Victims of Okun and McGhan: “Where Do We Go for Answers?”

When I started investigating and reporting on the sad 1031 Advance case, I was stunned at the brazen and outlandish losses. I was offended to think that honest hard working people, many with their life savings on the line, would suffer their most significant loss from an industry that purports itself to be nearly flawless. I was angered by the culprits tip toeing out of town under the cover of darkness methods. And as I continued to report on the situation at hand, victims of the 1031 Tax Group swindle began to come out in a voice of unity: “We have been bambooseld and hoodwinked!

The following are two separate comments sent to me by victims of the 1031 Tax Group and the Southwest Exchange disaster in Las Vegas. These comments really struck a nerve; I feel that it is important to recognize the helplessness and desperation of the victims of this terrible rip off. I myself feel angry over the lack of political involvement or attention to this matter. I have written and profiled the politicians who spoke up when the 1031 Advance rip off was front page news on the San Jose Mercury news. I followed that first article up with a progress report on the politicians who “promised” to either “look into the matter” or “take action” to ensure that nothing like this ever happens again. We are still waiting! None of the politicians in California, who were profiled, have lifted a finger to help these people or introduce legislation to regulate the 1031 industry.

  1. Dear sir I don’t understand about what the government does or do sometimes. One thing needs to be addressd is where is the money they
    need to protect us from crooks like that.I’m one of the victims that were taken to the cleaner. Why because the IRS doesn’t trust people to do it themselves they trust crooks like those who are trying or tried to con people out of their own money.It is Funny that a business like that it is not even regulated by anything wow!!!!!
    that means any crook can go and open a 1031 exchange and make good money and file Bk. Only in America.Not sure what to do to get my money from this company who has taken me and lots of others to the cleaner.Do you have any suggestion?
    SamComment by sam eloatri
  2. Jack | athomeintx@hotmail.com | IP: 68.238.154.52I am one of the many that lost money to the McGhan thieves. Not a big amount by the standards of those who lost several million, but the $180,000 I lost was most of my retirement. The lawyers will get most of any that I get back, so my retirement is gone, and at 60 I can look forward to working the rest of my life. I do so hope I can spend some of it visiting the McGhan scum in jail.I am writing to comment on the mention of people needing to do some homework before giving money to a 1031 QI. I actually did quite a bit of homework (not enough obviously). The reason I went with Arrow 1031/Southwest exchange and not with the other 8 I checked out was primarily because Southwest was the ONLY one that was registered with the state of Nevada, and Nevada was the only state requiring registration (I am from Texas).The one thing that frosts me so deeply about this whole thing is that Nevada did nothing to prevent it, and the IRS set up the whole program without requiring any over site or taking any responsibility for the loss.It is a sad truth, but the money is gone, and the McGhan scum will continue to live a life of luxury on the money they stole.Jul 12, 7:40 PM — [ Edit | Delete | Unapprove | Approve | Spam ] — Southwest Exchange: “Uh, Uhm. . . uh. . .” $100,000,000 Reasons to Perform Due Diligence on Your 1031 Exchange Company
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13 thoughts on “Victims of Okun and McGhan: “Where Do We Go for Answers?”

  1. Dean – You are doing a great service by staying on top of this issue. This is a story that should not go away and it may well be the “series” that brings you the national recognition that your writing deserves.

  2. John,

    Did my mother pay you? That is high praise and very kind words-I thank you!
    I feel that if we, in the blogisphere, will push the 1031 issue forward, it may become more common knowledge.

    The ultimate goal is some level of political pressure leading to political awareness which manifests into regulatory laws and penalties.

    Simply put I want a big bad cop to patrol the 1031 Industry a cross between Marshall Dillon and Clint Eastwood. . . Like “Harry” said: “A man’s got to know his limitations.” In the 1031 Exchange industry there are no limitations.

    Dean

  3. Dean

    I agree with the desire to create such “limitations” but please help create real limitations that provide true protection for exchangers.

    Don’t be lulled into accepting bonds or errors and omissions insurance that not only may not really help, but that cannot possibly help the exchanger in time to close the replacement property acquisition.

    The insurance industry might obtain lots of new premiums and it could drive the operating costs of QIs up substantially without providing any real protection for exchangers.

    Instead, help require fully segregated accounts at all times (where all interest on those funds is earned by the exchanger) and dual signatory control so no funds may be received or later moved by a QI without the written consent of the exchanger.

    That way, the funds will always be available to complete the exchange.

    Also don’t be misled by some QIs who offer “dual signatory” control where it is only two different employees of the QI that need to sign, not the QI and the Exchanger.

    That won’t help protect the funds in the least.

  4. Rob,

    Very well said! You are so right in regards to making sure that the limitations ie regulations and laws have teeth. We need political intervention asap. . . yet none is in sight.

