Trillium indicted on fraud charges
Trillium Corporation and David Syre are facing fraud allegations as part of the U.S. Securities and Exchange Commission’s legal pursuit of principals and business associates of a Spokane real estate company whose 2004 bankruptcy cost Northwest investors hundreds of millions in lost investments.
On September 22 the Securities and Exchange Commission (SEC) filed a civil complaint in U.S. district court alleging that former executives of Metropolitan Mortgage and Security conspired with Syre and a Trillium creditor to set up a bogus land deal that would allow Metropolitan to report a $10 million profit as part of a blanket of fictional earnings covering up the company’s downward financial spiral.
In a September 26 release the SEC claims that “Metropolitan and Trillium agreed to make it appear that the property was being purchased by an unrelated third party, Jeff Properties - in reality a shell company set up by an 18-year-old high school student, the son of a Trillium creditor, in exchange for a motorcycle.”
The deal was known at Metropolitan as a “rabbit,” according to the complaint. After reporting a $7.6 million loss in 2000 and an $8.9 million loss in 2001, company executives worried that a third year of losses would be a hit on the company’s stock and decided to “pull a rabbit from the hat” by setting up real estate deals in which they sold a property but also completely financed the purchase. The complaint alleges those named knew or should have known that under Generally Accepted Accounting Principles “a seller may not recognize an immediate gain on the sale of undeveloped real estate unless the buyer makes an independent initial investment of at least 20% of the purchase price.” By being the lender and the seller in the deal, it continues, Metropolitan was able to “falsely report pre-tax net income for the year of $6.1 million, rather than a loss.”
Syre and Sandy knowingly helped Metropolitan report the false profits and mislead auditors, the complaint alleges. In September 2002 Metropolitan’s executives reported to Syre that their auditors said they could not post a gain if Trillium bought two properties from Metropolitan using money that Metropolitan and a subsidiary lent to Trillium, the deal was restructured. Working with an unnamed Trillium vice-president and Sandy, Metropolitan CEO Thomas Turner allegedly came up with a plan to circumvent the auditors by setting up a company, Jeff Properties, after Sandy’s son who remained its only shareholder. Metropolitan loaned 80 percent for the funds to buy the properties while Trillium loaned the rest, using funds it had borrowed from a Metropolitan subsidiary. The complaint alleges that while in telephone conversations all parties acknowledged the properties and associated debt would transfer to Trillium in early 2003 after Metropolitan had filed its earnings statements, no one told auditors that.
Metropolitan executives named in the complaint could be barred from serving as officers or directors of public companies and Turner may face criminal charges, but the parties are only looking at unspecified monetary penalties if a jury finds them guilty.
Trillium vice-president for administration David Blaine issued a statement defending the company’s actions. The city of Blaine also maintained that they did not know auditors were not told the details of the transaction, and assumed the transaction had the blessing of a reputed auditing company. “We are confident that the judicial process will confirm that Trillium is a victim of, not a participant in, Metropolitan’s and its insiders’ misdeeds,” he said.