STATE AUDITOR’S OFFICE ALLEGES BILLINGS CPA AND BUSINESSMAN CONDUCTED A FRAUDULENT PONZI SCHEME
Today the Montana State Auditor’s office filed an Amended Notice of Proposed Agency Disciplinary Action against Billings CPA and businessman, Patrick Davison, alleging seven additional individuals or entities have been defrauded by Davison so he could promote and conduct an illegal Ponzi scheme. Davison is now charged with defrauding nine individuals or entities. The allegations state that Davison operated a Ponzi scheme from 1994 until August 2006 by selling fraudulent investments, and putting the investment monies into accounts he owned or controlled. The investments included an investment in a non-existent St. Labre Indian School Trust; fake investments in the Billings Catholic Schools; fake investments in the Mayfair 2/Big Sky Gold Rush Raffle Event; fake Promissory Notes secured by non-existent collateral; a fake investment in coal leases; and fake investments in an entity entitled Foundation Assistance Group, purported by Davison to support the Montana University System. Davison has not repaid approximately $6 million dollars worth of these fraudulent investments
A Ponzi scheme works on the "rob-Peter-to-pay-Paul" principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses. In a Ponzi scheme, the promoter behind this type of pyramid scheme goes to great lengths to make the program look like a legitimate investment program. But despite the claims to have legitimate investments or securities to sell, the promoter simply uses money coming in from new investors to pay off early stage investors. Eventually the scheme collapses because the scheme gets too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money.
The Securities Department alleges multiple counts of fraud, as well as unethical and dishonest practices, selling unregistered securities and conducting securities business in Montana while not properly registered to do so. Davison was once registered as a securities salesperson and an investment advisor representative in Montana while employed by UBS/PaineWebber’s Billings’ branch office. The firm and Davison terminated their business relationship in early 2003. Some of the complainants believed Davison continued to be licensed as a securities salesperson. All complainants knew Davison was a CPA.
The Department continues its investigation of this matter. Montanans who may have been solicited by or may have invested with Patrick Davison are asked to immediately notify the State Auditor’s Office by calling toll-free at 1-800-332-6148 or in Helena at 444-2040. The charging documents can be found online at: http://sao.mt.gov/legal/securities/S06_amendeddavison.pdf.