SPOKANE, Wash. — The federal government on Monday filed a slew of criminal and civil charges in the collapse of Metropolitan Mortgage & Securities, which cost more than 10,000 investors some $450 million.
Separate criminal and civil fraud charges were filed in federal courts in Seattle and Portland, Ore., against former top executives of the Spokane-based company. Among those charged was former Chief Executive Officer C. Paul Sandifur Jr., whose father founded the company that is the biggest bankruptcy in Spokane's history.
A civil complaint by the U.S. Securities and Exchange Commission, filed in the Western District of Washington, alleges that Met Mortgage management falsified the company's 2002 financial results.
The SEC says that was accomplished by reporting profits from circular real estate sales, in which Metropolitan purported to sell property to buyers who, in fact, received all of the money to pay for the purchase from Metropolitan or its affiliates. The alleged fraud made Metropolitan appear profitable, leading to further sales of its bonds and preferred stock to investors.
"Metropolitan essentially bought real estate from itself, creating fictitious profits," said Helane Morrison, District Administrator of the Commission's San Francisco District Office. "These transactions, which made no financial sense, ultimately led to Metropolitan's collapse, but only after its fabricated financials induced additional investors to pump more money into the failing company."
Named in the complaint are Sandifur, 63, of El Centro, Calif.; former executive Thomas G. Turner, 54, of Sparks, Nev.; and former Controller Robert Ness, 41, of Bellevue, Wash.; as well as former Vice President Thomas R. Masters, 54, of Spokane, who is alleged to have participated in one of the fraudulent transactions.
For allegedly participating in a scheme with Met Mortgage, the SEC also brought fraud charges against Trillium Corp. of Bellingham, Wash.; its president and CEO David Syre, 64, of Bellingham; and Trillium creditor Dan Sandy, 50, of Rochester, Wash.
The commission's action seeks civil monetary penalties and injunctive relief, as well as orders barring Sandifur, Turner and Ness from serving as officers or directors of public companies.
The U.S. Department of Justice also announced an unsealing of a seven-count indictment against Turner, who was arrested Monday.
Turner is charged with seven counts of making false statements and material omissions to the outside accountants for Metropolitan and sister company Summit Securities Inc. in connection with the accountants' audit.
According to the indictment, Turner misled auditors about the true nature of a financial transaction in which Metropolitan sold two pieces of property that resulted in Metropolitan reporting a $10 million gain in its fiscal year ending Sept. 30, 2002. Without that transaction, Metropolitan would have recorded a net loss for the fiscal year.
Separately, the U.S. Attorney in Oregon, the SEC, the U.S. Postal Inspection Service and the Internal Revenue Service announced the filing of criminal and civil fraud charges against William Sears, 56, and his wife, Patricia Jean Sears-Million, 50, former stock brokers who sold stocks and bonds issued by Metropolitan and Summit Securities.
The complaint said they sold more than $35 million in Metropolitan and Summit stocks and bonds to clients in the Portland, Ore., area, many of whom were retired seniors and risk-averse investors.
The SEC's complaint said the securities carried a high risk of loss and were not suitable for elderly, unsophisticated investors seeking secure investments for retirement.
Metropolitan filed for Chapter 11 bankruptcy protection in February 2004. More than 16,000 investors bought about $470 million in unsecured bonds, called debentures, from the company.