further order from the state. Coleman has 30 days to request a hearing after having been served the order. If he doesn’t, the order can become final.
“On the Illinois matter, I have no comment today,” Coleman said Friday morning. The Illinois securities division, which brought the charges, also declined to comment on Friday.
Missouri, where Coleman had lived for most of his life, had prohibited him from selling securities. That state’s securities commissioner had found that Coleman had committed fraud, a ruling that a division spokesman said was upheld by circuit and appeals courts in the state. But an administrative hearing commissioner looking into whether Coleman had violated professional conduct standards rejected charges in 2010 that Coleman had misled people who invested in a related company, saying financial arrangements were disclosed in documents. In another legal proceeding in 2012, a Missouri county court ruled that no evidence was presented that Coleman’s investors lost money, but it fined him and Daedalus $50,000 and found he committed fraud after selling unregistered securities and acting as an unregistered investment adviser, in violation of securities laws.
Illinois is charging him with fraud in the offer and sale of securities; the offer and sale of unregistered securities; fraud in offering investment advice; and acting as an unregistered investment adviser.
Deuce is a "debt security" that seeks to double its money in five years. A copy of the Deuce agreement on Daedalus' website prominently states that the security isn't registered with the SEC or any state securities laws.
Coleman has accepted $346,000 from four Deuce investors, but the vehicle has an undisclosed $248,404 unfunded liability, Illinois said in its eight-page order.
Coleman and Daedalus “omitted to inform investors that they had insufficient assets to cover projected liabilities to current investors,” Illinois said.
Daedalus had assured at least one Deuce investor in January that it was “highly confident” that it would be able to fulfill its obligations, the state of Illinois said.
Although the Deuce agreement, as well as that for Alpha, discloses that the state of Missouri had fined Daedalus $50,000 for selling unregistered securities, the agreement failed to say that the penalties were unpaid, the state of Illinois pointed out. The Deuce and Alpha agreements also didn’t mention federal tax liens filed against Coleman, the state said.
Securities sold in Illinois must be registered unless they receive exemptions.
“Daedalus is not using an exemption from registration,” Illinois securities regulators quote Coleman as saying under oath in February 2014. “We did not seek registration of the Deuce because it is borrowed money, like a bank loan.”
Another Daedalus investment is Alpha, which invests in up to five stocks. Coleman told the Tribune on May 7 for a story that ran May 18 that clients give him their usernames and passwords to allow him to manage money in their accounts, a practice known as proxy trading. Coleman said that was one reason he didn’t need to be registered.
In its May 16 complaint, the state of Illinois says it’s typical industry practice to file a limited power of attorney with a broker dealer granting the money manager the power to execute trades in the customers’ accounts.
The state of Illinois said Coleman essentially misrepresented himself as the account’s owner. The state said it suspects that Coleman did so because he was afraid that the broker dealer might not do business with him given his past history with regulators.
Also, by acting in such a manner, Coleman was acting as an investment adviser despite not being registered, the state of Illinois said.
Coleman, who declined to comment on Illinois’ actions, on Friday called the Missouri actions “a rigged game.”
“This was nothing simple or benign,” he said. “It was evil in my eyes.
“Do not get lost in the muck,” Coleman told the Tribune on Friday. “The truth that brought Daedalus to your attention endures: Daedalus Capital LLC promises a return of 100 percent or more to our clients, in five years or less, regardless of general market conditions."
byerak@tribune.com
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