The U.S. Attorney's Office is attempting to collect money from two Montana companies to pay off some of the nearly $5.6 million in debts owed by Patrick Davison, a former Billings investment adviser convicted of�running a massive Ponzi scheme.
U.S. Attorney Michael Cotter has filed writs of garnishment to collect money owed to Davison by Wesco Resource(s) Inc., of Billings and Madison Investments LLC of Bozeman.
Wesco Resources is owned by Billings businessman Mike Gustafson and his family. Gustafson, through numerous companies, has spent nearly 30 years trying to develop the Otter Creek coal tracts and Tongue River Railroad near Ashland.
However, Gustafson's Billings�attorney, Chuck Hingle, filed a response saying the U.S. Attorney has misnamed the�companies in the court papers.
Davison has never been employed by Wesco Resources and has never had an economic interest in the company. The writ appeared intended for WesRail LLC, a Montana limited liability company of which Davison and Gustafson are members, Hingle wrote.
Hingle also said Madison Investments of Bozeman should be Madison Resources LLC in Billings, a company that Davison is a member of, not an employee. In a limited liability company, a member is an equity owner, the same as a shareholder in a corporation.
Madison Resources�mailed to the court all funds to which Davison was entitled on or about Aug. 15, according to the response. The amount paid to Davison�was not stated in the court documents. The U.S. Attorney's office won't comment on anything that hasn't been filed in court and Hingle said he wasn't authorized to say.
As of Thursday, the U.S. Attorney's office had not�changed the company names.
Gustafson expressed frustration that his companies�were being linked again with Davison.
"He was never involved (as an employee) with Wesco. That's an error," he said.
In 2007, Davison was sentenced to 10 years in federal prison in Sheridan, Ore., for�running what prosecutors�called the largest Ponzi scheme in Montana history. He is scheduled to be released May 8, 2016.
Davison had a performance-based contract with WesRail to help develop the Tongue River Railroad, Gustafson said, but that contract was terminated when he pleaded guilty to financial fraud.
Gustafson supported Davison's failed candidacy�for�governor of Montana in 2004. Two�years later, Gustafson was one of four local businessmen who intervened with Davison about his drinking and sent him to Arizona for treatment. After Davison's�fraud surfaced, Gustafson said he was as surprised as anyone that such a prominent philanthropist, businessman and aspiring�political leader had led a double life.
"We immediately severed all relationships. We acted with dispatch," he said, adding that he hasn't talked to Davison since 2007.
Wesco and Madison Resources share the same Billings address of 2280 Grant Road, Suite B, but they are separate companies, Gustafson said.
The Montana Secretary of State's office lists WesRail LLC, formed in 2003, as an active corporation. But the records list WesRail Inc., formed in 1997, and WesRail Limited Partnership, formed in 1980, as inactive.
Gustafson said Madison Resources was a management company set up to compensate three members -- himself, Davison and another Wesco associate, Doug Day, of Billings.
The Oregon U.S. Marshals Service will serve Davison by the end of the week, said Chief Deputy Marshal Rod Ostermiller in Billings. Once served,�Davison has 10 days to file a response confirming to the U.S. Attorney if�he has any assets�in these companies. He has an additional 10�days to ask for a hearing to dispute the garnishment.
If he doesn't request a hearing, U.S. Chief District Judge Richard Cebull could order a sale of Davison's assets to satisfy his debts.
It is unclear whether the attorney's office is trying to collect part of a recent payment from billionaire candy executive Forrest Mars to buy permits for the southern section of the Tongue River Railroad project. The amount Mars paid has not been disclosed.
In March 2010, Arch Coal Inc. paid $86 million, plus future royalties, to lease 587 million tons of state-owned Otter Creek coal.
Gustafson said when he sold some railroad permits five weeks ago, he dealt only with Arch and Burlington Northern Santa Fe Railway.
On July 20, Mars, who used to run the Mars candy company, bought the permits for the southern portion of the railroad to keep the tracks from running through his 140-square-mile Diamond Cross Ranch near Birney.
"They acquired the stock of Tongue River Railroad and we received compensation for that," Gustafson said. "Mr. Mars was not in the picture in any of my discussion at any time. I had absolutely no idea he was involved."
Gustafson said he has cooperated fully with the U.S. Attorney.
"We were the ones, Wesrail, that made the call and fully disclosed the details of the Tongue River Railroad transaction to the U.S. Attorney's office," he said.
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