Official Secrecy Acts

Fighting a legal war on multiple fronts, Symington and his attorneys turn to a time-honored tactic: stonewalling

Governor J. Fife Symington III is all but surrounded.
Creditors who allege he committed fraud are seeking to prevent him from erasing $25 million of debts in bankruptcy court. One creditor has even raised the suggestion in court filings that the governor used a front company to hide assets.

The federal government says Symington's a crook, alleging he committed 23 felonies in connection with obtaining hundreds of millions of dollars' worth of loans. Conviction on even one count will strip Symington of his office and, perhaps, send him to prison.

His former top aide, George Leckie, faces a federal criminal trial next month on seven counts of fraud related to the awarding of a state contract to Symington's personal accounting firm. Attorney General Grant Woods is also investigating Leckie and others in a purchasing scandal at the Department of Corrections, a spokeswoman for Woods confirmed last week.

Bad as it may seem on the surface for Symington, his legal situation is worse than it first appears. The bankruptcy and criminal cases are cross-pollinating each other with every new damaging revelation. Symington's legal bills are rapidly mounting; one expert has estimated them at a minimum of $10,000 a week.

Now, adding fuel to the fire that seems about to engulf the governor, a recall campaign organized by prominent Democrats, including former secretary of state Richard Mahoney, is cranking up this week.

Never before has an Arizona politician faced such a formidable, multipronged attack. Evidence the governor gives in any one of the legal cases may wind up being used against him in another. And as the cases against him and Leckie continue, they will provide the press with a steady stream of information about Symington's collapsed and questionable finances. Those stories will be seized by recall supporters as they round up signatures.

In his increasingly desperate fight for personal, economic and financial survival, the governor and his attorneys have followed one strategy above others. They have stonewalled.

So far, stonewalling has delayed the legal assaults against Symington. Whether the strategy will in the end help his public standing is another question entirely.

For the past four months, Phoenix attorney Michael Manning has been demanding access to records of long-distance telephone calls the governor made on state-owned phones. Manning is the lead attorney representing a consortium of union pension funds challenging Symington's bankruptcy filing. Symington owes the pension funds $12 million stemming from his default on a loan for the Mercado development in downtown Phoenix.

Manning has not been alone in seeking the telephone records. Several newspapers, including New Times, along with a couple of Phoenix television stations, have also requested the governor's phone records under the state public records law.

The governor has refused to produce the records.
His bankruptcy attorney, Robert Shull, claims they are not subject to review under bankruptcy rules. The legal counsel for the Governor's Office, Lisa Hauser, has rejected media requests to see the records, claiming the governor's phone records are exempt from the Arizona public records law under the doctrine of--shades of Watergate--executive privilege. Hauser has asserted this novel legal theory even though Symington released an early set of his phone records to the press in 1991.

Symington's refusal to produce the phone records triggered Manning's decision to file a detailed pleading last month in bankruptcy court. That pleading asks the bankruptcy judge to issue a subpoena for the telephone records based on suggestions that the governor has used his business associations to hide assets from his creditors.

Those suggestions are hotly denied by Symington's attorney, but they are backed by significant amounts of circumstantial evidence.

It's December 1993, and Governor J. Fife Symington III is playing hardball with an investor in two failing commercial projects he developed--the Camelback Esplanade and the Scottsdale Seville.

The Shimizu Land Development Corporation has dumped tens of millions of dollars into Symington's losing projects. Shimizu wants out. Badly.

The company has a potential buyer for the properties waiting in the wings; a sale would end Shimizu's six-year nightmare of a partnership with Symington.

But there is a snag.
The governor won't sign over to Shimizu control of key partnerships in the Esplanade and Seville. The partnerships have no equity value because both projects are losing money. Nevertheless, Symington is unwilling to give up control unless Shimizu makes concessions.

Big concessions.
The negotiations begin. Symington and Shimizu officials did not return New Times phone calls seeking comment. But a source close to the transaction tells New Times that Symington threatened to throw the partnerships into bankruptcy, which could have delayed Shimizu's sale of the properties and increased the company's losses, if he did not get concessions.

And bankruptcy records suggest that Symington did, indeed, have leverage in his negotiations with Shimizu. By December 14, Shimizu agrees to pay $500,000 for Symington's partnership interest in the Seville and another $360,000 "in an appropriate manner that suits the governor's requirement," Shimizu records cryptically reveal.

Then, Symington adds more demands.
He wants the $500,000 for his Seville interest paid to his mother, Martha Symington, who lives outside Baltimore and who was told by a financial expert hired by the governor earlier in 1993 that her stake in the Seville was worthless. And, the governor says, he wants $300,000 for himself.

