The 24-year-old Hollander could hardly believe the senior lawyers' plush offices, with window views of the White House and expensive antiques on the bookshelves. And he was entertained by the sight of Vice President Dan Quayle eating lunch on the porch of the adjacent Executive Office Building.
A superb student who had gone on to earn prestigious postgraduate degrees in economics and banking after law school, Hollander had been selected by the FDIC from hundreds of applicants to be one of only four "honors attorneys"--rising stars on a fast track toward the top.
In the late fall of 1989, Hollander was working in the section of the legal division that determines whether directors and officers of failed savings and loan associations can be sued to recover losses.
When he was assigned to the case of Southwest Savings and Loan, a recently failed thrift in Phoenix, Arizona, he came across a memo that would launch a series of events that ended up changing his life.
The memo had been written several months before by an FDIC investigator named Kenneth Webb, who said he was prevented from investigating the directors of Southwest Savings. Webb claimed to have been turned away by Anthony Scalzi, the FDIC agent in charge of the failed thrift.
Scalzi refused to let the investigator conduct routine interviews of the directors, Webb said. Webb had managed to dig up a few federal bank examination reports saying that since 1982, Southwest directors had made imprudent loans and questionable investments. The most questionable investment of all was a $30 million project in Phoenix called the Camelback Esplanade, whose lead developer was J. Fife Symington III. The future Arizona governor had been a director of Southwest Savings at the time of the deal.
According to a 1984 report from the Federal Home Loan Bank Board, the directors of Southwest Savings twice violated banking law with the Esplanade deal.
Bank examiners wrote that the thrift failed to get written approval before entering into the transaction with Symington. The report also alleged that the thrift failed to obtain "a formal appraisal prior to purchase."
What was unusual about Southwest Savings, wrote Webb, was that the directors were personally insured by the owner of Southwest Savings, billionaire Daniel Ludwig. If the government could prove in court that the directors had been negligent in the way they handled the thrift, Webb reasoned, then Ludwig--not the taxpayers--would have to pay for the bailout of Southwest.
And yet FDIC agent Scalzi, according to Webb, refused to let Webb interview the directors.
And when Webb asked his supervisor in California what to do about Southwest, Webb said, the supervisor said to "sit on it."
Hollander told Webb to restart his probe. Then Hollander made a formal request to officials within the FDIC for a full-fledged and immediate investigation of Southwest. But nothing happened. Hollander made his pitch to his superiors over and over again. They said they'd get back to him, but they didn't.
In April 1990, Hollander wrote a high-level FDIC lawyer and detailed the whole story again: Ludwig had personally insured the directors, there were indications of negligence, yet Webb's investigation had been thwarted and no one at the FDIC seemed interested in starting up an immediate investigation to see if a lawsuit could be filed.
The FDIC lawyer shouted at Hollander and took him off the Southwest case, says Hollander.
A few weeks later, Hollander says, he brought up the thwarted investigation to his direct supervisor, FDIC lawyer David Scholl. Hollander says he was told to "play ball" and "forget about Southwest" and not to go public with the Southwest case or he would "harm the FDIC."
Hollander recalls that Scholl told him that Daniel Ludwig was "extremely politically influential."
Hollander says he was upset by that, so he went back to his office and wrote Scholl a memo about ethics.
"You're taught professional ethics in law school, and it's part of the bar exam," Hollander tells New Times in an interview. "And then you are put in a position where you are ordered to do blatantly unethical acts by your superiors, and when you bring it up to problems.
Governor Symington has repeatedly denied any wrongdoing in connection with the Esplanade. He blames partisan politics for the fact that his name keeps coming up in connection with alleged violations of federal banking law.
In February 1991, three weeks before the Arizona gubernatorial run-off election, Symington angrily defended himself, Southwest and the Esplanade before the Senate's Antitrust, Monopolies and Business Rights Subcommittee.
Symington would not grant an interview to talk about the Esplanade and his 12-year directorship at Southwest. His press secretary Doug Cole defends the governor's actions regarding the thrift and the Esplanade project.
In particular, New Times questioned Cole about the allegations that Symington had broken the law by not getting permission from regulators before closing the Esplanade deal. Late last week, in response to the newspaper's queries, Cole released a May 1983 letter. In the letter, federal banking official David M. Serxner said no written approval was necessary for Southwest "to purchase and develop a parcel of land in Phoenix that was located by developer J. Fife Symington." The Serxner letter does not mention the Camelback Esplanade by name, but Cole says the letter "to the best of my knowledge" refers to the Esplanade.
