Governor J. Fife Symington III was backed into a corner. Confronted with evidence that he deceived his lenders--and Arizona voters--about his record as a businessman, Symington gave an explanation that can only be described as delusional.
Shown documents that indicate he grossly inflated his net worth to obtain a $10 million loan in 1990, the governor abandoned all accepted accounting principles. He claimed his properties--and net worth--were impervious to forces decimating the Valley real estate market at that time. His properties not only failed to lose value, Symington swore they were worth what he hoped they would be worth years down the road.
The explanation defies credibility. But to admit he knew of his financial ruin at the same time he was claiming a net worth of $12 million would be to admit he had deceived federally insured lenders. That's a felony.
Symington's bizarre explanation came during a grueling, two-day-long deposition in his personal bankruptcy case. On May 13 and 14, Symington faced intense questioning from Michael Manning, a lawyer for a consortium of pension funds that Symington owes $12 million. That sworn deposition produced a seven-inch stack of testimony and exhibits, which were released to the public last week over Symington's objections.
The deposition provides rare and disturbing insight into the financial affairs of the governor.
"I didn't feel that the depressed market that we were in [in 1990] was going to affect my properties because of their location and quality," Symington testified.
According to the Symington school of real estate, the market is irrelevant. As real market prices collapsed in the late 1980s, he simply ignored the devaluations. Symington determined his equity by matching the imagined future valuations of his projects against his current debt, which was usually understated.
Under Symington's accounting scenario, a home purchased for $100,000 really isn't worth $100,000. Its collateral value is what one would expect it to be worth in, say, 20 years--perhaps $300,000. Symington would then take the imagined $300,000 figure and match it against current debt--say, $90,000--to come up with equity of $210,000.
The governor's explanations clearly stunned Manning, who responded that he had never heard of such methods to determine the market value of real estate.
Symington's reply: "There is no one way to value real estate."
The governor's appraisal techniques also baffle accountants and bankers.
"I can't think of an instance where we have ever seen anything like that," says Rob Boosman, Norwest Bank's business banking manager.
Phoenix certified public accountant John Flynn says Symington's creative valuations could present serious legal trouble.
"If it can be proved that he intentionally misstated financial statements for the purpose of making a speculative investment, then that's criminal," Flynn says.
(A federal grand jury is looking into that possibility.)
In his deposition, the governor repeatedly swore that this is how he determined his share of equity in his real estate partnerships when he submitted a personal financial statement to the pension funds. That statement claimed he had $15.3 million in real estate equity, and a net worth of $12 million.
As Symington explained to Manning, "The Symington share . . . is the long-term expectation that I would hope to get out of the projects, okay?"
The pension funds' loan provided long-term financing for Fife Symington's Mercado development in downtown Phoenix, and it came at a crucial time in his quest for the governorship. Despite Symington's persona in early 1990 as a millionaire developer who would run the state like a business, he was broke.
Records show that his tangible assets--$84,000 in savings and $240,000 in income from his development company and other interests--were offset by $5.1 million in personal debt.
Nearly all of Symington's reported $12 million in net worth came from his share of 17 real estate partnerships he managed. In a personal financial statement dated December 31, 1989, Symington claimed his share in those investments was worth $15.3 million.
But deposition exhibits reveal that nearly all of his real estate partnerships were worthless by then. Take away Symington's real estate holdings, and instead of a millionaire developer, you have a failed businessman who is $3 million in the hole.
His financial troubles were manifested in his gubernatorial campaign. Instead of injecting his own capital, Symington financed his campaign with $1.2 million provided by his mother and his wife, both of whom are independently wealthy.
As the campaign progressed, opponents began to question Symington's business acumen. He deflected the criticism with indignance and sweeping generalizations.
But the questions were justified.
Records released last week show that Symington's real estate business was collapsing around him in 1989 and 1990. Lenders were hounding him for delinquent loan payments, a default notice arrived in the mail, property taxes were going unpaid and vendors' bills were past due.
While Symington was campaigning for the governorship, his partnerships were seeking legal advice on bankruptcy and foreclosure options. One partner had so little faith in a project that he offered to give back his share for nothing.
But while he was masquerading as King Midas, Symington was keenly aware that his projects were being devastated by the plunging market.
On February 1, 1990, Symington acknowledged in a letter to an investment banker that the Phoenix real estate market had collapsed and that Symington needed to "modify" the repayment terms on a loan.
"Your insights and observations on how the various lending organizations view the Phoenix market clearly indicate the extent of the market cataclysm we are experiencing," Symington wrote.
