Hatzenbeller sentenced in state fraud securities case

Jerry Hall, one of Ken Hatzenbeller's 13 investment victims accrued since 2013, isn't sure if justice was served Monday in Cascade County District Court, but he knows what he got was probably going to be the best option: an unlikely chance at regaining his life savings.

"I don't think we could get any more than that had we gone through trial," Hall, 73, said Monday afternoon on the Cascade County courthouse lawn. 

Hatzenbeller received a six-year deferred sentence on Monday after pleading nolo contendre to one count of fraudulent securities practices. The sentence was congruent with the plea agreement he signed with prosecutors from the Montana State Auditor's office in late June, in which he agreed to pay restitution totaling more than $1.7 million and go under probationary conditions for six years.

In return for his plea, in which he does not plead guilty outright but believes he would be convicted if the case went to trial, prosecutors agreed to drop four additional fraudulent securities-related charges, all felonies. 

Hatzenbeller was charged in 2016 with the fraudulent securities charges after people, such as Hall, who had invested in Hatzenbeller's Shoot the Moon restaurant group reported to the state auditor's office that their investments had evaporated with the company's bankruptcy in October 2015. 

In the plea deal, Hatzenbeller "agrees that he has the ability to pay the monetary obligations," referring to the $1.7 million owed to the 13 victims, many of whom are retired.

But Hatzenbeller was sentenced less than two weeks ago on federal charges, in which he agreed to pay back another $1 million to a Utah bank for spending a $500,000 loan on payroll rather than restaurant fixtures. 

Acknowledging this, Hatzenbeller's attorney, the state prosecutor, the state judge and even Hall said Monday that Hatzenbeller's ability to pay the restitution is unlikely at best.

"It's unlikely that the principal will be paid, as well as the interest," Cascade County District Judge Elizabeth Best said in her sentencing order. "That's partly due to your age and the fact that restitution has been ordered in the federal case."

"He'll pay what he can," said Ken Olson, Hatzenbeller's attorney in both state and federal cases. "It's not a great picture, but we're very hopeful he can get some funds from the state restitution assistance fund," which is a fund collected by the state from frees paid by registered firms doing business with Montana investors, according to the state auditor's website. The fund, however, does not promise full returns; claims are limited to $25,000 or 25 percent of unpaid restitution. That's far below Hatzenbeller's debt to Hall, which is $398,000.

"It's your living," said Hall, who added that his life savings account is now barren. "Who's going to hire a 73-year-old person?"

Hall said his wife, 65 years old, has returned to work. 

Hatzenbeller's sentencing was the last hearing in the saga that's unraveled since Shoot the Moon, which owned more than a dozen restaurants across Montana, Idaho and Washington, filed for bankruptcy in October 2015.

In the federal case, Zions Bank claimed Hatzenbeller lied about how he would spend a half million-dollar loan, then provided the bank with an account not connected to Shoot the Moon in which the bank deposited the money. The account, Penner Brokerage, carried the name of his daughter's married name when Zions Bank deposited the loan. Hatzenbeller transferred the money from that account to a number of other accounts to pay his employees. During his personal bankruptcy proceedings, Hatzenbeller reportedly told the court that the money from Penner Brokerage was a loan from his daughter.

In that case, Hatzenbeller pleaded guilty only to bank fraud, in accordance to a plea agreement signed with federal prosecutors earlier this year. He was initially indicted on additional charges, including lying under oath in bankruptcy proceedings and money laundering, but those were dropped with the plea agreement. U.S. District Judge Brian Morris, however, asked Hatzenbeller to spell out each crime at his change of plea hearing in which he admitted to each offense.

At his federal sentencing on June 21, Morris was direct with Hatzenbeller.

"This is not some accident that happened. Mr. Hatzenbeller woke up every day for six or seven years knowing this black cloud was following him," Morris said. "You secured loans so desperately you risked exposing your daughter to criminal activity. At some point, you needed to shut this down."

Hatzenbeller received a 30-month sentence in federal prison in Sheridan, Ore. Olson said he will turn himself in, as ordered by Morris, on July 25.

At his sentencing on Monday, Olson argued that Hatzenbeller did not scheme his victims with a criminal state of mind and never intended to let life savings slip away.

"Mr. Hatzenbeller never formed a criminal intent to break the law," Olson said. "I think he made some bad decisions and people got hurt, but he never intended to cheat anybody... I don't think that was the intent of anyone involved with Shoot the Moon."

In state court, Hatzenbeller was hit with both criminal and civil cases in late 2015 and early 2016. Shortly after he declared bankruptcy, four banks, including Zions, filed civil complaints against him and his Shoot the Moon partners, Drs. Greg Tierney and Bill Bloemendaal.

In a recent motion to dismiss the case, Hatzenbeller said investigators singled him out for prosecution when they began digging into who was responsible for Shoot the Moon's collateral damage to banks and investors. Tierney and Bloemendaal, Hatzenbeller said, had also guaranteed notes to investors and banks to secure potential funds. 

But, Judge Best in May ruled that Hatzenbeller had not reached the burden of proof that he was unfairly accused. Lynne Egan, an investigator with the state auditor's office, had testified that the agency found no wrongdoing on Tierney or Bloemendaal's part. 

"I had no facts that Greg Tierney had committed a crime," Egan said, repeating the same phrase in relation to Bloemendaal. "Action would have been taken if someone violated the law."

Best did write in her order that she was "troubled by the evidence raised that this prosecution does not reflect fundamental fairness," given the messages filed by the defense showing communication between the three that the business was failing long before they filed for bankruptcy.

In an email written to Hatzenbeller in December 2012, Bloemendaal wrote "I wake thinking about my obligation of 1.5 million at my age. I just cannot get behind on these notes and had sent check in. You are right. We just have to sell something. Our borrowing days are over."

Best in May denied Hatzenbeller's motion that he had been singled out. In the civil cases filed against them by the banks, Hatzenbeller, Tierney and Bloemendaal each filed for personal bankruptcy, halting all civil proceedings against them. Tierney and Bloemendaal have maintained their innocence in court documents. 

On Monday, Hatzenbeller stood largely alone in the courtroom, save a few family members and his attorney. 

"I am sorry," Hatzenbeller told the judge. "I apologize to my family, my children, the people I hurt but never intended to."

"It's a powerfully damaging thing to do to people who are, or should be, in their golden years," Best told Hatzenbeller. 

Best said she does not consider him to be a future danger to society but took into account that he destroyed his and others' financial futures. She said she believed his hubris led him to the financial ruin that landed him in court. Best also said she hopes that Hatzenbeller would avidly work toward paying the restitution that everyone involved believed is likely not going to be paid. 

"Every human being is capable of returning and contributing, and I wish you the best in doing that," she said. 

Barbara Harris, the prosecuting attorney from the state auditor's office, echoed Hall's earlier statement: the deferred sentence and restitution was probably a better outcome than they would have obtained at trial. She added that Hatzenbeller's criminal habits were common in her field.

"I saw in this case what I see in other white collar crimes," she said. "It's day after day, year after year of victimization, but the courts are inclined to fall back on deferred imposition of sentence."

She said because Hatzenbeller has no criminal history, state law directs the courts to lean toward no prison time for those convicted of fraudulent security schemes. Harris has received the same in past cases and didn't expect prison time in this one but still acknowledges more could have been done.

"Yes, it was my agreement," she said. "In this situation, I don't think we could have gotten more had we gone to trial."

"I don't think it's justice," Hall said after the hearing. "But it's the best we'll get."