Saturday, November 21, 2009

ONGOING COVERAGE: METROPOLITAN MORTGAGE BANKRUPTCY

Trial of ex-Met exec goes to jury

Turner accused of leading sham real estate deal

John Stucke
Staff writer
June 8, 2007

SEATTLE – Former Metropolitan Mortgage & Securities Co. executive Thomas Turner is either a scapegoat for shoddy and negligent auditing work, or a sophisticated white-collar criminal who orchestrated a sham real estate deal to inflate the defunct Spokane company's profits.

Jurors will decide after a two-week fraud trial in U.S. District Court in Seattle.

Prosecutor William Stapleton said Turner lied on the witness stand this week about what he knew of a complicated real estate deal, and what he told Metropolitan's outside auditing firm, Ernst & Young LLP. He asked the jury to convict Turner on three counts of lying, misleading and hiding salient information from auditors. A guilty verdict could send Turner, 56, to prison.

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He is the only Metropolitan executive who has been charged with crimes in the wake of the 2003 collapse of the venerable Spokane company that once had more than 600 employees, gave generously to community groups, funded political campaigns that shook up City Hall, and most importantly, had never missed an interest payment in five decades to its thousands of small-time investors.

Defense attorney David Marshall told the jury the entire case is a study in flawed government logic.

"This is a man who's trying to tell people what he knows when asked a question … this is not a criminal," he said of Turner.

He blamed Ernst & Young for botching its audit work and told jurors that Jack Behrens, the audit firm's partner in charge of the Metropolitan account, had a "miserable memory" and couldn't be trusted.

At its core, the case pits Turner's recollection of events against those of key government witness Behrens.

In September 2002, Metropolitan loaned Bellingham timber and property developer Trillium Corp. $17.6 million. At the same time, Trillium repaid creditor Dan Sandy more than $5 million.

Meanwhile, Sandy had set up a shell company called Jeff Properties LLC to buy two parcels of land for Metropolitan, which would then book the sale as a gain on its financial reports.

Most everyone agrees now that the circuitous nature of the deal made it ineligible for gains treatment by Metropolitan because of established accounting rules.

When terms of the deal were investigated by a new Metropolitan chief financial officer, revisited by Ernst & Young, and sought by the U.S. Securities and Exchange Commission, the finger-pointing began.

Marshall said Ernst & Young's Behrens made Turner the fall guy to cover up his own inept auditing.

He recounted for jurors how Behrens often failed to recall events during his two days of testimony last week, and cast suspicion about why Ernst & Young has few records such as memos, e-mails and notes of its audit work on the property transaction.

"Trying to get a straight answer out of Jack Behrens was like trying to pin a button on a custard pie," Marshall said. "Jack Behrens is an unbelievable witness."

A conviction of Turner would give Ernst & Young someone to blame for all the troubles, he said.

Stapleton, the prosecutor, took the jury through notes, phone calls, e-mails and witness testimony, tying it all together to show, he said, how Turner negotiated the deal and hid important details from Behrens.

Stapleton said Turner had many chances to come clean about the Trillium deal and instead chose to be evasive with William Smith, Metropolitan