Metropolitan Mortgage

Top executives of Metropolitan Mortgage & Securities Inc. were accused of fraud Monday, the first federal charges since the company went bankrupt. The actions allege former Metropolitan Chairman and CEO C. Paul Sandifur Jr. and other executives falsified financial results through circular real estate deals to show profits. The manipulation maintained the company's image as a safe investment haven and allowed it to continue issuing new securities, according to charges from the U.S. Securities and Exchange Commission and the U.S. Department of Justice.The scheme unraveled in 2003 as investigators scrutinized the Spokane company's books. Within months, Metropolitan, which once employed about 700 people, influenced Spokane politics and occupied a white downtown high-rise, filed for bankruptcy protection. Few investors could act quickly enough to escape. The company's failure stripped 10,000 investors of $450 million.

The Metropolitan Mortgage & Securities Co. bankruptcy could be wrapped up by Jan. 4, nearly two years after the Spokane company filed for protection from creditors. Metropolitan's more than 16,000 investors can expect an initial payback of 7 cents to 9 cents on the dollar after the reorganization plan takes effect, if it's approved by creditors, according to documents filed in bankruptcy court. Investors bought about $470 million in unsecured bonds, called debentures, from the once-venerable firm, which hadn't missed a payment in 50 years.

Current directors of Metropolitan Mortgage & Securities Co. have sued their former accounting firm, PriceWaterhouseCoopers LLC, alleging that negligent audits performed in 1999 and 2000 failed to warn them that the Spokane company was headed for a financial train wreck. The lawsuit, filed Wednesday in U.S. District Court in Spokane, seeks unspecified damages from PricewaterhouseCoopers, the accounting firm Metropolitan used for several years, concluding in 2000.

Metropolitan Mortgage & Securities' large insurance affiliate is worth half what it was a year ago when state regulators seized control, a worrisome development as creditors await word on the sale of Western United Life Assurance Co. The insurance company has equity of about $49 million, down from $108 million when put into receivership 18 months ago by Washington Insurance Commissioner Mike Kreidler. As recently as last March, when Kreidler put the company up for sale, Western United's equity – also called capital and surplus – stood at $63 million.

Metropolitan Mortgage & Securities Co. sold its idyllic Hawaiian properties and netted $16.7 million, a bit of bright news for creditors of the bankrupt company. Proceeds bested the company's initial estimate by more than $4 million, making the auction a rare success in what has been a bankruptcy full of distressed sales and disappointments.

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.

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.

A decision on a the fate of three insurance affiliates of bankrupt Metropolitan Mortgage & Securities Co. might be weeks away, according to the Washington state Office of the Insurance Commissioner. Though several bids were submitted in late May, regulators are moving slowly on the sale of Spokane-based Western United Life Assurance Co., Old Standard Life Insurance Co., of Idaho, and Old West Annuity and Life Insurance Co., of Arizona. The three companies were offered for sale as a package deal with the goal of earning cash for thousands of Metropolitan creditors.

Bids to buy the three insurance affiliates of bankrupt Metropolitan Mortgage & Securities Inc. will be kept confidential until a purchaser is announced. The companies, including Spokane-based Western United Life Assurance Co., Old Standard Life Insurance Co., of Idaho, and Old West Annuity and Life Insurance Co., of Arizona, were put up for sale together in late March by the insurance commissioners of the three states.

Metropolitan Mortgage & Securities Co. may sue former chairman and CEO C. Paul Sandifur Jr. and his ex-wife, Helen Sandifur, for millions of dollars, alleging that they profited even as the company began to fail. The $2.7 billion financial services conglomerate filed for bankruptcy last year amid accounting problems and federal investigations. Now under new management, the company is duty-bound to pursue every possible cash recovery for creditors, says Maggie Lyons, acting CEO of Metropolitan.

Sun, surf, sand and serenity. These are qualities that could help creditors in the Metropolitan Mortgage & Securities bankruptcy get more money back from their failed investments.

The thousands of creditors holding notes from failed Metropolitan Mortgage & Securities should receive a small recovery beginning this fall, according to a reorganization plan filed in U.S. Bankruptcy Court. The amended plan envisions the sale of all remaining Metropolitan property and financial holdings. The money would be placed in special creditors' trusts and disbursed by a trustee.

Insurance commissioners from Washington and Idaho have ordered the combined sale of three insurance companies owned by bankrupt Metropolitan Mortgage & Securities Co. Money from the sale should boost the financial recovery of Metropolitan creditors, estimated now at around 15 cents on the dollar, and marks significant progress in the bankruptcy case.

Investors battered by the failure of Metropolitan Mortgage & Securities Co. should get a look next month at a revised Bankruptcy Court plan that estimates a return to them of 15 cents on the dollar. U.S. Bankruptcy Judge Patricia Williams issued a terse 30-word order last month for lawyers in the case to submit the new plan of reorganization to hasten the conclusion of Spokane's largest business failure.

A Bankruptcy Court judge has given Metropolitan Mortgage an April 1 deadline to file a reorganization plan — a document that's likely to say investors will recover about 15 cents on the dollar. The plan is essentially a blueprint for liquidating the once-powerful company.

A judge's ruling Wednesday scuttled efforts by Metropolitan Mortgage to collect potentially damaging documents pointing to alleged malfeasance by its former auditor. The ruling is a small victory for that auditor, Ernst & Young LLP, which is fighting claims that it was negligent in an accounting fraud that ultimately sent Metropolitan into bankruptcy.