MISSOULA — Keith Kovick, a 60-year-old resident of Williston, N.D. and formerly of Polson, appeared during a federal court session in Missoula on Nov. 29.

A press release issued by the U.S. Attorney’s office said Kovick was arraigned on charges of mail fraud, wire fraud and 21 counts of money laundering. He is currently released on special conditions.

If convicted of these charges, Kovick faces possible penalties of 20 years in prison, a $250,000 fine and three years supervised release on each count.

According to a Leader article from April 22, 2009, Kovick and his Polson business partner, Robert Congdon, ran Cornerstone Financial Corporation and K and B Investments out of Polson until March 2009.

The state has investigated the men since the fall of 2008 for their alleged involvement in a securities fraud scheme and for violating several portions of the Montana Securities Act.

Among the allegations is that the pair conducted a Ponzi scheme that involved at least 100 investors, with investments totaling more than $14.4 million on 181 unregistered securities — its scope is so great that it could be the largest Ponzi scheme in Montana state history.

A Ponzi scheme involves an unsustainable cycle where earlier investors are paid with funds given by subsequent investors.

“A vast majority (of investors), at least 90 percent, live in the couple county area, Lake and Flathead,” deputy Securities Commissioner Lynne Egan said in an interview with the Leader in April 2009.

Some investors put up as little as $11,000, others put millions into the scheme, she added.

“When you don’t have new money your scheme collapses, and that’s what happened here,” Egan said in 2009.

According to Egan, in the fall of 2008, poor economic times dried up new investors and prior investors began to see late payments trickle to nothing.

The department received its first complaint of defaulted notes from Cornerstone investors in September 2008. Beginning in November 2008, the department began receiving additional complaints from Cornerstone investors as the Ponzi scheme collapsed, the April 2009 action document states.

“By November 2008, Kovick and Congdon stopped making payments to investors because the new stream of investors in Cornerstone’s notes had ceased. If Kovick and Congdon had funds to pay investors at this time, it was sporadic, payments were 2-3 months late and many of the checks written to investors were returned ‘NSF,’” the action document said. Investors continued to step forward with complaints, the April 2009 Leader article states.

Assistant U.S. Attorney Kris McLean is the prosecutor for the United States. The investigation was conducted by the Federal Bureau of Investigation.

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