Southwest Exchange Owner Pleads Guilty in Federal Court to Wire Fraud
Admits He Defrauded Clients of $95 Million
| U.S. Attorney’s Office June 08, 2009 |
LAS VEGAS—The owner of a Nevada company that held money in trust for individuals who engaged in real estate transactions, pleaded guilty today to wire fraud for defrauding clients of $95 million by fraudulently inducing them to use the services of his company, announced Greg Brower, U.S. Attorney for the District of Nevada.
Donald McGhan, 75, currently a resident of Texas and owner of Southwest Exchange, Inc., entered a guilty plea to four counts of wire fraud before U.S. District Judge Philip M. Pro, and agreed to serve eight to 10 years in federal prison. Judge Pro set sentencing for September 17, 2009.
Southwest Exchange, Inc. was a “Qualified Intermediary,” an independent party operated to facilitate tax-deferred exchanges of real estate. An individual could defer tax liability from the sale of real property if the individual used a qualified intermediary such as Southwest Exchange to hold the proceeds of the sale in trust and purchased a like-kind real property within six months.
McGhan purchased Southwest Exchange on about June 28, 2004, with the intent to use client money held in trust to buy certain business. At the time, Southwest Exchange held approximately $109 million in trust. Within two weeks of McGhan purchasing Southwest Exchange, McGhan transferred more than $40 million from Southwest Exchange’s investment account at Smith Barney to McGhan-affiliated entities, purportedly as loans to enable McGhan to purchase the French breast implant manufacturing company, Eurosilicone. McGhan continued to loan money from Southwest Exchange’s investment account to his entities in connection with the purchase of Eurosilicone and other entities. McGhan intentionally and fraudulently withheld information from potential Southwest Exchange clients that he had been lending Southwest Exchange monies to entities to purchase Eurosilicone and other companies. McGhan also deceived clients into believing he was operating Southwest Exchange consistently with the terms of its contracts with its customers, and that Southwest Exchange would be able to fund its clients’ purchases of replacement properties.
From at least August 2006 until January 2007, McGhan caused Southwest Exchange to continue to falsely and fraudulently seek new customers under the false premise that Southwest Exchange was financially secure and stable, when McGhan knew that it did not have sufficient liquid assets or sources of capital to satisfy its contractual obligations to purchase replacement properties for new clients. From about August 2006 to January 2007, McGhan fraudulent caused customers to deposit approximately $95 million with Southwest Exchange.
It is estimated that 125 victims, most from Nevada, lost over $95 million in investments placed with Southwest Exchange. McGhan has agreed to make full restitution in an amount to be determined by the Court. Any restitution imposed by the court may not be discharged in any present or future bankruptcy proceeding.
The case is being investigated by the FBI. It is being prosecuted by Assistant United States Attorney Daniel R. Schiess. The Nevada Attorney General’s Office contributed extensively to the investigation and prosecution of the case.