Montana Documentary Highlights Fraud

The Billings men played golf together, ran in the same social circles and even did business together. Dernbach said he would have trusted his financial adviser pal "from here to Boston."

So he invested extensively with Davison, buying Montana State University Foundation notes and other types of bonds from him.

But the bonds turned out to be phony, and Dernbach lost more than $1.2 million.

Dernbach, a pharmaceutical salesman, is one of several victims featured in "Fraud Under the Big Sky," an hour-long documentary developed by the state auditor's office to help educate investors about the dangers of fraud.

The film features two major Montana investment scams -- the Tom O'Neill and Piper Jaffray scam in Butte, and the Davison scam in Billings -- and opens Tuesday at the Myrna Loy Center in Helena.

Davison, a former Montana gubernatorial candidate, defrauded at least nine people out of more than $4.5 million using a Ponzi scheme, in which money from new investors is used to repay earlier investors.

In Dernbach's case, Davison used his personal knowledge of his friend's charitable giving patterns to motivate Dernbach to invest, according to a news release from the state auditor's office.

"I learned a lot through this experience," Dernbach said. "Regarding investments, I would suggest to anyone and everyone that you do your homework, and call the state auditor's office."

Davison pleaded guilty last year to two counts of securities fraud and was sentenced in July to 10 years in federal prison and ordered to pay $5.6 million in restitution. In addition, the state auditor's office fined Davison $250,000 and banned him from the securities industry.

Davison's former employer, UBS Financial Services, also agreed to pay $4.5 million in restitution to his victims.

In the Butte case, O'Neill made an excessive number of unauthorized trades to generate huge commissions for himself. He preyed on people who were mostly unsophisticated investors, many of whom were widowed or had medical issues, the auditor's office said.

"We decided to go with Tom because my late husband worked with him at Montana Power," said Suzanne McGee, a retired nurse. "And we got to know him and liked him and thought that he would do the best for us."

McGee opened an IRA with O'Neill in 1996 with proceeds from her pension and profit-sharing account, and from her deceased husband's IRA. O'Neill invested McGee's money but soon began liquidating her mutual funds and investing the proceeds in speculative stocks.

Over a three-year period, he made 388 unauthorized trades in McGee's account and lost almost 50 percent of her IRA.

"When I found out that Tom had done this to me, it was hurtful," McGee said. "But I think most of all it really bothered me because my husband had told me to trust him, and he broke that trust, and there was nothing my husband could do about it because he wasn't here any longer."

The state auditor's office negotiated a settlement in the O'Neill/Piper Jaffray case that included $1.5 million in restitution for 38 Montana victims and a $1 million fine paid to the state.

O'Neill served about two years in federal prison and was banned from the securities industry.

"Ninety-nine percent of the financial professionals out there are honest, hardworking people," said State Auditor John Morrison, whose office is responsible for insurance and securities regulation. "But there are bad apples. O'Neill took advantage of people who placed their trust in him. That's why we encourage folks to check out anyone they plan to invest with before they hand over their hard-earned dollars."

Besides highlighting the two Montana scams, the documentary teaches people how to avoid fraud and describes the resources offered by the state auditor's office, the release said.

It's narrated by actor J.K. Simmons, a University of Montana graduate who plays assistant Los Angeles Police Chief Will Pope in the TNT series "The Closer."

Public screenings will be held at senior centers and civic clubs across the state. After the premiere, copies of the documentary will be available to libraries statewide and for broadcast by Montana television stations, the release said. The auditor's office also plans to hold a series of investor education seminars and workshops throughout the state.

"The victims in the Billings case are very different from the case in Butte," Morrison said. "Most were wealthy, sophisticated investors, but they invested with Davison for the same reasons: They trusted him.

"Fraud can happen to anyone, and that's what this film shows," he said. "People should know that the state auditor's office is here to help in any way we can."