The letter appears to conflict with a letter written one year later by Donald Lewis, then-president of Southwest, which acknowledges that Southwest failed to get permission before entering into the Camelback Esplanade joint venture.
Officials of the federal Resolution Trust Corporation, which now oversees the nation's failed thrifts, have said the Esplanade project resulted in a loss to Southwest of anywhere from $21 million to $52 million--the promised interest and income that were never earned by the 19-acre hotel-office-retail complex on 24th Street and Camelback.
That's apparently not how Symington sees things. Press secretary Cole says Southwest didn't lose money on the Esplanade. "The governor paid back $30 million," says Cole. He dismisses the RTC's loss estimates as abstract paper losses.
But paper losses are what some people, including federal investigators, say the nationwide savings and loan debacle is all about.
FIFE SYMINGTON joined the board of directors of the Southwest Savings and Loan Association in 1972, when he was 27 years old and a newcomer to Arizona.
The original stockholders of Southwest Savings, who had formed the thrift in 1958, were selling to a group of new stockholders. The deal was put together by prominent local attorney Dick Mallery.
Back in 1972, Fife Symington "was just another young fella in the real estate business," recalls Louis Laflin, another of the new directors. "Pretty much all of us on the board were in the real estate business."
Laflin says serving on the Southwest board "wasn't very exciting in those days" because the thrift, by law, was restricted mostly to investments in home mortgages, not commercial development.
In 1979, Laflin, Symington and the other stockholders sold Southwest Savings to Daniel Ludwig, a reclusive billionaire who is noted for telling an employee that a good "deal" is more satisfying than a sexual climax. Ludwig also is famous for having a complete pulp factory towed from Japan to the Amazon. Ludwig is a friend of Ronald Reagan, whose administration wound up pressuring Congress to allow thrifts to participate in commercial real estate ventures.
Laflin and many of the other board members resigned after Ludwig bought the thrift. Only two of the board members who had joined in 1972 stayed on at Southwest: Fife Symington and prominent real estate broker Tom Fannin. Judging from federal documents, Southwest's troubles seemed to begin in 1982, when Donald Lewis was named president. Lewis had worked at Ludwig's Texas thrift. Lewis' loan manager was Myron Snow.
"Under the direction of Lewis and Snow, Southwest started an aggressive solicitation of higher risk loans, beginning in 1982," says a confidential FDIC memo written by an investigator in 1989. The memo suggested more examination of "appraisal practices from 1982 forward." (Both Lewis and Snow declined interviews with New Times. So did a spokesman for Ludwig.)
In 1983, four years after Ludwig bought Southwest Savings, Congress deregulated the thrift industry, enabling savings and loan associations to invest depositors' money into potentially high Col 3, Depth P54.02 I9.03 correct" that directors failed to get permission to enter into the Esplanade deal from the district director of the Federal Home Loan Bank Board in San Francisco.
"Because of the necessity of a prompt response," Lewis told the examiners, "application [for the director's permission] could not be made until after consummation of the transaction." Lewis later told bank examiners that the directors never did get formal permission from the district director because Symington resigned from the board in early 1984.
Lewis said he did "have an informal conversation" with Jack Pullen, the chief supervisory agent of the Federal Home Loan Bank Board in San Francisco, "prior to entering into this venture." (In 1985, Pullen was named to the Southwest Savings board, according to records. He could not be reached for comment.)
Symington has repeatedly pointed out that he never voted on the Esplanade deal. He also says written approval was not required and insists that a formal appraisal was made before the deal was closed.
Symington's press secretary Doug Cole points to another document as evidence that Southwest Savings was playing by the rules. The document is the May 1983 letter to the thrift by federal official David M. Serxner that says "approval by the principal supervisory agent is not required."
Neither Lewis nor Serxner was available to comment upon why Lewis wrote a letter a year later acknowledging to federal regulators that their criticism about not obtaining permission was "technically correct."
The year 1985 was a landmark of sorts for Southwest Savings and its president Donald Lewis.
First, billionaire Daniel Ludwig agreed to personally insure the directors by agreeing to make up "reasonable losses" the directors of the thrift might incur if they were sued. Second, the Federal Home Loan Bank Board made Donald Lewis director of a failed California thrift. "It is a tribute to the professionalism of our entire management team," Lewis boasted in his annual report to the stockholders. "Southwest gives its customers absolute security."
Federal regulators had been hounding the thrift about the yet-to-be-built Esplanade and other projects, but ex-Southwest director Tom Fannin recalls that things were moving along Hirsch pleaded for Symington to agree to hire another developer to coordinate the project, because Hirsch and Symington were spending all their time pushing to have the property at 24th Street and Camelback rezoned.
