WASHINGTON -- Matthews & Wright Group Inc., the former broker-dealer that underwrote dozens of questionable municipal bond deals in the mid-1980s, reported a net worth of about $8.7 million as of June 30, down from $10.5 million for the first quarter and $11.1 million last year.
The firm's eroding financial condition was detailed in its most recent quarterly 10-Q reported filed with the Securities and Exchange Commission.
Analysts said the slide in the firm's net worth is likely to continue and could worsen if issuers and bondholders -- who have filed securities and tax law charges against the firm -- win their cases.
"The problem with Matthews & Wright is the outstanding lawsuits," said Perrin Long, director of equity research at First of Michigan Corp. who closely follows the securities industry. "Nobody knows which way those suits will go. Any awards againt the firm could wipe out its stockholders' equity."
Matthews & Wright reported total assets of $10.5 million and total liabilities of $1.8 million, resulting in $8.7 million of stockholders' equity as of June 30.
The company says in the report that its financial status is uncertain because of the pending litigation. "The company is a defendant in various lawsuits. Although some settlements have been reached, an unfavorable result in those remaining could have a significant adverse effect upon the company's resources," the report says.
At least eight lawsuits over municipal bond deals are currently pending against Matthews & Wright. All but one of these has been transferred to the U.S. District Court for the Eastern District of Pennsylvania, where they have been put on hold by Judge Daniel H. Huyett 3d.
A lawsuit brought against Matthews & Wright earlier this year by Clearfield, Utah, and a developer, Residential Mortgage Inc., over a $6.8 million black-box housing bond deal that was closed without cash in 1985, has been conditionally transferred to the Pennsylvania court from a federal district court in Utah.
The Judicial Panel on Multidistrict Litigation in Washington approved the conditional transfer. Lawyers representing Clearfield and Residential Mortgage, however, plan to argue against it at a hearing before the panel later this month.
The slide in Matthews & Wright's net worth bodes ill for issuers and bondholders hoping Matthews & Wright would contribute toward the settlements of the tax disputes that have arisen over bond deals it underwrote.
During the past eight months, the Internal Revenue Service has declared the interest earnings of at least 10 bond issues underwritten by Matthews & Wright to be taxable, but it has told the issuers it will not tax the bondholders if the issuers pay the federal government all or part of the arbitrage profits from the deals.
Some of those issuers, like Clearfield, are hoping Matthews & Wright and the other firms that participated in these deals will help make payments toward settlements with the IRS.
Matthews & Wright reported that it has been authorized by its board of directors to make open market purchases of up to 500,000 shares of its outstanding common stock over the next several months. At its annual stockholders meeting on June 5, Roger J. Burns and Charles W. Currie were re-elected as directors for three-year terms. Other directors of the firm are George W. Benoit, Joseph G. Anastasi, Alan D. Aschner, and James J. Murtha.