Las Vegas, NV – Nikki Pomeroy, former officer and director of Southwest Exchange (SWEX) Company Inc., a 1031 Qualified Intermediary Company, has entered a plea of nolo contendere also referred to as a “no contest plea,” to one felony count of Unlawful Intermediary in a Tax Free Exchange, in violation of NRS 205.960. A nolo contendere is a plea, while not technically a guilty plea, has the same immediate effect as a guilty plea.
On November 30, 2009, Pomeroy’s father, Don McGhan, pled guilty to the same charge in State court, as well as pleading guilty to four counts of Wire Fraud in Federal court. Don McGhan is currently serving a ten year sentence in federal prison.
In addition to the criminal plea, Nikki Pomeroy also has paid a total $693,680 to the Receiver appointed over SWEX in connection with a Nevada State Court receivership action and a Rico Class Action arising out of the investigation.
An extensive 24 month investigation was done by the Nevada Secretary of State’s office into how the exchanger client’s funds were used by Southwest. The investigation revealed numerous unauthorized transfers of client funds to third party accounts and companies which were done without the authority or knowledge of Southwest’s clients. At the conclusion of its investigation, the Secretary of State’s office referred the case to the Attorney General for criminal prosecution based on its findings.
Southwest Exchange, Inc. was a Nevada corporation operating as a 1031 exchange “Qualified Intermediary.” The company facilitated the exchange of property pursuant to IRS Rule 1031, which allows a person to sell investment real property and reinvest that money in new, like-kind property within a limited time period and to defer payment of the 15% capital gains tax on profits realized from the sale of the old property.
Nikki Pomeroy, in her capacity as Secretary and Director of Southwest Exchange, transferred funds out of the Southwest Exchange accounts without the written permission of Southwest’s exchanger clients. This permission is required by Nevada law under NRS 205.960.
Southwest Exchange pooled its exchanger clients’ funds into one or more bank accounts. Exchanger money was commonly sent to securities accounts at various broker-dealers. After the exchangers’ money was transferred to the brokerage accounts, unauthorized withdrawals were made pursuant to Letters of Authorization signed by Nikki Pomeroy. As a result of the unauthorized withdrawals, Southwest Exchange was unable to complete the 1031 exchanges they were hired to perform, resulting in a loss by the client exchangers of the funds they deposited with Southwest Exchange. The Secretary of State’s investigation revealed that 119 of Southwest Exchange’s clients lost in excess of a total of $97 million dollars as a result of Pomeroy’s handling of their funds.
A sentencing date has been scheduled for March 15, 2011 at Las Vegas District Court 3.