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The couple moved to Midland, Mich., where Don went to work for Dow Corning Corp. While he was with Corning, McGhan was a pioneer in the development of ...

Monday, June 4, 2007 12:18 PM CDT

North Iowa success stories face fraud suit

By JOHN SKIPPER, Courier Lee News Service

OSAGE --- After sweethearts Don McGhan and Shirley Enabnit graduated from Osage High School in 1952, they married and embarked on a life that would lead them to fame, fortune and adulation.

When their hometown honored them last July during the city's 150th anniversary celebration, they were cited for never forgetting the values they learned growing up.

"A couple as Osage as you can get," one speaker said.

Perhaps some of that praise was a result of their $200,000 gift to the Osage Public Library in 1995.
Today, Don and Shirley McGhan are among defendants in a civil lawsuit in Las Vegas that accuses them of helping to swindle victims in Missouri, California, Idaho, Arizona and Nevada of more than $100 million.

The McGhans' daughter, Nikki Pomeroy, and son, Jim, also are defendants, as are Peter DeMarigney, an investment broker, several insurance companies and brokerage firms and a bank.

The victims --- more than 130 have been identified so far --- are landowners who put money from real estate sales into escrow accounts at Southwest Exchange, a Henderson, Nev., real estate escrow business that closed in January.

Prosecutors say the victims thought they were putting their money in tax-exempt accounts for 180 days. Instead, Southwest Exchange folded and depositors lost from $25,000 to $22 million each.

Today, McGhan is reportedly in seclusion at an undisclosed location, recovering from a heart problem. His financial problems are quite public, however, though neither he or his wife have been convicted of anything.

Upon graduating from Osage High School, McGhan attended the University of Iowa and graduated in 1956 with a degree in mechanical engineering. He had a keen interest in the field of creative medical devices.

The couple moved to Midland, Mich., where Don went to work for Dow Corning Corp. While he was with Corning, McGhan was a pioneer in the development of silicone breast implants.

He also designed the facilities and subsequently operated the Medical Products Business, a newly formed division of Dow Corning.

During 1970, the McGhans moved to Santa Barbara, Calif., where they jointly began a series of entrepreneurial opportunities in the medical device, diagnostics and pharmaceutical areas.

During 1992, they moved to Las Vegas where they started Medicor Ltd., a startup medical device company which was the McGhans' ninth company. It grew to be the third-largest developer, manufacturer and marketer of aesthetic, plastic and reconstructive surgery products in the world with plants in the south of France, England, Scotland and the Isle of Man, according to the company Web site.

At one time it employed 400 people. Today, its doors are closed.

Signs of trouble started to show up during 2000 when the Securities and Exchange Commission ordered McGhan to pay a $50,000 fine because in 1996 and 1997 he failed to document or submitted false or misleading statements to the SEC on several aspects of the finances of one of his breast implant manufacturing companies, Inamed Corp.

Without admitting or denying the allegations, McGhan agreed to pay the fine, according to SEC records.

Further trouble developed with Medicor, as well as with another purchase, Southwest Exchange, which he bought during 2004.

Southwest Exchange is an intermediary that enables investors to delay paying income taxes on the profit they make selling real estate.

Court documents contend McGhan set up a loan scheme in which he funneled $47.3 million in Southwest Exchange funds to Medicor accounts. He is also accused of devising a plan in which Medicor would get $70 million from another McGhan company that was siphoning funds from Southwest Exchange.

Brad Johnston, a Las Vegas attorney, represents clients who allege McGhan and others named in the suit swindled them out of $22 million.

"It centers around what is called a '1033 exchange,' named for section 1033 of the IRS code,"

Johnston said Friday.

"It allows you to sell a piece of property and defer paying capital gains tax if you take the proceeds and reinvest them within 180 days. But the proceeds have to be held in escrow in places like Southwest Exchange," he said.

Johnston said his suit alleges McGhan and others accessed millions of dollars from Southwest Exchange, which McGhan owned, and diverted them to his other business interests and to himself.

Eventually, Southwest Exchange collapsed. "The housing market had been booming and there was a lot of money in escrow accounts," said Johnston. "Then the market cooled and pretty soon, more escrow accounts were closing than opening," he said. That spelled trouble for Southwest Exchange, for McGhan and for the unsuspecting investors whose money he allegedly squandered.

In January, the Nevada State Real Estate Division canceled Southwest Exchange's license.

Attorneys have reportedly found 19 McGhan-controlled companies that benefited from dealings with Southwest Exchange funds. There are also reports of McGhan companies that existed in name only. The only "proof" of their existence was corporate papers filed with the state. Yet, according to court documents, investors poured millions into these bogus companies.

The McGhans will get their day in court to tell their side of the story.

Contact John Skipper at the Mason City Globe Gazette at john.skipper@globegazette.com

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