State takes control of troubled security firm’s insurance business

SPOKANE — Financially troubled Metropolitan Mortgage &Securities Co. Inc. has suspended payments on more securities, and state officials have taken control of its insurance subsidiaries.

Metropolitan and its Idaho sister company, Summit Securities, have suspended payment on almost all debt, including $580 million worth of debentures held by 35,000 investors, many in the inland Northwest.

"We’re simply doing what we can to conserve cash while we sort out the financial issues the company is facing," Metropolitan spokeswoman Mary Keller said Monday.

Keller said a bankruptcy filing was "not imminent," but that there was no estimate of when payments might resume.

The state Insurance Commissioner has taken over administrative supervision of one of Metropolitan’s insurance company subsidiaries. That follows similar moves in Idaho and Arizona, where other insurance subsidiaries are based.

A special deputy will have authority to request any information from Western United Life Assurance Co. and to approve all transactions, said Bill Ripple, a spokesman for state Insurance Commissioner Mike Kreidler.

"The life insurance company is sound," Ripple said. "We want to ensure it stays that way."

Kreidler issued a consent order for supervision of Western United after the company’s board of directors agreed to the move Dec. 22.

The order bans Western United from selling or transferring any of its assets without approval from the insurance commissioner’s office.

"We’ll be in there as long as is necessary to ensure policyholders are protected in the state of Washington," Ripple said.

It was common for Metropolitan to tap Western United for money, said Deborah Bortner, director of the securities division for the state Department of Financial Institutions.

Debentures are unsecured debt, a higher-risk investment that is essentially a corporate promise to pay someone back.

Bortner said investors shouldn’t panic.

"A lot depends on what happens in the next few months," she said. "My own personal view is that I would let it play out. It’s not going to do any good to sue them."

Bortner said Metropolitan has more hard assets, such as real estate and equipment, than most companies in similar situations.

Metropolitan’s troubles began this fall when the National Association of Securities Dealers, the private-sector enforcer of federal securities laws, alleged that the company’s investment arm used fraudulent, deceptive and unethical sales practices.

The allegations centered on a two-year window, from January 2001 to March 2003, when representatives of Metropolitan Investment Services were advertising investments in Metropolitan with the promise of good returns and low risk.