CRIMINAL AND CIVIL CASES STEMMING FROM THE COLLAPSE OF METROPOLITAN MORTGAGE AND SUMMIT SECURITIES ARE FILED IN SEATTLE AND PORTLAND

WASHINGTON D.C. - The Department of Justice and the U.S. Securities and Exchange Commission (SEC) announced the filing yesterday of federal charges in the wake of the 2004 collapse of Metropolitan Mortgage and Securities Company, Inc., and its affiliate, Summit Securities Inc. As Spokane-based companies engaged in commercial lending and real estate financing, Metropolitan and Summit both filed for bankruptcy in February 2004, resulting in losses exceeding $450 million to more than 17,000 investors throughout the Pacific Northwest.

In a seven-count criminal indictment filed in the Western District of Washington (Seattle), Nevada resident Thomas G. Turner, 54, was charged with making false statements and material omissions to the outside accountants for Metropolitan and Summit in connection with the accountants’ fiscal year 2002 audit. Turner, arrested in Nevada yesterday, is scheduled to make his initial appearance in federal court in Reno, Nevada today at 2 PM local time. According to Metropolitan’s 2002 Form 10-K report to the SEC, Turner was Metropolitan’s second-most highly compensated executive officer; he also served as president of Summit.

According to the indictment, Turner, whose responsibilities included structuring investment and commercial loan transactions on behalf of both Metropolitan and Summit and their subsidiaries, misled the auditors about the true nature of a financial transaction in which Metropolitan sold two pieces of property. This resulted in Metropolitan reporting a $10 million gain in its fiscal year ending September 30, 2002. Turner concealed the contingent nature of a related $17.6 million Summit loan. Without this transaction, Metropolitan would have recorded a net loss on its consolidated financial statements for the 2002 fiscal year. Specifically, Turner is accused of leading the auditors to believe that the purchasers of the properties, identified in the indictment as “JP” and “DS,” constituted independent, third-party purchasers, acting on their own behalf and for their own accounts. In reality, DS did not want to purchase the property and agreed to participate in the transaction only if his cash down payment was not at risk. Based on the representations of Turner and others affiliated with Metropolitan, and various documents they provided, the outside accountants concurred with the recording of immediate profit on the sale of the properties to JP and certified Metropolitan and Summit’s financial statements to the SEC.

If convicted, Turner could be sentenced to a maximum term of 20 years imprisonment and a fine of $10 million on each count.

In addition, the United States Attorney’s Office for the District of Oregon announced the filing yesterday of criminal fraud charges against William Sears, 56, and his wife Patricia Jean Sears-Million, 50, former stock brokers who sold stocks and bonds issued by Metropolitan and Summit.

In the criminal indictment filed yesterday in the District of Oregon, Sears and Sears-Million are charged with 32 counts of mail fraud and three counts of money laundering. The indictment alleges that the defendants’ fraudulent scheme involved a three-pronged strategy: they falsely represented the nature of the risk associated with the investments; in many instances, they deliberately falsified information on the client subscription agreements regarding their net worth and/or risk tolerance; and they intentionally failed to disclose material facts regarding the financial status of the underlying investments and the associated risk of these investments.

Simultaneously, the SEC yesterday filed a civil complaint in the Western District of Washington charging Turner and several other Metropolitan Mortgage executives: former Chief Executive Officer (CEO) C. Paul Sandifur, Jr., 63, of El Centro, California; former Controller Robert Ness, 41, of Bellevue, Washington; and former Vice President Thomas R. Masters, 54, of Spokane, Washington. The SEC civil complaint alleges that Metropolitan’s management falsified the company’s 2002 financial results by reporting profits from circular real estate sales where Metropolitan purported to sell property to buyers who, in fact, received all of the money to pay for the purchase from Metropolitan or its affiliates. The fraud made Metropolitan appear profitable which facilitated further sales of its bonds and preferred stock to investors. Unbeknownst to investors, the company was encountering its third straight year of mounting losses and verging on financial collapse. The SEC’s action seeks disgorgement, civil monetary penalties, and injunctive relief, as well as orders barring Sandifur, Turner and Ness from serving as officers or directors of public companies.

Alice Fisher, Assistant Attorney General for the Justice Department’s Criminal Division, commended the SEC and the Securities Division of the Washington Department of Financial Institutions for their assistance in this investigation and emphasized that it is the result of a cooperative effort by federal and state authorities:

“This case exemplifies the importance of utilizing federal and state resources to vindicate both the interest of the United States and the victims of this massive financial fraud,” said Assistant Attorney General Fisher. “Through this cooperative effort, we can better protect innocent investors who vitally depend upon the legitimacy and accuracy of a corporation’s financial statements.”

The criminal case in the Western District of Washington is being prosecuted by Fraud Section Senior Trial Attorney William Stapleton and Trial Attorney Joseph Capone. The criminal case in Portland is being prosecuted by Assistant U.S. Attorney Allan M. Garten, Chief of the White-Collar Crimes Unit at the U.S. Attorney’s Office for the District of Oregon.

###

05-501