Executive Fraud Blog

The SouthWest Exchange fraud is an interesting example of a class action lawsuit that has exploited the favorable tax treatment of appreciated property sales. Donald McGhan of California was the mastermind of the fraud scheme that cost shareholders over $80 million in losses.

SouthWest Exchange was set up as a exchange accommodater that acts in a similar manner as a bank in that they will hold the housing sale funds in a trust until they are used again to purchase another property. As long as the money is used within 180 days of the original sale the income qualifies for a 1031 exchange and is not taxable up to certain limits. Since the original owner may not possess the money during this period there is an open opportunity for a lapping scheme. In this case, after a sale is made if the original seller does not reinvest the money until the later part of the 180 days the accommodater has the opportunity to defraud them. The timing differences can be exploited by using new money to pay out to earlier depositors. As the money exchanges hands there is a billing for fees from the accommodater but since they are not a bank they are not required to disclose as much about the fees therefore could overbill users.

After the money was skimmed from the customers the fraud continued by McGhan's money laundering plot. In order to get the money out, McGhan created shell companies that would launder the money to allow removal for him and his accomplices. Eventually, like all lapping schemes the fraud fell apart as business slowed and the real estate market cooled off causing less deposits and more reinvestments. Users of this service are the source of the class action lawsuit that will attempt to recover the damages.

Prior Lake mortgage broker, Ronald Joseph, has recently been discovered to have commited wire fraud, mail fraud, and acts of money laundering. The Minnesota fraud scheme used fradulent loan applications and settlement statements in order to conceal illegal payments totaling over $2.5 million to himself and others involved in the fraud. By adjusting the purchase price of properties on loan applications Joseph was able to steal the difference. Many of the people involved had prior criminal records and had there have been proper due dilligence during the hiring process this fraud could have been prevented or at least detected much sooner. This is another prime example of the value of quality background checks.

A man has appeared before Blackburn magistrates charged in connection with a £1.5 million fraud and money laundering operation.

Robert Ikunnah, 28, also known as Daniel Lawrence, of Merchants Landing, Blackburn, faces a total of 32 charges arising out of a major investigation by the police fraud squad.

Philip Potter, prosecuting, said at the time of his arrest the police had identified more than 200 bank and building society accounts in more than 20 different names which were all linked to the defendant.

"All we know is that it's not been closed as an SEC investigation," said Jennifer Evans, chief of the state grand jury and lead prosecutor in the most recent trial, which resulted in the conviction of HomeGold chief executive Ronald Sheppard.

University of South Carolina law professor John Freeman, who used to work with the SEC as a special counsel, said the agency should investigate the case.

"When you pay tax dollars and it goes to fund federal agencies that are supposed to be protecting investors, and they don't show up to at least punish those responsible, I don't blame investors for being somewhat cynical and bitter," Freeman said.

The Carolina Investors-HomeGold case is a "cataclysm of fraud and financial misdoing," Freeman said. Freeman testified for prosecutors as

SALEM A Salem County grand jury indicted three Woodstown residents and a Monroeville man Wednesday on charges of money laundering, insurance fraud and possession and distribution of a controlled dangerous substance.

Jacqueba L. Carter, 31, Melissa Q. Hickman, 26, both of South Main Street, Woodstown, Katrina Hickman, 23, of Old Salem Road, Woodstown, and Greg Sparks, 28, of Monroeville Road were indicted on charges of third degree conspiracy, money laundering, possession and distribution of a controlled dangerous substance, insurance fraud and possession with the intent to distribute controlled dangerous substance, according the indictment.