STATE AUDITOR’S OFFICE OBTAINS $4.5 MILLION FOR VICTIMS OF DAVISON PONZI SCHEME
UBS Fully Participates in Restitution
Montana State Auditor John Morrison and UBS Financial Services (formerly PaineWebber) have entered into an historic settlement that provides more than $4.5 million in restitution to the victims identified in the Auditor's action against former gubernatorial candidate, Patrick Davison. It is believed to be the state’s largest Ponzi scheme settlement.
”This settlement allows the victims of this Ponzi scheme to recover millions of dollars they lost,” said Morrison. “Our securities staff did a terrific job here and UBS really stepped up to the plate.”
In an effort to be responsive to the Montanans affected by these activities and to the communities in which UBS does business, the firm has offered to pay nine victims just over $4.5 million in restitution. UBS agreed to pay this restitution amount despite the fact that some of the victimization occurred after Davison left the financial services firm’s employment and UBS has reached back at least five years beyond Montana’s statute of limitations for these types of cases. The Auditor did not charge UBS with any wrongdoing regarding Davison’s activities.
“Ponzi schemes work 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,” said Morrison. “Because in the end there is generally no money, the later investors become the victims and typically get nothing back. But for UBS coming forward, these victims would have no chance of recovering their losses.”
In August of this year, the Auditor’s Securities Department filed a Notice of Proposed Agency Disciplinary Action and a Temporary Cease and Desist Order against Billings businessman, Patrick Davison. The Department originally alleged Davison committed securities fraud against two Montana families for a total loss to the families in excess of $1.2 million. Subsequently, the Department filed an Amended Notice of Proposed Agency Disciplinary Action against Davison, alleging six additional complainants were defrauded by Davison so he could promote and conduct an illegal Ponzi scheme. Davison was ultimately charged with defrauding nine complainants by selling them bogus investments. The allegations stated that Davison sold these fraudulent investments, putting the investment monies into accounts he owned or controlled outside of UBS. The investments Davison created 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-existing 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.
The Securities Department is charged by statute with protecting investors, as well as the securities industry. However, the Department does not have authority to prosecute criminal actions. The Department has the responsibility to refer the criminal aspects of any case to an agency with authority to prosecute criminal cases. In this case, the Department referred its investigation for criminal prosecution to the FBI in Billings. Meanwhile, the Department worked diligently with UBS to uncover the extent of the wrong-doing and to reach a logical conclusion that provided justice for the victims.
“It is highly unusual that a victim of a Ponzi scheme ever receives any money back from the scam,” said Morrison. “Thanks to the efforts of the securities staff of the State Auditor’s Office, as well as the cooperative spirit of UBS, victims will get back money they lost”