Ex-official must testify, judge says

A Clark County district judge on Tuesday ruled that Donald McGhan, the former chairman of failed Southwest Exchange, waived his right against self-incrimination by signing a statement and must testify in a deposition.

District Judge Elizabeth Gonzalez ordered McGhan to respond to questions related to parts of an affidavit he signed and filed with the court Feb. 2.

The decision means McGhan will have to testify about money Southwest Exchange was holding for clients when it shut down in late January or face possible jail time for contempt of court.

Southwest Exchange of Henderson served as an intermediary for real estate investors seeking to delay income taxes on their gains from the sale of properties. Under federal law, a real estate investor may direct a third-party such as Southwest Exchange to take the proceeds of their real estate sale and then release the money to buy another property.

The Henderson company is believed to have held about $95 million in cash for 150 investors when it became insolvent and closed.

In his affidavit, McGhan said Southwest Exchange was holding more than $50 million in assets for clients, but had less than $1 million in cash, when it shut down.

Gonzalez said she found McGhan’s statements in six paragraphs of the affidavit to be incriminating.

Defense attorney Frank Cremen, who was not involved in the hearing, said it is unusual for a judge to rule that a potential criminal defendant waived his right against self-incrimination under the Fifth Amendment to the Constitution. But Cremen said he did not know enough about the case to comment on the appropriateness of the decision.

“The frequency of this is going to be extremely rare,” Cremen said.

Brad Johnston, an attorney for plaintiffs suing Southwest Exchange, is particularly interested in finding out about Southwest Exchange’s activities with three affiliated entities. The entities, Blackstone Ltd., Sirius Partners and International Integrated Industries, received money from Southwest Exchange.

“I think the judge made the right decision,” Johnston said. “Certainly, a waiver of the Fifth Amendment is not taken lightly, but certainly in this case it was not taken lightly.”

Dzarnoski said McGhan will appear for the deposition. Dzarnoski said he will advise McGhan to not testify about anything the defense attorney believes is protected by the Fifth Amendment, which provides that defendants cannot be forced to testify against themselves.