HELENA (AP) — A former congressman and Republican hopeful for governor is among those leading a group of investors alleging they were cheated out of millions in a real estate investment deal, a group that will be asking the Montana Supreme Court later this month to let them take the dispute to court.
The issue goes back several years, when a real estate investment deal fell apart as the housing crisis began to hit the country. Investors, including former congressman Rick Hill, accused the Idaho-based investment company called DBSI of fraud in a billion-dollar class action lawsuit.
The investors argue the company was bilking money intended for investment in real estate and using money from new investors to pay dividends to earlier investors.
The company — which is now in bankruptcy — has said the charges are without merit. An attorney representing the firm did not return a call seeking comment.
But the investors are running into roadblocks trying to get their case heard in court.
The investment deal offered by DBSI was exempt from state securities regulations and oversight. And all investors signed deals requiring arbitration in the event of a dispute.
The investors will be asking the Montana Supreme Court in oral arguments scheduled for Sept. 16 in Kalispell to instead allow a lawsuit to move ahead to jury trial. The investors say the court should nullify the arbitration agreements because of the alleged fraud involved.
The company argues that the agreements should stand.
"The arbitration provisions were prominent, easy to read, and Plaintiffs conceded that their ability to read and comprehend the arbitration agreements was not in question," company attorneys wrote in a Supreme Court brief. "Accordingly, Plaintiffs should be bound to their arbitration agreements, and the district court's order compelling this dispute to arbitration should be upheld."
Hill, who represented Montana in Congress in the 1990s and is now a leading Republican candidate for governor, has served as a spokesman and advocate for investors seeking their money back. He and his wife Betti are alleging damages of $2.4 million in court documents.
Hill said some of the investors were elderly couples, and in some cases invested all of their money in the deal and have been forced to return to work. The well-known Montana politician said his situation is not nearly as dire since he has other resources — but he feels strongly the company should repay the money lost in the deal.
"It was just a huge tragedy," said Hill. "The materials used to market this were just hugely deceptive."
Hill said that the investment was used to jointly buy real estate, such as malls and the like. But he said the cash reserves that were supposed to be set aside to manage the properties are now gone, leading to big problems with lenders and causing some properties to be repossessed.
At the same time, investors who jointly have money in a property are being forced to work together to try and maintain management of the real estate.
Montana Securities Commissioner Monica Lindeen's office says that about 80 investors in the state have about $32 million involved in the deal. The office is seeking to get involved in the case even though it does not have specific jurisdiction over such real estate deals.
Lynne Egan, Montana deputy securities commissioner, said she can't confirm or deny a state investigation into the matter, although points out they are prevented from moving while separate bankruptcy proceedings play out.
"We want what is best for Montana investors," Egan said. "I hope the investors get back as much as they can from their original investment."
Hill said in the end he believes there are assets available to restore much of the investors' money. But he said there are better potential remedies in the court system under Montana securities law than there would be in binding arbitration.
Hill said he has enjoyed the work coordinating investors and helping others through the process.
"It's really been therapeutic for me to actually help other people with this. I have developed great friendships around the country," Hill said. "Sometimes good things happen from bad situations. It is a bad situation. But what can you do? Move on."