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Countdown to Indictment?

With bankruptcy hearings on one side, and a federal criminal indictment looming ever closer on the other, Arizona Governor J. Fife Symington III's future lies largely in the hands of his Washington, D.C., criminal defense attorney, John M. Dowd.

During the next 30 to 45 days, Dowd is expected to lobby top Department of Justice officials in Washington, hoping to convince them that a federal grand jury, led by the U.S. Attorney's Office in Los Angeles, should not indict Arizona's governor.

A source close to the Justice Department probe says Los Angeles prosecutors are poised to seek a grand jury indictment against Symington by late November or early December--after Symington's attorneys make their final plea in Washington.

"I think it is a very high likelihood that he will be indicted. Very high," the well-placed source tells New Times.

The grand jury has been investigating conflicting financial statements filed by Symington in connection with obtaining loans from banks and other sources. It is a felony to falsify a personal financial statement submitted to a federally insured lending institution.

If Dowd is successful in thwarting an indictment, it will mark the second time he has pulled Symington out of the line of fire. The governor was sued in 1991 by the federal Resolution Trust Corporation over his role in the failure of Southwest Savings and Loan. Dowd led Symington's defense in the case, which was settled in 1994 with the governor admitting no wrongdoing.

The circumstances facing Symington today, however, are complicated by the governor's Chapter 7 bankruptcy filing submitted last month.

If it elects not to seek an indictment, the Justice Department runs a risk of being embarrassed as attorneys for six union pension funds seek to collect $11.5 million owed by the governor as a result of his failed Mercado minimall in downtown Phoenix.

Pension fund attorneys plan to closely examine Symington's assets and financial statements during the bankruptcy case. One of their goals, attorneys in the case say, is to prove to the bankruptcy judge that the governor obtained a $10 million pension fund loan by submitting false or misleading financial statements. Such a finding could remove Symington's pension funds debt from bankruptcy, allowing the funds to continue collection efforts indefinitely.

If no grand jury indictment is issued, a successful bankruptcy challenge by the pension funds could also raise questions about political interference at the Justice Department.

Symington's political pull in Washington is considerable, if his past supporters enter the fray. Symington's administration has drawn strong backing from House Speaker Newt Gingrich for the governor's aggressive attempts to implement aspects of the Contract With America.

The governor also has deep ties to U.S. Senator John McCain. Symington's chief of staff, Wes Gullett, is a former top McCain aide. McCain and Symington have teamed up to support Texas Senator Phil Gramm as the Republican presidential nominee. Symington is chairman of Gramm's Arizona campaign, which has raised $400,000 so far.

But it is Dowd--a former head of the Justice Department's white-collar criminal task force--who will likely carry Symington's case directly to the department.

An attorney familiar with Symington's defense says Dowd is expected to try to convince top Justice Department officials that the grand jury, which has been investigating the governor since at least July 1993, has failed to collect sufficient evidence to bring an indictment.

If that approach doesn't sway Justice Department officials, Dowd is expected to ask the department to consider whether an indictment of Arizona's governor is in the best public interest, given the political and financial turmoil the state has undergone during the last five years.

"He'll try to make this appear as such a momentous and negative decision for the state that apolitical law enforcement ought to weigh that, and give Symington the benefit of the doubt," says a source familiar with Symington's defense strategy.

Dowd is a partner with the politically powerful Washington, D.C., law firm of Aiken, Gump, Strauss, Hauer & Feld. A high-profile attorney whose bellicose nature is legendary, Dowd defended McCain during the 1990 "Keating Five" Senate Ethics Committee hearings. McCain received a mild rebuke from the committee for intervening with federal banking regulators on behalf of convicted Phoenix financier Charles H Keating Jr.

Dowd also was the attorney hired by Major League Baseball during its 1989 gambling investigation and subsequent banishment of all-time leading hitter Pete Rose.

Contacts between the Justice Department and the defense attorneys for high-profile figures such as the governor are not unusual in the final stages of a grand jury white-collar criminal investigation, Justice Department officials say.

Government attorneys typically hold detailed discussions with defense attorneys in white-collar criminal investigations to make sure the government has not overlooked any evidence that would convince it to forgo an indictment and an expensive criminal trial.

The government is particularly cautious prior to seeking an indictment against a prominent individual or political figure, because of the reputational damage that results. Such cases are generally reviewed by a number of high-ranking Justice Department officials before an indictment is sought.

At the same time Symington is fending off a possible criminal indictment, the governor is making final preparations to take the witness stand Tuesday in his Chapter 7 federal bankruptcy case.

The Halloween Day creditors' examination signals just the beginning of what is expected to be a detailed review of the governor's finances by lawyers representing Symington's single largest creditor--six union pension funds owed $11.5 million.

The pension funds won an $11.5 million judgment against Symington last summer stemming from the governor's failure to fulfill his personal guarantee to repay a $10 million loan to Symington's Mercado Developers Limited Partnership.

The pension funds' legal team has hired Phoenix attorney Michael Manning, one of the nation's top financial fraud attorneys. Manning specializes in investigating potentially fraudulent transactions conducted by debtors seeking protection from creditors in bankruptcy court.

Manning's sharp eye for financial chicanery attracted national attention when he authored the federal government's $2 billion fraud and racketeering civil lawsuit against Keating.

In the governor's case, Manning says Symington's financial statements, the governor's trust funds, his wife's finances and the location of assets such as jewelry and art will come under scrutiny.

The pension funds pressed Symington for much of the same information last summer when they obtained the $11.5 million judgment in Maricopa County Superior Court.

"After our client acquired its judgment, we intended to inquire through a judgment debtor's exam into the precise terms of his trusts, his wife's trusts, the prenuptial agreement and the various transfers of property that have occurred over the past few years," Manning says.

"The filing of the bankruptcy prevented that from going forward," he says.So far, the union pension funds seem to be the only creditor aggressively seeking repayment from the governor in bankruptcy court.

Symington's other major creditors include: CitiCorp Real Estate Inc., owed $4 million; First Interstate Bank, owed $3.2 million; the City of Phoenix, owed $2.7 million; Hirsch Capital Corporation, owed $1.8 million; Bank One, owed $1 million; and various law firms and accounting firms, owed an unspecified amount that is increasing at $19,000 per month.

While most creditors appear to be hesitant to collect on the governor's debts, officials with McMorgan & Company, the pension funds' investment manager, say the funds are aggressively pursuing Symington's debt because they are legally required to take all reasonable actions to protect the funds' assets.

The pension funds are under federal scrutiny because of the settlement of a massive federal civil suit the funds filed against their former investment manager.

The November 1994 settlement required the trustees for the pension funds to contribute $9 million of a $93.5 million settlement paid to the pension funds by various defendants in the five-year-long civil racketeering suit.

The Department of Labor intervened in the civil suit in the fall of 1994, alleging that the pension funds' trustees had failed to closely monitor the activities of the former investment manager--convicted felon William Earle Miller--who invested more than $250 million of the funds' assets in poorly performing Arizona real estate projects, including Symington's Mercado.The Labor Department reached a settlement with the pension funds that requires the funds' trustees to follow strict guidelines on reviewing investments and the activities of the new investment manager--the San Francisco-based McMorgan & Company. Among other things, the trustees must closely monitor all efforts to collect on bad debts.

Symington offered the pension funds $285,000 last month to settle his $11.5 million debt. The pension funds rejected Symington's offer. Symington filed for bankruptcy days later.

McMorgan & Company officials say they would pursue Symington's $11.5 million debt whether he was governor or a private businessman.

"We would do this no matter who the guy was," says McMorgan & Company vice president Paul Morton.


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