Owner of Defunct Investment Company Southwest Exchange Sentenced to 10 Years in Prison
|U.S. Attorney’s Office September 14, 2009|
LAS VEGAS—Donald McGhan, owner of the defunct Nevada real estate exchange company, Southwest Exchange, was sentenced today by U.S. District Judge Philip M. Pro to 10 years in prison and ordered to pay approximately $97 million in restitution to 134 victims, announced Steven W. Myhre, Acting U.S. Attorney for the District of Nevada.
McGhan, 75, currently a resident of Texas, pleaded guilty to four counts of wire fraud on June 8. McGhan was permitted to self-report to federal prison by November 4, 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 businesses. 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 fraudulently caused customers to deposit approximately $95 million with Southwest Exchange.
While McGhan was operating Southwest Exchange, he bought two other exchange companies, one in California and one in Idaho. McGhan similarly took money from these companies.
In all, McGhan defrauded 134 victims of approximately $97,449,631.49. He was ordered to pay restitution in that amount to those victims.
The case was investigated by the FBI and prosecuted by Assistant United States Attorney Daniel R. Schiess. The Nevada Attorney General’s Office also contributed to the investigation and prosecution of the case.