But that's not all.
The governor also insists that Shimizu agree to an unusual consulting contract. Symington asks Shimizu to pay his former business partner, Stephen R. Todd, a $60,000 fee for one month of consulting. The consulting deal includes a remarkable stipulation--the money will be paid even if Todd renders no services.

The deal closes in January 1994, and Todd receives a $60,000 payment from Shimizu. A month later, Todd's new company, Core Properties, sends a $57,500 check to the governor's business, The Symington Company.

The Symington Company then, in turn, sends a $14,325 check to the governor's former Esplanade business partner, Jerome Hirsch. The payment is supposed to cover Hirsch's 25 percent share of the commission on the sale of the Esplanade.

Hirsch has since filed a fraud suit against Symington in bankruptcy court, claiming the governor concealed that he actually received nearly $1 million for the sale of his partnership interest in the Esplanade by transferring the Shimizu payments to his mother and Todd.

The Shimizu transaction raises yet another round of serious questions about Symington's financial conduct while serving as governor. And Manning is using that transaction and Symington's relationship with Todd as a battering ram against the stone wall the governor's attorneys have tried to build around his telephone records. Manning claims he needs those records to properly investigate whether Symington has additional assets that have not been reported to the bankruptcy court.

"Mr. Symington's support, assistance, and communications with Core and Mr. Todd appears to go beyond a proactive and concerned Governor seeking to support an Arizona businessman . . ." Manning says in court documents.

Todd did not return phone calls seeking comment. But Symington's bankruptcy attorney says the Shimizu transaction is nothing more than a routine business deal that was fully disclosed by the governor.

"There is nothing sinister about this," Symington attorney Robert Shull says in bankruptcy pleadings.

And there may not be. The bankruptcy judge has not yet ruled on Manning's request. The fight over the telephone records, however, has brought more than the Shimizu deal into public question.

Manning's recent filings in bankruptcy court suggest the possibility the governor secretly controlled Core Properties and used it to solicit business in Mexico and Arizona, and through the state Department of Commerce.

Public records outline a close financial relationship between Symington and Todd that sometimes spilled over into official state business.

Symington was majority shareholder in The Symington Company when he was elected governor in February 1991. The company's primary function was real estate development and leasing activities. Over the preceding decade, The Symington Company had received millions of dollars in development fees, leasing commissions and property management fees.

After his initial election, Symington announced he was winding down his activities in The Symington Company. Todd, who served as president of The Symington Company, started his own company, Core Properties, on July 31, 1991.

State Corporation Commission records show that within a year after Todd formed Core Properties, Symington's two remaining top officers in The Symington Company had left and joined Core Properties.

About the time the executives left The Symington Company, Core Properties obtained control over all of The Symington Company's property management contracts, Manning states in bankruptcy records.

Core Properties also kept The Symington Company's books and records, and the two firms used the same attorneys and accountants for advice, Manning claims in court filings.

"Though The Symington Company remained in business, its management and development fees, and leasing commissions previously received by The Symington Company, were paid over to Core," Manning states.

The Symington Company not only turned over all of its major assets to Core Properties, the governor and his company also paid Core more than $94,000 in 1992, court filings claim. The payments were unusual, Manning claims in court documents, because they were made after Todd was aware that Symington's personal finances had collapsed. By that time, the governor was telling some lenders he had a net worth of negative $23 million.

Immediately after his 1991 election, Symington named another former Symington Company executive, Jim Marsh, as director of the state Department of Commerce. Beginning in early 1992 and continuing at least through that year, Core Properties repeatedly sought business assistance and contracts from the Commerce Department, Manning claims in bankruptcy documents.

"Clearly, his [Todd's] former employer, The Symington Company, would have had an unavoidable conflict of interest in soliciting and bidding those contracts," Manning states in the pleadings.

Core Properties was particularly interested in developing business in Mexico. As Core Properties was expanding its presence in Mexico in 1992, Symington was advancing major state initiatives to develop strong business ties between Arizona and Mexico and was traveling frequently to Mexico.

In his frequent correspondence with the agency, Todd underscored the necessity of obtaining Commerce Department assistance in conducting Core Properties business, particularly in Mexico.

"As Core Properties' activities in Mexico increase, the importance of contacts at the state and federal agencies becomes more and more important," Todd wrote in a January 1992 letter to the Commerce Department's business development representative.

Todd told the Commerce Department his company was "negotiating the development of a five-star business hotel" in Monterrey, Mexico. Symington, according to published reports, later met with a Mexican businessman seeking to develop a Ritz-Carlton hotel with Core Properties in Monterrey. The hotel project never got off the ground.

