SEC reaches settlements with three defendants in Metropolitan Mortgage fraud lawsuit

By Caroline Salls

Pittsburgh, March 16 - The Securities and Exchange Commission has reached settlements in pending litigation against two former Metropolitan Mortgage & Securities Co., Inc. executives and a former business associate linked to an alleged financial reporting fraud at the company, according to an SEC news release.

The complaints were filed by the SEC against former controller Robert A. Ness Jr. and former vice president Thomas R. Masters, as well as former Metropolitan business associate Dan W. Sandy.

Specifically, the SEC complaint alleged that Metropolitan's management falsified the company's 2002 financial results by reporting profits from circular real estate sales where Metropolitan supposedly sold property to buyers who received all or nearly all of the money to pay for the purchases from the company or its affiliates.

In the largest of these deals, Metropolitan reported a $10 million gain by completely financing the purchase of property by defendant Trillium Corp., the release said.

The SEC also brought fraud charges against Trillium, its president and chief executive officer David Syre and Sandy, who was also a Trillium creditor.

In addition to Ness and Masters, the commission also sued former Metropolitan chief executive officer C. Paul Sandifur Jr. and former executive officer Thomas G. Turner for their role in the alleged fraud activities.

The rulings against Ness, Masters and Sandy included:

• Ness was permanently enjoined from violating the antifraud provisions of the federal securities laws, permanently enjoined from violation Section 13(b)(5) of the Exchange Act and permanently enjoined from aiding and abetting violations of the books and records and periodic reporting provisions of the Exchange Act.

He was also barred from acting as an officer or director of any public company for five years;

• Masters was ordered to pay $61,508.77 in disgorgement penalties and interest and permanently enjoined from violating the antifraud provisions of the federal securities laws, section 13(b)(5) of the Exchange Act and from aiding and abetting violations of the books and records and periodic reporting provisions under the Exchange Act; and

• Sandy was ordered to pay a $50,000 penalty and permanently enjoined from violating the antifraud provisions of the federal securities laws and from aiding and abetting violations of the books and records and public reporting provisions under the Exchange Act.

As previously reported, Ness was also suspended from practicing as an accountant before the SEC for five years.

The trial against the remaining for defendants is scheduled to be held in October 2007 in the U.S. District Court for the Western District of Washington.

Spokane, Wash.-based Metropolitan Mortgage filed for bankruptcy on Feb. 4, 2004. Its Chapter 11 case number is 04-00757.

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