Amid financial turmoil and allegations of corporate malfeasance, Metropolitan Mortgage & Securities Inc. is seeking bankruptcy court permission to hire a crisis manager for $80,000 a month.
As the company’s chief restructuring officer, William Romney would have sweeping executive power over Metropolitan’s activities. He would act as its CEO and board of directors all rolled into one.
The company acknowledges that $80,000 a month is a lot of money, especially in a city such as Spokane where the average resident earns less than $2,000 a month.
But Metropolitan needs help, said Chief Financial Officer Bill Smith, so the company turned to Alvarez & Marsal, a New York turnaround firm with a big reputation and an impressive resume. Romney is a director there.
“They are the best restructuring and crisis-management group in the country,” Smith said.
Smith predicted that Romney’s stay at Metropolitan would last about six months. Within that time frame, Romney is expected to make many tough decisions that ultimately will determine whether Metropolitan emerges from bankruptcy or folds.
Metropolitan interviewed eight companies before settling on Alvarez & Marsal, which Smith said best matched Metropolitan’s needs.
“They brought the best set of skills at the best value,” he said.
Romney’s task will be daunting.
The federal Securities and Exchange Commission is investigating Metropolitan.
The company’s senior executives have resigned, along with its board of directors, amid allegations of accounting fraud.
There are three separate class-action lawsuits pending against the company.
Outside auditors Ernst & Young LLP resigned in January and disavowed three years of audits after concluding that former managers made “material misstatements” about the company’s finances.
Insurance commissioners in three states have put the company’s three insurance affiliates into receivership, effectively wresting control of more than 80percent of Metropolitan’s assets and stopping money from being transferred.
State investigators are joining the federal government’s examination seeking evidence of wrongdoing.
The only conflict of interest Alvarez & Marsal disclosed was that it had been hired for previous work with Ernst & Young and PricewaterhouseCoopers, Metropolitan’s last two auditing firms. They now are under scrutiny for their work on, and approval of, the company’s troubled financial statements.
Besides the $80,000 due each month to Romney, other Alvarez & Marsal staff working on Metropolitan’s bankruptcy will be paid between $125 an hour for low-level analysts, to $575 an hour for managing directors.
A separate incentive-pay package will be negotiated.
Also, Metropolitan will be responsible for out-of-pocket expenses such as travel, lodging and meals. Romney will work in Spokane for Metropolitan.
Such expenses are common in large, complicated corporate bankruptcies.
In another bankruptcy case with Spokane implications, Kaiser Aluminum Corp. has spent more than $50million during the past two years on lawyers, accountants, advisers and other professionals.
Peter J. Grabicki, an attorney representing creditors of Metropolitan, said bankruptcies are expensive endeavors - especially when companies must seek the sort of help offered by national experts. He agreed with hiring Romney.
“At this point, it’s the right thing to do for the company,” he said.
Smith said firms such as Alvarez not only bring expertise, but also the financial wherewithal to do the job right. It has the sort of professional liability backing that smaller firms couldn’t bring to an unfolding and unknown case such as Metropolitan’s.
At least one creditor, however, objects to hiring Romney.
Instead, John E. Elliott has asked federal bankruptcy Judge Patricia Williams of Spokane to appoint a third-party administrator to oversee Metropolitan. He called Metropolitan’s proposed debt-for-equity plan bad for investors.
Metropolitan is pushing a plan that would turn creditors into stockholders of a reorganized company.
In his objection, Elliott wrote: “Were Metropolitan primarily interested in its creditors’ welfare, it would commence an orderly selling of its assets in order to reimburse these investors on the timely basis.”