|Meltdown at Metropolitan
Company may restate income; accused of fraudulent securities sales practices
January 2, 2004
|It is hardly a happy new year for Metropolitan Mortgage & Securities, its shareholders, or policy holders.The company, based in Spokane, Wash., has lost control of one of its subsidiaries — Western United Life Assurance Co. — to insurance regulators in three states, and C. Paul Sandifur Jr., one of Western’s officers and directors, has resigned.
It has suspended payment on nearly $600 million in debt owed to an estimated 35,000 investors. It’s preferred stock has been delisted off of the American Stock Exchange.
The company’s investment unit — Metropolitan Investment Securities — shut down Dec. 15 after being fined $500,000 in late October by the National Association of Securities Dealers (NASD).
In a statement, the regulator said it also forced the company to refund up to $3.8 million to clients for what was described as “fraudulent and unethical sales practices in connection with the sale of debentures, investment certificates and preferred stock” issued by Metropolitan and another investment unit, Summit Securities.
“Metropolitan management was often unable or unwilling to take effective supervisory action in the face of red flags indicating abusive sales practices by the registered representatives,” NASD said in the statement. “In settling this matter, Metropolitan neither admitted nor denied the allegations, but consented to the entry of findings.”
Finally, Metropolitan Mortgage and Summit issued statements indicating they will not meet deadlines to file their annual 10-K reports with the Securities and Exchange Commission.
Metropolitan said in a statement that its auditor, Ernst & Young, does not have enough time to review all records because “the company is believed to have incurred losses in excess of those disclosed in its June 30” quarterly reports.
Metropolitan Mortgage issued a Dec. 30 statement saying “the company’s board of directors is continuing to review alternative strategies … and has not made any determination at this time with respect to a bankruptcy filing, resumption of payments on its debt or otherwise.”
And John Van Engelen, who replaced Sandifur at Western United Life, said in statement that allowing the Washington Office of the Insurance Commissioner take over control of the company is a move toward stability.
“We are confident that this measure will help reassure our policyholders and agents that parent-level issues do not and will not impair the safety, liquidity or stability of our company,” said Van Engelen, who has been elected president and CEO of the company.
In a letter to employees, Van Engelen said “the administrative supervision does not reflect on the solvency of Western United Life, which has more than $1.7 billion (as of) June 30 … in assets and above-average capital and surplus ratios.”
Washington Insurance Commissioner Mike Kreidler said Metropolitan Mortgage’s basic problem is “that anticipated cash flows will be inadequate to meet certain debt obligations.”
“I am taking this step to ensure that Western United policyholders are protected while the non-insurance parent company sorts our its financial troubles,” Kreidler said in a statement. “This administrative supervision will assist the company in maintaining its independence and financial integrity.”
Insurance regulators in Arizona and Idaho have taken similar actions, Kreidler said.
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