By New Times
By Connor Radnovich
By Robrt L. Pela and Amy Silverman
By Ray Stern
By Keegan Hamilton
By Matthew Hendley
By Monica Alonzo
By Monica Alonzo
Construction was stalled until June 1988 by First Interstate Bank. The bank refused to issue a $10 million construction loan until the U.S. Department of Housing and Urban Development approved a $2.7 million loan from the City of Phoenix to Symington's Mercado Developers Limited Partnership, public records show. The city loan needed federal approval because the money came from a HUD grant.
By the time construction began in the summer of 1988, the Arizona real estate market was eroding. Office vacancies were soaring, and the impact of the 1986 Tax Reform Act, which changed fundamental rules for real estate investors, was beginning to be felt. By year's end, Phoenix banks and thrifts were posting huge losses.
The collapsing market soon exposed Miller's poor investment choices. An internal audit by the union pension funds discovered massive problems, and Miller was forced out as investment manager in November 1988. Miller's departure would prove disastrous for Symington.
Miller's duties were taken over by McMorgan & Company, a San Francisco money-management firm that specializes in handling pension fund assets.
The more McMorgan investigators looked into Miller's handling of nearly $1 billion in pension fund assets, the more problems they found. The biggest crisis involved nearly $250 million of pension fund assets Miller had invested, or had committed to be invested, in poorly performing Arizona real estate.
In April 1989, the pension funds filed a federal lawsuit against Miller in U.S. District Court in Phoenix, alleging he had engaged in racketeering, violated securities laws and received illegal compensation when he invested union pension fund assets in Arizona real estate projects.
Among other things, the pension funds alleged that Miller violated federal law by accepting payments for arranging loans. The Employee Retirement Income Security Act of 1975 prohibits investment managers from receiving or conspiring to receive any consideration from any party in connection with a transaction involving the assets of a pension plan.
Miller's receipt of a $10,000 loan-processing fee from Symington's Mercado Developers Limited Partnership wasn't included in the pension funds' initial lawsuit against Miller. But an allegation that the $10,000 fee violated federal law was included when the pension fund amended its legal complaint in June 1991.
The civil suit was the beginning of a dreadful series of events for Miller. The civil allegations soon attracted the attention of the U.S. Attorney, who began an investigation that led to a federal grand jury indictment on November 17, 1992.
The indictment alleged that Dolgaard received more than $6 million in fees for bringing scores of real estate projects to Miller, who would then approve pension fund loans. In return, the indictment alleged, Dolgaard paid Miller more than $600,000.
Trial testimony revealed that Miller also had taken $107,000 from a joint savings account he had with an elderly client. In a desperate attempt to repay the money to the client after it was discovered missing, Miller obtained $115,000 from a company controlled by Dolgaard.
The government alleged the October 15, 1985, payment from Dolgaard to Miller was made with "the intent to influence Miller"--and the union pension fund assets Miller controlled.
A jury convicted Dolgaard and Miller of three counts each of violating federal pension fund laws. Two of the counts were related to unlawful payments to influence the operations of a pension fund. Dolgaard and Miller were sentenced to 37 months in federal prison on March 28, 1994.
Assistant U.S. Attorney Joelyn D. Marlowe says the government did not review the $10,000 payment from Symington's partnership to Miller because the government's case was narrowly focused on the Miller-Dolgaard relationship.
In addition, the payments between Miller and Dolgaard were kept secret, Marlowe says, while the payment between Symington's partnership and Miller was recorded in loan commitment papers. The Symington partnership's payment to Miller was relegated to obscurity before New Times began investigation of the Symington bankruptcy.
The pension funds continued their case in civil court against Dolgaard, Miller and Miller's employer, Mitchell Hutchins Institutional Investors Inc. The suit ballooned into a massive case, involving numerous counterclaims, that was finally settled in November 1994.
The union pension fund was the big winner in the settlement, collecting $93.3 million from a series of defendants, including Chemical Bank and Paine Webber Group Inc., which were the past and current owners of Mitchell Hutchins. The two companies paid a total of $80 million.
Other losers were the union pension fund trustees, who agreed to pay $9 million to settle claims, brought by the U.S. Department of Labor, that they failed to properly monitor Miller's investments.
Miller's downfall directly affected another prominent figure--Phoenix developer Fife Symington.
Miller did not require Symington to sign a personal guarantee to repay the $11.1 million pension fund loan commitment when the two men struck their deal in October 1987. But by June 1990, when it was time for the pension funds to actually issue the loan, Miller was long gone.
The new pension fund money manager, McMorgan & Company, refused to issue the loan unless Symington signed a personal guarantee, McMorgan officials say.
By the summer of 1990, the Phoenix real estate market was a shambles. Building the Mercado had cost more than anticipated; the pension fund loan would not be enough to pay off First Interstate Bank's interim construction loan. There was a $1 million shortfall.