    I also agree that bonds and omission insurance does not answer the problem of exchange deadlines for the exchanger.

    My frustrations are as follows:

    1.No political involvement; none that can be measured on a national scale.
    2.No FEA like organization that has the “strength” to help ensure conduct.
    3.NOT ONE TITLE BASED EXCHANGE COMPANY HAS STEPPED TO THE PLATE (unless it was done without identification) to explain their position, strengths, and challenged anything proposed during this series.

    4.The media milked the subject for it’s headlines and NOW they are gone with no coverage insight! Bloggers and concerned independents make up the majority of coverage.

    5.No statements by the IRS or the State of Nevada re: the Southwest Exchange mess and penalty relief for victims of that complete rip off!

    Thanks Rob and please continue to contribute!

    Dean

  5. Nice of Huron Consulting to post the 3 website addresses, however their statement regarding their website, “provides links to all the filings in the bankrupcy case”, is inaccurate. As of August 14th, 533 documents have been filed in this case, of which a very small fraction are posted on any of the 3 websites and they are far from posted in a timely fashion.

    Through blogs such as yours, 8 of us Train Wreck Victims (TWVs) have created an email group and work together keeping each other informed of the goings on. Here’s how we work:

    1. I access the Pacer system, read & download the pertinent documents filed with the court, and email them to our group of TWVs. (Non-pertinent ones would be Notices of Appearance, Notices of Service, Applications for Pro Hac Admission & Grants of Same, Certificates of Service, Affidavits of Service, etc.)

    2. Most of the group members have sent me $25 each to help defray the costs of utilizing the Pacer system. To date we’ve only incurred $196 in Pacer costs – much less expensive than hiring an attorney AND we’re getting ALL the documents.

    3. One or two of us attend the hearings; one has attended all of them and emails his ‘Executive Summary’ within a day or two afterward thus giving each of us first hand knowledge of what’s going on.

    IMPORTANT DATE: The Bar Date (deadline to file a Proof of Claim) is August 24, 2007. If anyone misses it they’re SOL.

    IMPORTANT NOTE: Creditors will be asked to vote on the Chapter 11 Reorganization Plan; the document is 72 pages in length and should be read by all creditors. Of course it wasn’t mailed out to the creditors, nor was the Disclosure Statement, which is 75 pages in length. We’ve asked that both these documents be translated into laypersons language, to no avail.

    It truly unnerves me thinking how many of the 350 TWVs out there have no idea what’s going on. I live in the greater Seattle, Washington area and just this morning received a phone call from a TWV who lives on the Olympic Peninsula. She came across my name & number through an unrelated third party and didn’t have a clue.

    We 8 TWVs will be working to lobby our politicians to in turn lobby Congress to change the tax laws – retroactively to the effect we’re not taxed for ‘defaulting’ on our 1031 Exchanges. How in the world could we have defaulted when we didn’t have control over our funds?!

    Dean: This is probably way to much to post, but I’m just hoping to reach other TWVs out there to encourage them to become informed. Re your response to my last posting, thank you for your kind words and expression of sympathy. Are you folks hiring? I’m a pretty good amateur editor!

    Best Regards,
    Darlin’

  6. My husband and I are also victims of 1031-exchange, not the disaster in Las Vegas but the one in Colorado under the company Replace Property Solution affiliated with Mile High Capital Group. The crooks Fredric R. Dryer and Richard Darrow both filed bankrupcy and are under various indictments. We wonder if class action law suit by the collective victims of 1031 exchange against our US government is warranted since this particular IRS law of 1031 exchange was established without safeguards nor oversights? Such lawsuit may be unnecessary if the bankrupcy courts of all the involved states rule in these pending cases that the 1031 exchange victims as priority claimants. Regardless, the IRS should act promptly to remedy the existing 1031 Law to protect all future 1031 exchangers.

  7. Emily,

    I am not a lawyer nor am I the right person to consult for legal advice. In my OPINION it is the biggest hill to climb in order to take on the US Govt and or the Internal Revenue Service in court. Both monoliths have the monetary funding to, again in my opinion, grind you into the financial “turf.” Ask an attorney. MY BEST GUESS, is that these two could prolong the legal battle until you ran out of money or exclaimed “uncle.”

  8. Hi Emily,

    Mile High Capital is not a 1031 Exchange Qualified Intermediary or Accommodator. They syndicate investment options that they claim will qualify for 1031 Exchange treatment.

    We had a number of clients that were looking at them as their investment option for their like-kind replacement property option in their own 1031 Exchange transaction. We were asked to review their documentation and we immediately filed complaints with the Colorado Securities Commission.

    Their documentation and sales material was so weak that it screamed fraud. It is critical that potential buyers/investors have their legal, tax and 1031 Exchange advisors review their potential investment documents before making any decisions.

