Montana Ponzi Scheme Investigation Continues

By | October 6, 2009

The state and a court-appointed receiver continue to inventory the assets of two Polson men and their companies as they seek to recover money for those who invested in what the state calls a $14 million Ponzi scheme.

Keith Kovick and Robert Congdon and their businesses, Cornerstone Financial Corp. and K & B Investments, are the subjects of an administrative action by the state commissioner of securities and insurance.

The state has also referred the matter to federal authorities, said Lynne Egan, deputy securities administrator.

During a recent court hearing in Helena, District Judge Kathy Seeley extended a preliminary injunction against Kovick, Congdon and their businesses, admonishing them against selling securities in Montana, disposing of any assets or harassing any of the alleged victims. The court also ruled that the men and their businesses must request in writing any funds they need to pay personal expenses.

All the parties agreed to extending the injunction.

“We’re trying to get our arms around what assets are out there and what assets can be used, if any, to help people who were victimized,” Egan said.

Billings attorney Eric Nord is the court-appointed receiver, tasked with finding the assets that might be sold to repay creditors.

“A lot of the assets are encumbered and it’s going to be rather difficult to find any assets that are unencumbered at this point,” Nord said.

Court records detail a list of commercial property, land, houses — including one on Flathead Lake — trailer houses, vehicles and boats that the men or their businesses have an interest in.

The list of dozens of vehicles owned by Robert Congdon and his wife include a 2003 red Corvette convertible, a 1978 Ferrari with the personalized license plate SPOILT, a handful of pickup trucks and three boats. Kovick is listed as the owner of more than a dozen vehicles include four Porches, two BMWs — one with the personalized plate HUUDADY — and two boats.

Congdon also provided a list of assets during the Sept. 22 hearing on extending the injunction.

“Mr. Congdon has been cooperative,” Nord said.

The agency alleges Cornerstone, K & B Investments, Kovick and Congdon — none of which was registered to sell securities in the state — connected investors with investment opportunities, generating a 10 percent commission on each deal.

The department’s investigation found Cornerstone, Kovick and Congdon made at least 181 offers of unregistered securities for an aggregate investment of $14.3 million, generating just over $1.3 million in commissions. The agency alleges Cornerstone was also keeping in its accounts money it collected as the first year’s interest, rather than putting it in escrow as they promised.

The agency alleges that by 2008, Cornerstone was operating a Ponzi scheme, seeking new investors to pay older investors and falsely telling new investors that their investments were secured by an interest in property worth more than the investment. In some cases the property was worth less than the loan and as things unraveled, the investments were not secured by any real property.

“I think that Mr. Kovick and Mr. Congdon were doing a good business as mortgage brokers,” Nord said. “I think it was when they personally got involved in investing in real estate for their own interests, that’s where the problem began.”

Earlier investors had good experiences with Cornerstone and referred others.

“A simple phone call to our office by one of the Cornerstone investors would have put us on alert years ago,” Egan said. “We didn’t have a single complaint. As long as the economy was booming, this thing could stay afloat.”

Egan said the securities commissioner received the first complaint in September 2008, and those duped include the elderly and disabled.

Three investments caused particular problems.

Cornerstone offered investments totaling $340,000 in a subdivision near Three Forks. The developers filed for bankruptcy in July 2008 and investors have been unable to foreclose on the property.

In another case, Cornerstone offered investments totaling $3 million on land in Gallatin County that Cornerstone said was worth $1.5 million. A recent appraisal indicates the land is worth $270,000. The property securing the notes is in foreclosure.

In a third case, Cornerstone sought $1.2 million in investments in a property that Cornerstone said was worth more than the aggregate investment, but the property was only valued at $895,000 and is now in foreclosure.

A phone listing for Kovick in Polson rang just twice, but no one picked up. Congdon does not have phone listing in Polson and state officials said he does not have an attorney.

Nord has a motion pending with the court to approve a process for investors to make claims in the case.

“In the meantime, we’re going to continue discovery with respect to the principals and others involved in these matters to find out what assets may be available,” he said, adding he hoped to have the case wrapped up within a year.

“I’d like to make interim distributions to the creditors along the way,” he said.

Was this article valuable?

Here are more articles you may enjoy.