Risk Management

”Real Deal” Was Going in Circles: SEC

Management at a Spokane-based real estate company allegedly reported profits from real estate transactions in which the company itself put up most ...
Stephen Taub and Dave CookMarch 16, 2007

The Securities and Exchange Commission has settled charges against three people for an alleged financial fraud regarding “circular” real estate sales.

The three — Robert A. Ness Jr., former controller of Spokane-based Metropolitan Mortgage & Securities; a former vice president, Thomas R. Masters; and a former Metropolitan business associate, Dan W. Sandy — agreed to settle without admitting or denying the SEC allegations.

The commission charged that Metropolitan’s management falsified its 2002 financial results by reporting profits from real estate transactions in which the company purported to sell property to buyers who, in fact, received most or all of the purchase price from Metropolitan or its affiliates.

In the largest of these deals, Metropolitan allegedly reported a $10 million gain by completely financing the purchase of property by Trillium, a private company based in Bellingham, Washington.

According to the SEC, when Metropolitan filed for bankruptcy in February 2004, it harmed nearly 10,000 investors throughout the Pacific Northwest who had invested about $450 million in debt securities and preferred stock offered by the company.

Under the settlement, Ness agreed not to violate the antifraud provisions of the federal securities laws. He also agreed to a five-year officer-and-director bar and not to practice as an accountant before the commission during that same period.

Masters and Sandy also agreed not to violate federal antifraud laws. In addition, Masters will pay about $61,000 in disgorgement, penalties, and interest; Sandy, $50,000.

Charges are still pending against former Metropolitan chief executive officer C. Paul Sandifur Jr., former executive officer Thomas G. Turner, Trillium president and chief executive officer David Syre, and against Trillium itself. A trial is scheduled for October.