Canyon Crest: New Owner, Old Questions, Part 4

Old Standard Life Insurance Company, the new owner of the Canyon Crest site on the Brea side of Carbon Canyon, was owned by Summit Group Holding, Inc., which was owned by National Summit Corporation.  The Summit companies, in turn, were owned by Metropolitan Mortgage and Securities.  The dominant figure in these businesses was C. Paul Sandifur, Jr., who parlayed his role in Metropolitan into a highly complex network of companies that, by the late 1990s, had moved, generally, from residential mortgage loan origination to commercial lending and property development.  At the same time, these companies and their subsidiaries engaged in increasingly risky schemes to attract elderly, middle-class, and "unsophisticated" investors to products that promised incredible returns, but actually evaporated most of the savings of the vasy majority of these investors.  Because of bankruptcy proceedings, which were finalized in early 2004, there are now the Summit Creditors' Trust and the Metropolitan Creditors' Trust, which were formed to collect whatever was possible of the assets of the Summit and Metropolitan firms.  It appears that creditors will not receive anything more than between 5 and 15 CENTS on the dollar from whatever is salvaged from the liquidation of these assets.  One of those holdings?  Canyon Crest.

As was stated previously, Metropolitan was the original company, created in 1953 by Sandifur's father and uncle.  The company had a relatively provincial operation in the Spokane, Washington area for almost thirty years before Sandifur pere recruited Sandifur fils to join the organization in the late 1970s.  Business boomed during the Reagan years.  As the 1990s dawned, the younger Sandifur assumed control of the company, taking three-quarters of the stock, and creating a dizzying array of companies to expand his empire.  As a class-action lawsuit later expressed it, this "byzantine labyrinth of corporations" was "a vertically integrated series of companies involving the issuance, marketing and sales of securities to the general public for the purpose of generating funds he could control."  The reason?  "To originate, acquire, hold and sell receivables consisting primarily of real estate loans, contracts, promissory notes, lottery prizes and structured securities."

Another class-action suit noted, however, that Sandifur's array of business entities needed new investments to pay the principal and interest owed to existing investors.  If this sounds like a Ponzi scheme, read on:  "The risk that investors could lose their principal was exacerbated by preemption of the Washington State Securities Division from regulation of Metro's securities officers."  In January 2000, the Pacific Stock Exchange began listing Metro's notes and the company's preferred stock was approved for sale on the American Stock Exchange the following year.

From September 1999 to December 2002, the company's issuance of debentures climed from $199 million to over $300 million.  A debenture is an unsecured corporate bond used for the purposes of raising capital.  As unsecured, however, the instrument does not have a line of income, a piece (or pieces) of property, or equipment to guarantee repayment when it reaches maturity.

In other words, the advantage for Metro and its subsidiaries and sister firms is that issuing debentures simply meant that there was no need to have assets or income to guarantee against default in paying back the principal.  The problem for investors was that there was nothing to guarantee paying them back in the case of defaulted debentures; that is, until the companies went into bankruptcy and the two creditors' trusts were created.  Even then, as noted above, the recovery of investors' monies have been and will be marginal at best.

As further expressed in one of the class actions against Metro and Summit:  they "had structurally inherent conflicts of interest that resulted in transactions between Metropolian and Summit that were not honest, fair or conducted in good faith, resulting in repeated and continuous breaches of fiduciary duties."

Next: some stellar and stunning examples of the shell game played by Sandifur fils, his company executives and salespersons in the defrauding of thousands of people, mainly elderly, of hundreds of millions of dollars.