Las Vegas Sun

March 29, 2024

SEC files lawsuits tied to collapse of local companies

The U.S. Securities and Exchange Commission filed lawsuits today in Las Vegas against officials it says were associated with the collapse of local medical and financial companies.

The complaints were filed in U.S. District Court for Nevada against:

-- Donald K. McGhan, 75, founder of Las Vegas company MediCor Ltd. and owner of Southwest Exchange Inc. He was sentenced in September 2009 to 10 years in prison for wire fraud in connection with defrauding Southwest Exchange clients of $95 million.

-- His son, Jimmy J. McGhan, 56, a MediCor executive who is now a self-employed consultant in Texas.

-- Theodore Robert Maloney, age unavailable, of Dana Point, Calif., former CEO of MediCor.

Prosecutors have said that at the height of its business, Southwest Exchange held nearly $95 million for about 125 clients looking to reinvest profits from the sale of real estate. The clients were able to delay paying taxes on the cash deposited with the company as long as the money was withdrawn within a certain time period to buy new property.

They said McGhan bought Southwest Exchange in June 2004 to use client money held in trust to buy businesses, including breast implant manufacturing businesses.

At the time, Southwest Exchange held about $109 million in trust. Within two weeks of McGhan purchasing the company, he transferred more than $40 million from Southwest Exchange's investment account at Smith Barney to McGhan-affiliated entities disguised as loans to allow McGhan’s MediCor company to purchase a French breast implant manufacturer, Eurosilicone, prosecutors said.

In the SEC lawsuits filed Friday, government attorneys said Medicor, a manufacturer of breast implants and other medical products, was funded largely from $54 million illegally removed from Southwest Exchange.

The SEC said MediCor, as a publicly traded company, had a duty to disclose to investors the source of its money but that the McGhans and Maloney hid this fact from investors and the SEC.

After the collapse of Southwest Exchange, MediCor lost its funding source and filed for bankruptcy in June 2007, the SEC said.

"MediCor investors did not know that a significant source of MediCor’s funding was money illegally removed from Southwest," the SEC charged in its lawsuits. "Nor did they know the short-term nature of the deposits that the Southwest clients had made, or the fact that any inability of Southwest to repay its clients timely could have a direct impact on MediCor’s current and future funding."

The SEC lawsuits allege violations of the Securities Exchange Act and seek financial damages, injunctions preventing further violations and orders barring the defendants from serving as officers or directors of any public company.

Records show both McGhans consented to the entry of orders in the lawsuits in which, without admitting or denying the allegations, they agreed to the SEC demands but don’t have to pay fines because of their financial condition.

SEC records show Maloney is the managing director and general counsel of a California company that advertises the ability to obtain financing for micro- and mid-cap companies. A message for comment on the lawsuit was left with an attorney who has represented Maloney in related litigation.

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