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		Home Page Mortgage News You Can Use SEC calls for fraud investigation 02/10/2004 By NICHOLAS K. GERANIOS  / Associated Press Federal and state regulators called Monday for an independent examination of Metropolitan Mortgage & Securities Co. to determine if the company has defrauded thousands of investors. The request from the U.S. Securities and Exchange Commission and the state Attorney General's office was filed in U.S. Bankruptcy Court in Spokane. The regulators also want to examine the books of Met Mortgage's sister company, Idaho-based Summit Securities, Inc. "We take this action today to safeguard the interests of more than 35,000 investors who purchased stocks and bonds in Metropolitan and Summit," said Helane Morrison, administrator of the SEC office in San Francisco. "An examiner will protect the rights of investors and help creditors locate sources of recovery." A spokeswoman for Met Mortgage did not immediately return a telephone message seeking comment. An SEC official said such requests are generally granted by bankruptcy judges. Met Mortgage, a $2 billion financial conglomerate that was once a shining business star in Spokane, last Wednesday filed for protection under Chapter 11 of the federal bankruptcy code. Company executives have said they want to save the company and emerge from Chapter 11 under a debt-for-equity plan in which investors would end up owning the business. Some investors are skeptical that will work and are pushing for the company to sell its many real estate holdings across the United States to pay at least a portion of its $582 million in debt. In late January, independent auditor Ernst & Young LLP resigned after concluding the company's books couldn't be trusted. Regulators said the accounting firm's resignation was a clear signal that Met Mortgage's books needed investigating. The SEC wants an examiner to determine if current or former managers engaged in fraud or other illegal activities. The examination will also determine if the companies' boards of directors and management were independent, and whether the bankruptcy court should appoint a trustee rather than permit current management to continue controlling the companies. The SEC has been conducting a "nonpublic investigation" of the two companies since 2003 to determine if any employees misled investors with fraudulent financial statements or submitted inaccurate financial information to the SEC. Last November, the SEC requested documents from both companies and Ernst & Young. The accounting firm on Jan. 20 resigned and withdrew all its prior audit opinions, saying the company's senior management had misrepresented facts to Ernst & Young, the SEC said. "It's one thing for us to have some concerns and investigate," said Marc Fagel, assistant SEC administrator in San Francisco. "But if as a result the auditor finds problems and resigns, we sense a problem there." In its Chapter 11 filing, Met Mortgage said it had $415.2 million in debt and assets of $420.8 million. Summit Securities listed debts of $167 million and assets of $151 million. Last week, Met Mortgage Chief Financial Officer Bill Smith said the SEC investigation was partly to blame for the companies' woes, because it prevented them from raising money by issuing new rounds of stocks and debentures to pay off debt. The financial woes are also the result of too many commercial real estate loans, Smith said. The two companies are mostly owned by C. Paul Sandifur Jr., who has resigned as president and chief executive officer. Last fall, the National Association of Securities Dealers concluded that Metropolitan Investment Securities Inc., the brokerage arm of the two companies, used fraudulent, deceptive and unethical sales practices. Specifically, the brokerage was accused to selling risky and inappropriate investments, many to older people whose savings should not have been exposed to such risk. The brokerage was ordered to pay $2.8 million in restitution and was prohibited from making future sales. The brokerage has since been closed.   Back to Original Article: Mortgage News You Can Use   Continue with: Housing Affordability Improves In Fourth Quarter The Mortgage Market This Week Mortgage Application Volume Holds Steady Tax Advocates Pressure House Declaration Fails To Give Dollar a Boost Inventories, Sales Rose in Dec. Bush hits road, touting economy Euro Falls as EU Wants Weaker Currency Treasuries Higher on Hopes of Demand
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