Southwest Exchange: “Uh, Uhm. . . uh. . .” $100,000,000 Reasons to Perform Due Diligence on Your 1031 Exchange Company

In one of the biggest 1031 swindles in Real Estate history, Southwest Exchange of Las Vegas, Nevada was charged with pilfering $100,000,000 of investors money. According to the Las Vegas Business Press, the principles of Southwest Exchange, CEO Donald McGhan and Shirley McGhan (his wife) face a massive civil lawsuit. According to LVBP in their May 18, 2007 edition:
“The couple is accused of one of the largest, most brazen frauds ever alleged against a Las Vegas financial institution. Along with daughter Nikki Pomeroy, son Jim, longtime investment broker Peter DeMarigney, plus a number of insurance companies, brokerage firms, a local bank and related business associates, the couple are named as defendants in a consolidated civil case. The suit alleges more than two-dozen acts of malfeasance affecting victims in Missouri, California, Idaho, Arizona, Nevada and elsewhere”

In addition, the FBI is investigating. “So too are state agencies that failed to detect the chicanery until more than 130 victims had lost more than $100 million. Those victims are all landowners who placed the proceeds from real estate sales into escrow accounts at the now-infamous Southwest Exchange in Henderson, which abruptly shut its doors in January. Instead of avoiding an IRS tax bill by parking their money in a supposedly safe, bonded institution for 180 days, these victims lost between $25,000 and $22 million each, some of which they will never recover.”

In a phone call dubbed “The Answering Machine Call” made regionally famous by Las Vegas’s Channel 8 CBS affiliate “Eye Witness News” , Donald McGhan attempts to lie to one of his clients who is desperate for answers:

“Uh, the wire for your transaction today was all set up, but uh, it didn’t end up going because of some screw up,. . . uh, with,. . . uhm, the coordination between the, uh, electronic wire transfer, uh, instructions over to, uh. . . , our bank and, uh we’re all set up to do that Monday morning. . . “

The stumbling excuse filled excerpt continues: “So we recognize that you. . . you, uh, want, you know. . . feel. . . feel, uh, violated and want to do something, uhm, but if, if we get, if we get, uhm, uhm, people involved, uh, it is going to screw up going Monday morning. So let’s not–let’s just be patient for it.”

So it’s up to you to perform your own investigation and due diligence into any independent 1031 Exchange company. Do not allow these painful mistakes made by well meaning people, become your own personal nightmare !

 

1031 Advance New Developments: What Really Happened or More Rumors?

The ongoing mess that is 1031 Advance has turned into a Chapter 11 reorganization. The Huron Consulting Group and Van Prooyen-Greenfield LLP are heading up the “cleanup” of both the financial mess and public relations train wreck. So what really happened to $151,000,000 of client monies? Where did it go, who took it or “placed it”, and why???

As with my first posts on this saga, I wish to reiterate that rumor, gossip, and innuendo are “unsubstantiated” forms of communication. Are they fact? In some cases they are and in many cases they are not fact.

Pat Kitano in his article “1031 Exchange Companies are not Regulated” succinctly outlines the tragic lack of regulations and enforcement in place in this industry. It is truly a “Buyer Beware” climate.

With this idea in mind, I received a phone call from my original source who tipped me to the 1031 Advance “closing.” My east coast source had some new news; so take it with a grain of salt or follow it up as you see fit. Here it is. . .

According to my attorney friend, the culprits behind the mess are the people who originally left the company–those responsible for running the 1031 Advance San Jose show. The rumor is that these people “placed” the client funds, in question, into non liquid assets. Those assets are rumored to be Real estate.

In laymen terms, the group responsible for holding their clients’ funds used those funds as their own personal investment slush fund. Again the speculation via rumor is that these people felt they could invest client monies in real estate, hold the real estate for a short time, then quickly sell off these holdings for a profit before the money came up missing. It appears to be a lesson in “other people’s money” investing where the “investor” (1031 Advance personnel) risks someone else’s money not their own. Again this is unsubstantiated rumor from a source claiming to be close to the industry and business. . . take from it what you will.

Because of the amount of interest I have received on this case, I am going to do a follow up piece describing the recent Southwest Exchange rip off in Las Vegas, Nevada.

In addition, with the help of industry experts, I will be compiling information and questions potential 1031 exchange clients need to ask when investigating companies to perform their exchange.