Governor Deposed

Forced to explain his creative accounting practices, the governor steps through the looking glass

Governor J. Fife Symington III was backed into a corner. Confronted with evidence that he deceived his lenders--and Arizona voters--about his record as a businessman, Symington gave an explanation that can only be described as delusional.

Shown documents that indicate he grossly inflated his net worth to obtain a $10 million loan in 1990, the governor abandoned all accepted accounting principles. He claimed his properties--and net worth--were impervious to forces decimating the Valley real estate market at that time. His properties not only failed to lose value, Symington swore they were worth what he hoped they would be worth years down the road.

The explanation defies credibility. But to admit he knew of his financial ruin at the same time he was claiming a net worth of $12 million would be to admit he had deceived federally insured lenders. That's a felony.

Symington's bizarre explanation came during a grueling, two-day-long deposition in his personal bankruptcy case. On May 13 and 14, Symington faced intense questioning from Michael Manning, a lawyer for a consortium of pension funds that Symington owes $12 million. That sworn deposition produced a seven-inch stack of testimony and exhibits, which were released to the public last week over Symington's objections.

The deposition provides rare and disturbing insight into the financial affairs of the governor.

"I didn't feel that the depressed market that we were in [in 1990] was going to affect my properties because of their location and quality," Symington testified.

According to the Symington school of real estate, the market is irrelevant. As real market prices collapsed in the late 1980s, he simply ignored the devaluations. Symington determined his equity by matching the imagined future valuations of his projects against his current debt, which was usually understated.

Under Symington's accounting scenario, a home purchased for $100,000 really isn't worth $100,000. Its collateral value is what one would expect it to be worth in, say, 20 years--perhaps $300,000. Symington would then take the imagined $300,000 figure and match it against current debt--say, $90,000--to come up with equity of $210,000.

The governor's explanations clearly stunned Manning, who responded that he had never heard of such methods to determine the market value of real estate.

Symington's reply: "There is no one way to value real estate."
The governor's appraisal techniques also baffle accountants and bankers.
"I can't think of an instance where we have ever seen anything like that," says Rob Boosman, Norwest Bank's business banking manager.

Phoenix certified public accountant John Flynn says Symington's creative valuations could present serious legal trouble.

"If it can be proved that he intentionally misstated financial statements for the purpose of making a speculative investment, then that's criminal," Flynn says.

(A federal grand jury is looking into that possibility.)
In his deposition, the governor repeatedly swore that this is how he determined his share of equity in his real estate partnerships when he submitted a personal financial statement to the pension funds. That statement claimed he had $15.3 million in real estate equity, and a net worth of $12 million.

As Symington explained to Manning, "The Symington share . . . is the long-term expectation that I would hope to get out of the projects, okay?"

The pension funds' loan provided long-term financing for Fife Symington's Mercado development in downtown Phoenix, and it came at a crucial time in his quest for the governorship. Despite Symington's persona in early 1990 as a millionaire developer who would run the state like a business, he was broke.

Records show that his tangible assets--$84,000 in savings and $240,000 in income from his development company and other interests--were offset by $5.1 million in personal debt.

Nearly all of Symington's reported $12 million in net worth came from his share of 17 real estate partnerships he managed. In a personal financial statement dated December 31, 1989, Symington claimed his share in those investments was worth $15.3 million.

But deposition exhibits reveal that nearly all of his real estate partnerships were worthless by then. Take away Symington's real estate holdings, and instead of a millionaire developer, you have a failed businessman who is $3 million in the hole.

His financial troubles were manifested in his gubernatorial campaign. Instead of injecting his own capital, Symington financed his campaign with $1.2 million provided by his mother and his wife, both of whom are independently wealthy.

As the campaign progressed, opponents began to question Symington's business acumen. He deflected the criticism with indignance and sweeping generalizations.

But the questions were justified.
Records released last week show that Symington's real estate business was collapsing around him in 1989 and 1990. Lenders were hounding him for delinquent loan payments, a default notice arrived in the mail, property taxes were going unpaid and vendors' bills were past due.

While Symington was campaigning for the governorship, his partnerships were seeking legal advice on bankruptcy and foreclosure options. One partner had so little faith in a project that he offered to give back his share for nothing.

But while he was masquerading as King Midas, Symington was keenly aware that his projects were being devastated by the plunging market.

On February 1, 1990, Symington acknowledged in a letter to an investment banker that the Phoenix real estate market had collapsed and that Symington needed to "modify" the repayment terms on a loan.

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