On December 6, 2006, all of the defendants in the Metropolitan Mortgage and Summit Securities investor class action lawsuit filed motions to dismiss the lawsuit, collectively advancing 19 separate arguments as to why they should be able to avoid liability to the plaintiff investors. On June 8, 2007, the Court heard oral argument on the defendants' motions. On November 5, 2007, the Court issued a 78-page opinion (click here to access the opinion) refusing to dismiss any of the defendants from the case. The defendants will now have to address the merits of the plaintiffs' securities fraud claims.

The defendants are Pricewaterhouse Coopers, the accounting firm for Metropolitan and Summit until June of 2001; Ernst & Young, the accounting firm for Metropolitan and Summit from June 2001 until their collapse in 2004; Roth Capital, the underwriting firm for Metropolitan and Summit; and C. Paul Sandifur, Jr., Thomas Turner, Irv Marcus, William Snider, and Robert Ness, former officers or directors of Metropolitan or Summit.

In its lawsuit the plaintiffs claim that sales of securities of Metropolitan and Summit that were made between February 13, 2001 and December 15, 2003 (the "Class Period") were fraudulent because the defendants prepared, contributed to or utilized offering documents that falsely represented the financial condition of the companies or the value of the securities. During the Class Period the defendants were involved in the preparation and dissemination of nine separate sets of offering documents ("registration statements"), all of which are alleged to have been materially misleading and inaccurate. The plaintiffs also claim that the accounting firms violated professional accounting standards when they issued certified financial statements for Metropolitan and Summit that were included in each of the nine registration statements and that materially misrepresented the companies' financial condition.

The plaintiffs claim that Roth Capital acted as an underwriter for registration statements that were inaccurate and misleading, and that Roth violated its duties as an underwriter by issuing pricing and yield opinions for the Metropolitan and Summit securities that misrepresented the condition of the companies. Lastly, the plaintiffs claim that the individual officers and directors of Metropolitan and Summit approved the misleading registration statements.

The defendants challenged all of these claims, but the Court rejected nearly all of their arguments. The Court did dismiss the federal securities fraud claims against Pricewaterhouse Coopers and Roth arising from the first four of the nine registration statements, based on the federal statute of limitations. However, the Court found that state securities fraud claims against Pricewaterhouse Coopers and Roth for two of those four registration statements involving preferred stock would not be dismissed. The Court refused to dismiss claims against Ernst & Young for the four registration statements that contained Ernst & Young audited financial statements. Finally, the Court refused to dismiss the claims against the individual defendants for any of the nine registration statements.

While the Court ruled that all of the defendants would remain in the case and be required to address the merits of the plaintiffs' claims, the Court did find that the plaintiffs' 317-page Complaint contained some flaws. First, the Court found the Complaint too lengthy and cumbersome. Second, the Court concluded that the class needs to make more specific allegations with respect to a few aspects of its claims. The class needs to allege more specific facts showing that the relevant statutes of limitations do not bar any of their claims. The plaintiffs need to identify specific statements in the registration statements that were misleading because of Roth Capitals' omissions. And the plaintiffs need to allege facts more clearly establishing that the former officers and directors actively participated in the sales of Metropolitan and Summit securities. However, the Court granted plaintiffs permission to amend their Complaint to correct these deficiencies.

The chart found here identifies the nine registration statements that are at issue in the lawsuit and identifies which defendants are potentially liable for each registration statement based on the Court's ruling.

At present there is no trial date. Discovery of documents from the defendants and depositions of witnesses will likely not begin until after the filing of the next Amended Complaint by plaintiffs' counsel, which may occur before the end of the year.