|Thursday, December 11, 2003
Nancy A. Condon
NASD Sanctions Metropolitan Investment Securities for Abusive Sales Practices and Supervisory Violations
Washington, DC – NASD announced today that it has sanctioned Metropolitan Investment Securities, Inc. of Spokane, WA, for engaging in abusive sales practices and having inadequate supervisory procedures. Metropolitan was censured, fined $500,000, ordered to make restitution totaling more than $2.8 million to investors, and ordered to maintain a special escrow account for Metropolitan investors' claims at a level of $1 million for a five-year period. Metropolitan was also required to revise its supervisory procedures to prevent recurrence of the sales practice abuses.
NASD found that from January 2001 through March 2003, Metropolitan engaged in fraudulent and unethical sales practices in connection with the sale of debentures, investment certificates and preferred stock issued by two affiliated companies, Metropolitan Mortgage & Securities Co., Inc. and Summit Securities, Inc. Metropolitan and the affiliated companies were controlled by a single individual and shared the same offices in Spokane. Metropolitan raised millions of dollars for these affiliate companies through representatives who made unfair and unbalanced sales presentations to investors. Its registered representatives downplayed important investment risk factors, including the risk of loss due to the companies' insufficient earnings, subordination of the securities to other obligations and absence of an established market for the preferred stock. The failure to fully explain these risk factors to investors gave the false impression that the investments were safe.
Many Metropolitan customers with very conservative investment objectives or a low risk tolerance invested a significant percentage of their net worth in the securities of the affiliated companies. Metropolitan representatives dealt fraudulently and unfairly with these customers in that the representatives had no reasonable basis for recommending the securities to them. These and other investors were retired or approaching retirement. As to other investors who had a moderate risk tolerance, the representatives made unsuitable recommendations to them in light of these investors' financial situation, investment objectives and needs.
To facilitate sales of the investments, Metropolitan representatives also employed misleading advertising and sales literature that misrepresented or omitted the risks associated with the investments.
Metropolitan also had an inadequate supervisory system that failed to prevent and detect this pattern of deceptive sales practices. The firm did not have sufficient resources to establish an effective compliance program and relied on various departments of the affiliated companies for many traditional broker-dealer operations. Metropolitan management was often unable or unwilling to take effective supervisory action in the face of red flags indicating abusive sales practices by the registered representatives. In settling this matter, Metropolitan neither admitted nor denied the allegations, but consented to the entry of findings. NASD's investigation is ongoing and may result in the filing of additional disciplinary actions.
Investors can obtain more information and the disciplinary record of any NASD-registered broker or brokerage firm by calling NASD's BrokerCheck. NASD makes available BrokerCheck at no charge to the public. In 2002, members of the public used this service to conduct more than 2.5 million searches for existing brokers or firms and requested almost 200,000 reports in cases where disclosable information existed on a broker or firm. Investors can continue to access this service by calling (800) 289-9999.
NASD is the leading private-sector provider of financial regulatory services, dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. NASD touches virtually every aspect of the securities business - from registering and educating all industry participants, to examining securities firms, enforcing both NASD rules and the federal securities laws, and administering the largest dispute resolution forum for investors and member firms. For more information, please visit our Web site at www.nasd.com.