State Securities Division may revoke licenses if fraud found
State officials are investigating dozens of former Metropolitan Mortgage brokers who allegedly used unscrupulous sales practices to sell risky stocks and bonds.
“We have hundreds for sure, maybe thousands, of complaints against brokers. So many that we’re building a database,” said Deborah Bortner, chief of the Washington state Securities Division. “We’re going to see who gets the clumps of complaints and take a close look.”
Bortner said there are about 20 brokers - also called registered representatives - her office is especially nterested in. There could be many more as complaints accumulate. Bortner declined to name specific brokers who are under investigation.
Some brokers told clients they invested their own mothers’ retirement savings in Metropolitan stocks and bonds, Bortner said. Such testimonials, whether true or not, were powerful sales pitches that gave investors a false sense of security about their money.
Discipline could include stripping their brokers’ licenses - essentially ending their careers. Fines could reach $10,000, although Bortner said she wouldn’t push for such collections. She expects many angry investors to take their brokers to court.
“Fines are meant as a deterrent. In these cases, I’d rather leave dollars in the pockets of the representatives where investors can get it,” she said.
Bortner said there has not yet been an indication of criminal activity.
Some brokers aggressively sold Metropolitan investment products to thousands of seniors and others. They made fraudulent and unethical sales pitches to investors, according to the National Association of Securities Dealers Inc., the private-sector enforcer of federal securities laws.
The NASD findings led to the closure of Metropolitan’s brokerage affiliate, Metropolitan Investment Securities.
Executives of MIS were widely blamed by the NASD for running an undisciplined organization that allowed abuses to occur.
The shutdown affected about 70 brokers, who acted as independent representatives trading Metropolitan investment products for their clients.
It was a big blow to the financial well-being of Metropolitan, which relied on the brokers to raise cash to fund new investments, pay stock dividends, meet interest payments and redeem maturing bonds.
Without the income, Metropolitan is struggling.
The company announced this week that it is restructuring, although executives have not sought Chapter 11 bankruptcy protection from investors.
Also, company chairman and CEO C. Paul Sandifur Jr. resigned from his duties this week. He retains a controlling ownership interest in Metropolitan and still sits on the company’s board of directors.
Also, investors have filed two lawsuits against Metropolitan alleging securities fraud. Both lawsuits seek status as class-action claims.
Those problems are exacerbated by the actions of Ernst & Young LLP, which last week quit as Metropolitan’s independent auditor.
The auditing giant cited material misstatements in Metropolitan’s books and disavowed its audits of the company for fiscal years 2001, 2002 and the first nine months of 2003.
Bortner called the unraveling of Metropolitan among the biggest financial cases in Washington history.
The company has issued stocks and bonds totaling more than $580 million to some 35,000 investors, many in the Spokane region.
sponsored According to two 2015 surveys, 62 percent of Americans do not have enough savings to handle an unexpected emergency, much less any long-term plans.