Saturday, November 21, 2009

ONGOING COVERAGE: METROPOLITAN MORTGAGE BANKRUPTCY

Met suit advances as class action

Investors target accountants, underwriter

John Stucke
Staff writer
December 17, 2008

A class-action lawsuit involving more than 6,000 Metropolitan Mortgage & Securities Co. investors is moving toward trial in 15 months.

The suit seeks $300 million from two accounting firms and an underwriter that approved Metropolitan’s financial reports and disclosures. The investors include preferred stockholders and people who bought unsecured bonds called debentures.

The lawsuit is regarded as the only chance for stockholders to recoup at least some of their investment after Metropolitan’s bankruptcy rendered the preferred shares worthless.

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Tyler Weaver, an attorney representing investors, said during a court hearing Tuesday that investors relied on the accounting firms PricewaterhouseCoopers LLP and Ernst & Young to audit the company’s books to ensure its numbers and business practices were accurate and legal. Underwriter Roth Capital has also been sued over its role in approving the prospectus that investors and brokers used to weigh the risks of investing in Metropolitan.

U.S. District Court Judge Fred Van Sickle last month certified most investors in the lawsuit as a class action. On Tuesday he listened to arguments, and he will decide within a week whether about 100 other investors should be allowed to join the class action.

Metropolitan operated for 50 years as one of Spokane’s most successful companies. It was viewed as a steady, income-producing investment, buying seller-financed mortgages to earn enough profit to pay its debts and operation costs.

In the 1990s, the firm began to invest more in higher-risk commercial real estate.

To finance the ventures, the company accelerated the sale of bonds and used a change in government regulations to sell preferred shares that were traded on lightly regulated stock exchanges.

A cash crunch ensued when such bond sales were slowed for further regulatory review. Without the ability to sell more stocks and bonds, the company defaulted on its debt payments. A wave of investigations and lawsuits followed, and the company went bankrupt.

PricewaterhouseCoopers already settled a professional malpractice suit for $30 million. The money flowed into a trust representing what’s left of Metropolitan. Most of that cash is being distributed to investors.

The trust is pursuing a separate claim against Ernst & Young.

Reach John Stucke at johnst@spokesman.com or (509) 459-5419.