SPOKANE – Directors of Metropolitan Mortgage &Securities Co. have sued their former accounting firm, PricewaterhouseCoopers LLC, over audits performed in 1999 and 2000 they contend failed to warn them that the Spokane company was headed for bankruptcy.
The lawsuit, filed last week in U.S. District Court in Spokane, seeks unspecified damages.
Also listed as a plaintiff was Summit Securities Inc., a sister company of Metropolitan. Both companies have filed for bankruptcy protection and are awaiting approval of a liquidation plan in U.S. Bankruptcy Court.
Met Mortgage, once a $2.7 billion financial conglomerate, filed for Chapter 11 protection from its creditors in February 2004. The company and its affiliates owe an estimated $583 million, mostly to 16,000 small investors in the Pacific Northwest who bought notes and preferred stock.
The companies also are subject of numerous ongoing investigations by state and federal regulators, including the U.S. Securities and Exchange Commission.
The lawsuit contends PricewaterhouseCoopers failed to perform its duty as an independent auditor.
“Through negligence and in breach of contract, PricewaterhouseCoopers’ dereliction in the performance of its audits and misrepresentations in its audit reports enabled and concealed a foreseeable and preventable chain of events that pushed Met and Summit deeply into bankruptcy,” the lawsuit states.
The lawsuit also alleges the accounting firm failed to perform its role of independent auditor. Specifically, the accounting firm created a flawed tax shelter plan for Metropolitan, for which it received a substantial fee, at the same time it was charged with reviewing and certifying the company’s books, the lawsuit says.
That tax shelter, undertaken in 1998, was used by Met Mortgage to create a web of offshore deals and stock holdings in foreign banks, the lawsuit says. The result left Metropolitan with a tax benefit of $28 million.
PricewaterhouseCoopers not only charged Metropolitan for setting up the shelter, it also performed an audit approving the deal. The IRS later disallowed most of those tax benefits.
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