The June 22-24 bankruptcy fraud trial of Bill and Carolyn Schwyhart in Dallas is expected to produce a ruling from Bankruptcy Judge Harlin Hale during the next few days.
More contentious court action is anticipated whether Hale finds false statements made by the former high-flying northwest Arkansas real estate developer and his wife rise to the level of fraud or not.
At the end of closing arguments on June 24, Hale said he “fully expected” his decision would be appealed by one party or the other.
“I don’t feel like I’m going to be the last judge to look at this,” Hale also said before the start of testimony that morning.
The other party in the dispute is CHP LLC, led by Rogers attorney Brian Ferguson. His allegations of fraud against the Schwyharts are blocking the discharge of about $85 million of debt they declared in their Chapter 7 case.
CHP holds more than $800,000 in judgments against Bill Schwyhart, who left millions of dollars of debt and judgments in the wake of his post-2008 financial meltdown.
Ferguson alleges that the couple’s false statements are part of a pattern of misconduct regarding full financial disclosure in their bankruptcy case, filed in Texas on July 6, 2018.
Ferguson believes the Schwyharts are the hidden beneficiaries of a once-secret legal settlement that produced $3 million for them and re-established their ownership of their $2 million mansion in Rogers through a shrouded arrangement facilitated by an array of limited liability companies.
In addition to countering Ferguson’s fraud allegations, the Schwyhart defense team tried to cast their clients as victims who lost everything in a reversal of fortune that began with the bursting real estate bubble 12 years ago.
Their financial downfall was completed by billionaire bullying and betrayal by John Calamos of Chicago and Johnelle Hunt of Rogers, according to the Schwyhart narrative.
Exposed by Ferguson last year, Bill Schwyhart’s 2013 settlement with Calamos over a soured corporate jet deal and with Hunt over soured financial dealings generated $3 million that disappeared into a labyrinth of limited liability companies along with ownership of his grand home in the gated Pinnacle Country Club neighborhood.
During closing arguments by Melissa Hayward, Ferguson’s CHP was described as a “vulture-vicious creditor who spread lies for no other reason than for the media to report on them.”
The Dallas attorney also said that Bill Schwyhart was “betrayed” by Johnelle Hunt, whom she referred to as “the widow of his best friend” and business partner, J.B. Hunt. According to Hayward, that alleged betrayal occurred when Johnelle Hunt purchased and weaponized judgments against her client after the two parted company in real estate ventures in 2007 eight months after the death of J.B. Hunt.
At times, Judge Hale had to rein in testimony when the Schwyharts waded too deep into personal history recitations and when CHP’s fraud questioning strayed too far beyond the couple’s alleged misconduct in bankruptcy court.
A limited liability company, HMG Investments, has proved pivotal in CHP’s efforts to unravel the Schwyharts’ complex financial affairs.
The history of HMG and its connection to fraud allegations drew attention during last month’s trial. Listed by the Schwyharts as a creditor with a $490,000 claim in their bankruptcy, the limited liability company grew into a big bone of contention over the past two years.
It took repeated questioning in December 2018 by the U.S. trustee for Bill Schwyhart to admit that he and his wife are the only living, breathing persons behind HMG Investments. Their controlling ownership is buried under layers of intervening limited liability companies.
Judge Hale later ruled that the Schwyharts held an equitable interest in HMG, which required disclosure.
However, their statement of financial affairs in their bankruptcy filing was not amended to reflect that, and their attorneys continued to argue the point during last month’s fraud trial despite the judge’s ruling.
HMG Investments had fallen into revoked status with the Arkansas secretary of state’s office for several years until Schwyhart restored the franchise to good standing in 2013.
That was accomplished two weeks before the Oct. 13 settlement with Calamos and Hunt.
Two months later, the Schwyharts opened an HMG Investments checking account with Bank of America. The only two signature cards for the account bore their names.
The Schwyharts used the HMG account as the primary bank account to pay their personal living expenses until they filed bankruptcy.
According to bank records, about $605,000 flowed into the account between July 2014 and July 2018. The money came from TWG Resources LLC, owned by Bill Schwyhart’s son, Alex, through a separate limited liability company.
On the witness stand June 23, the 33-year-old was presented as a successful businessman and investor who had the financial means to provide monthly support for his father and stepmother that averaged more than $12,000.
That support came in the form of checks that Alex Schwyhart wrote on the TWG Resources account to HMG Investments. He testified that he considered the checks as loans that he expected to be repaid.
In turn, Bill and Carolyn Schwyhart considered the checks they wrote for personal expenses on the HMG account as loans from HMG, which they controlled.
According to testimony, there are no written loan documents regarding the checks-as-loans arrangement. Monthly bank statements, obtained from Bank of America by subpoena, are the only financial documents for HMG to surface in the litigation.
“There was never a voluntary compliance with any of our requests for documents,” Ferguson said during closing arguments. “We’ve always had to issue subpoenas.”
Dallas attorney John Leininger, Ferguson’s co-counsel, attempted to question Alex Schwyhart about Roselawn Investors LLC. But the line of questioning was quickly shut down as being beyond the trial’s scope of examining false statements made by Bill and Caroline Schwyhart.
It took six months and a court order for Ferguson to force the disclosure that Roselawn received $3 million on Dec. 2, 2013, as part of Schwyhart’s settlement with Calamos.
According to Ferguson’s timeline, that coincides with the start of Alex Schwyhart’s generous flow of monthly support for Bill and Caroline Schwyhart. In court filings, Ferguson has identified Alex Schwyhart as the sole owner of Roselawn Investors.
According to information unearthed by a CHP subpoena, the transfer of $3 million was portrayed as a loan to Roselawn from Recipio Investments Strategic Fund I LLC.
Recipio was designated as the controlling party of the $3 million in Bill Schwyhart’s settlement with Calamos. Alex Schwyhart was the sole member of Recipio when it was established, and later, that changed to Harmic Davidkhanian, a classmate of his at the London School of Economics & Political Science.
Recipio was also the controlling party of the Schwyharts’ former home, recovered as part of the 2013 settlement with Johnelle Hunt.
In the wake of the settlement, Bill and Caroline Schwyhart moved back into the 8,333-SF mansion as caretakers in a rent-free, expenses-paid arrangement with an owner whose identity they claim to not know.
Ferguson challenged Bill Schwyhart’s credibility regarding the Calamos-Hunt settlement, which Schwyhart said forever changed his life.
How could his life be forever changed from a settlement in which he didn’t receive anything? Ferguson asked in closing arguments.
The initials of HMG Investments LLC refer to Hart Motor Group, a business name linked with Bill Schwyhart’s past ownership of northwest Arkansas auto dealerships.
The limited liability company was formed on Jan. 24, 2003, according to the Arkansas secretary of state’s office.
The Hart Motor Group name dates back to 1982 when Schwyhart bought a Buick-Pontiac-GMC dealership in Rogers in partnership with his father, Joe, and Robert Thornton, a former Walmart executive.
A 1985 dispute led to Bill Schwyhart buying out his father’s interest three years later, according to a 2010 article in the Arkansas Democrat-Gazette.
But Thornton remained a constant in the ownership picture of his auto ventures, a partnership that later extended to BMW and Volkswagen dealerships and into real estate development.
Bill Schwyhart exited the car busi-ness in 2003 after he and Thornton sold their BMW-Volkswagen dealership in Rogers to MetroNational of Houston, Texas. Thornton died in 2015.
In past interviews, Schwyhart claimed a personal net worth of $75 million in 2007, which he said was slashed in half by 2010.
“They covered me on the way up and covered me extremely well on the way down,” Schwyhart said of the media while on the witness stand last month.