Image: Albert Peterson
Matthew Brown  /  AP
Albert Peterson with the Two Rivers Authority stands outside an empty jail that Hardin, Mont. built for $27 million. The authority wants a California security company, American Police Force, to take over the facility.
updated 10/1/2009 9:30:25 PM ET 2009-10-02T01:30:25

Montana's attorney general launched an investigation Thursday into a California company that wants to take over an empty jail in the rural city of Hardin, following revelations that the company's lead figure is a convicted felon with a history of fraud.

Michael Hilton, who formed Santa Ana, Calif.-based American Police Force in March, came to Hardin last month promising to fill the city's never-used jail and build a large military and law enforcement training center.

Hilton has a decades-long track record of fraudulent activities and spent several years in a California prison on grand theft charges. A native of Montenegro, he uses at least 17 aliases.

Citing "significant concerns" about the city's dealings with American Police Force, Attorney General Steve Bullock asked Hardin economic development officials to produce by Oct. 12 all documents related to their dealings with the company.

His office made a similar demand of American Police Force, including information that would back up Hilton's claims of multiple defense contracts with the U.S government and other agencies.

Deal was reached last month
The launch of the investigation came as some Hardin officials began backing away from American Police Force. The city's Two Rivers Authority reached a 10-year deal on the jail with the company last month.

But that was never ratified by US Bank, the trustee on the construction bonds used to pay for the 464-bed facility.

Attorney Becky Convery, who helped negotiate the deal, said Hilton overstepped his bounds when he showed up in Hardin last week with three Mercedes SUVs marked with fictitious "Hardin Police Department" logos.

He pledged to donate the SUVs to the city and also offered to provide law enforcement for Hardin for $250,000 a year. That prospect has stirred suspicion among critics that rural Hardin, population 3,500, could be transformed into a privately run police state.

Convery said Two Rivers director Greg Smith had a tentative deal with Hilton's company to provide law enforcement service, but she said it was never finalized and she was uncertain whether it would be legal.

"We are not at all pleased with American Police masquerading as if they were the police for the city of Hardin," she said.

Yet other Hardin officials remained loyal to American Police Force despite knowing little of its origins beyond what they've been told by Hilton.

"I don't know that his background has affected his position or his ability to do his work," said Carla Colstad, a member of the Hardin City Council. "I don't consider it relevant to what's going on today."

Hilton — who came to Hardin last week in a black, military-style uniform — portrayed his company as an international player in the security industry. No records have been found of the extensive U.S. government contracts he claims.

History of fraud and criminal activity
Instead, documents and interviews with Hilton's associates revealed a history of fraud and criminal activity. That includes outstanding judgments against him in three civil cases totaling more than $1.1 million.

"Such schemes you cannot believe," said Joseph Carella, an Orange County, Calif., doctor and co-defendant with Hilton in a real estate fraud case that resulted in a civil judgment against Hilton and several others.

Carella, described in court documents as a "pawn" in the scheme, said he was never a willing participant. But he acknowledged partnering with Hilton in other failed business deals after being won over by his charm.

"The guy's brilliant. If he had been able to do honest work, he probably would have been a gazillionaire," Carella said.

As for Hilton's military expertise, including his claim to have advised forces in Iraq and Afghanistan, several associates interviewed knew of no such feats, although one said Hilton had talked of being in the special forces in Greece decades ago.

‘Documents speak for themselves’
Most who knew him described Hilton alternately as an art dealer, cook, restaurant owner, land developer, loan broker and car salesman.

Hilton did not return numerous calls seeking comment this week. American Police Force attorney Maziar Mafi referred questions to company spokeswoman Becky Shay.

When asked about court records detailing Hilton's past, Shay replied: "The documents speak for themselves. If anyone has found public documents, the documents are what they are."

The three SUVs Hilton brought to Montana have yet to be turned over to the city, which does not have a police force of its own but is considering forming one.

At least one is being driven by Shay, a former reporter who abruptly quit her job at the Billings Gazette to work for American Police Force. She said Hilton offered her $60,000 a year.

The jail deal is worth more than $2.6 million a year, according to city leaders.

His criminal record goes back to at least 1988, when Hilton was arrested in Santa Ana, Calif., for writing bad checks. In 1993, Hilton was sentenced to six years in prison in California on a dozen counts of grand theft and attempted grand theft and other charges including illegal diversion of construction funds.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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