By Monica Alonzo
By Stephen Lemons
By Jason P. Woodbury
By Dulce Paloma Baltazar Pedraza
By Ray Stern
By Pete Kotz
By Monica Alonzo
By New Times
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.
If they had known of the governor's true net worth, the pension funds could have opted out, Manning says.
"If the conditions were not satisfied, including [Symington's] obligation to provide updated, true and accurate financial statements to the Pension Funds showing all material changes, then the Pension Funds had the absolute right to terminate the Commitment and not fund the loan," Manning's pleading states.
The more documentation Manning can gather that supports his contention that Symington filed a false financial statement, the greater the likelihood that the pension funds can successfully challenge Symington's attempt to erase his debts.
The pension funds have not yet filed aclaim seeking to prevent the governor's $11.5 million debt to them from being discharged, but all indications are they will do so.
The veracity of Symington's 1990 financial statement is just one area of concern for the pension funds. A review of Symington's financial records from that time period, and earlier, is expected to provide a wealth of information concerning other questionable activities by Symington.
Manning has informed Symington that thepension funds "have serious concern" that Symington did much more improperly than submitting a false financial statement, which is a federal felony. (A federal grand jury already is investigating Symington's finances.)
Manning wants to examine Symington's financial records to explore "suspicions" that Symington's "fraud" also included: fraudulent transfers of money from Symington to others, including his spouse, relatives and friends; unlawful manipulation of trust-fund assets; and the commingling of Symington's sole and separate property with his wife's and his mother's assets.
Bankruptcy Court Chief Judge George Nielsen has set a February 27 hearing on Symington's motion to prevent the pension funds from reviewing his financial records related to the 1990 financial statement.
During that hearing, Nielsen also will consider efforts by Ann Symington to keep the pension funds from reviewing her financial records. Ann Symington has objected to releasing any of her financial records prior to 1991. The Symingtons say they have maintained "sole and separate" estates since they were married. Ann Symington, an heir to the Olin Chemical fortune, has not filed for bankruptcy.
The governor lost a round before Nielsen when he unsuccessfully sought to prevent the pension funds from subpoenaing bank records related to several trust funds in which the governor is a beneficiary. The pension funds want to determine whether Symington's trust funds could be used to repay at least a portion of his $11.5 million debt. The governor claims the trust funds are exempt from the bankruptcy proceedings.
Nielsen not only ruled against the governor, he ordered Symington to pay the pension funds' legal costs, a clear signal that Nielsen considered Symington's attempt to block the subpoena improper.
Manning issued a subpoena to Mellon National Bank in Pittsburgh last month, seeking extensive records concerning four trust funds managed by the bank on Symington's behalf.
The bank is ignoring the subpoena, Manning says, setting up yet another costly courtroom showdown.
While the pension funds have taken the lead in seeking Symington's financial records, the trustee overseeing Symington's estate is also seeking records. Among those records are income-tax returns, which Symington has yet to produce.
Terry Dake, the attorney representing the trustee, says he supports the pension funds' efforts to gather additional Symington financial records.
"If you want the benefits of a bankruptcy discharge, then there are certain burdens that go along with that," Dake says of Symington's obligations. "Those burdens are to supply certain financial information."
Dake says Symington's financial records dating back to 1990 and earlier should be available for creditors to review.
"I think you are very hard-pressed to draw a line in the sand saying you can't go back more than four years," he says.