Metropolitan Mortgage sues founder's relatives, former executives

SPOKANE, Wash. — Seeking millions of dollars it claims were paid out while the company was failing, Metropolitan Mortgage & Securities Co. has sued members of the founding Sandifur family and former executives, with the notable exception of former chairman and CEO C. Paul Sandifur Jr.

The Spokane company, which filed for Chapter 11 bankruptcy protection in February 2004, is now managed by a handful of attorneys and a trustee.

Attorney Barry Davidson alleges that Metropolitan was failing — yet writing dividend and other special compensation checks — long before it filed for bankruptcy protection.

The company has filed 12 lawsuits seeking reimbursement of about $8.9 million it claims were paid from the late 1990s until just months before it failed.

The demise of Met and sister company Summit Securities left more than 10,000 people across the Northwest — many of them retirees or inexperienced investors — holding more than $600 million in nearly worthless debt and preferred stock.

Going after founders and former executives is not an unusual tactic in corporate bankruptcies.

C. Paul Sandifur, who lives in El Centro, Calif., was not named in the lawsuits, but is the subject of a large accounting fraud complaint filed by the U.S. Securities and Exchange Commission.

Davidson said it doesn't appear Sandifur collected preferential or fraudulent transfers from his companies.

Company officials also said Monday they want to abandon attempts to recover $28 million in dividends paid to preferred stockholders. Trustee Maggie Lyons said officials decided it would be too expensive and create too much hardship.

Many of the preferred shareholders are elderly and have had their investments wiped out. Many more hold bonds which likely will pay about 14 cents on the dollar.

The lawsuits name Sandifur's siblings, former wife, former managers and others. They include:

•$4.3 million being sought from Metropolitan Investment Securities, the company's brokerage affiliate. The brokerage, which filed for Chapter 7 bankruptcy liquidation, paid large fines and restitution to a handful of investors. Davidson said it never should have made those payments — which included a $500,000 fine to the National Association of Securities Dealers — because it was insolvent.

Met Mortgage also filed suits to try to recover money paid to Sandifur's former wife and relatives who were recipients of family trusts, including:

• $2.1 million from ex-wife Helen Sandifur, whose 2002 divorce settlement left her with common stock that was redeemed in a special deal, along with a $55,000-a-year company salary;

• $807,259 from Sarah Emma Quinn, Sandifur's sister;

• $660,448 from William F. Sandifur, Sandifer's brother, and his wife Karen Sandifur;

• $144,426 from Bernice Sandifur, an aunt.

The company also sued former executives it says received bonuses or deferred compensation, seeking:

• $303,322 from Mark S. Donoghue, a Metropolitan vice president who received an incentive payment in August 2003, followed by deferred compensation in November 2003.

• $67,783 from Jerry L. Ward, a former executive who was paid in November 2003 by a deferred compensation trust set up by Metropolitan;

• $25,000 from Billy G. Twitty, a former Metropolitan vice president;

• $24,000 from Sandifur Holdings LLC. Now dissolved, this company was managed by Sandifur and his son, Phillip Sandifur;

• $450,000 from Cascade Recovery Inc. The Oregon company services leases for Metropolitan and is accused of withholding money it should have paid to Metropolitan.

Information from Seattle Times business reporter Drew Desilver is included in this story.