Judge limits new Met investigation

A court-appointed examiner investigating Metropolitan Mortgage & Securities will now focus on business dealings between the company and its many affiliates.

Federal Bankruptcy Court Judge Patricia Williams said Monday that inter-company transactions should be studied to ensure fairness to different creditor groups.

Her decision addresses concerns that investors holding Summit Securities debenture bonds may have substantial claims against the estate of sister company Metropolitan.

She also asked examiner Samuel Maizel to investigate the role of Metropolitan’s law firm, Kutak Rock, in drafting Metropolitan’s reorganization plan, and of Roth Capital, a financial firm, in the sale of preferred stocks and debenture bonds.

Maizel initially sought to further investigate the role of Metropolitan’s outside accounting firms, whom creditors say failed to uncover questionable real estate deals that propped up the company’s books.

The one-time venerable Spokane company filed for bankruptcy protection following government scrutiny of its financial statements.

In a nod to creditors wary of the rising costs of the bankruptcy, Judge Williams limited the examiner’s scope. It’s unclear how much the examination will cost. Maizel will file a new budget that likely will be lower than the $900,000 budget projection for the inquiry.

Further action against accounting firms Ernst & Young LLP and PriceWaterhouseCoopers LLP will likely be undertaken by creditors.

Spokane attorney P.J. Grabicki, who represents creditors, said he plans to hire by the end of September a law firm that specializes in suing auditors.

Ernst & Young already has been sued by attorneys working on a class action claim brought by investors.

Maizel’s report is due Oct. 25. His first report, pulled together in 45 days, pinned blame for the Metropolitan meltdown on former CEO C. Paul Sandifur Jr. The report was hundreds of pages long and included more than 100 exhibits and supporting depositions.

The new examination will be completed as creditors in the case consider a plan of reorganization that was released Friday.

The plan reports that Metropolitan and Summit have assets of about $50 million, enough money to potentially pay investors between 15 cents and 20 cents on the dollar. The number does not include the value of the company’s insurance companies or potential winnings from lawsuits against the accounting companies or other professional firms.