A Sitting Duck
Governor J. Fife Symington III's personal financial statements submitted during his sworn debtor's exam October 31 in U.S. Bankruptcy Court are so jammed with inconsistencies that a legal challenge by creditors is virtually assured.
The conflicting data should provide ample evidence for Symington's primary creditor, a consortium of union pension funds seeking repayment of an $11.5 million judgment, to file a separate case in bankruptcy court seeking to prevent Symington from erasing the debt, his single largest.
"We have enough if we want to [file] right now," says pension fund attorney Michael Manning.
Such a challenge would dash the governor's hopes of dispensing with the bankruptcy quickly and open him to a series of grueling depositions and an extensive review of his finances. The governor filed personal bankruptcy September 20, claiming $25 million in debts and $62,000 in assets.
If the pension funds' challenge were successful, Symington could be liable for the $11.5 million judgment. It also could place the governor's trust funds, worth approximately $830,000, and his wife's vast fortune in peril.
While Symington battles the pension funds in bankruptcy court, a federal grand jury investigating his finances is expected to decide soon whether to indict him for submitting false or misleading financial statements to federally insured lenders.
During the sworn debtor's examination in bankruptcy court, Manning exposed several areas of weakness in Symington's testimony.
In addition, two financial statements prepared by Symington in mid-1991 that were released by Manning after the hearing raise even more questions about Symington's finances. The 1991 statements reflect shocking disparities in how the governor displays his wealth, with the discrepancies seemingly tied to whether he's borrowing money or fending off a lender. (See accompanying chart.)
Manning, however, focused his questioning of the governor on Symington's preparation of a December 31, 1989, financial statement. Symington was vague or avoided answering questions about the statement, copies of which were released to the press following the hearing.
The December 1989 statement was submitted to the union pension funds on May 4, 1990, as a Symington-led partnership sought $10 million for permanent financing of the Mercado development. Mercado Developers Limited Partnership later defaulted on the loan, and the governor failed to honor his personal guarantee of the note.
Symington claims in the financial statement that he had a net worth of $12 million as of May 4, 1990.
But Manning's questions undermined Symington's claim that the statement was a true and accurate reflection of his net worth. Those questions focused on:
Symington's claim that he had $791,000 in readily marketable securities.
Symington's failure to report $1.5 million in personal loans from Southwest Savings and Loan Association.
The governor's claim he had $1 million in equity in a failing Scottsdale retail center.
Symington's assertion that he had $400,000 in equity in a faltering west Phoenix warehouse partnership.
One of the few tangible assets Symington listed in his May 4, 1990, financial statement was $791,002 worth of readily marketable securities. The bulk of Symington's net worth, otherwise, was tied to real estate.
The governor attached a list of the blue-chip stocksto the statement under the heading: "J. Fife Symington III/Stock Investments."
But those stocks are not controlled by Symington and are not readily marketable. They fall under the direct control of Symington's family trust funds.
Under questioning from Manning, Symington acknowledged he had no direct control over the stocks and that it was up to the trustee--Mellon Bank--to disburse funds."Have you ever attempted to pledge those trust assets to secure a debt?" Manning asked the governor.
"Never," Symington replied under oath.
Moments later, Manning asked Symington why he listed the stocks as a personal asset and identified them as readily marketable securities when he submitted hisfinancial statement to the pension funds.
The governor claimed the financial statement indicated that the stocks were part ofthe trust funds under another section called "Securities Owned." In that section, Symington identifies the stocks as"Marketable Securities/Mellon Bank Trust."
"I believe I clearly and fully disclosed the fact that this was the Mellon Bank trust," Symington testified.
A year later, when he was seeking a delay in repaying the $10 million loan, Symington submitted a second financial statement to the pension funds. On that statement, the trust fund stocks disappeared as an asset controlled by the governor.
Another Symington debt--$1.5 million in personal loans from Southwest Savings and Loan Association--makes sporadic appearances on financial statements.
In mid-1987, Symington secured construction financing from Japanese partners for his prize development project, the Camelback Esplanade. During the next year, the governor also received $1.5 million in personal loans from Southwest Savings to finance formation of several partnerships that oversaw development of the Esplanade.
The governor received the Southwest loans in a sweetheart deal--no interest and no principal for ten years, according to federal court records. Symington had served on the Southwest Savings board of directors from 1972 to 1984, when he resigned.
Symington appears to have quickly forgotten about the Southwest loans. They do not appear on his December 31, 1989, personal financial statement that was submitted to the union pension funds on May 4, 1990.
When asked by Manning about his personal liability related to the Esplanade loans, Symington stated: "I would simply have no way to answer that question today."
The Southwest Savings loans do appear on Symington's second financial statement submitted to the pension funds on May 31, 1991. The debts also are mentioned in a December 1991 lawsuit filed by the federal Resolution Trust Corporation against Symington and other officers and directors of the failed Southwest Savings.
Symington's attorneys confirmed in a May 2, 1992, court filing that the loans still existed and were being serviced by the RTC, which had taken over Southwest's loan portfolio after the thrift failed in 1989 at a loss to taxpayers of nearly $1 billion.
Symington's Southwest Savings debt was finally repaid, but not by the governor. RTC records show that Symington's Japanese partner, Shimizu Land Corporation, paid the notes when it bought out the governor's remaining stake in the Esplanade project in January 1994.
Symington's December 31, 1989, claim of $12 million in assets is undermined in at least two other instances.
Symington claimed $1 million in equity stemming from his partnership's interest in the Scottsdale Center development. When Manning asked if that equity claim was accurate, Symington replied: "I believe that to be the case."
But Maricopa County Superior Court records show that on January 1, 1989--a year before Symington's statement was prepared--the Scottsdale Center project was already in deep trouble.
The lender, Travelers Insurance Company, modified its original $23.5 million loan to Symington's partnership by raising the debt to $24.3 million because of Symington's failure to pay the note. Records show the project continued to perform poorly up to the time Symington submitted the December 31, 1989, financial statement to the pension funds in May 1990.
By October 1990, the debt had risen to $25.3 million plus another $1 million in back-interest payments. Travelers filed aforeclosure suit against Symington's partnership in the fall of 1990 noting: "[D]ebtor has collected rents which constitute plaintiff's security, while at the same time notpaying the indebtedness evidenced by thenote."
On November 6, 1990, a receiver was appointed to take over the property lease collections from Scottsdale Center, a project in which Symington had claimed to hold $1million in equity six months earlier.
The story repeats itself with Symington's Van Buren Industrial Park project. The governor's December 31, 1989, financial statement claims $400,000 in equity. Yet court records show a lender filed suit in November 1988 seeking return of the property because Symington's partnership failed to pay rent.
During upcoming depositions, creditors will have the opportunity to ask Symington why his mid-1991 financial statements varied so widely.
Manning says he expects Symington's attorneys to implement a simple overall deposition strategy--delay.
Symington's bankruptcy attorney, William Novotny, declined Monday to comment on the governor's bankruptcy filing and his debtor's examination testimony. The Governor's Office did not return a call seeking comment.
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