An Accounting Nightmare

Coopers & Lybrand leaves governor in "worst of all worlds" legally; but quick removal from office seems unlikely

Leading the charge against Symington in bankruptcy court is a consortium of union pension funds which are owed $12 million stemming from a loan to a Symington-controlled real estate partnership. The governor personally guaranteed to repay that loan.

Coopers & Lybrand admits in its settlement that Yeoman knew by the end of May 1990 that Symington's December 31, 1989, financial statement had "material errors and omissions." Symington, nevertheless, used the bogus financial statement to obtain a $10 million loan from the pension funds in June 1990 for his Mercado shopping center in downtown Phoenix.

The pension funds filed a fraud case against the governor in July, seeking to prevent the bankruptcy court from dismissing the governor's debt to the pension funds, which has risen to $12 million with interest. Now, the pension funds have a powerful ally: Symington's own accountants, Coopers & Lybrand.

"It is clear to us that Coopers will be an important witness in our efforts to prove that the financial statements were materially false and made that way intentionally, or created that way intentionally, by Mr. Symington and perhaps others, including, perhaps, his own accountant," says pension fund bankruptcy attorney Michael Manning.

The Coopers settlement also spurred Terry Dake, the lawyer for the federal bankruptcy trustee in the Symington case, to file his own challenge Monday to the governor's bankruptcy. If that challenge is successful, it would prevent Symington from discharging any of his major debts through the bankruptcy court--meaning that he would still owe some $25 million to a variety of creditors.

Dake's lawsuit alleges that Symington lied during his sworn bankruptcy examination last October 31--a charge that mirrors one of the criminal counts the federal government has filed against Symington.

Dake also is alleging that Symington illegally transferred assets to his wife during the year preceding the bankruptcy filing in an effort to defraud creditors.

Finally, Dake is charging that Symington filed false financial statements in connection with obtaining loans--a position strongly supported by the Coopers & Lybrand settlement.

If Dake is successful, all the creditors in Symington's bankruptcy will be able to continue to try to collect debts owed by the governor.

"This is the worst of all possible worlds in a bankruptcy filing from the debtor's point of view," Dake says.

Much of the Coopers & Lybrand settlement deals with wrongdoing connected to its work on Symington's greatest financial failure, the Camelback Esplanade.

Symington hired the accounting firm to prepare annual financial reports that were submitted, beginning in 1987, to the giant Japanese lender, Dai-Ichi Kangyo Bank, Ltd. Those financial reports were necessary to assure Dai-Ichi that Symington was honoring a pledge to maintain a net worth of at least $4 million.

Under the terms of the loan package, if the governor's net worth fell below that level--and the bank knew it--Dai-Ichi could declare Symington in default on tens of millions of dollars of loans Symington partnerships had borrowed to construct the Esplanade. A default on Symington's most visible development would likely have destroyed his political career--a career that was based on Symington's claim of being a successful businessman.

In its settlement with federal prosecutors, Coopers & Lybrand says Symington prepared financial statements that were submitted to Dai-Ichi and "confirmed each year in writing that he was responsible for the 'fair presentation' of the information and that no matters had come to his attention that would 'materially affect' the statement."

Coopers & Lybrand now says that Symington lied to the firm about his financial condition.

"Symington's December 31, 1987, 1988 and 1989 statements of financial condition contained material errors and omissions," Coopers & Lybrand states.

The firm goes on to state that Symington's financial statements "omitted a number of notes payable to others and materially overstated the value Symington had assigned to his interest in a number of his real estate partnerships."

These are the same omissions and overstatements that the federal government describes, in almost the same language, as crimes.

In the settlement, the accounting firm also says it compiled a financial report with the governor's assistance showing Symington to have a net worth of negative $23 million on May 31, 1991. The report was prepared "to demonstrate to lenders that he would not personally be able to honor his obligations and guarantees," the Coopers settlement says.

While the report was in preparation, Coopers & Lybrand says, it became apparent that Symington's December 31, 1989, financial statement contained "material errors and omissions." Coopers & Lybrand's audit department, which was responsible for reviewing the governor's financial statements, considered recalling the 1989 report, which had been sent to the Dai-Ichi bank.

Yeoman, however, promised those auditors he would send the May 31, 1991, report to Dai-Ichi, which would correct any impressions left by the 1989 report and reveal Symington's disastrous financial condition. But Yeoman never sent the new financial report, leaving Dai-Ichi Kangyo Bank with the false belief that the governor was still financially healthy.

If there is any doubt Symington and Yeoman were working together to deceive lenders, Coopers & Lybrand dispells it with yet another bombshell.

In November 1991, Citicorp Real Estate, Inc., requested certain financial information from Symington, including a copy of his December 31, 1990, financial statement.

In its settlement, Coopers & Lybrand says "Symington falsely represented [to Citicorp] that he had not prepared a December 31, 1990, statement of financial condition."

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