BROWNSVILLE, TX—Former CEO of Sweezy Construction Inc. (SCI) Mitchell Kent Sweezy, 58, has been convicted of conspiracy to commit bank fraud and bankruptcy fraud, United States Attorney José Angel Moreno announced today. Sweezy, formerly of Harlingen, Texas, pleaded guilty on Friday, May 7, 2010. Two other defendants, business entities KPS Texas Dev. Inc. (KPS) and Santorini RE Investments Ltd. (Santorini), pleaded guilty to the conspiracy charge this afternoon.
Sweezy appeared in federal court before United States District Judge Andrew Hanen in Brownsville on May 7, 2010, and pleaded guilty to conspiracy to commit bank fraud, wire fraud, mail fraud and bankruptcy fraud. Sweezy admitted during Friday’s hearing that he and former Chief Financial Officer Claude McMillon, who has previously pleaded guilty to a bank fraud conspiracy in this case, 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 SCI financial statements from 1999 - 2001. Sweezy admitted 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 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. Sweezy also admitted he transferred assets to his son. All transfers were for little or no consideration. According to pleadings filed in the case, more than $500,000 in cash that was transferred to the trust structure via transfers to Santorini was then transferred back to Sweezy for his own use. He accomplished this by using KPS, an entity that was the general partner of Santorini. Sweezy was the president of KPS and used this authority to effect the transfers.
Today, KPS admitted its role was to control assets of Sweezy and SCI produced by the scheme, along with other assets that Sweezy hid from creditors by placing them in the trust structure. Santorini admitted it was to hold the assets hidden in the trust structure and to disburse portions of them back to Sweezy.
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 judgments in excess of $30 million. Sweezy filed for bankruptcy in June 2004, claiming negligible assets and debts of more than $32 million. In his bankruptcy petition, Sweezy failed to disclose extensive asset transfers into the trust structure and to his son. According to pleadings filed of record in this case, the transfers to the trust structure exceeded $2.2 million and included a 1,020 acre ranch in Cameron County. In addition, Sweezy’s transfers to his son consisted of several hundred thousand dollars of real estate in Texas and Louisiana.
The United States agreed that the charges against Jentex Construction Inc., upon successful completion of pre-trial diversion, will be dismissed, provided Jentex makes restitution to HSBC Group in the amount of $138,000. HSBC Group provided financing for the equipment of SCI. The charges against the remaining entity defendants will be dismissed.
Sweezy is facing a sentence of up to seven years confinement. As part of the plea agreements, Sweezy, KPS and Santorini have agreed to provide restitution by the transfer of the 1,020 acre ranch and three properties transferred to his son to the bankruptcy trustee. The trustee will be responsible for liquidating these assets and distributing them to the unsecured creditors of Sweezy.
Sentencing for Sweezy, Santorini and KPS is set for Oct. 7, 2010.
The case was investigated by the FBI and prosecuted by Assistant United States Attorneys Charles Lewis, William Hagen and Michael Wynne.
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