Symington's close ties with Todd and Core Properties, and their ties to Mexico and the state Department of Commerce, form a backdrop for Manning's investigation of the wind-up of Symington's involvement in the Esplanade and the Seville projects.

In conveying his interests in those developments to Shimizu, Symington required the Japanese firm to pay Todd a $60,000 consulting fee. Core Properties subsequently paid The Symington Company $57,500. But there was another element of the deal: The governor also insisted that Shimizu agree to retain Core Properties as property manager at the Esplanade and Seville projects and not to terminate Core Properties without his permission.

"Mr. Symington orchestrated each of these lucrative benefits for Core even though he supposedly retained no interest in Core or its profits," Manning states in the pleading.

Symington's bankruptcy attorney, Robert Shull, responded bitterly to Manning's pleading, claiming Manning's statements were false and scandalous.

"The Pension Funds' response offers nothing more than evidence that the Debtor [Symington] had ongoing business relationships after he became Governor--but the Pension Funds fail to comprehend that business relationships alone are not sinister, nor are they evidence of hidden assets, conspiracies, or bankruptcy crimes," Shull stated.

The governor's attorney then asked the court to impose sanctions on Manning for "unfounded accusations" concerning Symington's relationship with Todd and the Shimizu transactions. The court has not yet ruled on Shull's request.

Shull, however, continues to refuse to give up the governor's phone records--records that could help exonerate Symington or open another Pandora's box of problems for his crippled administration.

"Through analysis of the telephone records, the Pension Funds will be able to identify those persons with whom Mr. Symington had business and financial dealings," Manning says in court documents.

"The Pension Funds then may interview those persons to determine the extent of their knowledge of Mr. Symington's assets, investments, and other financial interests."

Manning's persistent investigation into Symington's finances already has affected the governor's criminal case--and hardly to his benefit. One of the 23 felony charges against Symington alleges he committed perjury when he testified in the bankruptcy case last Halloween.

In fact, there are many parallels between the criminal charges Symington faces and the detailed allegations made by the pension funds in a bankruptcy fraud suit they filed against the governor in July. The suit seeks to prevent Symington from erasing his $12 million debt to the pension funds.

The first four counts of the criminal indictment allege Symington committed crimes when obtaining construction loans from First Interstate Bank to build the Mercado. The pension-fund fraud suit, meanwhile, alleges Symington committed fraud when he submitted financial statements to obtain $10 million from the pension funds to repay a construction loan for the Mercado, a downtown minimall.

Both cases claim Symington knowingly submitted numerous false financial statements to lenders to obtain loans.

They both claim Symington deceived lenders into believing he had full access to about $800,000 worth of securities when the stocks, in fact, were under the control of trust funds that could not be tapped by creditors.

They both charge that the governor repeatedly overstated the value of his assets and understated his liabilities when seeking loans, and reversed the scenario when attempting to avoid repaying obligations.

The overlapping aspects of the two simultaneous cases place Symington in a difficult and unusual position.

"It's not common that you have a person held hostage on so many fronts," says former U.S. attorney Melvin McDonald, who now practices law in Phoenix and is a member of the Gilbert City Council.

Symington faces not only huge legal bills stemming from both cases, but also the possibility that a decision or activity in one case could have a negative impact on the other.

For example, in three days of sworn bankruptcy depositions, Symington admitted that he relied on what he "hope[d]" real estate values would be well in the future when he prepared his financial statements, instead of using then-current market values. That admission of extraordinarily unusual valuation methods may well turn up as evidence in a federal criminal case that charges him with misleading financial institutions with phony financial statements.

McDonald says Symington's best game plan may be to try to delay his bankruptcy case until the criminal case is concluded. Such delay, McDonald says, could prevent additional sworn disclosures in the bankruptcy case from spilling over to the criminal case.

So far, however, there is no indication the governor is seeking to delay the bankruptcy. Symington's bankruptcy lawyer, Shull, declines to comment on the case.

And it is far from a given that Symington could get a bankruptcy judge to approve such a delay. After all, the governor voluntarily placed himself in bankruptcy. And some experts have suggested that by testifying in the bankruptcy, he has waived his right to refuse further questioning on grounds he might incriminate himself.

As the fight over telephone records proceeds, Symington and his attorneys are also attempting to keep secret some records dealing with his criminal case. Oddly, those records were produced at the request of the Symington legal team.

While the extent and severity of the criminal indictment against the governor may have been a surprise to the public, Symington has long known why federal prosecutors were investigating him.

According to records filed last week in U.S. District Court, Symington received a letter from federal prosecutors in January 1993 informing him that he was a target of a criminal investigation.

