Donald Chouinard - who worked for LPL Financial Corp. and operated both DC Wealth Management and DC Associates - has 15 days to request a state hearing on the matter. He did not return calls on Friday.
Lynne Egan, deputy commissioner for securities in Montana, called Chouinard's dealings "extremely egregious," adding that she doubted the state would settle for anything short of full reimbursement to investors, with interest, and payment of substantial fines.
State law allows for fines of $5,000 per securities violation, and Egan counted "dozens, if not hundreds, of alleged violations."
On Friday, Montana Commissioner of Securities and Insurance Monica Lindeen announced her offices had issued a "cease and desist" order against Chouinard, demanding he stop violating both the state securities act and the Montana insurance code.
The case has meanwhile been referred to federal authorities.
Lindeen said her investigation - sparked by consumer complaints - suggests Chouinard "defrauded longstanding clients, friends and associates for his personal gain."
Clients, she said, thought they were investing in a "day-trading" program, but their money was instead shuttled to a Ponzi scheme in which investors were paid bogus proceeds taken from money contributed by newer clients.
By way of example, Lindeen pointed to one investor who took out a $100,000 loan, which Chouinard said he would invest for a 40 percent return in 30 days. But instead of investing in the "day-trading" program, Chouinard used $50,000 to pay off a previous investor, deposited $25,000 into his personal account, and gave the remaining $25,000 to his attorney.
In other cases, Chouinard allegedly overstated clients' investment values by as much as 10,000 percent.
Lindeen also alleges Chouinard traded accounts without authorization, traded excessively and forged client signatures in order to authorize trades. The excessive trades, she said, resulted in nearly $250,000 in commissions for Chouinard.
"If a broker does excessive buying and selling within your investment account," Lindeen said, "you may end up paying more in commissions than you earn on your investment."
She urged all investors to keep close watch on account activity. She also encouraged anyone invested with Chouinard to contact her offices at 1-800-332-6148.
Egan said investigators have so far identified four victims, and three more who may also have been defrauded. As word of the case gets out, she expects more clients to come forward.
Lindeen's office is meanwhile working to revoke Chouinard's state securities license, as well as his insurance producer license.
Egan said authorities also are working with LPL Financial, which she says is ultimately responsible for the actions of its agents.
Fines, Lindeen said, "could amount to millions of dollars."
"Montana citizens should be able to feel that their investments are suitable and secure," Lindeen said. "This is a matter of consumer protection. We will not allow people who don't play by the rules to defraud Montana investors of their hard-earned savings."
Reporter Michael Jamison can be reached at (406) 862-0324 or email@example.com.