Affiliate seeks $220 million from Met

An insurance affiliate of Metropolitan Mortgage & Securities Inc. has leveled a $220 million claim against the bankrupt firm, an action that threatens to delay and cut the cash recovery of investors throughout the Northwest.

Western United Life Assurance Co., which is being run by the Washington Insurance Commissioner’s office, made good on its longstanding threat to file a claim — in essence blaming its massive losses and writedowns on the failed financial conglomerate.

“Why can’t they understand what they are doing is outrageous?” said Maggie Lyons, who was hired as Metropolitan CEO to guide the firm through bankruptcy.

Metropolitan has $35 million in the bank, enough to pay Metropolitan debenture holders 9 cents on the dollar early next year.

That’s assuming Metropolitan won’t be forced to reserve money for Western United’s claim.

If Lyons sets aside a reserve, investors will get much less — 5 cents on the dollar.

“Some of these older investors are telling me that at this point, anything will help,” Lyons said. “Some of these people are desperate and that motivates me to act; to do everything I can to get as much money together as I can for them.”

She questions if the insurance commissioner shares that commitment.

“He should have that same goal,” she said. “If (Western United) assures that its annuitants are fully covered, then what’s the issue here?”

Bill Ripple, spokesman for the Insurance Commissioner’s office, cautioned that its not up to Commissioner Mike Kreidler to make such judgment call.

“I know we’ve said this before, but the commissioner has to follow state law,” Ripple said, “and that means pursuing the claim which is in the best interests of the company and its annuitants.”

He offered a hypothetical situation that goes like this: If Kreidler decided against filing a rightful claim, and then Western United failed, the commissioner would have some serious explaining to do to the Washington State Guaranty Association, which insures annuity holders.

“I know people want him to be the good guy, a hero, and kiss it off,” Ripple said of the claim. “But he can’t. He understands the angst, but he has to do this.”

Lyons disagrees and has hired Chicago law firm Sidley Austin Brown and Wood LLP as special counsel for advice and perhaps legal action regarding Western United.

Ford Elsaesser, an attorney for Metropolitan, believes Kreidler’s team has broad discretion running companies in receivership.

“He has chosen to manage this receivership case in this way, unfortunately,” Elsaesser said.

The Metropolitan case is a study in state government apathy, Elsaesser said.

The only Olympia office to act in the case was the state Securities Division, he said.

Former chief Deborah Bortner alerted the SEC to many of Metropolitan’s shortcomings and difficult regulatory history. Her actions drew the wrath of then-state Sen. Jim West, who accused her of stepping outside the bounds of her duty as the state’s top securities regulator.

Her actions, however, were the catalyst that prompted long-overdue scrutiny of Metropolitan. Within months the SEC began investigating the company and by early 2003 put the brakes on the company’s plans to issue yet another round of debt – this time in excess of $150 million, which could have kept the company’s financial artifice intact for months more and victimized another group of investors.

Instead, the largest state actions have been a handful of civil complaints against fewer than a dozen brokers and now, Western United’s massive $220 million claim against the company.

Though Western United asserts that Metropolitan is still majority owned by C. Paul Sandifur Jr., that’s little more than a technicality.

Sandifur’s common stock is worthless and the company’s reorganization effort under Chapter 11 bankruptcy makes moot any notion that he retains control. In contrast, Sandifur resigned as chairman and chief executive nearly two years ago and moved to El Centro, Calif., where he is attempting to rebuild his life as a Realtor.

He has been sued by federal regulators, and the No. 2 official in the Metropolitan group of companies, Tom Turner, has been indicted by a federal grand jury.

Rather than fighting Sandifur, the actions by Western United are directly affecting the thousands of investors that have been badly burned by Metropolitan’s collapse.

“Mr. Sandifur is gone from the picture. Period,” Lyons said. “The whole point of Metropolitan now is to recover on its assets and return money to these poor investors.

Though Lyons doesn’t accuse Kreidler’s receivership team of mismanagement, she questions some of their tactics.

She points to a $2.5 million business blunder.

Metropolitan was negotiating the sale of 77 acres along the north bank of the Spokane River near downtown in late 2004. Called the Summit Property, Metropolitan had borrowed $11.5 million from Western United to buy the land years earlier.

As Met was negotiating the sale of the property, Western sold the underlying note for $9 million to Greenstone Corp., a development company owned by Jim Frank.

When Metropolitan eventually sold the property to Marshall Chesrown weeks later for $12.8 million, Lyons paid off the note in full ($11.5 million) held by Greenstone.

“Unbelievable,” Lyons called the deal. “If we had good dialogue, this wouldn’t have happened.

“Why would they sell that note without consulting us? That was a $2.5 million mistake.”