Cornered by Fife
Terry Lynam, one of Governor J. Fife Symington III's defense attorneys, sauntered down the federal courthouse steps wearing a big smile.
He was delighted because the defense had scored what he believed were significant points during another round of mind-numbing testimony at Symington's criminal trial. The testimony had centered on the multitude of partnerships involved in the development of Symington's biggest property, the Camelback Esplanade.
"I want you to remember two things," Lynam said last week.
"We had two witnesses--Don Lewis and Robert Hunt--testify today that they didn't rely on Symington's financial statements when they made him loans."
This is significant because the crux of Symington's defense is that none of the lending institutions that advanced hundreds of millions of dollars to Symington's real estate partnerships relied on his financial statements when they extended him loans.
If the defense can convince the jury that Symington's financial statements were immaterial to lenders' decisions to lend his partnerships money, then most of the 22 federal counts Symington faces will vanish.
But celebrations by the defense team are premature.
The loans advanced to Symington by Lewis and Hunt came only because Symington had both men over a barrel. Besides, the government hasn't alleged that the two loans in question were illegal.
Donald Lewis is the former chief executive officer of Southwest Savings & Loan Association. Symington had been a director of the thrift from 1972 until 1984, and had a long personal and business relationship with Lewis. In September 1983, while still a director, Symington convinced Southwest Savings to make a direct investment in Symington's Camelback Esplanade project at 24th Street and Camelback Road.
Federal regulators protested that Symington had a conflict of interest by being both a Southwest Savings board member and the developer of a project in which Southwest Savings had a direct interest. Symington responded by following the money--he resigned from the Southwest board in early 1984 to pursue the Esplanade project.
Symington's original plan called for Southwest Savings to purchase the land for the Esplanade for $26 million and cover $2 million of Symington's predevelopment expenses, which included getting the land rezoned and the buildings designed. Southwest Savings invested the money with the stipulation that it would earn a "preferred rate of return"--in other words, interest--on its investment.
But Symington ran into a buzz saw of resistance from neighbors who strongly objected to his plan to nearly quadruple the amount of office, retail and hotel development space allotted for the 20 acres. Symington's first development plan was rejected by the Phoenix City Council in 1985. He came back with a greatly scaled-back version, which the council approved in 1986.
The zoning battle had been costly. By the time Symington got the building design approved, his predevelopment costs had ballooned from the projected $2 million to more than $12 million--including a boost in development fees for his company from $700,000 to $1.9 million.
Southwest Savings was worried about the escalating costs--by this time, the thrift had dumped about $56 million into the project, including interest. The owner of the thrift, the late Daniel K. Ludwig, who was once considered the richest man on Earth, decided to pull the plug on Symington's Esplanade gambit.
In 1986, the thrift told Symington it wanted "to reduce its exposure" and get out of the project, Lewis testified.
Symington stomped off in a tizzy, claiming Southwest had reneged on its promise to provide another huge construction loan. But documents entered into evidence indicate that Southwest's role was always primarily limited to the purchase of the land and predevelopment expenses. Symington's original proposal for the project stated that another lender would finance construction.
Symington went looking for other partners and eventually rounded up a couple of Japanese firms whose officers apparently were oblivious in 1987 to Phoenix's collapsing commercial real estate market.
The Japanese companies, Shimizu Land Corporation, one of the largest construction companies in the world, and Dai-Ichi Kangyo Bank, agreed to invest and lend money in Symington's Esplanade.
This was great news to Southwest Savings, because Shimizu was set to purchase some of the land that Southwest had already sunk nearly $56 million into.
But there was a catch.
Symington wanted an ownership share in the project during its construction phase. Shimizu was concerned about Symington becoming a partner because he had so little money invested--a whopping $216. Shimizu insisted Symington put up some real cash.
But Symington, who was telling lenders he was worth millions of dollars, had none.
So Symington approached Lewis and asked that Southwest lend $679,964 to four partnerships he controlled; he would invest that money in the Esplanade building partnerships with Shimizu.
What could Lewis say?
If he turned down Symington, Shimizu might take its millions and go home, leaving Southwest on the hook for a project that was sucking more revenue all the time.
So Lewis threw up his hands and issued the loans--on phenomenal terms to Symington.
Looking tan and dapper, Lewis, who is now retired, testified that the four loans were never reviewed by the Southwest Savings loan committee and did not go through the thrift's typical underwriting process.
