More fraud charges against Bonners Ferry man

Additional charges have been filed by Montana state prosecutors against a Bonners Ferry man who operated a financial services in Troy.

Kip Hartman, 35, has been charged in Montana 19th Judicial District Court with multiple felonies related to the sale of annuities to Libby and Troy residents, including exploitation of an older person.

According to his website, Kip Hartman operated Hartman Financial and Kootenai Valley Tax with locations in Bonners Ferry and in Troy. The site describes him as having, “a gift for developing unique retirement planning strategies that lower taxes and increase net worth.”

Hartman originally faced four felony charges in Montana, including conducting insurance transactions without a license, transacting business as an investment advisor without a license, securities fraud, and exploitation of an older person.

In a court filing from Sept. 12, a second count of exploitation of an older person was filed as well as witness tampering, and deceptive practices were filed.

The maximum prison time for each charge is 10 years, with the potential for up to $180,000 in fines if convicted of all seven charges.

Hartman’s site also describes him as someone “heavily involved” with his church, a youth leader and active participant with Boy Scouts of America.

According to court documents filed by Special Lincoln County Attorney for the State of Montana Brett Olin, Hartman is not licensed in Montana to provide the services he offered, and the products he sold were signed by his wife, Ginny Hartman.

According to the temporary order to cease and desist from Deputy State Auditor Kristin Hansen, Ginny Hartman — the wife of Kip Hartman — has been ordered by the auditor’s office to cease “from engaging in further acts or activity wherein the respondent acts in violation of the insurance code.”

Ginny Hartman, who is licensed in financial transactions, has been accused of allowing her husband, Kip Hartman, to sell financial services under her license. She is accused of signing off on the transactions he was unable to sign off on due to his lack of license.

The order specifies that, “This includes but is not limited to facilitating or otherwise aiding in the negotiation, solicitation or sale of insurance by an unlicensed individual.”

Such activities would already be illegal for Ginny Hartman to engage in. There is no mention in court documents of any other restrictions on her ability to continue to operate in her licensed capacities.

However, according to the order, Ginny Hartman could face up to $25,000 in fines for each instance if she is found in violation of the order.

Additionally, Hartman is accused in the court filing of obtaining almost $900,000 from someone over the age of 65 after “establishing a trust relationship” with her. This was in addition to funds he received after being appointed her power of attorney, “which were not commiserate with the work performed because she trusted him.”

He is also accused of obtaining $120,000 from another person after having gained the person’s trust.

Background

According to court documents, an investigation into Hartman began in August 2018 by the Montana State Auditor, Commissioner of Securities Insurance. The investigation began after the auditor’s office received a complaint that Hartman was selling insurance products without a license and having Ginny Hartman sign them.

In each of the cases cited in the court documents, Hartman sold annuities to individuals from either Troy or Libby.

The U.S. Securities and Exchange Commission’s Investor.gov website defines annuities as contracts with insurance companies. Payments are made to the customer, typically intended to ensure a predictable stream of funds for retirement.

Some annuities with predictable payouts are regulated by state insurance commissions, whereas variable annuities — which have varying payouts based on market conditions — are regulated by the U.S. Securities and Exchange Commission.

Annuities have a number of associated fees, including fees for receiving funds ahead of the payment schedule.

According to the court filing, Hartman was not licensed in Montana either to sell annuities or provide financial advice.

The filing by the auditor’s office states that a review the office conducted determined Kip Hartman, “was not licensed in any capacity as an investment advisor.”

Hartman received commissions on the sales of annuities, and in several cases advised individuals to remove funds from other investment accounts in order to put money into annuities, according to the filing.

The court filing reports Hartman’s commissions related to the annuity sales cited in the case as $294,403.21.

The case

According to court documents, Ginny Hartman wrote at least 31 policies for Montana residents with the total premiums paid amounting to over $6 million. The auditor’s office “performed a random sampling of those residents” looking for products sold by Kip Hartman under his wife’s name.

Including the original person who reported irregularities to the auditor’s office and the alleged victim of exploitation of an older person, the court documents cite seven individuals to whom Kip Hartman sold products he was not licensed to sell.

One Libby resident is alleged to have liquidated $101,000 from her IRA retirement account, which she gave it to Kip Hartman to purchase an annuity.

A Troy resident wrote two checks to purchase annuities from Kip Hartman, one for $182,500 which he gave to Kip Hartman, and another for $100,000, which he gave to Ginny Hartman, “because the defendant was not in the office,” according to the filing.

Another Troy resident — following Kip Hartman’s advice — consolidated her IRAs into a $156,000 annuity which she purchased from him.

