February 26, 2009                                                         Contact:Lucas Hamilton

SAO Takes Enforcement Action Against Two Montana Firms for Bilking Dozens of Montanans in Securities Fraud Scheme


      Helena - State Auditor and Securities Commissioner Monica Lindeen announced today that a district court judge in Helena has issued a temporary restraining order against Cornerstone Financial Corporation, of Polson, and D&D Property Management and Development, of Belgrade for bilking dozens Montana seniors out of millions in a securities fraud scheme.
      
      "This case highlights some of the worst abuses that can happen to investors," said Lindeen. "We cannot and will not tolerate firms taking advantage of honest Montanans."
      
      The temporary restraining order, restrains Cornerstone and owners Robert Congdon, Keith Kovick; and D&D and owners Dan Klemann and Dan Wolsky from committing securities fraud prevents the defendants from selling off assets and property.
      
      "Montana's citizens should be able to feel their investments are safe and the securities business they are transacting is with a reputable, licensed firm," said Lindeen. "Our office will halt the activities of any firms who transact securities business in this state without first complying with the laws developed to protect Montana investors."
      
      The Securities Department of the State Auditor's Office received complaints from dozens of Montanans who invested millions of dollars, primarily in the form of promissory notes, offered by Cornerstone. Investors who purchased the promissory notes were promised high interest rates and were told their investments were backed, or "securitized," by real property having a value greater than their investment. In addition, investors claim they were told that their first year's interest payments would be safely held in an escrow account.
      
      In its investigation, the Auditor's office determined Cornerstone loaned $3 million of the investor's funds to D & D Property Management, which allegedly put up collateral in the form of four 160-acre tracts of land in Gallatin County to securitize the investor's promissory notes.
      
      The property management company also allegedly represented to investors that the property had wells, phone and fiber optic lines and that the land had a sales value of $9,500/acre-even though D&D purchased the land for less than $2500 just a few months earlier and no improvements had been made to the property. An investigation by Auditor's office found that only one well services all four 160-acre tracts, only seasonal access exists to the property by a narrow dirt road, and that the phone and fiber-optic lines are more than a mile away from the property.
      
      In addition, the first year of interest payments were not placed in an escrow account but were, instead, co-mingled with other Cornerstone funds.
      
      The Auditor's Office took action because investors' monthly interest payments have ceased, the real property securitizing the investments is now in foreclosure and none of the investors have received a return of their principal.
      
      The Auditor's Office alleges the respondents committed securities fraud by failing to disclose to investors the risks associated with the promissory notes, failing to disclose the financial condition of the companies, misrepresenting the value of the real property securitizing the promissory notes, and misrepresenting that interest payments would be held by an escrow company when they were, instead, co-mingled with Cornerstone funds. None of the respondents or the investments they were selling to investors was registered to be offered or sold to Montana investors.
      
      Before making any investment, Lindeen urges investors to first verify the legitimacy of an investment opportunity by contacting the State Auditor's Office. "Our office works hard every day to protect consumers and to make the victims whole," said Lindeen. Contact the State Auditor's Office toll free at 1-800-332-6148 or online at www.sao.mt.gov