"Fife," Hirsch wrote, "I realize that I could simply go along with everything as it is and probably receive millions in fees, and that by writing this letter my entire position may be in jeopardy. . . . I firmly believe that if the development process does not change drastically and immediately, Southwest may wind up with the most expensive white elephant in the world."
A few months later, Hirsch wrote to Symington: "The manner in which decisions are made is literally out of control." He also complained about how money was being spent: "It is unconscionable that in a project as large and intricate as this one, especially with all the development fees being paid, there is not a single internal employee of the developer devoted to the project on a full-time basis."
Hirsch said he couldn't understand why so much money was being spent on consultants. "On a very closely related matter, we have more consultants and prospective consultants than I can count. . . . I frankly feel that many of your responsibilities as the developer have been delegated inappropriately, to outside consultants. . . . The result is disorganization, confusion, delays and the expenditure of far too much in fees."
Symington was ignoring the Esplanade for a variety of other interests, including vacations, the way Hirsch saw it. "Since the project began," Hirsch wrote, "you have taken, and plan on continuing to take, significant vacations; you are continuing to be heavily involved in politics; you have increased your membership and activities on nonprofit local corporate boards such as Samcor and the Heard Museum; you have new responsibilities related to American Savings in Utah; and you are still actively seeking other major real estate projects. . . . You must recognize the magnitude of this project and act accordingly."
Symington aide Doug Cole described the Hirsch letters as simply part of the negotiation process between future partners Hirsch and Symington. "The governor," says Cole, "was trying to decide whether he was going to develop the project alone or whether he was going to let Hirsch be a partner. . . . Eventually they worked out their problems."
(Hirsch, who is still a partner in part of the Esplanade venture, refused comment to New Times.)
The project's hefty development fees have received criticism from other quarters. Metzenbaum's subcommittee and bank examiners pointed out that Symington received $2.2 million in development fees from 1984 to 1986. The project was so complex that even Southwest Savings' own auditors could not help but note the "disarray" of the Esplanade books.
"For a project of this size and volume of activity, formal accounting records did not exist," Southwest's internal auditor wrote in 1987.
Also in 1987, federal examiners wrote: "This asset [the Esplanade] is subject to special mention due to excessive risk and an appraisal which contains optimistic assumptions regarding rental rates in the Phoenix area and consequently fails to support the estimate value." In the same report, the federal examiners wrote that "the overall financial condition [of Southwest Savings] is of serious concern." The report says Southwest was "plagued by problems stemming, in part, from imprudent, unsafe and unsound lending practices, and management's failure to both recognize and effectively resolve these problems."
As Southwest plummeted toward insolvency in 1988, there was a major shakeup in the board room. Donald Lewis retired. Lewis earned $424,623 in salaries and bonuses during his last year at Southwest, according to examiners.
Frank Mirabella, a former employee of Daniel Ludwig's Texas thrift, succeeded Lewis. But things didn't get any better at Southwest, according to internal memos released by Metzenbaum's subcommittee.
Marc Barlow, Southwest's chief appraiser, wrote that he was pressured by various executives to write "unsafe and unsound" appraisals. Some executives wanted to use these appraisals to extend shaky loans, examiners have said. Others wanted to use them to sell properties for more than they were worth, according to Barlow's memos.
Barlow wrote that he was called into Mirabella's office and pressured to appraise a mansion for more than it was worth so that another officer could make a good sale. Barlow wrote that he refused to comply. The other officer told Barlow that she knew of an outside appraiser who would cooperate more. (Regulators refer to that practice as "appraisal shopping" and consider it at the very least to be unethical.) Barlow wrote: "I stated that the practice is misleading and deceptive and recommended that appraisals not be used for marketing tools. My comments were completely ignored."
Neither Barlow nor Mirabella would comment to New Times.
They were both asked to continue working at Southwest when the thrift was declared insolvent in February 1989 and FDIC agent Anthony Scalzi took over. (Southwest had fallen into the hands of the FDIC because at the time it became insolvent, Congress had not yet created the Office of Thrift Supervision or the Resolution Trust Corporation, the two agencies that now routinely handle failed thrifts.)
A month after Scalzi came to Phoenix to oversee the insolvent thrift, FDIC investigator Kenneth Webb came to town. Webb's job was to try to determine whether the thrift's directors had been negligent. If they had been, the federal agency could sue them to try to recover money.
