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SEC probes Metropolitan land deals with Trillium

By Drew DeSilver
Seattle Times business reporter

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Federal regulators are investigating the relationship between Metropolitan Mortgage & Securities, the bankrupt Spokane financial conglomerate, and Trillium, a prominent developer and timber harvester headquartered in Bellingham.

The probe by the Securities and Exchange Commission centers on an intricate series of real-estate transactions between Metropolitan, its subsidiary, Western United Life Assurance, and a Trillium-controlled entity called Jeff Properties.

Metropolitan and Western lent a total of $25 million to Trillium in July 2001, with a tract of development property in Denver as collateral. The loan came while Trillium's far-flung empire faced a cash crunch caused in part by the collapse of one of its key lenders.

A little over a year later, Jeff Properties bought two vacant parcels of commercial land in Everett and in Texas from Metropolitan and Western, respectively, for nearly $24 million. The selling companies loaned most of the purchase money to Jeff, which had been created just a week earlier.

The Jeff transactions, just four days before the end of Metropolitan's fiscal year, allowed it to move two big nonproducing assets off its books — and put two big mortgage loans on — at a time when the company was trying to convince regulators that it was financially sound enough to sell more securities to investors.

Mary Keller, Metropolitan's head of marketing and external affairs, acknowledged in an e-mail that "the Trillium/Jeff Properties transaction" was "under review by the SEC." She said Metropolitan could not comment on the matter until the SEC probe is complete.

Ron Berenstain, an attorney with Perkins Coie who represents Trillium, said in an interview that the company "is fully cooperating with the investigations that are being conducted, and we hope they will be wrapped up soon. Like many companies that did business with Metropolitan, (Trillium) is experiencing the results of a company in demise."

With Metropolitan and sister company Summit Securities in bankruptcy and their insurance subsidiaries, including Western, under state receivership, teams of investigators are poring through the companies' financial records.

They're looking for assets that could be used to repay some of the hundreds of millions of dollars owed to people who bought Metropolitan's securities, and trying to figure out just how the 51-year-old company, long a pillar of Spokane's business community, disintegrated in a matter of months.

Subpoenas from the SEC, included in Metropolitan's bankruptcy filings, indicate that a timberland transaction in Hawaii also is under special scrutiny.

A lawsuit pending in Hawaii state court alleges that, after foreclosing on the timberland, Metropolitan artificially inflated its value by $18 million and sold it to Summit. Metropolitan has denied those allegations.

The SEC subpoenas also indicate that the agency is looking into instances where one of the many companies in the Metropolitan network made payments on foreclosed mortgages held by another Metropolitan company. Such payments could allow the company holding the mortgage to delay writing it off as a bad debt.

Metropolitan, Western, Summit and other companies in what once was a $2.7 billion financial complex face other inquiries as well — from, among others, a bankruptcy examiner; the state insurance commissioner's office, which has placed Western under receivership; and the U.S. Postal Inspection Service.

Trillium's link to the "Metropolitan mess" has, until now, not been generally known.

Trillium, founded two decades ago by David Syre, is a family-owned timber and development company. Its holdings include the Semiahmoo Resort in Whatcom County, timber projects in South America and recreational properties in Alaska's Cook Inlet.

The summer of 2001 was a difficult time for Trillium. A major lender, Portland-based Capital Consultants, had been seized by federal regulators the previous year, cutting off the cash flow to a logging project in Tierra del Fuego. Trillium, Capital Consultants and other investors had invested as much as $200 million in the project, with little to show for it.

Another big project, the redevelopment of a former rail yard in Denver, was proceeding more slowly than expected. And back in Bellingham, a lender had filed a $2.65 million foreclosure notice on a medical-office building in Trillium's Cordata development.

As a result, Trillium had begun selling assets and was looking for new sources of cash.

On July 25, 2001, land records show, Western United Life loaned Trillium $20 million, with some of its Denver holdings as collateral; Metropolitan loaned another $5 million.

The next deals between Metropolitan and Trillium occurred a year and three months later. On Sept. 18, 2002, according to state corporation records, Jeff Properties LLC was formed. Originally it listed a nondescript ranch-style house in Tumwater, next to a cemetery, as its headquarters, and named Jeff Sandy as its managing member.

But in December 2003, Jeff Properties' registration with the state was changed, leaving little doubt about who controls it. Jeff Properties now shares Trillium's address in Bellingham and lists Jonathan Syre, David Syre's son and Trillium's chief operating officer, as its registered agent. The filing also lists Topsail LLC as Jeff's sole member; Jonathan Syre is Topsail's managing member.

A week after Jeff was formed, it bought 98.6 acres in Everett from Metropolitan for $15.9 million, and 109 acres in suburban San Antonio from Western for $8 million. In each case, Metropolitan or Western lent Jeff 80 percent of the purchase price.

The Everett property, wedged between Boeing's assembly plant and a residential part of Mukilteo and with Japanese Gulch running through it, has stymied development efforts for more than two decades. Metropolitan acquired part of the property in the early 1980s and the rest through a 1988 land exchange.

Western acquired the Texas property in January 2002, when a San Antonio developer who'd borrowed $7.4 million from Western gave it to the insurer in lieu of foreclosure.

The two deals came at a critical time for Metropolitan. Along with sister company Summit, Metropolitan was seeking SEC permission to sell $400 million in notes and preferred stock; as its other businesses struggled, it had come to depend on regular infusions of capital from investors.

But the SEC was moving slowly in approving new sales. Washington Securities Commissioner Deborah Bortner had written to her federal counterparts urging them to look hard at Metropolitan's operations before letting it add to its rapidly mounting debt load.

By replacing two nonproductive assets with two presumably profitable loans, days before the end of its fiscal year, Metropolitan was able to strengthen its balance sheet.

The Jeff loans have yet to bear much fruit. In April 2003, seven months after the two deals, Metropolitan declared the Everett mortgage in default but allowed Jeff to put up the Texas property as additional collateral. That allowed Metropolitan to avoid listing the Everett loan as a nonperforming asset.

On Oct. 30 of last year, Jeff borrowed another $946,000 on the Texas property; on the same day, Western released some of Trillium's Denver property from the mortgage there.

But in its annual statement for 2003, filed in February, Western listed the Texas loan — now up to $13.5 million — as "overdue but not in process of foreclosure."

The SEC, rather than approving Metropolitan's and Summit's debt offerings, last year opened an investigation into the companies' practices, as did the National Association of Securities Dealers. Starved for cash and under increasing regulatory scrutiny, the imposing edifice began to crumble late last year.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

Copyright © 2004 The Seattle Times Company

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