Injunction allows record search of Polson firm
Special to the Inter Lake
Probe continues into alleged Ponzi scheme involving $15 million
POLSON - Montana Insurance Commissioner Monica Lindeen says she has negotiated a preliminary injunction to open the records of a Polson company in an alleged Ponzi scheme.
The investigation involves the sale of unregistered high-yield promissory notes to more than 100 investors and nearly $15 million in investments.
State officials reached an agreement with Cornerstone Financial Corporation owners Keith Kovick and Robert Congdon and will move forward with inventorying and designating thousands of dollars in assets owned by the pair to determine what can be sold and recovered for investors.
In March, the Cornerstone partner/owners were handed a temporary restraining order on those assets for their alleged involvement in a $3 million deal with D and D Property Management from Belgrade.
Last week, Lindeen's office announced a deal had been reached out of court changing the temporary restraining order to a preliminary injunction, which will stand for a year.
The original order alleged Cornerstone put up investors' money as collateral on four 160-acre tracts of land in Gallatin County, and that the promissory notes were securitized by misrepresented features of the land and inflated land values. Investors say none of the promised upgrades have been made to the land.
The preliminary injunction continues to include D and D owners Dan Klemann and Dan Wolsky.
Kovick and Congdon also are named in state legal action for their alleged involvement in committing securities fraud in the form of a Ponzi scheme including more than 100 investors with investments totaling more than $14.4 million in 181 unregistered securities.
This action also names K and B Investments, which is owned by Kovick and Congdon.
Lindeen's office has been investigating the case since fall 2008, when complaints of defaulted notes and payments began to pour in.
A court receiver, to be appointed in the next 10 days, will go through the records of Cornerstone Financial Corporation, Congdon and Kovick to create a work plan to inventory the assets and determine what can be put up for sale.
Lindeen's office has asked that District Judge Loren Tucker in Virginia City be appointed as receiver.
Deputy Securities Commissioner Lynne Egan called the work "a daunting task" unlike any the department has seen before because the assets are not limited to dollars.
A hearing has been set for January to address the administrative allegations brought by Lindeen's office.
Included in the department's action is a list of seven Montana Securities Act fraud provision violations allegedly committed by Kovick and Congdon.
These violations include allegations that the company mingled investor funds with Cornerstone's operating funds rather than escrowing investor funds as promised, and the company's alleged failure to disclose to investors how the proceeds of their investments would be used.
The respondents have made available recently to investigations of business documents and computers of Cornerstone Financial and affiliated companies meaning the investigation is ongoing.
The number of investors who are complaining of losing money through Kovick and Congdon has inched up in the past several months, Egan said. Her office plans on amending its action to include extra findings.
"This matter is substantial and we continue to look at information," Egan said on Tuesday. "Dollar amount of wrongdoing will go up when other people come forward."
She continued to urge anyone with questions or concerns about investments or securities to contact the state Securities and Insurance office at 1-800-332-6148.
The Associated Press contributed to this story.