Instead, he personally approved them.
And he provided sweetheart terms. No principal or interest payments were due for 10 years.
Lewis testified he had never before granted loans like this in his long career as a banker.
Why did he give Symington such a sweet deal?
"To facilitate the sale of property and to get such cash as we could back," he told the jury.
Prosecutor George Cardona asked about Symington's financial statement.
Lewis testified that he never looked at it because it wasn't needed.
"The primary purpose of the loan was to get money from Shimizu," Lewis said.
Southwest Savings recovered about $26 million of its investment when Shimizu purchased the land beneath the Esplanade's two office towers and the Ritz-Carlton hotel. That left the thrift on the hook for $30 million, plus accumulating interest.
The loans to Symington's partnerships were a pittance to Southwest Savings. Lewis testified that the interest earnings Southwest could get on the $26 million Shimizu paid for the land would eclipse the amount of the loans to Symington in just four months--making it a good deal for Southwest Savings even if Symington never repaid the loans.
And Symington didn't repay the loans--he got Shimizu to repay them a few years later, after he became governor.
Robert Hunt is the chairman of one of America's biggest contracting companies, HuntCor, Inc. His company has built such notable projects as the Superdome in New Orleans and America West Arena. It is currently building Bank One Ballpark in downtown Phoenix.
With 50 years of construction experience under his belt, Hunt has seen all kinds of developers. He quickly recognized Symington's game of borrowing money to pay off his personal obligations.
Symington hired HuntCor to be the construction manager for the Camelback Esplanade, a project that could be worth millions for HuntCor.
In August 1985, Symington was embroiled in a nasty dispute with an Esplanade business partner, I. Jerome Hirsch. Symington wanted Hirsch out of the project, but Hirsch wouldn't go unless there was plenty of cash incentive.
As usual, Symington couldn't pay. So he asked Hunt for a short-term loan of $1.8 million that he would use to pay off Hirsch.
Hunt's company already was working for Symington in the predevelopment phase of the project. If Symington couldn't settle with Hirsch, the whole deal could be jeopardized, and HuntCor could lose a multimillion-dollar construction-management contract.
So Hunt made the loan. And he did so without looking at Symington's financial statements.
"I strictly looked at collateral," Hunt testified.
The collateral was half of Symington's share in the development phase of the Esplanade, equivalent to a 10 percent stake in the project.
Symington soon came calling again. This time he asked for another $400,000 to cover additional payments to Hirsch because a termination agreement between Symington and Hirsch had not yet been signed.
Hunt agreed to advance the money, but did so reluctantly, according to documents presented to the jury.
On December 4, 1985, the same day Hunt lent Symington the additional $400,000, Hunt sent Symington a terse letter making it clear that no more money would be forthcoming.
"We will NOT make any more capital contributions, loans, or letters of credit, or any other financial commitments to Phase I of the Esplanade project over and above what we have concluded as of this date," Hunt's letter stated. To emphasize the point, Hunt underlined the entire paragraph.
But Hunt wasn't finished.
"If there is any additional financing, short-term loans, letters of credit, or whatever needed, please don't knock on my door," he wrote.
Just in case Symington didn't get the message, Hunt concluded, "I surely hope the project can proceed as we have discussed, but as I have told you, we have reached the end of our financial rope insofar as financing of the project is concerned."
Hunt testified he expected Symington to repay the loan, in cash. Symington did not repay the loan.
Instead, Hunt obtained 50 percent of Symington's share in the Esplanade project--and by this time Symington's position had slipped so far that he was required to pay Southwest Savings about $56 million before other partners would see a dime of profit.
The Esplanade continued its slide into financial oblivion in the ensuing years, eventually forcing Hunt to write off the $2.25 million lent to Symington.
Despite the fact that Symington had cost their companies millions, both Lewis and Hunt expressed admiration for the governor and said they believed that Symington is an honest businessman.
After four weeks of testimony, their positive assessments of the governor and testimony of their willingness to lend Symington millions of dollars without studying his personal financial statement have been rare bright spots for the defense.
But a dominant theme has emerged for trial observers who've managed to follow the jumble of loan papers, financial statements and broken promises: Fife Symington had an uncanny knack for getting people to lend him money. He also had a habit of not repaying those loans.
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