Metropolitan Mortgage

The U.S. Securities and Exchange Commission's case against former Metropolitan Mortgage executives includes allegations against a whistleblower who's now running a real estate development business in Spokane. Metropolitan executives recruited Thomas Masters from the Phoenix area in 2002 to handle large commercial loan projects as a vice president.

A proposed legal settlement involving former board members of a Metropolitan Mortgage affiliate would free millions of dollars to be returned to investors and release the directors from lawsuits and allegations that they took part in a massive financial fraud. The deal would pull $7.25 million from an insurance pool now being tapped to pay attorney fees for former Metropolitan officials. The money would be split among a trust set up to recover and repay money to creditors in the bankruptcy case, and investors who filed a class action lawsuit against the company and its officials.

SEATTLE – Thomas Turner, formerly the No. 2 executive at the Metropolitan Mortgage & Securities group, pleaded not guilty Thursday to seven felony counts of misleading auditors. Turner appeared in U.S. District Court in Seattle to answer to a grand jury indictment for his alleged role in the collapse of Metropolitan. The Spokane company's bankruptcy has rendered near-worthless some $460 million in unsecured bonds held by thousands of investors across the Northwest.

Top executives of Metropolitan Mortgage & Securities Inc. were accused of fraud Monday, the first federal charges since the company went bankrupt. The actions allege former Metropolitan Chairman and CEO C. Paul Sandifur Jr. and other executives falsified financial results through circular real estate deals to show profits. The manipulation maintained the company's image as a safe investment haven and allowed it to continue issuing new securities, according to charges from the U.S. Securities and Exchange Commission and the U.S. Department of Justice.The scheme unraveled in 2003 as investigators scrutinized the Spokane company's books. Within months, Metropolitan, which once employed about 700 people, influenced Spokane politics and occupied a white downtown high-rise, filed for bankruptcy protection. Few investors could act quickly enough to escape. The company's failure stripped 10,000 investors of $450 million.

The Metropolitan Mortgage & Securities Co. bankruptcy could be wrapped up by Jan. 4, nearly two years after the Spokane company filed for protection from creditors. Metropolitan's more than 16,000 investors can expect an initial payback of 7 cents to 9 cents on the dollar after the reorganization plan takes effect, if it's approved by creditors, according to documents filed in bankruptcy court. Investors bought about $470 million in unsecured bonds, called debentures, from the once-venerable firm, which hadn't missed a payment in 50 years.

Current directors of Metropolitan Mortgage & Securities Co. have sued their former accounting firm, PriceWaterhouseCoopers LLC, alleging that negligent audits performed in 1999 and 2000 failed to warn them that the Spokane company was headed for a financial train wreck. The lawsuit, filed Wednesday in U.S. District Court in Spokane, seeks unspecified damages from PricewaterhouseCoopers, the accounting firm Metropolitan used for several years, concluding in 2000.

Metropolitan Mortgage & Securities' large insurance affiliate is worth half what it was a year ago when state regulators seized control, a worrisome development as creditors await word on the sale of Western United Life Assurance Co. The insurance company has equity of about $49 million, down from $108 million when put into receivership 18 months ago by Washington Insurance Commissioner Mike Kreidler. As recently as last March, when Kreidler put the company up for sale, Western United's equity – also called capital and surplus – stood at $63 million.

Metropolitan Mortgage & Securities Co. sold its idyllic Hawaiian properties and netted $16.7 million, a bit of bright news for creditors of the bankrupt company. Proceeds bested the company's initial estimate by more than $4 million, making the auction a rare success in what has been a bankruptcy full of distressed sales and disappointments.