Two former Metropolitan Mortgage & Securities Co. executives and a Rochester, Wash., businessman accused of fraud have settled lawsuits pressed by the U.S. Securities and Exchange Commission.
The men, including former Metropolitan controller Robert Ness, a former vice president, Thomas Masters, and businessman Dan W. Sandy allegedly played separate roles in what federal investigators say was a series of corrupt real estate deals that inflated Metropolitan’s profitability and hid the firm’s deteriorating financial condition. The deception allowed Metropolitan to continue selling stocks and bonds to investors and escape regulatory scrutiny, according to the suit.
As part of their settlements, the men neither acknowledged nor denied any wrongdoing. They have not been charged with crimes relating to the rapid collapse of Metropolitan that culminated in bankruptcy three years ago.
The settlement terms filed in U.S. District Court in Seattle do not outline whether the men must testify against several other executives still fighting similar civil complaints filed by the SEC or the one executive who has been charged with crimes. Former company president and No. 2 Metropolitan executive Thomas Turner will stand trial in early April on seven felony counts of deceiving the outside auditors of a publicly traded company.
Ness, now living in Bellevue, was not fined, yet agreed to an SEC demand to not work as an officer or director of a company issuing stocks and bonds.
Masters, now working as a real estate developer in Spokane, agreed to give up $36,508 in profits and interest he earned from one of the notorious real estate deals that the SEC alleged was improper. The SEC also fined Masters $25,000.
Sandy agreed to pay a $50,000 fine to settle his case.
The SEC accused him of acting as a middleman in a complex, fraudulent property transaction between Metropolitan and Bellingham timber and development firm Trillium Corp.
According to court records, in 2001 Trillium borrowed $5 million from Metropolitan and $20 million from Western United Life Assurance Co., a Metropolitan affiliate, to help it develop property in a quickly growing area of downtown Denver.
Though interest only payments were due starting in early 2002, Trillium quickly defaulted. With such a development poised to hurt Metropolitan’s already precarious financial condition, the two firms attempted to restructure the loan in mid-2002.
Some of their ideas were initially rejected by auditing firm Ernst & Young LLP.
Ultimately Metropolitan and Trillium agreed upon the borrowing venture that would ease Trillium’s cash shortage and at the same time transform the pending default that would have scarred Metropolitan’s books into a remarkable paper gain, according to records.
Since accounting rules don’t allow such close transaction, executives of the company turned to Sandy, a creditor of cash-strapped Trillium, to set up a shell company to act as arms-length go-between.
The SEC said Sandy knew the deal was a fraud but set up the shell company, Jeff Properties, named after his teenage son, anyway.
Trillium and its owner have also been sued by the SEC, along with Metropolitan chief executive C. Paul Sandifur Jr.
The lawsuits will go to trial later this year.