A Troy resident working the North Dakota oil fields purchased a $76,000 annuity from Kip Hartman, following Hartman’s advice to remove the funds from his 401k.

A Troy couple purchased a $40,000 annuity from Kip Hartman, according to court documents.

They later withdrew $25,000 from the wife’s Roth IRA to purchase a second annuity, and used IRA rollover funds to purchase a third, $87,000 annuity.

Exploitation

During the investigation, First Montana Bank reported to the auditor’s office that Hartman had come to the bank on two separate occasions with the same bank customer and had her withdraw “a large sum of money.” Those sums were then transferred to Hartman.

The charge of exploitation of an older person comes back to the call the auditor’s office received from First Montana Bank.

The woman from Troy began her relationship with Kip Hartman after she went to him for tax advice, according to the filing. She became close to him, even referring to him as her “son.”

The Troy woman “stood to inherit over $2 million from her father,” the bulk of which was in a variable annuity. Her father was listed as the owner of the annuity and the person receiving payments, but the Troy woman was the listed beneficiary.

Beneficiaries of annuities, according to investor.gov, typically receive a lump sum payment upon the death of the person who owns the annuity, similar to the payout for a life insurance policy.

According to the filing, Hartman advised the Troy woman to surrender her father’s variable annuity and purchase a fixed annuity from Hartman, with the father still as the owner, but the woman as the person receiving payments from the annuity, with she and her son as the beneficiaries.

The woman told the auditor’s office that Hartman accompanied her to her father’s Washington home in November 2015, and he took her to a notary’s office during the visit. There they had a power of attorney notarized that appointed the woman as her father’s power of attorney.

That same month, the woman surrendered her father’s variable annuity and purchased another annuity from Hartman, according to the filing. Hartman made a $143,214.53 commission from the transaction in February 2016.

The filing notes that surrendering the annuity cost the Troy woman $13,302.44 in penalties. It also notes that Hartman did not disclose to the Troy woman that the variable annuity could have been switched to a fixed annuity without the penalties or increased tax liabilities she faced.

Additionally, staying with the same company would have prevented a reset of the surrender period.

According to investor.gov, the surrender period — which is typically six to eight years — is the timeframe during which the insurance company can impose an additional charge for withdrawing the funds early.

The filing alleges that the nature of the transaction only benefited Kip Hartman, as he received a commission.

The Troy woman also enlisted Hartman to assist her with the guardianship of her father’s finances, and over the course of their relationship made oral agreements to pay for his assistance, both with the guardianship and with tax planning, totalling $400,000.

For a time after changing the annuity, the Troy woman “had no access to any funds or to the annuity the defendant sold her,” the charging documents state. So, Hartman loaned her $2,500 a month during that time, with “an initial balloon payment of $10,000.”

In total, he is alleged to have loaned her $62,500, and she made an oral agreement with him to pay “$200,000 in interest on whatever amounts loaned.”

After her father died in October 2018, the Troy woman went with Hartman to a lawyer to sign an agreement to pay him $195,000 in “interest” in addition to the amount he loaned to her.

The court documents state that the woman “identified the interest amount as necessary because she had nowhere else to go due to her poor credit score and level of indebtedness.”

A second agreement for services provided to the woman by Hartman was secured by a promissory note for $283,391.

here was a third agreement that gave Hartman power of attorney for the Troy woman.

The Troy woman told the auditor’s office that an attorney discouraged her from entering into any of the agreements, “but she felt she had agreed to the terms over one year ahead of signing them and needed to honor them.”

In total, the agreements came to $540,891 and gave Hartman power over the woman’s entire inheritance, according to the court filing.

In December 2018, the Troy woman was accompanied to First Montana, where she withdrew $400,000 from her annuity, incurring a $29,625 penalty. She opened an account with First Montana and deposited the amount, then paid Hartman $375,000.

In February, she withdrew an additional $375,000 from the annuity, incurring a $25,165 penalty. She paid Hartman $359,500.

In response to questions from the bank about the transaction, the woman responded that Hartman was doing some investing for her. Hartman later “told the banker that he was taking care of” the woman.

After a temporary restraining order was granted to the auditor’s office on June 11 to prevent Hartman from receiving any more of the woman’s funds, the court filing states that the woman told the auditor’s office she had given Hartman just under $194,000 as a “gift” for all his work because, “he was the only person she could trust.”

The court filing puts the total the woman paid to Hartman at $734,500.

The court filing alleges that when the woman was informed by the auditor’s office of the total amount of money “she had lost,” that she was distraught.