Thursday, February 29, 2024

Hartman trial underway in Libby

The Western News | January 29, 2021 7:00 AM

Opening arguments were heard this week in the trial of a Bonners Ferry man accused of exploiting elderly clients in connection with the sale of annuities in Libby and Troy.

Kip Hartman, 35, was charged in 2019 with nine felonies in Montana including conducting insurance transactions without a license, transacting business as an investment advisor without a license, securities fraud, four counts of exploitation of an elderly person, tampering with witnesses and informants, and deceptive practices.

To prosecute the case, Lincoln County Attorney Maria Boris turned to Special Assistant Attorney General Willam Duerk. Shandor Badaruddin, a Missoula-based defense attorney, is representing Hartman.

Due to concerns about the spread of the coronavirus, the court is holding the trial in the Libby Memorial Events Center. District Judge Matthew Cuffe is presiding over the case from behind a folding table set up on stage. The defense, prosecution, court staff and the jury are arrayed before him in a semicircle.

The mounds of reference material brought into the events center by the prosecution and defense teams speak to the complexity of the case; at least 13 legal storage boxes were arranged in piles around the courtroom on the second day of the trial.

During his opening statement on Jan. 26, Duerk told the jury the state’s evidence would prove Hartman guilty on all counts.

From 2015 to 2019, Hartman allegedly billed himself as an all-around financial advisor while operating Kootenai Valley Tax and Wealth Management. Hartman allegedly convinced Troy and Libby residents to liquidate their financial portfolios and reinvest in annuities, a form of insurance. In some cases, Hartman recommended his clients sell investments in securities to free up funds.

Hartman, however, had neither a state license to sell insurance nor a state license to advise on securities, according to Duerk.

Additionally, Hartman allegedly failed to give his clients advice on the risks and benefits of buying annuities. Duerk said Hartman did not tell his clients he stood to make a commission on the investment strategy. Financial experts, including employees from the Montana Auditor's Office, would testify, according to the prosecutor, that Hartman failed to put his clients’ interests before his own.

To obscure the insurance sales he made in Montana, Hartman allegedly had his wife sign annuity purchase documents. Former clients would testify, however, that Hartman’s wife did not help them with the transactions, said Duerk.

Hartman also allegedly gave financial advice to Montanans over the age of 65. Duerk said four of these elderly clients would testify that Hartman convinced them to shift their financial assets by gaining their trust.

“You’ll hear that Mr. Hartman obtained control of hundreds of thousands of dollars of his client’s funds without performing or sharing a risk-benefit analysis or making them completely aware of what would happen with their funds in terms of risks and benefits,” said Duerk.

In one case, Hartman obtained almost $900,000 from an elderly client, according to court documents.

After the court issued a temporary restraining order against him, Hartman allegedly deduced the investigators were looking into his financial business and attempted to change a client’s testimony. Duerk said Hartman called Glenda Orr, a witness in the case, about the annuities she had allegedly purchased through him and told her “you do business with my wife. Tell them you did business with my wife who has a license, not me.”

Badaruddin presented the jury with a different narrative, one absolving his client of wrongdoing.

“I am going to tell you the rest of the story,” he said before drawing upon Paul Harvey. “The rest of the story, in a nutshell, is that there’s no crimes committed here.”

Noting that the case hinged on specifics, Badaruddin criticized what he described as a lack of details mentioned in the prosecution’s opening statement. The defense attorney reminded the jury that Hartman was being tried for criminal fraud. He was not being sued for making bad recommendations or for being responsible for financial consequences.

“There’s a big difference,” he said. “It’s not whether the client in question …. could have made a better decision. The question is whether [Hartman] committed a crime.”

Badaruddin asked jurors to be cognizant of the events brought up during the trial as some pre-dated the timeframe of the charges or took place outside of Montana.

The defense attorney asked that the jury not let Hartman’s past distract them from the charges. Previously, Hartman was sued by the Idaho Department of Financial Security’s Bureau for selling life insurance settlements. Badaruddin said Hartman made an error but did nothing fraudulent in this case.

While operating the Kootenai Valley Tax and Wealth Management, Hartman opened offices in Troy and Bonners Ferry. To disprove allegations that Hartman deployed an insurance scheme in Montana, Badaruddin said he had witnesses that would testify they bought their insurance at the Troy office from Hartman’s wife. While there was evidence that Hartman had sold insurance, Badaruddin said all these sales were made in the Bonners Ferry office where Hartman was licensed to make the transactions.

In the case of the elderly client from whom Hartman allegedly obtained nearly $900,000, Badaruddin said the client would be happy to provide evidence that Hartman did not exploit her. Badaruddin alleged that Hartman had loaned the client nearly $589,000 over several years. The two signed an agreement drafted by attorneys that stipulated the client would pay Hartman back if she came into her inheritance. When she did, the client repaid Hartman and allegedly gave him an extra $180,000.

Badaruddin alleged the state intimidated the client while conducting their investigation. While Badaruddin said the client didn’t yield to the pressure, he alleged others did.

In response to the other counts of exploitation of an older person, Badaruddin said he would present evidence showing the clients were neither misrepresented nor exploited.

Disputing the count of witness tampering, Badaruddin argued that the comments Hartman made to Orr were meant to help direct a service request. Since Orr had allegedly purchased insurance from both Hartman and his wife, Badaruddin said Hartman was telling her that the transactions she made in Montana were conducted by his wife.

To oppose charges that Hartman deceived clients about his services with brochures and other promotional information, Badaruddin said one of Hartman’s former partners produced the documents as part of a previous venture. The defense attorney allowed that the brochures contained false information.

When Hartman found out the documents were misleading, he tried to destroy them, according to Badaruddin. Despite his efforts, some survived.

While Orr received one of the brochures, Badaruddin said she didn’t receive it from Hartman.

In closing their statements, both Duerk and Badaruddin asked the jurors to keep an open mind until they had seen all the evidence.

Hartman’s trial is scheduled to run from Jan. 26 to Feb. 5. Court documents list at least 24 possible witnesses who may testify over the nine days the court is in session.

Convictions for conducting insurance transactions without a license, deceptive practices and tampering with witnesses and informants carry penalties of 10 years in state prison, a fine not to exceed $50,000 or both. Counts of exploitation of an older person are punishable by imprisonment for a term not to exceed 10 years, a fine not to exceed $10,000 or both. Securities fraud and transacting business as an investment advisor without a license is punishable by 10 years in prison a fine not to exceed $5,000 or both.