A class action has been filed against investment company Metropolitan Investment Securities Company, Inc., Summit Securities, Inc., and a related company and certain of their officers and directors by investors who purchased the companies’ debentures, stock, or investment certificates between January 1, 2001, and December 15, 2003. The actions claim that the defendants violated federal securities laws by issuing a series of fraudulent misrepresentations to them over this time period, then ceasing operations without returning their money. The investors seek to recover unspecified compensatory and punitive damages.

The action alleges that the businesses principle business is to market and sell securities issued by Metropolitan. According to their SEC filings, Metropolitan and Summit relied entirely upon fund generated by Metropolitan through the sale of their securities in order to satisfy payment of debenture interest, maturing debentures, investment certificates, and to pay preferred stock dividends.

The securities were allegedly marketed as a safe, conservative investment suited for investors who had a low risk tolerance and who identified preservation of capital as a principle investment objective. The action alleges that, contrary to these representations, the securities carried a significant degree of risk, and were not a liquid investment.

During 2003, the National Association of Securities Dealers (NASD) conducted an investigation of Metropolitan and its marketing practices. In October 2003, Metropolitan entered into a letter oc acceptance, waiver, and consent with the NASD which contained a number of findings. Among other things, Metropolitan admitted that it had violated numerous NASD conduct rules by engaging in fraudulent, deceptive, and unethical practives relating to the sale of securities by Metropolitan and Summit. As a result of the findings, MIS agreed to pay $500,000 in fines, give $2,882,000 in restitution to specific customers, and establish a five-year special escrow account and maintain a minimum end-of-quarter balance in the amount of $1,000,000. The purpose of the escrow account was to compensate persons who purchased the securities between January 1, 2001, to March 31, 2003.

Between April 1 and December 15, 2003, Metropolitan allegedly continued to market and sell securities in the manner that had gotten it in trouble with the NASD in the first place. Furthermore, the companies allegedly disseminated false financial reports to the investing public during that period. Effective December 15, 2003, Metropolitan ceased operations and customer transactions. On December 26, 2003, Metropolitan and Summit suspended all payments, including interest and principal, on all Metropolitan debentures and all Summit investment certificates and notes. As a result, the defendants have defaulted on their obligations to their investors.