January 2008

Recent news coverage about cases other than the Metropolitan class action securities fraud case have caused concerns among investors.  Those news reports describe two other cases, one brought by Western United Life Assurance (WULA), a Metropolitan insurance subsidiary, against Ernst & Young, LLP ("E&Y), and another brought by the Creditors' Trusts of Metropolitan and Summit against PricewaterhouseCoopers, LLP ("PWC").  E&Y and PWC served as the auditing and accounting firms for Metropolitan and Summit (and WULA) and prepared their annual audited financial statements.  These cases are separate from the investors class action suit, In re Metropolitan Securities Litigation, that our firm and our co-counsel have brought against these same accounting firms.

      In WULA's case, which was actually an arbitration before a panel of three arbitrators, the panel first assumed (but did not rule) that E&Y violated applicable accounting practices.  However, the panel ruled that WULA's lawyers and experts did not prove that E&Y's violations caused the losses suffered by WULA.  In addition, the panel ruled that WULA's expert witnesses used "fatally flawed" damage theories and could not connect WULA's damages to E&Y's accounting violations.  A different set of facts and rules applies to investors who purchased securities directly from Metropolitan and Summit, as in the class action case.

     In the Creditors' Trusts case against PWC, Judge Van Sickle has issued a "tentative ruling" expressing concern about the Trusts' ability to prove that PWC caused damages to Metropolitan and Summit.  The issue there is whether the boards of directors of Metropolitan and Summit would have acted differently had PWC done what the Trusts claim it should have done--namely to alert the boards that there were significant problems within the two companies that were being caused by the way they were managed, controlled and operated.  Judge Van Sickle will hear arguments on this issue during the week of February 4th.  A different legal analysis applies to investor claims against PWC in the class action case.

     The investors in the In re Metropolitan Securities Litigation do not have to prove what Metropolitan or Summit (or WULA) would have done had the accounting firms done their jobs.  Our case is fundamentally different.  In our case we only have to prove that the accounting firms violated their professional standards and that the result was that the financial statements were significantly wrong.  Investors rely on a company's financial statements and, if they were negligently prepared, can recover their own individual damages, separate and apart from whatever damages the company may have suffered.  So the issues that have caused problems in the WULA and Creditors' Trusts' cases are not present in our case.

     As a final note, we filed our Third Amended Complaint on January 2, 2008, a copy of which can be viewed here.  Some of the defendants have filed yet another round of motions to dismiss, which will be heard by Judge Van Sickle on March 7, 2008.  We remain confident that we will succeed in defeating these motions.  Once we do, discovery will commence and a trial date will be set.

June 2004

Court Appoints Lead Plaintiffs In Class Action On June 7, 2004, Federal District Court Judge Fred Van Sickle appointed six investors as "Lead Plaintiffs" to represent investors in the securities fraud class action lawsuit against Ernst & Young, Paul Sandifur, Jr., Tom Turner, and several Met/Summit officers and directors. The Order appointing Lead Plaintiff investors will take effect after the Court's deadline for objections of June 21. The Lead Plaintiff investors are represented by Gordon, Thomas, Honeywell; by Hagens, Berman LLP in Seattle; by Dunn and Black, LLP in Spokane; by Grenley, Rotenberg, Evans, Bragg and Bodie, P.C. in Portland; and by bankruptcy counsel John Munding in Spokane. Examiner's Report Criticizes Met Management, Met Auditors. On June 8, 2004, Samuel Maizel, the Examiner appointed by United States Bankruptcy Judge Patricia C. Williams (see April 9 update, below), issued his first report concerning the collapse of the Metropolitan/Summit corporate group into bankruptcy. The report lists evidence of widespread negligence and financial manipulation by the leaders of Metropolitan and Summit. The Examiner also criticized Metropolitan Group's auditors, Ernst & Young, LLP, and PricewaterhouseCoopers, for failing to act on knowledge that Met and Summit were falsely reporting profits to investors. The Examiner intends to continue the investigation for an additional 75 days.

March 15, 2004

Creditors Meeting: The Metropolitan, Summit, and Metropolitan Investments corporations were required under the bankruptcy laws to hold a meeting with interested creditors. That meeting occurred on March 15, 2004 in the Spokane Arena. The meeting was attended by approximately 1,500 people, mostly debenture and stock holders. The meeting ran from 10 a.m. to 12:30 p.m. and, following a lunch break, continued until almost 4 p.m. The meeting began with over an hour of presentations by individuals representing Metropolitan, Summit, and MIS. Also introduced was Mr. William Romney, an executive experienced in helping turn around failing companies. Metropolitan and Summit are proposing to hire Mr. Romney as a "restructuring" manager who will, subject to court approval, take over management of Metropolitan and Summit. The speakers discussed various options in bankruptcy, including "liquidation" (winding the corporations down by selling all assets and distributing what remains to claimants), and "reorganization" -- a process for re-forming into a new enterprise with a plan to convert debentures into stock and then (hopefully) pay investors back in the future. The individuals representing the companies were unable to answer many questions about the companies and their assets that were foremost on the minds of investors. None of the speakers would discuss any estimate of the companies' current assets and liabilities. None of them could estimate how much will be recovered by investors in the bankruptcy or how long it will take. As one of the participants told a speaker from Metropolitan, "Thanks for almost helping."