November 17, 10

NEWS / Former CEO of Sweezy Construction, Inc. Sent to Prison

BROWNSVILLE, TX—The former CEO of Sweezy Construction Inc. (SCI) has been sentenced to seven years in federal prison and ordered to pay $40 million in restitution for conspiring to commit bank fraud and bankruptcy fraud, United States Attorney José Angel Moreno announced today. Mitchell Kent Sweezy, 59, formerly of Harlingen, Texas, was sentenced by U.S. District Court Judge Andrew Hanen late Monday, Nov. 15, 2010, along with defendants and business entities KPS Texas Dev. Inc. and Santorini RE Investments Ltd.

As noted in his pleas of guilty and other documents filed with the court, Sweezy and former Chief Financial Officer Claude McMillon, who previously pleaded guilty to a bank fraud conspiracy in this case and will be sentenced later this week, engaged in a scheme to obtain bank loans from federally insured banks and construction performance and payment bonds from AIG for SCI construction projects using false financial statements of SCI during the years 1999 - 2001. Sweezy admitted that the financial statements were manipulated in various ways to make SCI appear to be profitable and financially sound when in fact it was insolvent. While these events were occurring, Sweezy admitted that he set up a multi-layered trust structure in 1999 and began transferring his and SCI’s assets into the trust structure in the year 2000. These transfers continued through the year 2004. The bulk of these assets were placed in the name of a limited partnership, Santorini RE Investments Ltd., which was controlled by Sweezy through his control of the managing partner of Santorini, KPS Tex. Dev. Inc., which Sweezy owned along with his former spouse.

In 2004, Sweezy and his former spouse filed for bankruptcy and failed to disclose key financial information and assets to the Bankruptcy Court, such as Sweezy’s ownership of mineral interests in land located in La Salle County, Texas. Following his pleas of guilty earlier this year, those interests became very valuable. As requested by the United States Attorney’s Office, Sweezy transferred these interests to the Bankruptcy Trustee during the sentencing process and further agreed to remit $54,000 in mineral lease proceeds to one of the victims of the fraud.

Previously, Sweezy and other defendants agreed to the transfer of a large ranch and other valuable real estate in Cameron County to the Bankruptcy Court. Those assets have since been sold for $1,580,000 and will be credited toward restitution.

Santorini and KPS were sentenced to terms of probation. Santorini, a Texas limited partnership, was used to hide ownership of a 1020 acre ranch in Cameron County, along with hundreds of thousands of dollars of cash proceeds of the fraud. KPS controlled the Santorini partnership and Sweezy controlled KPS as its president.

In a key ruling, Judge Hanen held that a valuable real estate asset held in the name of Island Daze, another limited partnership controlled by KPS and Sweezy, cannot be sold without the approval of the Probation Office. Island Daze has guaranteed a Sweezy-related bank loan in the amount of approximately $934,000 and the United States is seeking to insure that the lending institution is not left “with another bag of Sweezy debt,” as explained by Assistant United States Attorney (AUSA) Charles Lewis, who is prosecuting the case. As part of the Sweezy sentence, Judge Hanen listed the numerous banks, insurance companies, suppliers, and individuals to whom restitution is owed.

SCI failed as an entity in August 2001, and its bonded projects were taken over by AIG. Various lawsuits were then filed against SCI and Sweezy, which resulted in civil judgments in excess of $30 million. When Sweezy filed for bankruptcy in June 2004, he claimed negligible assets and debts of more than $32 million. In his bankruptcy petition, Sweezy additionally failed to disclose extensive asset transfers into the trust structure and to his son.

The case was investigated by the FBI and prosecuted by AUSA Lewis.

http://sanantonio.fbi.gov/dojpressrel/pressrel10/sa111610.htm

Tags: us law, document,