February 14, 2006 in City

Met sues Sandifur family members

By The Spokesman-Review
 
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Background and the latest updates

Investors

There are 10,000 people holding $352 million in Metropolitan Mortgage & Securities Co. notes. Another 6,600 people own Summit Securities Inc. notes worth $113 million. Thousands more held $131 million worth of preferred stocks that were rendered worthless in the company’s bankruptcy case.

Bankrupt Metropolitan Mortgage and Securities Co. has sued members of its founding family for millions of dollars, alleging that years of stock dividends, a divorce settlement funded at least in part by the corporate treasury, and other special payouts should be refunded.

Having the company – now managed by a handful of attorneys and a trustee – go after the Sandifur family and former executives is not an unusual tactic in corporate bankruptcies.

Attorney Barry Davidson alleges that Metropolitan was failing and, in fact, slipped into insolvency long before it sought protection from investors by filing for bankruptcy protection in February 2004.

Yet the financial conglomerate paid dividends as if it were profitable, writing checks and wiring money from the late 1990s until just months before it failed. Now, the company has filed 12 lawsuits within its bankruptcy case seeking to unwind payments of about $8.9 million.

The lawsuits name many members of the Sandifur family with one notable exception: it did not file against former chairman and CEO C. Paul Sandifur Jr., who now lives in El Centro, Calif., and is the subject of a large accounting fraud complaint filed by the U.S. Securities and Exchange Commission.

Davidson said at this point in time, it doesn’t appear Sandifur collected preferential or fraudulent transfers from his companies.

The lawsuits against his siblings, former wife, former managers and others seek to recover cash plus interest, and legal fees. They include:

“ $2.1 million from former wife Helen Sandifur. Her 2002 divorce settlement with Sandifur left her with common stock that she redeemed in a special deal, along with a $55,000-a-year company salary that essentially funded a noncompete clause.

“ $807,259 from Sarah Emma Quinn. She is a sister of Sandifur and was the recipient of a trust established by her late parents.

“ $660,448 from William F. Sandifur and Karen Sandifur. He is Sandifur’s brother and a beneficiary of the family trust.

“ $144,426 from Bernice Sandifur and a separate trust established in her name. She is an aunt of Sandifur.

“ $303,322 from Mark S. Donoghue. He worked as a vice president for Metropolitan and received an incentive payment in August 2003, followed by deferred compensation in November 2003.

“ $67,783 from Jerry L. Ward, a former executive who was paid in November 2003 by a deferred compensation trust set up by Metropolitan.

“ $25,000 from Billy G. Twitty, a former vice president of Metropolitan.

“ $24,000 from Sandifur Holdings LLC. Now dissolved, this company was managed by Sandifur and his son, Phillip Sandifur.

“ $4.29 million from Metropolitan Investment Securities, the company’s brokerage affiliate. The brokerage, which filed for Chapter 7 bankruptcy liquidation, paid large fines and restitution to a handful of misled investors. Since the company was insolvent, however, Davidson said it never should have made those payments, which included a $500,000 fine to the National Association of Securities Dealers.

“ $450,000 from Cascade Recovery Inc. The Oregon company services leases for Metropolitan and is accused of withholding money it should have paid to Metropolitan.

The company wants to abandon any attempt to recover $28 million in dividends paid to preferred stockholders. Trustee Maggie Lyons said officials discussed the matter but decided it would have been too expensive and created too much hardship. Many of these preferred shareholders are seniors and have had their investments wiped out. And many more are the same people holding bonds, which are now forecast to be paid a total of 14 cents on the dollar. The issue is under consideration by the bankruptcy court.


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