September 26, 2004 in Business, City

Small town, big loss

Investors in Odessa, Wash., put their trust in Metropolitan Mortgage, assured by a broker who was one of their own. When Met came tumbling down, so did their dreams.
By The Spokesman-Review
 
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ODESSA, Wash. – In 1953, John Miller tucked an investment opportunity under his arm, hopped in his car and steered straight out of Spokane for Odessa.

He had a deal that seemed too good to be true: a Spokane company selling bonds that paid 8 percent interest. It was an unheard-of return, and Miller was eager to offer folks in his hometown a chance to get in.

At first, the wheat farmers of Odessa were wary. After all, banks were only offering about 1.5 percent.

Miller, though, was known and respected in this farm country, where German-Russian immigrants established tight-knit communities and placed premiums on integrity and family connections. He grew up in Ruff, a little town to the southwest, farmed land a few miles to the east near Mohler, and married into a well-known family. He sent his children to Odessa schools and earned a reputation for fairness and honesty as a manager of the Odessa Trading Co.

That’s why, when Miller moved to Spokane and began working for an upstart company called Metropolitan Mortgage & Securities, he was able to leverage his trustworthiness into sales of the company’s debentures. Those investments were bonds backed by nothing more than the company’s promise to repay. But if John Miller stood behind it, the farmers figured, it must be solid.

In his autobiography, late company founder C. Paul Sandifur Sr. credited John Miller with selling 75 percent of all Metropolitan bonds during the company’s first four years of operation.

For 50 prosperous years, Metropolitan was true to its word. It never missed an interest payment and the company’s reputation as a safe haven grew. Odessa investor Gary Floether said Metropolitan became known locally as “Old Reliable.”

But when Metropolitan collapsed this year, Odessa was hard hit. Of the 940 people in this tidy farm town west of Spokane, about 70 stand to lose most of the money they invested in the company. So do community groups, churches and businesses. The total losses in Odessa could reach more than $4 million.

The Rev. Tim Hauge, of Christ Lutheran Church, knows Metropolitan has hurt members of his congregation. The Ministerial Association has a fund for people in need, and more seem to be asking for help, he noted. He won’t be surprised if church offerings slump a bit.

Walter Implement, an Odessa farm equipment dealership, put $260,000 of its employee profit-sharing plan into Metropolitan.

“It’s not a death blow, but obviously it hurts,” said June Walter, who oversees the plan. “Everybody has just buckled down and is hoping for the best.”

Retired farmer Kevin Kramer has a darker take.

“All that confidence, trust and loyalty Metropolitan had here – it’s gone,” he said. “Metropolitan has put everyone down in the doldrums.”

Generations of families in Odessa and throughout the region bought bonds and watched them blossom into retirement savings and college funds. People often bequeathed money they made through Met to churches, scholarship funds and favorite charities.

Then, quietly at first, Metropolitan began to unravel. As the company’s financial condition worsened, investors couldn’t get their money out. The bonds that were so safe had become traps.

Today, the Spokane conglomerate is mired in bankruptcy and investor lawsuits, beset by an accounting scandal and securities fraud investigations. The firm, which once had 600 employees, is down to fewer than two dozen. Senior executives, including former president and CEO C. Paul Sandifur Jr., have resigned or been fired, and the company is now guided by Maggie Lyons, who is orchestrating the sale of assets and working closely with attorneys on the bankruptcy case.

She sticks with estimates that investors may eventually recover 15 cents on the dollar as the company sells property. The first checks could be cut by next March.

“We know what happened is terrible,” she said.

The dismal outlook sickens Miller’s son LaMar, who inherited his father’s client list and continued to sell Metropolitan investments until last year. He now has to deal with the financial and personal wreckage.

“It’s been extremely painful,” he said. “I don’t sleep real well at night.”

‘They had to know’

Kramer, who’s often seen sitting on his front stoop with his friendly mutt Buster, recalled how people relied on the advice of the late John Miller, who died in 1996, and LaMar Miller, who works as an investment representative in Spokane Valley.

In 2002 Kramer and his brother, Myron Kramer, sold much of their ranch north of Odessa. They put half the proceeds into Metropolitan “because we were told this company had billions in assets if something ever went wrong.”

Kramer believes he and his brother were duped out of a quarter-million dollars by the company and his broker, LaMar Miller.

“They had to know what was going on,” he said, throwing his hands up in the air. “And if they didn’t know, then what the hell were they doing over there?”

The losses forced Myron Kramer, a retired teacher and coach, into driving a school bus to help offset the high cost of health insurance.

As for Kevin Kramer, he and his wife, Nancy, have had to cut back.

