Southwest Exchange kingpin gets 10-year prison sentence
Donald McGhan, the 75-year-old kingpin in a $97 million fraud at Southwest Exchange, was sentenced on Monday to 10 years in prison for four counts of wire fraud.
U.S. District Judge Philip Pro set the prison sentence at the maximum allowed under a guilty plea, rather than the eight-year sentence recommended by the U.S. attorney's office. Pro also required three years of supervised release and ordered McGhan to pay $97 million in restitution.
An estimated $93 million of the $97 million that 134 real estate investors lost at Southwest Exchange was recovered through lawsuits against third parties, such as insurance companies and securities dealers.
The recovered money, however, is believed to include sums owed to plaintiffs' attorneys who filed lawsuits against McGhan and Southwest Exchange. Assistant U.S. Attorney Daniel Schiess estimated that victims will receive 60 cents on the dollar, but he acknowledged that McGhan helped with the case.
"To all of those I've harmed, I'm deeply sorry," McGhan told the judge.
McGhan said he prayed for forgiveness every day. He acknowledged "the pain my actions have caused" numerous individuals.
"That pain may never go away for me," McGhan said. "I know it won't go away for my family."
The defendant choked up when he told the judge that his wife and children "lost all of their financial assets and were humiliated."
His daughter, Nikki Pomeroy, was indicted by a Clark County grand jury on 11 counts of embezzlement and 11 counts of being an unlawful intermediary. The case remains pending.
"Just like you and your family are suffering, the (victims') families are suffering mightily because of your lies and deception," Pro told McGhan.
Jack Close, one of the victims, told the judge how he "scrimped and saved" money for years to invest in real estate.
"My parents helped me with my first piece of property. We weren't looking to be rich. We were looking to be secure," Close said.
He said his family lost "our entire life savings that I have been working on since I was 18."
George Schmutz, another victim, commented: "Mr. McGhan has done an excellent job of ruining my life."
Schmutz said McGhan should be imprisoned for the rest of his life.
Southwest Exchange was an accommodator, which real estate investors relied on to delay capital gains taxes on property sales under a provision of the Internal Revenue Code. Investors entrusted the proceeds of sales to Southwest Exchange and refrained from handling the money so that they could use the proceeds to buy another property without immediately paying taxes on the sale. However, most of the cash was gone when McGhan closed Southwest Exchange's headquarters in Henderson on Jan. 31, 2007. Defense attorney Mark Dzarnoski said McGhan immediately told the FBI about problems at Southwest Exchange.
McGhan also cooperated with attorneys for plaintiffs in civil cases and filed the lawsuit to put Southwest Exchange into receivership, Dzarnoski said.
The defense attorney described his client as kind and caring.
In urging the judge to be lenient, Dzarnoski argued that legally McGhan did not violate the trust of Southwest Exchange's clients, only that of Southwest Exchange.
Pro rejected that argument and said that McGhan used Southwest Exchange "as your own piggy bank for your own purposes" without disclosing that to clients. Some of the money was funneled into MediCor Ltd., a Las Vegas-based breast implant company.
McGhan had never failed in a business enterprise previously, Dzarnoski said.
Schiess said one of Dzarnoski's statements was incorrect but said the facts are not public.
After a conference at the bench, Pro disclosed that another federal agency in the 1990s investigated alleged irregularities in a matter that involved McGhan.
The judge said he would recommend that McGhan be sent to a federal prison in Bastrop, Texas, as requested by McGhan. The defendant is scheduled to report to a prison by Nov. 4.
Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.
