A court-appointed examiner who’s been charged with delving into Metropolitan Mortgage & Securities Inc.’s financial dealings has asked the court to pay him $900,000 for that work, which is expected to take 45 days. One attorney representing creditors in the Metropolitan bankruptcy case expressed sticker shock, and wanted the amount pared to $45,000.
The attorney, P.J. Grabicki, called Samuel Maizel’s budget “grotesque” for 45 days of work and asked for a hearing on his request to slash that figure.
It’s all part of a sweeping investigation of Metropolitan that includes federal and state securities cops picking through the company’s extraordinarily complex business activities. They’re searching for wrongdoing or perhaps even hidden assets that could help repay the thousands of investors who hold more than a half-billion dollars of Metropolitan’s unsecured bonds and preferred stocks.
Unraveling Metropolitan’s business dealings will be partly up to Maizel, an examiner from Los Angeles who was appointed by federal bankruptcy Judge Patricia Williams. Maizel has worked on a number of bankruptcy examinations and is highly regarded by the U.S. Trustee in the Metropolitan case. Maizel’s proposed $900,000 budget includes $300,000 to hire a forensic accounting firm, a specialized discipline that investigates financial transactions.
The bill for the examiner is the second steep professional fee in the Metropolitan case that’s been questioned by creditors and attorneys.
Metropolitan has asked the bankruptcy court for permission to pay crisismanagement firm Alvarez Marsal $80,000 a month for the services of William Romney, a turnaround specialist who will attempt to steer the company through difficult bankruptcy proceedings. Romney’s employment is expected to last about six months. A hearing has been set by the court over the requested fees.
Maizel’s examination of Metropolitan dovetails with a U.S. Securities and Exchange Commission investigation that’s under way. The SEC has asked Metropolitan to provide tens of thousands of pages of documents and company e-mails, and has included interviews with current and former Metropolitan executives and employees.
Metropolitan declined to comment for this story, and the SEC said it doesn’t comment on its investigating activities.
The SEC subpoenas, however, shed some light on some of the dozens of transactions it’s scrutinizing.
For example, documents indicate that investigators are looking into whether former Metropolitan executives, officers, employees and their family members engaged in “related-party transactions,” which are dealings between the company and its executives.
Among the Metropolitan transactions that have drawn the SEC’s interest are dealings with a Tumwater, Wash., company called Jeff Properties LLC.
According to state records, Jeff Properties was incorporated on Sept. 18, 2002.
Eight days later, on Sept. 26, 2002, Jeff Properties agreed to pay about $24 million for two pieces of property owned by Metropolitan and its Western United Life Assurance Co. subsidiary - using funds loaned to Jeff by Metropolitan. Metropolitan had paid just $13.4 million for the properties.
One of those was commercial land outside of San Antonio, Texas, called Live Oak. Western United initially bought the Live Oak property from another company for $8 million on Jan. 15, 2002. Nine months later, on Sept. 26, 2002, Western sold the Live Oak land to Jeff Properties for $15.9 million.
The second was a tract in Everett near Boeing Co.’s massive aircraft factory. Metropolitan had acquired that property through several repossessions starting in about 1987 and carried it on the company’s books as a $5.4 million asset.
Metropolitan’s financial records say it had been for sale for more than 13 years.
Jeff Properties, which lists as its business address a small rancherstyle house on a quiet Tumwater cul-de-sac, bought the Everett acreage for $8 million. Jeff Sandy, who signed the closing papers on the Metropolitan sales as the managing member of Jeff Properties, said this week he is no longer affiliated with the company.
He referred all calls to his father, Dan Sandy, who did not return phone calls placed to his Olympia business, DePaul Inc.
The sales netted Metropolitan big profits just four days before the end of the company’s fiscal year, Sept. 30.
The deals enabled Metropolitan to avoid a third consecutive money-losing year in 2002. Those earlier losses, $8.9 million in 2001, and $7.6 million in 2000, had been the first in the company’s history.
In his letter to investors accompanying Metropolitan’s 2002 annual report, CEO C. Paul Sandifur described the company and its $3.9 million profit in 2002 as “financially stronger” and “reaching sustainable profitability.”
Meanwhile, the Texas attorney general has joined the growing list of government agencies that are interested in Metropolitan’s dealings and bankruptcy. The SEC and other agencies have used broad administrative powers to review the company’s finances.
Other transactions that have piqued the SEC’s interest include those Metropolitan entered into with a Bellingham company called Trillium Corp. and a company called Topsail LLC, which is operated by a Trillium executive, according to records of the Secretary of State.
Also, the SEC in looking into Metropolitan dealings ranging from those with a Lansing, Mich., Holiday Inn, to a commercial logging project in Hawaii.
In that latter case, lawyers fighting Metropolitan’s foreclosure on Hawaiian forestland have accused the company in court records of selling overvalued assets to itself and recording profits.
Attorneys in Hawaii have said that those allegations were strengthened when accounting firm Ernst and Young LLP abruptly resigned in January as Metropolitan’s independent auditor.
The Big Four accounting firm said executives made material misstatements to auditors and determined that the financial representations of management couldn’t be trusted. There hasn’t been an audited financial report done on Metropolitan or its affiliates since last summer.
The company filed for Chapter 11 bankruptcy protection on Feb. 4 and intends to file a plan of reorganization this summer.
Its Western United insurance subsidiary, where about 85 percent of Metropolitan’s assets are held, has been put into receivership by the Washington insurance commissioner’s office.
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