Brokers named in Met scandal

A pair of Portland brokers have been targeted by a federal grand jury and ordered to cooperate in a separate U.S. Securities and Exchange Commission fraud investigation into Metropolitan Mortgage & Securities Co.’s failure 18 months ago.

The developments against William Sears and Patricia Jean Sears illuminate the continuing interest federal officials have in pursuing cases against former Metropolitan officials and traders. Though no Metropolitan employee or executive has been charged with a crime, numerous lawsuits and a special Bankruptcy Court-ordered examination allege possible securities and accounting fraud along with improper trading practices.

The Portland brokers sold $30 million in Metropolitan stocks and unsecured bonds called debentures. In the wake of Metropolitan’s February 2004 bankruptcy filing, the Searses and their firm, PJM & Associates, have been sued. Of their 502 former clients, 173 have joined a class action alleging the couple misrepresented the risk of owning investments in Metropolitan and sister firm Summit Securities Inc.

The couple had been complying for months with subpoenas from the SEC and the Portland grand jury.

Then they were named targets of the grand jury and later given a “Wells” letter from the SEC, a notification that investigators intended to recommend a civil action against them. The couple quit cooperating last March, worried that answering questions posed by SEC staff could be used against them in the parallel grand jury proceedings, their Port-land-based attorney, Marc Blackman, said in court filings.

Blackman argued that the federal agents were acting in bad faith and asserted that the Searses had Fifth Amendment rights against self-incrimination.

The disagreement landed in U.S. District Court in Oregon, where a federal magistrate ruled in late July in favor of the SEC, forcing the Searses to comply with subpoenas and answer investigators’ questions.

In an interview, Blackman said he intended to speak with the Searses this week and discuss compliance with the magistrate’s order.

In a letter to the SEC, Blackman said the Searses also were victims of Metropolitan, losing more than $260,000.

He disputed suspicions that the Searses used a sales scheme to defraud clients. Instead, the couple relied upon information supplied by Metropolitan and verified by its independent auditors, Ernst & Young LLP and PriceWaterhouseCoopers LLP, to ensure the accuracy of the financial reports, he said.

Patrick Murphy, an SEC enforcement official based in San Francisco, declined to answer questions, other than acknowledging the SEC’s own court filings.

Murphy wouldn’t comment on the progress of an SEC investigation into Metropolitan and its former officials, launched before the company filed for bankruptcy.

Similarly, the U.S. Attorney’s Office won’t say whether Metropolitan’s business dealings are the subject of other grand jury proceedings.

The cause of the single worst financial collapse in Spokane history has yet to be legally resolved, although the Metropolitan bankruptcy case is moving toward conclusion.

When completed, the bankruptcy will have vetted questionable claims, rendered preferred stocks worthless, liquidated assets and established mechanisms to return some money to the more than 16,000 investors.

Separately, the U.S. Attorney’s Office in Portland began working with the U.S. Postal Inspection Service in early 2004 to investigate the sales practices of the once venerable Spokane firm.

Though grand jury investigations are secret, some details of the federal panel, such as subpoenas and meeting times in Portland, have been divulged in court records.

Since the collapse of Metropolitan, hundreds of investors have lodged complaints with state and federal officials.