Officials uncover missing money

Nevada Secretary of State Ross Miller said Tuesday his securities division has located $110 million in brokerage accounts that failed Southwest Exchange used to transfer money to other business entities.

The securities division has traced $10 million into accounts for an airplane and a ranch. Millions have been traced to other accounts, including some in France, Scotland and Mexico.

“This discovery significantly furthers the process of returning money lost by investors,” Miller said in a statement.

Southwest Exchange was closed in late January while holding millions of dollars for 130 investors. The failed company is now in receivership that Clark County District Judge Elizabeth Gonzalez monitors. Investors who entrusted Southwest Exchange with the sales proceeds from investment properties now fear they may lose their money.

Lawsuits mainly blame Donald McGhan, former chairman of Southwest Exchange, for the losses.

Southwest Exchange and other so-called accommodators hold money for real estate investors using a provision of federal law that allows investors to delay income taxes on gains from property sales by rolling the money directly over into another real estate investment.

In a document filed in late March, Santa Barbara attorney Robert Brace, who filed a class action lawsuit against Southwest Exchange and companies that insured Southwest Exchange, provided more details of the alleged plot.

“The majority of money was stolen out of (Southwest Exchange’s) accounts immediately after McGhan bought (Southwest Exchange) from Betty A. Kincaid for $3,000,000 on June 30, 2004,” Brace stated.

McGhan used the investors’ money “to purchase 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,” Brace said.

Brace mentioned the Hotel D’Europe, where McGhan spent $3,374, the Regency Hotel where he spent $2,892 and the Hotel Baltimore in Paris where McGhan spent $3,024.

Other payments were to McGhan’s California ranch and to Gulfstream Aerospace, Brace said. The document said that McGhan embezzled more than $80 million with the help of a stock brokerage employee at Smith Barney, which then was doing business as UBS Financial Services.

Most of the money went to a UBS brokerage account for Blackstone Ltd. established by Nikki Pomeroy, who is McGhan’s daughter, Brace said.

“Blackstone is a bogus entity. It had no employees, place or business, products to sell or services to render for a fee,” Brace said. “It was used by McGhan and Pomeroy as a device to steal trust money.”

The lawyer said Pomeroy opened an account at SouthwestUSA Bank in Las Vegas and on the same day transferred $2 million to the Royal Bank of Scotland.

In another development, the Nevada securities division is advancing the theory that accommodators like Southwest Exchange are dealing in securities.

That’s the basis for a cease-and-desist order that the securities division issued against McGhan, Pomeroy and two other officials at Henderson-based Southwest Exchange, said defense attorney Mark Dzarnoski.

Dzarnoski, who represents McGhan and Pomeroy, on Tuesday said he disagrees with the securities division’s legal interpretation and is awaiting a hearing on the issue.

The securities division found that McGhan and the others were dealing in securities, but it’s not clear why the division considers intermediaries like Southwest Exchange to be dealing in securities.

The securities division interpretation would seem to have ramifications for other intermediaries, because presumably they should be complying with securities laws and regulations as well, Dzarnoski said.

A hearing was scheduled for this week, but Dzarnoski said it was postponed for a month. The commissioner of the securities division in Utah was expected to be the hearing officer although that may have changed, he said.

A spokesman for the secretary of state’s office could not be reached for comment by Tuesday afternoon.