Already trying to hold off swarms of lawsuits while trying to emerge from a $500 million bankruptcy, an embattled mortgage and financial services conglomerate is being investigated by the feds.
Just when it seemed like the news couldn’t get any worse for Metropolitan Mortgage & Securities, it did during a federal bankruptcy hearing in Washington.
The firm’s top lawyer dropped a bomb with word that a federal grand jury in Washington State has launched a probe of Metropolitan, which is based in Spokane.
Idaho lawyer Ford Elsaesser divulged during the hearing that representatives at Metropolitan and its Summit Securities subsidiary are trying to comply with grand jury subpoenas from the U.S. Securities and Exchange Commission (SEC), according to The Spokane-Review.
MortgageDaily.com attempted to interview Elsaesser, but he did not return phone calls or e-mails to comment.
Neither the U.S. Attorney’s office nor the SEC would comment. The nature of the probe is not known.
On Feb. 4 Met Mortgage — as the $2.5 billion company is known — filed for protection under Chapter 11 of the federal bankruptcy code. The company listed assets of $572 million and a staggering debt of $582 million.
Accused in investor lawsuits of inflating property values, Met Mortgage waved another white flag in March. It asked the bankruptcy court judge to “freeze” all the pending litigation that was piling up from angry investors and regulators.
Elsaesser said the move would actually benefit creditors because freezing lawsuits would allow top company officials — mainly directors and officers — to maintain their professional liability insurance coverage.
“The insurance coverage represents a valuable asset of the debtors’ bankruptcy estates that will potentially be reduced to the extent that funds are expended to defend” the lawsuits, Elsaesser said in a written statement.
In the same statement, which was issued by Met Mortgage, creditors’ lawyer Douglas Siddoway was quoted as saying he agrees the company’s requests “in order to preserve this bankruptcy asset.”
The protection is being sought for Met Mortgage, Summit and Metropolitan Investment Securities, a troubled subsidiary that was essentially closed down by The National Association of Securities Dealers (NASD) in December.
The NASD fined the company $500,000 and ordered it to pay investors more than $2.8 million and stash $1 million in escrow against future claims for “abusive sales practices and supervisory violations,” Met Mortgage said in a statement.
Met Mortgage’s troubles started last year when outside auditor Ernst & Young disclosed that management misrepresented facts and kept important information from investors and regulators.
“Ernst & Young indicated that it had concluded there were material misstatements in the financial statements … and it could not rely on the representations of management,” Met Mortgage said in a statement.
Earnings for three years were restated, CEO Paul Sandifur resigned and the company slid into bankruptcy.
An insurance subsidiary, Western United Life Assurance Co., is in receivership.
read about Metropolitan Mortgage failure — January 2, 2004
