By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
By Monica Alonzo
By Chris Parker
By New Times
Two major problems were emerging. First, a strip shopping center called Alta Mesa was having serious problems, and the construction lender, First Interstate Bank, was demanding that Symington make payments on a delinquent construction loan.
Second, the Mercado project was completed and it was time for Symington to close a loan with the union pension funds to repay the construction lender, which again was First Interstate Bank (now Wells Fargo Bank).
The union pension fund manager -- San Francisco-based McMorgan & Company -- was not enthusiastic about making the Mercado loan. It was agreed to three years earlier by a previous investment manager who ended up in federal prison for taking illegal loan kickbacks. The former manager saddled the pension funds with more than $250 million in Arizona real estate, most of which was losing money.
The loan called for the pension funds to provide permanent financing on the Mercado once construction was complete. The pension funds were committed to make the loan as long as Symington met certain requirements, including submission of an updated personal financial statement prior to loan closing.
Symington testified he knew McMorgan & Company was not excited about funding the Mercado loan in the spring of 1990 because of the ailing real estate market.
"I had heard discussions they would probably not like to fund the loan," Symington testified.
And he also testified -- and evidence shows -- Symington knew First Interstate Bank wanted him to close the pension-fund loan and use the proceeds to repay the bank's construction loan.
Finally, Symington testified that he knew he had to submit an updated personal financial statement to the pension funds for review and approval to obtain the loan.
"It was a requirement of the permanent [pension funds] loan commitment," Symington testified.
Evidence indicates that as spring 1990 turned to summer, First Interstate Bank was well aware of Symington's financial straits. Yet evidence shows First Interstate never informed the pension fund manager, McMorgan & Company, about Symington's mounting problems.
It is during this crucial period that Manning alleges Symington secured the $10 million pension-fund loan by submitting a fraudulent financial statement.
In May 1990, McMorgan & Company officials told Symington they would not provide the full $10 million loan. McMorgan cited provisions in the 1987 loan agreement that allowed the pension funds to withhold money for tenant improvements and future loan repayments.
The holdback created a $1.2 million gap -- the difference between what Symington's Mercado partnership owed First Interstate Bank on the construction loan and what he would receive from the pension funds.
Symington had also personally guaranteed repayment of the $10 million construction loan to First Interstate Bank. In early June 1990, Symington met with First Interstate Bank officials to discuss the situation.
First Interstate Bank already knew Symington's partnerships were faltering; Symington had missed loan payments on the Alta Mesa project. First Interstate Bank agreed to extend the Alta Mesa loan to July 1, 1990, two days after the pension funds were scheduled to fund the Mercado loan. Manning alleges First Interstate Bank conspired with Symington to extend the Alta Mesa loan past the Mercado funding date to keep the pension funds from learning that Symington's partnerships could not pay their debts.
While providing some leeway on Alta Mesa, First Interstate still wanted Symington to make good on the personal guarantee he'd given on the Mercado construction loan, and cover the projected $1.2 million gap.
According to notes from a June 7, 1990, meeting prepared by First Interstate Bank lending officer Jeff White, Symington told the bank that his $12 million net worth was "almost entirely vested in commercial real estate." Symington also stated that the market values he was carrying on his real estate projects "do not accurately reflect the current market," Whites notes state.
During the meeting, First Interstate also learned that Symington's financial statement did not fully account for contingent debt, which further raised questions about his net worth.
Finally, Symington had reported on his financial statement that he had $800,000 in readily marketable securities. While the real estate assets were of questionable value, Symington's financial statement at least indicated he could get his hands on some cash if necessary. However, during the meeting, Symington told White that the stocks were held in a trust and that the assets could not be cashed or pledged.
Symington wasn't worth the $12 million he claimed on his financial statement, and he told White he could not make good on his personal guarantee to repay the shortfall on the Mercado construction loan.
White recommended the bank be prepared to "charge off" the $1.2 million shortfall as a loss.
The next day, Symington, First Interstate Bank and the pension funds met to discuss the $1.2 million gap. What happened at that meeting cuts to the heart of Symington's defense.
Symington claims in an interview that during the meeting he alerted the pension funds that neither henor the Mercado partnership had the cash to cover the $1.2 million shortfall.
Symington says if the pension funds had really relied on his personal financial statement, they would have begun to ask serious questions when they learned he could not cover a $1.2 million debt.
A key point in the trial is the pension funds' claim that they would have canceled the Mercado loan to Symington if they had known he couldn't pay his debts. Symington claims the pension funds were given clear indication he was facing cash-flow problems on June 8 -- three weeks before they funded the loan -- and did nothing.