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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Met squabble could cut size of creditors’ payback

Festering problems between bankrupt Metropolitan Mortgage & Securities and its valuable insurance affiliate threaten to cut the amount creditors could get back.

“We have a bunch of investors over the age of 70 … and all of us should exist only to find as much money for these folks as possible,” said Ford Elsaesser, an attorney for another Metropolitan affiliate.

“Sadly, that’s not what is happening.”

Western United Life Assurance Co. opposes Metropolitan’s efforts to close out the bankruptcy case and return money to more than 15,000 creditors, many of whom are elderly people living in the Northwest. In a pointed, nine-page brief filed this week, the insurance company now controlled by Washington State Insurance Commissioner Mike Kreidler critiqued Metropolitan’s reorganization effort and said it planned to pursue an estimated $200 million claim against its former parent company.

If successful, such a claim would delay and perhaps reduce by a third the already small payback investors stand to receive, said Maggie Lyons, the executive hired to guide Metropolitan through bankruptcy.

“What Western has done is extremely disappointing,” she said.

The tangled relationship between Western and Metropolitan has been tense but quiet since Kreidler’s office seized control of Western more than a year ago. The move stripped administrative oversight of the insurance company from Metropolitan after allegations of securities fraud and deceptive accounting drove it into bankruptcy.

Time failed to mend the rift, even as Metropolitan’s former executive team was ousted and its board dissolved.

P.J. Grabicki, attorney for the Metropolitan creditors’ committee, said some Western employees continue to treat Metropolitan with hostility, as if it were still under the control of C. Paul Sandifur Jr. and other former executives blamed for the bankruptcy.

“What’s left of Metropolitan are these old folks who have been financially devastated,” Grabicki said. “And what is the insurance commissioner doing to help? Stopping progress on returning this money? Continuing work on this claim against us?”

Kreidler was in Chicago this week and unavailable for comment.

A spokesman, however, said every action taken by Kreidler’s regulators, led by Wayne Metcalf, was aimed at bolstering the insurance company’s financial health. Doing so will help creditors, who will ultimately receive at least some of the proceeds from the sale of the insurance affiliate, spokesman Bill Ripple said.

“(Commissioner Kreidler) is charged with maximizing the assets that belong to (Western), and the claim is part of that,” Ripple said. “He can’t not do this.”

Regulators, Ripple said, must first tend to Western to protect its policyholders.

Though Western’s annuity owners and policyholders are ultimately protected by the state, regulators say the insurance company is solvent and in no danger of failure. It has been damaged by questionable business dealings, a disallowed tax shelter, wrongful conduct and other actions, according to the claim filed by Kreidler’s office. But since putting Western into receivership, regulators have corrected the books. Those actions cut the company’s equity, or value, from $105 million in March of 2004 to about $60 million today, according to the latest financial reports.

Kreidler traveled to Spokane last spring to announce that Western would be sold, preferably as a part of a package with affiliated firms Old Standard Life Insurance Co., of Idaho, and Old West Annuity and Life Insurance Co., of Arizona.

At that time, Kreidler said he was motivated to sell the companies to help all of Metropolitan’s investors recover a portion of their losses.

The plan was to solicit bids for the insurance companies until May 27 and then settle on a buyer. Since then, few details have been disclosed, including the number of interested buyers or the range of the bids. Ripple, however, said earlier this month that progress has been made and a sale could be announced by the end of the summer.

Metropolitan attorneys have asserted that the sale of the insurance companies would erase any claim by Western on Metropolitan’s assets.

But in bankruptcy court this week, Western’s lawyer, Michael Lubic, disagreed.

Lubic said the claim might be sold along with Western as one of its assets. Or, he wrote, the claim could be sold separately or even held by Kreidler’s office.

The notion of selling the $200 million claim as part of Western, or perhaps to a collection agency type of company, was questioned by Barry Davidson, attorney for Metropolitan.

“Metropolitan hopes the commissioner is not asserting these claims as bait for buyers,” he said.

Caught in the middle are the thousands of investors throughout Eastern Washington and North Idaho. Many sunk their life’s savings into Metropolitan, which had a reputation as a safe haven.

Now 18 months into the bankruptcy, creditors are getting anxious.

Elsaesser, the attorney representing Summit Securities Inc., another Metropolitan affiliate, called Western’s actions disturbing.

“Most disheartening is that this is taking money away from the debenture holders,” who are the bulk of Metropolitan’s investors, he said. Debentures are bonds secured by nothing more than a company’s promise to repay.

Elsaesser said trying to mask the claim as a legal duty or being in the best long-term interests of creditors is disingenuous.

“It is discretionary,” he said.