“We used to be generous with our kids, and now we just hope they don’t need as much,” she said.

When asked about Metropolitan, LaMar Miller paused. When he answered, his words were measured: “We feel very violated. This has ruined our lives.”

While the Odessa community has been especially hard hit by the collapse of Metropolitan, similar stories abound in surrounding communities where John Miller went calling for customers.

Combined, Eastern Washington farming towns such as Wilson Creek, Harrington, Wilbur and Davenport have more than 200 investors and losses topping $10 million, according to documents filed in bankruptcy court. All told, more than 16,000 people had $580 million invested in Metropolitan. Most were seniors and residents of the Inland Northwest.

Mary Colouzis and her late husband, Charles, ran a tavern in Wilson Creek for 30 years. She remembers Miller stopping by on his travels.

“Johnny was a good man, but we never had enough to invest with him,” she said.

When Charles died, Mary went to work as a U.S. Postal Service clerk in Ephrata.

She saved and saved, until she had a nest egg totaling more than $140,000 invested in Metropolitan bonds. With her house paid for and kids through college, she figured to have enough money for an enjoyable retirement of travel and few financial worries.

Today, her health is failing. At 79, Colouzis has tightness in her chest that put her into the hospital; her doctors blame stress, and she blames Metropolitan.

“I’ve lost everything,” she said, muttering, “so stupid, stupid, stupid.”

She’s especially upset about the $13,600 invested with Metropolitan and devoted to her grandsons’ college savings.

“You know, a lawyer told me once not to touch Metropolitan with a 10-foot pole, and I listened. For 20 years I stayed away, but then I started putting it in,” Colouzis said. “All I have left is $6,000 to pay for my funeral.”

Her lifelong friend Velma Provost had to go back to work. She had sold her small ranch when her husband died and invested the money in Metropolitan.

Now 70, she drives to Moses Lake each week to work as a home-health aide. She’s older than some of her patients.

After four draining work shifts, Provost returns home to Wilson Creek.

“I thought I might get to retire,” she said, fighting back tears.

A breast cancer survivor who gives inspirational speeches to groups, Provost said the Metropolitan affair has changed her life.

“People used to say that when they were feeling a little down they would go to Velma’s for a dose of pep. Well, I’m afraid I don’t have it anymore,” she said.

Friends now check in on her to make sure she’s OK. “We worry about her,” said Phyllis Brown, another Metropolitan investor from Wilson Creek.

Like many investors, the women in Wilson Creek are aghast at the millions of dollars already charged by attorneys. Bills of about $5 million have been submitted to bankruptcy court, and millions more likely are coming.

“That’s an awful lot of money, especially to someone like me who remembers patching gunnysacks for 25 cents each,” she said.

Odessa wheat farmer Patrick Gies couldn’t agree more.

His parents had money invested in Metropolitan from the beginning. It was money earned from long days of farm work.

“A stranger wasn’t going to come down the road around here and sell that much stuff,” Gies said. “Only someone trusted could.”

He is 59 now and said his retirement plans have to be changed.

Reflecting on the company’s downfall, Gies said somebody needs to pay for the pain inflicted by Metropolitan.

“If there was fraud by any of the head chiefs, they better be charged,” said Gies, who with his wife, Patricia, stand to lose more than $90,000.

Blame put on Sandifur

LaMar Miller still advises hundreds of clients in his family’s business, Miller & Laws Investment Services.

Since Metropolitan’s failure, Miller’s office has fielded thousands of telephone calls – so many there was no way to promptly return them.

He lays Metropolitan’s collapse at the feet of Sandifur Jr. And he blames auditing firm Ernst & Young LLP for not stopping Metropolitan’s questionable accounting practices.

He claims his extended family will likely lose more than $1 million, and bristles at the suggestion that he knew of Metropolitan’s pending failure before others.

“It’s not true,” he said of the accusations. “Why would I do such a thing?”

Miller said he has always tried to invest conservatively, and that includes telling his Metropolitan clients to be mindful of their concentration of money with the Spokane firm.

Sandifur and his Seattle bankruptcy attorney were unavailable for comment.

Because his personal history with Metropolitan runs so deep, Miller said the deceit is especially acute.

LaMar Miller once ran Metropolitan’s in-house brokerage in the late 1970s, describing himself as “top compliance officer and chief cook and bottle washer.” During that time, Metropolitan’s financial officers used to talk freely with brokers about the company’s health and progress.

“They knew it was our clients’ money invested, and they knew they had a responsibility to talk to us,” Miller said. “We used to be able to just walk in and talk to anyone and everyone.”

When Metropolitan registered its bonds on the Pacific Exchange and issued preferred stock on the American Stock Exchange, everything changed, Miller said.

