The business was run by Polson businessmen Keith Kovick and Bob Congdon.
Last week, Helena District Court Judge Kathy Seeley signed a motion approving a claims submittal process that will allow investors to work toward recovering funds lost in the alleged scheme.
The process lays out a paperwork procedure beginning with a form (printed fully in Leader legals section on B14) claimants must complete. Approved claims could qualify investors to be reimbursed by funds generated after the assets of Kovick and Congdon are sold.
Receiver Eric Nord drew up the claims process.
Seeley moved in September to extend a preliminary injunction, first issued in March, freezing all Cornerstone and K&B assets as Nord continues to inventory and track the items.
Copies of completed forms must be sent to the District Court in Helena and to Nord by Dec. 30.
D&D Management and Property Development owners Dan Wolksky and Dan Klemann are also named as creditors in the submittal documents.
Recovering assets
The main job to secure restitution involves work by a court-appointed receiver, Nord, working to find, categorize and liquidate assets of Kovick and Congdon.
He said in early December he is continuing that slow process, creating an internal list of assets that is updated on a daily basis.
Nord is planning to file a motion before the end of the year to approve an auction to sell any qualifying assets. That motion will include the entire list of those assets.
Congdon and Kovick have been rumored to own an extravagant amount of properties and cars.
Nord said in an earlier interview many vehicles of value belonging to the men are liened, while others are not of substantial value.
One possible item on Kovick’s list of assets is a 20 percent share of a all beverage license held in Lake County.
There are a couple of options to liquidate that asset, Nord said. The share could be put up for sale, but generally people don’t like to be minority owners with people they don’t know.
The other option would to offer it to the other owners.
Nord’s work will continue as the administrative case moves forward, said John Mudd, a state attorney working on the case.
A call to schedule a hearing date was canceled on Tuesday.
“We are working hard to liquidate all the assets for investors to recover something of what they’re lost,” Mudd said. “The collapse of market had rendered a lot of their assets less marketable.”
Investigation details
The number of victims of the alleged scheme has grown throughout the year as state officials continued their investigation.
“A lot of these people filed complaints and a lot we found through out investigation,” deputy Securities Commissioner Lynn Egan said last week.
What began as several dozen holding defaulted notes grew to more than 100 by April.
That number is now steady, Egan said. A large portion of the now victims are from Lake and Flathead counties. As complaints flowed into the office and more people were found to be involved in Cornerstone business, the number of alleged securities fraud scheme investment deals grew.
Action filed under Montana Commissioner of Securities and Insurance’s office alleges the pair, among other charges, never registered with the Montana Securities Department to offer and sell their investment opportunities, as well as failed to disclose to investors how the proceeds of their investment would be used.
The Auditor’s Office is seeking fines and restitution.
Congdon during a November interview with the Leader that Cornerstone did not work with securities, but instead dealt in hard money lending, which doesn’t fall under the Auditor’s office regulation.
This kind of lending can be described as filling gaps left by more traditional bank and mortgage lending practices. Less regulated in some respects, hard money lending usually attracts people who need quick bridge financing or who can’t secure traditional financing because of factors like low credit scores. Mortgage lenders or banks are not involved in hard money lending. Congdon said that Cornerstone was often not concerned with investors’ credit scores.
The state alleges that the need for hard money lenders to solicit funds led to the issuance of promissory notes. Actions like these clearly fall under regulations in the Montana Securities Act, officials said.
“They call themselves a hard money lenders, we maintain that they were selling unregistered securities under the Securities Act,” Mudd said.
Neither Congdon or Kovick were registered with the state.
Cornerstone’s offer to pay upwards of 15 percent on some deals attracted many “passive” investors who “just wanted be able to pay their day to day living expenses,” Egan said.
These smaller investors did not give money to set up funds to build homes or develop properties, she said.
They are the ones who have allegedly lots thousands of dollars in savings.
Congdon holds that more than 90 percent of his investors were “sophisticated” and involved heavily in development loans.
Economic effects?
Egan said her office didn’t see much “hard money lending” until the economy started to slide. Several businesses under the classification are doing business in Kalispell, she said, and are properly licensed through the state.
There may be some hard money lenders doing unregistered lending in Lake County, Egan said, but she could not confirm or deny this until or if state action is taken.
Egan’s securities division with the Auditor’s office has seen a 500 percent increase in caseload this year.
“All of the matters we’re looking at all kind of hinge around the collapse of the markets around 2008,” she said.
The Cornerstone case is a prime example of this effect. Cornerstone couldn’t find new investors once the markets went south and, then could not pay earlier investors, Egan said.
No legal action has been filed through Lake County against the men.
The Auditor’s office has reiterated throughout the year how important it is for investors of any kind to do front end investigation of investment companies before investing.
The investors need to do their homework before any money is exchanged, and be weary of ultra- high return percentages from companies, such as was allegedly offered by Cornerstone.
“(Low) investor confidence hurts our economy,” Securities and Insurance Commissioner Monica Lindeen said in a April interview. “It’s a very stark reminder of why people doing their due diligence, diversifying investments, ensuring these are legal investments, is important.”
Timeline of events
2000: Cornerstone Financial Corp. opens in Polson under partners Keith Kovick and Robert Congdon
March 2009: A temporary restraining order freezing the assets of Congdon, Kovick and their business Cornerstone Financial Corp. and K and B Investments is issues by the state Auditor’s office for their involvement in a $3 million Gallatin County land deal now in default.
April 2009: As the Auditors office continues its investigation, complaints are reported to continually be found. Allegations in a 36-page state action document now alleged more than $14 million of investments in 181 unregistered securities. Unethical and misleading practices also alleged by state
June 2008: First court hearing to begin sorting through the legal aspects is postponed
October 2009: A District Court Judge in Helena grants an extension to the preliminary injunction to freeze Cornerstone assets and appoints a receive to inventory and track those assets to be sold for restitution
November 2009: State lawyers request through District Court in Helena a scheduling conference for a court date to progress the state action allegations
December 2009: As the receiver continues to work to categorize Cornerstone assets, a claims submittal process is approved to help victims possible recover funds.
Tags: hard money, hard money lenders, hard money lending, investors, Montana Commissioner of Securities and Insurance, mortgage lenders, mortgage lending, Securities Commissioner
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