The Nevada attorney general and secretary of state on Monday announced the first of what could be multiple defendants in failed Southwest Exchange, a Henderson financial firm accused of cheating 119 individuals out of $97 million.
The state agencies announced an indictment that charges Nikki Pomeroy, former officer and director of Southwest Exchange, with 11 counts of embezzlement and 11 counts of serving as an unlawful intermediary in tax-free exchanges.
The unlawful intermediary counts accuse Pomeroy of transferring money out of the Southwest Exchange accounts without the written permission of Southwest clients, although permission is required by Nevada law. The embezzlement counts accuse her of moving the investors’ money into stock brokerage accounts.
She could be given probation or sentenced to one to four years in prison and fined $5,000 for each of the counts of serving as an unlawful intermediary. She could be sentenced to one to 20 years in prison or probation for each count of embezzlement.
Pomeroy remains free pending an arraignment in Clark County District Court on April 9.
Defense attorney Mark Dzarnowski declined comment, saying he had not read the indictment.
Pomeroy’s father, Donald McGhan, chairman of Southwest Exchange, is named but not charged in the indictment. Officials say the investigation continues and that others may be charged with criminal offenses later.
“This is quite possibly the largest case of embezzlement in the history of the state,” Secretary of State Ross Miller said in a statement. “The message here is that no matter how complex the case, my office and the attorney general’s office will continue to aggressively prosecute fraud.”
Attorney General Catherine Cortez Masto said in a statement, “Working in conjunction with the secretary of state’s office has allowed us to bring this scam to light and to prosecute the perpetrator.”
While the secretary of state’s securities division and Nevada attorney general obtained the indictment against Pomeroy, the U.S. attorney’s office and Securities and Exchange Commission also have investigated the failure of Southwest Exchange.
Southwest Exchange was registered as a qualified intermediary, or accommodator, that maintained control of the proceeds from real estate sales for investors seeking to defer 15 percent capital gains taxes on the sales under Internal Revenue Service rule 1031. The investors then could direct Southwest Exchange to use the proceeds to buy another property, delaying capital gains tax.
Southwest Exchange was responsible for $97 million from 119 investors when it closed in February 2007. Most of the money was missing.
Since then, court-appointed receiver Larry Bertsch and attorneys for investors have reached settlements with insurance companies, stock brokerages, several individuals and third-parties for $90 million, according to attorneys for the receiver. The civil defendants that reached settlements were released from civil liabilities in return.
The total recovered money is expected to increase to $94 million through later settlements.
Problems developed soon after a company that McGhan controlled purchased Southwest Exchange in 2004, according to lawsuits.
McGhan immediately looted $52 million in clients’ money from Southwest Exchange and used most of the money to buy Eurosillicone SAS, a breast implant maker in France, for McGhan’s publicly held company, Medicor, according to a lawsuit filed by the receiver. Medicor filed for Chapter 11 bankruptcy in June 2007.
In another lawsuit, Santa Barbara, Calif., attorney Robert Brace accused McGhan of using investors’ money for “a lifestyle beyond the imagination of most of us.”
Brace said: “McGhan’s food bills at the most expensive restaurants in the world usually exceed $1,000 per meal, and he did not hesitate to stay in suites in the most expensive hotels.”
A District Court arraignment has been scheduled for April 9 at Las Vegas District Court 17.
Contact reporter John G. Edwards at firstname.lastname@example.org or 702-383-0420.