Citing "material misstatements" in three companies' financial statements, accounting firm Ernst & Young has quit as auditor at three related Spokane-based investment companies.
The three related companies -- Western United Holding Co., Metropolitan Mortgage & Securities Co. and Summit Securities Inc. -- all said that Ernst & Young "could not rely on the representations of management made in connection with its prior audits and reviews."
The companies warned investors not to rely on their previously issued financial statements going back as far as September 1999, and said restatements of suspect financial statements are likely.
Ernst & Young's resignation was just one of many developments announced by the companies on Thursday.
Metropolitan Mortgage and Summit Securities both announced they've received informal inquiries from the Securities and Exchange Commission regarding their prior disclosures of their loan portfolios and other financial information. That's on the heels of an action taken Tuesday, when a Tacoma law firm filed a class-action lawsuit on behalf of investors against the two investment companies, claiming they "abused the trust of investors."
One of the plaintiffs' attorneys, Mike Shaffer of the law firm Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, said the "flight of the auditor is the first page of tragic stories of other companies that defrauded investors." The plaintiffs are seeking as much as $300 million from Metropolitan Mortgage and Summit Securities in the lawsuit, which was filed in U.S. District Court in Spokane.
On Thursday, Summit Securities fired Tom Turner as president of the company. And two Summit Securities subsidiaries -- Old Standard Life Insurance Co. and Old West Annuity & Life Insurance Co. -- also fired Turner as vice president of their respective companies.
At Metropolitan Mortgage, company officials said Ernst & Young auditors singled out accounting procedures involving one real estate transaction -- valued at between $10 million and $14 million -- and Metropolitan's recognition of gain from its sale. And at Western United, the auditors flagged one of that company's real estate transactions valued at between $8 million and $12 million. Both companies said that as a result of a review of those transactions, other transactions will also be reviewed.
PricewaterhouseCoopers may be obliged to withdraw some or all of its previously audited reports if an ongoing Securities and Exchange Commission investigation raises issues or concerns with past results, Mamma.com also said.