Two Montana business owners and their companies are accused of committing securities fraud and conducting a $14 million Ponzi scheme involving at least 100 investors.

Monica Lindeen, Montana’s state auditor and securities commissioner, obtained a temporary freezing of the assets of Robert Congdon and Keith Kovick, both of Paulson, Mont., and their companies, Cornerstone Financial Corp. and K&B Investments in Lewis & Clark County District Court. Lindeen also is seeking the appointment of a district judge to serve as a receiver of their assets.

Cornerstone raised more than $14.3 million from at least 100 investors, mostly Montana residents, by offering and selling notes with a high rate of return, typically 15% annually, and touting the notes as safe because they would be secured by real property having a value equal to or greater than the note, according to Lindeen’s office. The complaint alleges Cornerstone, Kovick and Congdon told investors that at least $1,564,730 of their investment funds would be reserved with an escrow service for disbursement back to them at a later date but, instead, commingled these funds with other Cornerstone operating funds. The complaint further alleges that many of the notes were not secured by real property, even though investors were promised the notes would be.

By 2008 the investment opportunity was operated as a Ponzi scheme, with the money paid to the older investors from the cash invested by the new investors, according to Lindeen. In January, the notes were all in default and nearly all of the property securing the investment notes was in foreclosure, Lindeen said.

Congdon and Kovick sought investment opportunities and investors, allegedly taking millions of dollars in commissions and investor reserve funds, according to the complaint. They also allegedly sold fraudulent investment opportunities on their own behalf.

Cornerstone, Congdon and Kovick allegedly operated a Ponzi scheme, using investment proceeds received from new investors to pay investment returns to old investors; commingled investor funds with Cornerstone’s operating funds rather than escrowing investor funds as promised; and failed to register with the Montana Securities Department to offer and sell their investment opportunities, in the form of notes, to investors, according to Lindeen’s office.

In addition, Cornerstone, Congdon and Kovick are accused of failing to disclose to investors how the proceeds of their investment would be used; failing to disclose adverse judgments and insolvencies involving persons issuing the investment notes; failing to provide investors with a prospectus regarding the notes; and failing to provide investors with a balance sheet.