How could a debtor shield a multimillion-dollar financial settlement from creditors holding millions of dollars of judgments?
One way would be to cover the terms of the settlement in a confidentiality agreement and orchestrate the creation of a labyrinth of limited liability companies to hide the money.
With the help of friends and family, the circle of LLCs could be used to move money around, buy and sell real estate and more — all beyond the reach of creditors.
“If you wanted to create fraud, it would be a great way to go about it,” said Josh Silverstein, professor at the Bowen School of Law in Little Rock.
Bill Schwyhart, the once-prominent northwest Arkansas developer, has drawn heightened scrutiny for allegedly creating such a fraud after the post-2008 meltdown of his leveraged real estate holdings. A dogged creditor and the U.S. Department of Justice were both granted court-ordered peeks behind the corporate veil in regard to a secret 2014 settlement by Schwyhart.
For now, Brian Ferguson and the DOJ are restricted by court order from disclosing what they’ve seen. But that could change as the Chapter 7 bankruptcy of Schwyhart and his wife, Carolyn, proceeds in Dallas.
“The law will sniff out fraud,” Silverstein said. “There are too many different legal remedies to break through the veil and expose when a debtor is committing fraud.”
Through his CHP LLC, Ferguson filed under seal an objection to the dismissal of the bankruptcy case because of the protective order.
“He had to submit it under seal, which is rare,” said Tim Tarvin, professor at the University of Arkansas School of Law at Fayetteville. “There are many public policy reasons for court documentation to be public. That’s information relevant to every creditor.”
The CHP motion in the Schwyharts’ bankruptcy notes that the settlement agreement shows transfers of assets to and from entities not involved in the case. The filing also noted the necessity to describe the transfers in order to prove their discharge from bankruptcy should be denied. Though submitted to the court, those details currently are not part of the public record.
Ferguson started with the Schwyharts’ debt-free $1.5 million-plus manor in Rogers when he began connecting the dots between the seemingly destitute developer and valuable real estate assets.
On paper, the couple didn’t own the grand 9,484 residence in the gated Pinnacle Country Club development. But their all-expenses-paid control of the property indicated otherwise.
Faceless LLCs owned the property, paid the bills and provided money for the Schwyharts.
Ferguson’s interpretation of the paper trail surrounding the house and other suspected Schwyhart property identifies some faces behind some of the limited liability companies.
Three names that crop up include son Alex Schwyhart, step-daughter Kimberly Steerforth and friend Ron Pender. Pender is a former banker whose resume includes stops at two lenders based in Springfield, Missouri, where he was a senior vice president at Liberty Bank and a loan officer at Great Southern Bank.
Among Schwyhart’s suspected post-secret-settlement real estate investments are two projects in downtown Bentonville: a 9,324-SF commercial building at 101 W. Central Ave., bought for $1.7 million in 2015; and a 4,909-SF storefront at 109 N. Main St. next to the Walmart Museum, acquired for $1.4 million in 2017.
Two more are in southwest Bentonville: the former Church Alive project at 21,840-SF at 5121 Runway Drive purchased for $1.2 million in 2016; and three undeveloped commercial parcels totaling 19.5 acres along Southwest Regional Airport Road at Windmill Road, bought for $1.8 million in 2017.
Other properties with alleged connections to Schwyhart include a 21,693-SF office building at 1700 W. Industrial Drive in Rogers, where Alex Schwyhart formerly maintained an office; and a 15,842-SF office building at 2601 N. Walton Blvd. in Bentonville.
Ferguson’s collection efforts began in Benton County Circuit Court before Judge Douglas Schrantz, but that case came to a halt when the Schwyharts moved to Texas and filed bankruptcy in July. A motivation for that relocation and change of venue could be linked to a ruling by Schrantz on Oct. 12, 2010.
“There’s been a lot of dancing on the head of the pin about piercing the corporate veil,” Schrantz said at the time, adding that Schwyhart was at the tip of the pin.
The judge noted the financial incongruity served up by Schwyhart during his time on the witness stand during the 2010 hearing. On one hand, Schwyhart testified he could raise $30 million to buy back foreclosed properties. Yet under cross-examination, Schwyhart indicated his finances were such that he couldn’t pay his own electric bill.
Schwyhart said that monthly expense was covered by 9CH LLC, managed by his children. At that time, the limited liability company owned the Rogers mansion he called home. When 9CH LLC filed bankruptcy in an unsuccessful attempt to fend off foreclosure in 2011, its owners at that time were disclosed to be Bill and Carolyn Schwyhart.
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