Southwest Exchange's $98 Million Loss Snags Their Legal Firm

The receiver for the gutted 1031 accommodator, Henderson-based Southwest Exchange, is suing the Phoenix-based law firm of Snell & Wilmer, accusing one of the firm's partners of participating in a fraudulent scheme that ultimately led to the collapse and disappearance of $98 million of trust fund money. The receiver, Larry Bertsch, and others are suing Snell & Wilmer's Partner Patrick Byrne for legal malpractice, breach of contract, breach of fiduciary duty and other civil matters.

Southwest Exchange was an accommodator that held the proceeds from real estate sales in escrow accounts until another piece of property was found. The Las Vegas Review Journal reviewed the lawsuit against the law firm. Snell & Wilmer represented Southwest Exchange from 2000 until January 2007 when the accommodator became insolvent and closed, according to the lawsuit.

Byrne represented both Betty Kincaid and Donald McGhan when McGhan purchased Southwest Exchange from her for $3 million in 2004. Byrne failed to disclose to Kincaid that he was representing McGhan, the lawsuit says.

The Las Vegas Review Journal also noted from the Federal Court documents that after buying Southwest Exchange, McGhan immediately looted $52 million in trust assets from clients. McGhan used most of the money to buy Eurosilicone SAS, a breast implant maker in France, for McGhan's publicly traded company, Medicor, another Snell & Wilmer client, the lawsuit says. Eventually, Medicor would get $70 million from a McGhan-controlled company that was siphoning funds from Southwest Exchange.

By the time Southwest Exchange failed in 2007, McGhan had taken another $46 million in client funds, making the total loss $98 million, the civil complaint says. It also says McGhan and associates created a Ponzi scheme in which early investors are paid with money from later investors.

Snell & Wilmer is just another one to get caught up in this scheme. Donald and Shirley McGhan have been accused of one of the largest frauds ever alleged against a Las Vegas financial institution. Along with daughter Nikki Pomeroy, son Jim, investment broker Peter DeMarigney, plus a number of insurance companies, brokerage firms, a local bank and related business associates, the couple are named as defendants in a consolidated civil case. The suit alleges more than two-dozen acts of malfeasance affecting victims in Missouri, California, Idaho, Arizona, Nevada and elsewhere. Southwest Exchange collapsed in 2007 after it was discovered that $98 million of the trust funds were stolen. In this case, there really should have been a law protecting the consumer.

John Laub is the President of the CEO-CFO Group.


1. "Southwest Exchange Receiver Accuses Law Firm, Partner of Multiple Misdeeds." John Edwards and Vallerie Miller. The Las Vegas Review Journal. June 21, 2008.

2. "Big Swindle in the High Desert. The Southwest Exchange Litigation Ensnares an Array of Businesses in its Web." Matt Ward. The Las Vegas Business Press. May 18, 2007.