Southwest Exchange director indicted for embezzlement

By Mary Manning

Monday, March 30, 2009 | 10:19 a.m.

A Clark County grand jury has indicted a former officer and director of Southwest Exchange Company, Inc. on 11 felony counts of embezzlement and 11 felony counts of unlawful intermediary in a tax free exchange.

The grand jury charged Nikki Pomeroy, the former officer and director of Southwest, on Thursday and the indictments were filed on Friday.

The Nevada Attorney General's Office and the Secretary of State's office spent two years investigating how clients' funds were used by Southwest, Attorney General Catherine Cortez Masto and Secretary of State Ross Miller said. The investigation revealed that 119 of Southwest Exchange's clients lost more than $94 million as a result of the alleged embezzlement.

The investigation revealed numerous unauthorized transfers of client funds to third party accounts and companies, which were done without authority or knowledge of Southwest's clients. Once the investigation was complete, Miller referred the case to Masto's office for criminal prosecution.

"This is quite possibly the largest case of embezzlement in the history of the state," Miller said. "My investigators spent two years sorting through a very complex series of financial manipulations, and its gratifying to see that work result in these indictments, which are the first of their kind in Nevada."

The investigation is far from over, Miller said.

Southwest Exchange, Inc. was a Nevada corporation operating as a 1031 exchange as a "qualified intermediary," or "1031," a tax deferred property exchange set up by the company. Under the rules, a person could sell an investment and reinvest that money in new, like-kind property within a 180-day period. Capital gains taxes on profits from the sale of the real property were deferred.

The indictment alleges that Pomeroy transferred funds out of the company's accounts without written permission of Southwest's exchange clients. This permission is required by Nevada law.

After money was transferred to brokerage accounts, unauthorized withdrawals were made and Southwest was unable to complete the 1031 exchanges they were hired to perform, resulting in losses to clients.

A district court arraignment has been scheduled for April 9 at Las Vegas District Court 17.