That letter told Symington the government was investigating whether he "submitted materially false financial information to financial institutions and other lending organizations in order to obtain credit for himself, or for entities with which he was affiliated."

Symington and his criminal attorney, John Dowd, met with Department of Justice officials on two days in February 1993 to discuss the governor's personal financial statements. Before he spoke with Justice Department personnel, Symington was read his Miranda rights.

During the next three years, Dowd submitted five lengthy letters to federal investigators "in a further attempt to persuade the government to decline prosecution," prosecutors say in court pleadings. The letters addressed many of the acts the government now alleges were illegal.

Last winter, court records show, the government sent the governor "written notice of the potential charges" he was facing, and met with Dowd in December 1995 to discuss the evidence underlying the charges.

Although there were repeated meetings and lengthy discussions before the June 13, 1996, indictment, Dowd is now demanding the government provide more specific detail on the charges against Symington.

Federal prosecutors responded to Dowd's request for more information by sending a ten-page letter late in June. The letter details the charges in the indictment and provides the names of individuals the government believes to be co-conspirators in those alleged crimes.

Dowd then asked for additional information. Among other things, he requested that the government say whether it intended to introduce evidence of other criminal acts Symington allegedly had committed, but the government had yet to charge him with. The government responded on July 23 with an eight-page letter detailing approximately 34 such uncharged acts that may be addressed during the trial.

The identity of the co-conspirators and details related to the 34 uncharged acts are unknown. Just as Symington has repeatedly tried to seal or prevent the release of key documents in the bankruptcy case, Dowd's five letters to the government and the government's letters to Dowd have been filed with the U.S. District Court in Phoenix under seal--at Symington's request.

Federal prosecutors have asked for a hearing next month to unseal the documents.

Besieged on two expensive legal fronts, Arizona's chief executive now faces perhaps the most immediate threat to his governorship--a well-organized statewide recall campaign.

A legitimate recall effort raises the stakes considerably for Symington. Each additional negative disclosure in bankruptcy court or his federal criminal case could translate into additional signatures for the recall effort.

Organizers of the latest recall campaign will launch their drive Thursday. To succeed, they must collect at least 282,402 signatures from registered voters within 120 days. If they do, Secretary of State Jane Hull will be required to schedule a gubernatorial election sometime next May or June. The election would be open to an unrestricted number of candidates who meet filing requirements, including Symington.

While several recall efforts against Symington have failed during his five years in office, none has been led by experienced political players. Unlike another ongoing recall campaign organized by the publisher of a Phoenix weekly newspaper distributed by the homeless, the latest campaign has political and financial muscle.

The Symington Recall Committee has bipartisan leadership that is well-versed in grassroots political movements.

The committee is chaired by longtime Democratic party activist John Ahearn, who served as a member of the state Corporation Commission in 1979 and opposed construction of the Palo Verde Nuclear Generating Station. Ahearn is joined on the committee by former secretary of state Richard Mahoney, Cochise County Democratic Supervisor Mike Palmer, Sun City retired businessman and Republican Walter Bush and former Tucson state Democratic legislator John Kromko.

Ahearn says the committee expects to raise $125,000 to pay petition circulators to collect recall signatures. The first major push will be at selected precincts during the September 10 primary election.

A key element in the success of the recall campaign, Ahearn says, is a steady stream of news stories detailing the legal troubles that have engulfed the governor and his top aide, George Leckie.

"I'm really counting on a Chinese water torture. That's part of our plan--news stories, letter writing," Ahearn says.

Leckie's scheduled trial next month in federal court will refocus public attention on corruption allegations that have dogged the Symington administration and the governor personally since 1991. And the federal trial may just be a prelude of problems to come for Leckie as the attorney general's probe of purchasing by the state corrections department intensifies.

Symington may be able to counter some of the bankruptcy and criminal case press coverage--which so far has been spotty and less than comprehensive--through his leadership of a juvenile justice reform initiative that will be on the November ballot.

The campaign committee supporting the Symington-backed initiative is funded nearly entirely by large corporate donations, including $40,000 contributions from Dial Corporation and Phelps Dodge and a $30,000 donation from Del Webb. It is likely Symington will be able to raise even more money from friendly business interests.

Challenging the business community doesn't disturb Ahearn, who has a long history of grassroots activism.

But Ahearn notes that there has been some resistance among Democrats to his recall movement, not because they support Symington but because they see his legal troubles as an opportunity for the Democratic party to gain support.

"There is an old school of thinking the better way to go . . . is to let him hang slowly in the wind for the next two and a half years," Ahearn says.

The recall committee, Ahearn says, "believes that you have to shorten that time as much as you can. Every day is too much with Fife Symington.

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