Metropolitan probe to expand

SPOKANE – Investigators trying to unravel the largest bankruptcy case in Spokane history should focus on the business relationships between Metropolitan Mortgage &Securities and its affiliates, a federal bankruptcy judge decided this week.

The decision by U.S. Bankruptcy Court Judge Patricia Williams came during a telephone conference call Monday. Met Mortgage, once a $2 billion financial conglomerate, filed for Chapter 11 bankruptcy protection earlier this year following government scrutiny of its financial statements.

Williams’ decision addressed concerns that investors holding certain Summit Securities bonds may have substantial claims against the estate of sister company Metropolitan.

The judge also asked examiner Samuel Maizel to investigate the role of Metropolitan’s law firm, Kutak Rock, in drafting Metropolitan’s reorganization plan, and of Roth Capital, a financial firm, in the sale of preferred stocks and debenture bonds – bonds based on company credit rather than assets.

Maizel initially wanted to investigate the role of Metropolitan’s outside accounting firms – Ernst &Young LLP and PriceWaterhouseCoopers LLP – which creditors say failed to uncover questionable real estate deals that propped up the company’s books.

In a nod to creditors wary of rising costs, the judge limited the scope of the examiner’s work. Maizel will file a new budget that likely will be lower than the $900,000 budget projection for the inquiry.

The conference revealed that additional action against the accounting firms is likely. Spokane attorney P.J. Grabicki, who represents creditors, said he plans to hire a law firm that specializes in suing auditors.

Ernst &Young already has been sued by attorneys working on a class action claim brought by investors.

Maizel’s new report is due Oct. 25. His first report, pulled together in 45 days, pinned blame for the Metropolitan meltdown on former chief executive officer C. Paul Sandifur Jr.