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Criminal Charges Filed in Massive Northwest Fraud Case

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The comptroller of a once “high-flying” mortgage firm in Washington state that went under in a spectacular financial flame out is facing criminal charges and is among a group of former executives being sued by the federal government.

The Securities and Exchange Commission filed a civil complaint in federal court in Seattle against Metropolitan Mortgage and Securities Inc., based in Spokane, Wash. The SEC accuses Metropolitan, which is in bankruptcy, of using sham real estate deals to pump up the company’s bottom line. Specific charges include filing false financial statements, keeping phony books and engaging in bogus deals designed to make it appear the company was making money when it was actually teetering on failure.

“Metropolitan’s management falsified the company’s 2002 financial results by reporting profits from circular real estate sales where 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 SEC said in a statement.

“The fraud made Metropolitan appear profitable, facilitating further sales of its bonds and preferred stock to investors, when in reality the company was encountering its third straight year of mounting losses and verging on financial collapse,” the SEC said.

Named in the complaint were four former Metropolitan executives: CEO C. Paul Sandifur Jr., 63; Thomas G. Turner, 54; comptroller Robert Ness, 41; and vice president Thomas Masters, 54.

Turner is also facing criminal charges for his role in the company’s demise. He has reportedly pleaded innocent to the charges.

Also named in the complaint were two men associated with Trillium Corp., which allegedly participated in the phony deals; Trillium owner David Syre, 64; and Dan Sandy, 50, who the suit identified as a Trillium creditor and the person who allegedly set up a shell company that was used in a fraudulent transaction.

The SEC claims that the companies used bogus deals known as “rabbits, as in pulling a rabbit out of a hat.”

In one of the largest deals, Metropolitan reported an improper $10 million gain in a $24 million land sale to Trillium, which is also based in Washington.

The companies structured a deal to hide that Metropolitan was actually advancing Trillium the money to make the buy.

“In order to evade accounting principles prohibiting companies from reporting such sales as profits Metropolitan and Trillium agreed to make it appear that the property was being purchased by an unrelated third party, Jeff Properties,” the SEC said.

Jeff Properties was actually a “shell company” set up Sandy’s 18-year-old son, a high school student who was allegedly given a motorcycle for his work, the SEC claims.

The government is seeking civil damages and an order preventing Sandifur, Turner and Ness from serving as officers or directors of public companies.

Metropolitan has been troubled for some time.

In January of 2004 reported that the company has lost control of one of its subsidiaries — Western United Life Assurance Co. — to insurance regulators in three states.

The company suspended payment on nearly $600 million in debt owed to an estimated 35,000 investors. Its preferred stock was been delisted off of the American Stock Exchange. The company’s investment unit — Metropolitan Investment Securities – was closed after being fined $500,000 in late October by the National Association of Securities Dealers (NASD), which forced the company to refund up to $3.8 million to clients for what was described as a fraud scheme.

Then in February 2004 the company filed for protection under Chapter 11 of the federal bankruptcy code, listing assets of $572 million and debt of $582 million, reported.

The SEC said in its statement that bankruptcy filing was “devastating (for) nearly 10,000 investors throughout the Pacific Northwest who had invested approximately $450 million in the once high-flying real estate company.”


Grand Jury Probing Metropolitan — Disclosure made in SEC filing

Meltdown at Metropolitan — Company may restate income; accused of fraudulent securities sales practices

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