“Suddenly, they would put up their hands and say, ‘Whoa, can’t tell you that. That’s insider information,’ ” Miller said. “As brokers we understood that. It’s the law.”

He acknowledged that brokers sometimes attended informal meetings with Metropolitan officials, but he insisted they were kept in the dark about big decisions and company actions.

In 2000, Miller said, Metropolitan showed its first financial loss.

Concerned, he and other brokers were assured the setbacks were due to the practice of grouping subprime mortgages – loans taken out by people with poor credit – and then offering investments backed by these mortgages, a practice called securitizing. When that market collapsed in 1998, Metropolitan restructured, closed its MetWest subsidiary, and laid off half of its employees. The company moved away from residential loans and began loaning money on commercial projects and buildings.

Miller thought the change in strategy made sense and believed the company had performed admirably during a difficult period. After all, he said, 10 of the 13 companies nationwide involved in securitizing subprime mortgage pools had failed.

In 2002, some of the 70 brokers selling Metropolitan bonds had another informal meeting. Miller recalled executives saying they expected to have a decent year, likely showing a small profit after two years of trouble.

“I remember saying, ‘Well, if you don’t have a solid profit in ‘02, we won’t be selling the product,’ ” Miller recalled.

He now believes executives heeded such threats. As evidence, he points to a recent special investigator’s report that concluded Metropolitan inflated its numbers to show a profit in 2002.

But if Sandifur and others in the company were committing fraud, as alleged, Miller said, he was not aware of it at the time.

By late last year, Miller was openly worried about Metropolitan. But there was nothing he could do.

Brokers hadn’t been able to sell bonds since the U.S. Securities and Exchange Commission launched a review of the company in early ‘03. Furthermore, the company wasn’t redeeming bonds early – even with a penalty.

As Metropolitan’s troubles seemed to worsen by the week, it attempted to conserve cash and find a business partner. The efforts failed, and Metropolitan went into a tailspin that finally stopped Feb. 4 in federal bankruptcy court.

“We were like everybody else,” Miller said. “We couldn’t believe what had happened. This was a $2.7 billion conglomerate brought down in a matter of months, and here we are feeling like we’re sitting on the head of a pin with our hands tied.”

Supposed safe haven

Miller has support from people like retired businessman Ronald Ramm, a client who invested $600,000 with Metropolitan. Ramm sets the blame for the company’s troubles squarely on its management.

“I’ll tell you something: LaMar is a fine guy and very honest,” Ramm said. “And I still have nothing against Met. My bitch is with the CEO that ran it. If he would have put out accurate financial information, we might not be in this mess.”

Ramm, an Odessa native now living in Spokane, said he’s now worried that attorneys will pick the company clean and leave little for investors.

And there’s Judy Scrupps, who believes that Miller would have warned Odessa’s townsfolk if he knew Metropolitan was about to go bankrupt.

“These were people he knew, grew up with,” she said.

She’s the treasurer of Heritage Church in Odessa, which holds about $17,000 in Metropolitan bonds. The bonds were a willed gift to the church, the kind of donation that helps pay the bills and fund special events and ministries.

“I think most of us were aware that Metropolitan was an unsecured investment,” Scrupps said. “But my gosh, it had gone so well for so long.”

Gary Floether remembers the Metropolitan pitch: Invest with us and you’ll always get something back.

Metropolitan was supposed to be his retirement. His safe money.

Floether, who invested money earned from years working for the Odessa Grange and the Odessa Trading Co., has Parkinson’s disease and collects a monthly disability check.

He invested in Metropolitan after losing money when the financial markets soured in 2000 and fell further after Sept. 11, 2001.

Unlike others in Odessa, Floether did not invest with Miller. He used a different broker and never heard from her again after the company defaulted on his bonds last December.

His frustration is a common theme among Metropolitan investors: The company’s financial collapse was made worse by a colossal public relations failure.

“I was just left here hanging,” he said. “I called and called and could never get through. It’s just disgusting.”

Delmar Kirstein hears plenty of Metropolitan woes in his barbershop on Odessa’s First Avenue.

He said reactions at first were disbelief that something was wrong. But as the crisis grew, anxiety and anger gripped investors as few questions were satisfactorily answered or even answered at all.

Kirstein holds out little hope that he’ll recover about $69,000 invested with Metropolitan. He’s postponing his retirement. He had planned to take a couple of extra days off each week and slowly wind down his business.

“That’s not going to happen anymore,” he said.

Said Kirstein, “People around here had that frugal German way of doing business. You work the right way and expect the next guy in line to do the same.

“We don’t feel that happened here.”


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