Governor Deposed

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

"Your insights and observations on how the various lending organizations view the Phoenix market clearly indicate the extent of the market cataclysm we are experiencing," Symington wrote.

Symington also mentioned that at least one of his properties had faltered in the market. "And, unfortunately," he wrote, "the 1515 East Missouri building is no exception to this morass."

The Missouri Street office complex wasn't unique.
Symington's partnerships were struggling across the board--including his grand marquee project, the Camelback Esplanade. No project was as important to Symington's financial survival as the Esplanade. That development--two office towers and a hotel--was the foundation of his claim of financial wizardry.

Symington's December 31, 1989, personal financial statement to the pension funds showed that nearly half of his $15 million in real estate equity was from the Esplanade.

Yet when Symington computed his financial statement for 1989, he knew the first Esplanade office tower was losing millions of dollars. Even worse, Symington's financial stake in the project was imperiled because his source of capital to cover mounting operating losses--Southwest Savings & Loan--had been taken over by the federal regulators.

"This unexpected problem truly creates a financial hardship," Symington wrote to a co-investor in the project, Shimizu America Corporation, on October 19, 1989.

Symington also had difficulty leasing space in the office building. To boost occupancy, he pulled a major tenant out of one of his smaller office complexes and installed it in the Esplanade. The tenant's departure sent the smaller project into a tailspin. Symington's solution to the crisis was simply to report on his financial statement that the firm was occupying both properties at the same time.

Despite Symington's maneuvering, the Esplanade's problems became apparent in January 1990, when Shimizu ordered its own appraisal for the first office tower. In 1987, a Symington-commissioned appraisal had put the building's worth at $67.5 million. But the 1990 Shimizu appraisal--conducted by the same firm that did the 1987 review--said it was only worth $44.5 million.

"We disagreed vehemently with the assumptions in the [1990] appraisal," Symington said in his deposition.

He had no choice but to disagree. There was a $42 million loan against the building's appraised value of $44.5 million, meaning the building's equity was only $2.5 million.

Despite the gloomy appraisal, Symington never changed the value of his share of the project. His 10 percent share of the first office tower translated into a mere $250,000--far less than the $2.65 million equity he had claimed on his December 31, 1989, statement.

Symington even maintained he had $2.2 million in equity in the second Esplanade office tower, a building that was still under construction in a grossly overbuilt market.

In an attempt to prove that Fife Symington deceived the pension funds, attorney Michael Manning has lived up to his reputation as an expert at the forensics of fraud.

Like an archaeologist, Manning has methodically excavated the stratified ruins of Symington's partnerships. What he has sifted out, document by document, is evidence that Symington's real estate empire had collapsed even as he campaigned for governor, and before he obtained the pension fund loan.

Manning's questions during the deposition took the governor back to 1987, when financing for the Mercado, an office and retail development in downtown Phoenix, was being arranged. In October of that year, Symington struck a deal that called for First Interstate Bank to advance a Symington partnership a $10 million construction loan--a loan Symington personally guaranteed to repay.

The 1987 agreement also stipulated that once the project was built, the First Interstate construction loan would be replaced by a $10 million, long-term loan provided by the union pension funds. Once again, Symington personally guaranteed repayment.

Symington swung the 1987 agreement only after several other attempts to obtain Mercado financing failed. And he had to scramble to put together a deal so he wouldn't lose millions of dollars in concessions the City of Phoenix offered for the Mercado.

But a deal was finally struck between Symington and the union pension funds' investment adviser, William E. Miller. Miller committed the pension funds to provide the long-term loan for the Mercado. As part of the agreement, Symington paid Miller's company a $10,000 "loan processing fee," essentially a kickback. (The $10,000 kickback was eventually repaid to the union pension funds after a federal civil suit was filed alleging the payment violated federal law. Miller, meanwhile, was convicted for taking kickbacks on other loans and sentenced to 37 months in federal prison.)

The agreement with the pension funds was enough to get the Mercado rolling. But there were some catches. The funds' loan commitment was good only until June 30, 1990, and the agreement also called for Symington to submit an updated financial statement.

By the spring of 1990, construction of the Mercado was complete and it was time for Symington's partnership to obtain the pension fund financing.

By this time, the pension funds were not enthusiastic about making the loan. Miller had been fired, and the pension funds' new money managers--McMorgan & Company--knew the Phoenix market was ailing. Documents show that McMorgan & Company privately hoped Symington would quietly go away.

But Manning says his clients also understood they were obliged to make the loan--provided Symington's financial statements showed he and his partnerships were solvent and paying their debts.

If the pension funds had known the details of Symington's real estate troubles, Manning asserts, they would not have made the loan. That would have been disastrous for Symington--both financially and politically.

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