    There would be no way to enforce the 1031 Exchange codes or regulations against Mile High Capital. They would fall under the federal and state securities codes and regulations.

    Remember, it is buyer beware. Always have your legal, tax and 1031 Exchange advisors review transactional documents prior to investing.

  9. I had a couple of additional comments on the two (2) current situations within the 1031 Exchange Qualified Intermediary world.

    I’ve been administering 1031 exchanges as a Qualified Intermediary for over 22 years. The thing that always amazes me is that most investors never ask about the bonding and insurance of a Qualified Intermediary, and it is CRITICAL that they do so.

    It is also CRITICAL that you call their insurance agent and verify that the cover still exists. Southwest Exchange – one of the two recent failures – had a $50 million fidelity bond, but it had expired about one (1) year prior to the theft of the funds.

    Always, always, always, ask for a copy of the insurance binders and always, always, always, verify that it is still in full force and effect. Never assume.

    Second, and I know that you have heard it before, but you must read the entire 1031 exchange agreemeent.

    In the Okun case, he had changed the language on some of his 1031 exchange agreement with some of the Qualified Intermediaries that he had bought to allow him to borrow the clients’ 1031 exchange funds and use them for other purposes. He is a disgusting individual with no ethics or morals, but when the agreement has been changed like this he has technically not broken any laws because the client has signed the agreement.

    Always, always, always review any agreement that you are asked to sign. It is critical.

    Just a couple of additional thoughts to help the investing public.

  10. 1031 Exchange Regulation

    Sorry for the multiple posts, but I think your blog is a great service and resource for those clients and advisors looking for information, so I hope you don’t mind the information that I’m posting here.

    There are now five (5) states that are looking at regulating Qualified Intermediaries, so we are making progress. And, the Federation of Exchange Accommodators has approached the Federal government and asked the Federal Trade Commission to discuss regulating our industry. I’ve been an advocate for government regulation for almost 23 years, and I think we are almost there.

  11. Welcome Mr. Exeter!

    For those of you who have not followed the 1031 crisis in America, I have documented two of the biggest disasters that of the Southwest and Ed Okun 1031 Tax Group ordeals.

    One of my goals was to bring forward both alternative investments as well as an expert(s) who I felt might be someone who could help people in need of 1031 Exchange advice.

    My Sept 12 article is a spotlight on Mr. William Exeter, his valuable advise to consumers, and a bit about his business. Please refer to Mr. Exeter for your in depth and detailed exchange questions.

    Thank you for your kind words Mr. Exeter and thank you for helping our readers. So many folks have been hurt by these rip offs. It’s nice to hear from somebody who cares.

    dean

  12. My name is Rudy Lozano and I am a first generation Mexican American and proud owner of a REMAX Franchise in San Antonio. On the advice of a my fee attorney in San Antonio DBA Lawyer’s Title I was recommended this national exchange service.

    I am NO attorney but on the advice and opinion of this attorney I took his advice and deposited my 1031 exchange $$$. My question is do I have any recourse against this fee attorney?

    I am not sure if a kick back was involved from recommending the service but the attorney could have nonetheless referred me to the state insured and nationally recongized 1031 exchange that Lawyers Title has in place rather than one that was not regulated and had nothing to do with his parent company and or firm.

    This attorney is a millionaire and I am penny-less!!!!!

    I cannot understand if Okun has over 700k million in assets why the BK Court is not pushing to sell all assets NOW to satisfy all pending claims that are under 300k million?

    Can someone explain this to me as if I were a 3 year old.?????

    My parents who are 70 years old sold this property so that I could expand my business and take care of them like a good son does. NOW I have no money and a $1500 debt monthly that I pledged to my parents to ensure they did not have to rely on SSI. My obligation is pending to my parents who could no longer handle this rental property due to their age-on money I never even have seen, used or might never even get back. Till this day they do not know the money is missing or what happened in fear their health will diminish.

    If there is a GOD or JUSTICE in this world OKUN needs to dispose of all his assets to satisfy those of innocent hard working people.

    He needs to be reported to any and all reporting agencies that have to do with securing a loan, job or passing securities and exchange clearances. I have filed a postal criminal claim against this sub-human being.

    Devastated Still with NO hope in San Antonio, TEXAS.

    Why does the government and the IRS wish NOT to be involved?

    We must learn from our past mistakes and ensure that capitalism continues to reign in this free world but we must go after unethical people with a passion for JUSTICE.

    For all of you that are suffering GREAT financial emotional,spiritual and physical stress, GOD Bless YOU!

    YOu are NOT alone.

    Sincerely,

    Rudy Lozano,
    Broker of Record
    RE/MAX Fidelity Realty

    http://www.fidelityrealtysatx.com
    http://www.mysatxmortgage.com

    210/641-1400 main
    210/559-8888 cell

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