Saturday, November 21, 2009

ONGOING COVERAGE: METROPOLITAN MORTGAGE BANKRUPTCY

Adelphia deal may hearten Met creditors

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John Stucke
Staff writer
August 24, 2007

A settlement requiring auditing firm Deloitte & Touche to pay $167.5 million to a special trust recovering money for Adelphia Communications Corp. creditors provides some buoyancy to the difficult task of recovering money from two large firms that audited Spokane's bankrupted Metropolitan Mortgage & Securities Company Inc.

A trust established to collect all possible sources of cash for thousands of Metropolitan investors is now engaged in arbitration with Ernst & Young, and has sued PriceWaterhouseCoopers in U.S. District Court in Spokane.

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The trust accused the auditors of professional malpractice, and though a dollar demand has not been divulged, some familiar with the case say it could be in the tens of millions of dollars or more.

Metropolitan debenture holders have collected 9 cents on the dollar since the company collapsed in February 2004. Those holding debenture bonds issued by Metropolitan affiliate Summit Securities Inc. have received about 6 cents on the dollar.

In all, more than 10,000 investors lost about a half-billion dollars.

PriceWaterhouseCoopers audited Metropolitan's books in 1999 and 2000. It also provided Metropolitan with a tax shelter, an offshore investment scheme designed to generate paper losses that Metropolitan could use to offset federal taxes. The creditors' trust, through its attorney Parker Folse, accuses the company of dereliction of its duties as outside auditor. PriceWaterhouseCoopers should have picked up on Metropolitan's precarious financial condition — perhaps even insolvency during its audits- and alerted the board of directors and investors, according to the lawsuit.

The sides have agreed to meet with a mediator. If a deal can't be reached, the case is scheduled to go to trial in February.

Though the U.S. Securities and Exchange Commission has closed its investigation of former Metropolitan auditing firm Ernst & Young, the Washington State Office of the Insurance Commissioners and the Metropolitan creditors trust have each taken their claims to arbitration.

Ernst & Young resigned as Metropolitan's outside accountants in January 2004 and renounced its prior audits, blaming executives for lying and giving misleading information.

A federal district court jury in Seattle convicted former Metropolitan executive Thomas Turner last June on three felony counts of misleading Ernst & Young's auditing team.