Webb later testified that he was surprised when Scalzi wouldn't let him interview Southwest's officers and directors. "I told him I wanted to do interviews," Webb told the Senate subcommittee. "He said he did not want me to do interviews. . . . So I did not do any interviews."
Scalzi was promoted in April 1989 to head the FDIC's regional office in Denver. (A few months later, Congress created the RTC, and Frank Mirabella landed a good job: In 1990, he was assigned by the RTC to operate the failed thrift MeraBank.)
Scalzi later admitted to the senators that he told Webb that "it might be better if he did not conduct any interviews at this time."
"I wasn't trying to block anything," Scalzi testified.
Webb went back to his boss in California and asked for guidance.
"Sit on it," Webb recalls his boss told him.
Mark Hollander's reaction upon reading Webb's report was far different.
WAS THERE political pressure to squelch an investigation of Southwest Savings?
Metzenbaum's subcommitee said it didn't have enough evidence to decide whether the Southwest investigation was stalled for political reasons.
The subcommittee said the FDIC and RTC refused to provide key documents that might detail a political cover-up.
"No conclusion can be reached concerning the questions of political considerations," the subcommittee's final report noted. "Additional subcommittee investigation on this subject would require access to the documents witheld by the RTC and the FDIC."
FDIC Chairman L. William Seidman refused an interview with New Times. But Seidman, who was dean of the Arizona State University business school in 1982-86, did answer a few written questions. Through his spokesman Alan Whitney, Seidman denied that he had a social or business relationship with Fife Symington, Daniel Ludwig or any of the officers or directors of Southwest Savings. Asked whether he received any direct or indirect advice on the Southwest Savings case from either the White House or the Republican party, Seidman's response was "no."
Symington continues to take flak for his role in the Southwest Savings controversy. Last month, the Washington Post reported on a leaked RTC memo that accused Symington of "blatant self-dealing" with the Esplanade. Symington angrily attacked the reported memo as a "smear." Carroll J. Hubbard, the Republican chairman of the Subcommittee on General Oversight and Investigations of the House Banking Committee, said last month that his panel may hold a hearing on Symington's role in the Esplanade.
The proposed hearing was protested by Arizona's four Republican House members.
Will the RTC take action against Southwest Savings' former directors?
Two months ago, on August 13, Metzenbaum asked that question of Seidman, pointing out the RTC had announced that the failure of Southwest Savings would now cost the taxpayers an estimated $941.4 million.
On September 9, 1991, Seidman wrote back to Metzenbaum that the agency's investigation unit and legal division have completed their "investigation" and "analysis."
"A memorandum setting forth their recommendations has been referred to my office and to the General Counsel's office," Seidman wrote. "This memorandum raises specific legal issues that must be resolved before final decisions on all claims can be reached."
Seidman added: "Our decisions will be made in the very near future, and you will be notified promptly."
THESE DAYS, Mark Hollander works at a ski resort. Few people in the town where he lives know he was once a rising star in a major federal agency. He likes it that way. But it's hard for him not to think about his days in D.C.
He recalls, for instance, that homeless people in Washington would camp on the steps of the FDIC building and ask people going to work if the agency would give them any money. He recalls a notice taped in the FDIC elevators that advised employees to ignore the people on the steps.
Hollander notes that the cost of the bailout of Southwest has nearly quadrupled since he first brought the problem to the attention of his FDIC superiors.
"Think of it: a billion dollars," he says. "Think of how many homeless people that would house. Or how many free meals that would pay for."
What will Hollander do? He won't say whether he plans a wrongful-termination lawsuit against the FDIC, but if he does he may have a hard time winning. That's because the FDIC is exempt from whistleblower-protection regulations that govern most federal agencies.
He figures he'll go back to Washington or another large city and try lawyering again. Eventually.
It's not particularly gratifying, he says, that of the few people who know of his battle within the FDIC, some have told him they think he's a hero. "You have your dignity, pride and ethics, but you end up broke," he says. "The best way to describe the way I feel now is `extremely disillusioned.'"
Hollander says he was told to "play ball" and "forget about Southwest."
"It was my opinion that there was enough factual evidence to recover a very substantial amount that taxpayers would not have to pay, and there still is."
Could the taxpayers have been spared Southwest's billion-dollar bailout if only the FDIC had acted more promptly?
Beginning in 1982, examiners documented the thrift's joy ride toward insolvency and warned the directors about problems.
Symington has repeatedly denied any wrongdoing in connection with the Esplanade.
"I told him I wanted to do interviews. He said he did not want me to do interviews. . . . So I did not do any interviews."
"Sit on it," Webb recalls his boss told him.
"Think of it: a billion dollars," Hollander says.
