Making Accuracy "Irrelevant"

The governor's lawyer explains when it's okay to tell a lender you're worth millions when you're actually broke

Although he swore in U.S. Bankruptcy Court to reveal personal financial records to creditors, Governor J. Fife Symington III is taking elaborate steps to avoid disclosing crucial information.

Rather than open his records for review, Symington is trying to convince the court that a 1990 financial statement he used to get a $10 million loan is irrelevant. And, Symington claims, since the statement is irrelevant, so, too, are thousands of financial documents related to it.

Instead, Symington claims that the lender--a consortium of union pension funds--made an "irrevocable" commitment to provide the loan in 1987. Therefore, Symington's attorney says, any representations of net worth he made to the pension funds after 1987 are meaningless.

Conspicuously absent from Symington's court pleadings is any mention that when he got that loan commitment in 1987, Symington paid a $10,000 kickback to a now-imprisoned pension fund manager.

Symington's legal strategy--which many court observers characterize as desperate--is laid out in a series of documents filed in U.S. Bankruptcy Court last month by his attorneys. The governor filed bankruptcy last September, claiming $65,000 in assets and $25 million in liabilities. The pension funds--owed $11.5 million--are vigorously opposing the governor's attempt to wipe clean his mountain of debt.

One avenue of inquiry being employed by pension fund attorney Michael Manning is the May 1990 financial statement Symington submitted just before the pension funds issued a $10 million loan to finance Symington's Mercado minimall, a loan that Symington personally guaranteed to repay.

The governor defaulted on the loan after the Mercado failed. The pension funds won an $11.5 million judgment against the governor last summer. Rather than pay the judgment, Symington filed for Chapter 7 bankruptcy protection to liquidate his debts.

Manning is focusing on the 1990 financial statement, in which he already has found evidence that Symington misrepresented hisfinancial condition to the pension funds at the time the $10 million loan was funded.

Symington's 1990 financial statement claimed a net worth of $11.9 million, including $791,000 in "readily marketable securities." During his October 31 sworn debtor's examination, the governor admitted the securities were not under his direct control, but instead were part of a trust fund in which he could not make direct investment decisions.

Manning repeatedly pressed Symington for more information about his investments during the October debtor's examination. Symington deflected the questions, saying he couldn't remember or that he couldn't respond without reviewing his records.

Now, Manning wants to review those records.
To head him off, Symington attorney Robert Shull is claiming the pension funds had not relied on Symington's 1990 financial statement when they committed to fund the $10 million loan. Therefore, Shull says, anything related to Symington's financial condition at that time should not be subject to public review.

"If the pension funds cannot establish the crucial element of reliance on the 1990 financial statement, then the separate issue of the accuracy of the financial statement is irrelevant," Shull states in court pleadings.

Shull claims the pension funds were irrevocably committed to make the loan to Symington in 1990 because of an agreement signed in 1987 between Symington and the former pension fund investment manager.

"The pension funds made their irrevocable commitment to provide permanent financing for the Mercado project in October 1987," Shull states.

The "irrevocable commitment" was signed by Symington and William E. Miller, the pension funds' former investment manager.

Shull fails to mention that Symington paid Miller's company, MH Investment Counsel, a $10,000 loan-processing fee--a fee the pension funds later alleged in a federal lawsuit against Miller constituted an illegal kickback.

Symington's $10,000 payment to MH Investment Counsel was later repaid to the pension funds after PaineWebber Inc., which owned MH Investment Counsel, determined the payment violated federal pension fund laws, federal court records reveal.

Miller was later convicted of accepting similar illegal "loan processing fees" and is now serving a 39-month sentence in a federal prison in Nevada.

Symington clearly wants to distance himself from the $10,000 payment to Miller's company. After New Times disclosed the payment ("Paying the Piper," October 5, 1995), the governor issued a written statement denying that Miller was the investment adviser for the pension funds--a statement refuted by numerous court records and by documents signed by Symington.

The pension funds don't dispute that Miller and Symington signed a loan-commitment letter in October 1987. But Manning points out that the commitment letter required Symington "to provide true and accurate financial statements in 1987 and 1990."

By the time the loan was made in 1990, Miller had been replaced as pension fund manager by McMorgan & Co., which had grown wary of the agreement Miller had signed. McMorgan & Co.'s internal memos show the new managers had hoped Symington would find another funding source for the Mercado.

"The bottom line is that it would be very helpful if the Mercado commitment didn't have to be funded," states a May 30, 1990, McMorgan & Co. memo.

"If Symington finds other financing, just say, 'Hooray,'" the memo continues.

At the same time, McMorgan believed it had a legal commitment to fund the loan provided Symington met his obligations under the 1987 loan agreement with Miller. One of the obligations spelled out in the commitment letter required Symington to submit truthful financial statements.

Manning argues in court pleadings that Symington's May 1990 financial statement was submitted solely to satisfy the preconditions before the $10 million loan could be funded. At the time, the pension funds had no reason to believe Symington was grossly inflating his net worth, Manning says.

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