An Accounting Nightmare
Last Friday's settlement between the Big 6 accounting firm of Coopers & Lybrand and federal prosecutors delivers a powerful legal blow to Governor J. Fife Symington III.
What Coopers & Lybrand disclosed in a remarkable six-page press release, which was jointly prepared with federal prosecutors, is devastating to Symington's defense in both his criminal and his bankruptcy cases.
Simply put, the government and Symington's creditors now know that when called to the witness stand, the governor's own accountants will testify that he committed bank fraud.
"I thought the Coopers statement on Friday was unbelievable," says Terry A. Dake, the attorney representing the trustee in Symington's Chapter 7 bankruptcy filing. "They basically admitted they were a participant in this fraud."
This admission has many ramifications--all of them bad for Symington.
A 23-count federal indictment leveled last June accuses the governor of knowingly submitting false financial statements to lenders to obtain hundreds of millions of dollars of loans for disastrous forays into real estate construction and management.
Now, Coopers & Lybrand is not only asserting that Symington lied to the firm about the accuracy of his financial statements, which were later submitted to lenders who granted him millions of dollars of loans, the accounting firm is also strongly suggesting it conspired with Symington to deceive at least two institutions that lent money to Symington's firms.
"This is a huge benefit to the feds," says a Phoenix attorney close to the case. "It shows that not only was Fife lying, but that he was conspiring with Coopers & Lybrand."
The federal grand jury is continuing its investigation into Symington's finances and has expanded the probe to include the governor's relationship with his attorneys at the state's largest law firm, Snell & Wilmer.
In Friday's settlement, Coopers & Lybrand also acknowledged that one of its senior partners, the late John Yeoman, had participated in the rigging of bids for Project SLIM, Symington's much-ballyhooed effort to streamline state government. The SLIM contract is still under investigation, and Symington may yet be charged.
And on the heels of the Coopers agreement, the trustee in Symington's personal bankruptcy case has taken formal action to prevent the discharge of all $25 million of the governor's debts, alleging, among other things, that those debts were run up through fraud.
The governor's legal position is as dire as it could be, short of criminal conviction. And increasingly it appears that nothing but convictions will force Symington from office.
If the Legislature had any interest in impeachment whatsoever, the Coopers settlement provides all the ammunition necessary to launch and quickly conclude removal proceedings against the governor.
In the settlement, the accounting firm admits it participated in the illegal rigging of a $1.5 million Project SLIM contract.
This wasn't just any run-of-the-mill state contract. Project SLIM was Symington's prize initiative and one that he personally discussed with Yeoman, months before winning election to a first gubernatorial term in February 1991.
That initial SLIM contract was awarded to Coopers & Lybrand in September 1991--after Yeoman illegally gained information about competitors' bids, and after Coopers lowered its bid at the last moment by $440,000. And in the settlement made public last week, Coopers & Lybrand admits its role in the bid-rigging.
The government alleges Yeoman illegally received bidding information from Symington's closest personal aide and former deputy chief of staff, George Leckie. Leckie, who has been stricken with throat cancer, is charged with seven counts of fraud in connection with the contract and faces an October trial date. Coopers & Lybrand has agreed to testify at Leckie's trial.
Yeoman, who was Symington's longtime personal, business and campaign accountant, also was indicted by a federal grand jury in the bid-rigging scandal. Yeoman, however, was killed in a car crash last April.
Symington has long argued that the Project SLIM contract was awarded to Coopers & Lybrand because it was the most qualified firm. Coopers' admissions in its settlement with federal prosecutors greatly undermine that argument, and other evidence strongly suggests gubernatorial involvement in the corrupt SLIM contracting process.
State records show that soon after Coopers & Lybrand illegally obtained the Project SLIM contract, the firm began slashing the accounting fees Symington owed the company.
Records obtained by New Times reveal that Coopers & Lybrand in 1991 forgave $22,000 of Symington's debt. By 1993, the firm had written off as uncollectible $83,000 of the $88,000 still owed by Symington.
Symington's close ties to Coopers & Lybrand and Project SLIM don't stop with the $1.5 million contract. Internal Coopers & Lybrand documents show Symington and Leckie actively participated in steering a second Project SLIM contract to Coopers & Lybrand in 1993. This second contract was worth some $3.1 million, or twice as much as the first.
Were the two Project SLIM contracts--worth a total of $4.6 million--illegally awarded to Coopers & Lybrand, with the knowledge and/or help of Symington? Did the governor receive a financial benefit--the reduction of accounting fees--as a result of the Project SLIM contracting process?
There is an abundance of evidence suggesting the answer to these questions is yes. There is also an abundance of evidence suggesting the Legislature has no interest in posing those questions.
Its criminal implications aside, the Coopers & Lybrand settlement has triggered a serious round of fireworks in Symington's tumultuous bankruptcy case. Symington filed for personal bankruptcy in September 1995, seeking to erase more than $25 million in debts.
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."
Not only did Symington lie to Citicorp about not having a December 31, 1990, financial statement; Coopers & Lybrand now is admitting that Yeoman helped Symington lie, having prepared a draft of the deceptive letter Symington later sent to Citicorp.
The stunning admission binds Symington and Yeoman together in an effort to defraud Citicorp. And that admission yet again corroborates accusations leveled against Symington in the criminal case.
Legally and financially, Symington is in deep trouble. But it is unlikely he will leave office anytime soon.
Despite the vast amounts of evidence of the governor's public and private malfeasance, the word "impeachment" is scarcely mentioned in the state's mainstream media. There is little in the way of leadership at the Legislature; Senate president John Greene and Speaker of the House Mark Killian have both decided not to seek reelection. And the Republican-controlled Legislature appears to be lurching even further to the right--and closer to the suddenly archconservative Symington--than it had been before the primary election earlier this month.
A recall effort is under way, but it clearly has not taken off as its sponsors hoped.
With impeachment and recall only dim possibilities, Symington's chief criminal attorney, John Dowd, has pursued a three-point strategy: Delay the case, deny the charges and accuse the prosecution of unfair tactics.
"The fact that this information [the Coopers & Lybrand settlement] was released during the pendancy of this important criminal litigation will be brought to the attention of the court," Dowd complained in a press statement released Friday.
"Any insinuation that Fife Symington engaged in wrongdoing with his former accountant is totally false," he added.
Symington's political consultants joined in the public relations fray, claiming that "Democratic" federal prosecutors were waging a political war against Arizona's squeaky-clean Republican governor.
"If the public believes, as I believe, that this is a political prosecution, [Symington] should have no trouble maintaining his political standing," Charles Coughlin, a former Symington aide and a chief fund raiser for the governor's legal defense fund, told a Valley newspaper.
If the state's main political forces appear to remain in Symington's corner, so do many of its business powerhouses.
In fact, some of the very lenders Symington allegedly defrauded of millions of dollars are remaining awkwardly quiet on the sidelines of his criminal and bankruptcy battles.
Bank One, First Interstate Bank and Citicorp, all of whom do significant business with the state government, have yet to make one public statement of concern about their dealings with the governor--dealings that have cost them a combined $8 million.
"I'm surprised they haven't been more active in the [bankruptcy] case," says Dake.
It seems unlikely that they will become any more active until Symington goes to trial in criminal court. That trial will not begin before spring, and it could be delayed months beyond then.
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