Met assets may go to pay for lawyers

The legal costs of defending former Metropolitan Mortgage & Securities Inc. executives and board members are adding up.

Law firms representing the bankrupt company’s former officials want to draw fees from a $17 million pool of insurance money. That money is considered an asset to creditors.

Attorneys representing the executives already have been paid retainers totaling $500,000. Yet, more money is needed to mount a defense against a class-action lawsuit as well as provide advice regarding investigations from a court-appointed examiner, the U.S. Securities and Exchange Commission, the state attorney general’s office, a federal grand jury out of Portland and other inquiries, according to documents filed in U.S. Bankruptcy Court recently. The documents estimate defense costs have already topped $647,000, with the cases just in the beginning stages.

The documents don’t specify how much more money might be needed.

The $17 million professional liability insurance policies are considered among the most valuable assets of Metropolitan’s estate and shouldn’t be tapped unless the fees are scrutinized by bankruptcy Judge Patricia Williams, argued attorneys representing creditors.

Now operating under new management, Metropolitan and sister company Summit Securities Inc. do not want the insurance pool depleted defending the executives and board members who steered the once venerable company into bankruptcy, the documents say.

Instead, the company wants the money dispensed to the thousands of creditors who are poised to recover a fraction of their investment.

The argument over who gets the money has pitted lawyers pursuing class-action claims for investors against those representing creditors – who in many cases are the same clients.

Those in the class-action case want to quickly pursue their claims against executives and the auditors, while creditors’ attorneys want to preserve every possible asset and use some of the money in the future to pursue lawsuits against the same people. It’s a complicated turf fight over who will ultimately represent the thousands of people who bought Metropolitan and Summit bonds on the promise of high returns and investment security.

Ford Elsaesser, an attorney representing Summit, has said that the costs of defending executives and board members could drain millions of dollars from the insurance pool.

Attorneys for the executives say their clients are entitled to use the insurance policies to defend themselves. It’s the very reason companies take out such policies in the first place, they argue.