Symington also mentioned that at least one of his properties had faltered in the market. "And, unfortunately," he wrote, "the 1515 East Missouri building is no exception to this morass."
The Missouri Street office complex wasn't unique.
Symington's partnerships were struggling across the board--including his grand marquee project, the Camelback Esplanade. No project was as important to Symington's financial survival as the Esplanade. That development--two office towers and a hotel--was the foundation of his claim of financial wizardry.
Symington's December 31, 1989, personal financial statement to the pension funds showed that nearly half of his $15 million in real estate equity was from the Esplanade.
Yet when Symington computed his financial statement for 1989, he knew the first Esplanade office tower was losing millions of dollars. Even worse, Symington's financial stake in the project was imperiled because his source of capital to cover mounting operating losses--Southwest Savings & Loan--had been taken over by the federal regulators.
"This unexpected problem truly creates a financial hardship," Symington wrote to a co-investor in the project, Shimizu America Corporation, on October 19, 1989.
Symington also had difficulty leasing space in the office building. To boost occupancy, he pulled a major tenant out of one of his smaller office complexes and installed it in the Esplanade. The tenant's departure sent the smaller project into a tailspin. Symington's solution to the crisis was simply to report on his financial statement that the firm was occupying both properties at the same time.
Despite Symington's maneuvering, the Esplanade's problems became apparent in January 1990, when Shimizu ordered its own appraisal for the first office tower. In 1987, a Symington-commissioned appraisal had put the building's worth at $67.5 million. But the 1990 Shimizu appraisal--conducted by the same firm that did the 1987 review--said it was only worth $44.5 million.
"We disagreed vehemently with the assumptions in the  appraisal," Symington said in his deposition.
He had no choice but to disagree. There was a $42 million loan against the building's appraised value of $44.5 million, meaning the building's equity was only $2.5 million.
Despite the gloomy appraisal, Symington never changed the value of his share of the project. His 10 percent share of the first office tower translated into a mere $250,000--far less than the $2.65 million equity he had claimed on his December 31, 1989, statement.
Symington even maintained he had $2.2 million in equity in the second Esplanade office tower, a building that was still under construction in a grossly overbuilt market.
In an attempt to prove that Fife Symington deceived the pension funds, attorney Michael Manning has lived up to his reputation as an expert at the forensics of fraud.
Like an archaeologist, Manning has methodically excavated the stratified ruins of Symington's partnerships. What he has sifted out, document by document, is evidence that Symington's real estate empire had collapsed even as he campaigned for governor, and before he obtained the pension fund loan.
Manning's questions during the deposition took the governor back to 1987, when financing for the Mercado, an office and retail development in downtown Phoenix, was being arranged. In October of that year, Symington struck a deal that called for First Interstate Bank to advance a Symington partnership a $10 million construction loan--a loan Symington personally guaranteed to repay.
The 1987 agreement also stipulated that once the project was built, the First Interstate construction loan would be replaced by a $10 million, long-term loan provided by the union pension funds. Once again, Symington personally guaranteed repayment.
Symington swung the 1987 agreement only after several other attempts to obtain Mercado financing failed. And he had to scramble to put together a deal so he wouldn't lose millions of dollars in concessions the City of Phoenix offered for the Mercado.
But a deal was finally struck between Symington and the union pension funds' investment adviser, William E. Miller. Miller committed the pension funds to provide the long-term loan for the Mercado. As part of the agreement, Symington paid Miller's company a $10,000 "loan processing fee," essentially a kickback. (The $10,000 kickback was eventually repaid to the union pension funds after a federal civil suit was filed alleging the payment violated federal law. Miller, meanwhile, was convicted for taking kickbacks on other loans and sentenced to 37 months in federal prison.)
The agreement with the pension funds was enough to get the Mercado rolling. But there were some catches. The funds' loan commitment was good only until June 30, 1990, and the agreement also called for Symington to submit an updated financial statement.
By the spring of 1990, construction of the Mercado was complete and it was time for Symington's partnership to obtain the pension fund financing.
By this time, the pension funds were not enthusiastic about making the loan. Miller had been fired, and the pension funds' new money managers--McMorgan & Company--knew the Phoenix market was ailing. Documents show that McMorgan & Company privately hoped Symington would quietly go away.
But Manning says his clients also understood they were obliged to make the loan--provided Symington's financial statements showed he and his partnerships were solvent and paying their debts.
If the pension funds had known the details of Symington's real estate troubles, Manning asserts, they would not have made the loan. That would have been disastrous for Symington--both financially and politically.
But Symington had a key ally: First Interstate Bank, which still held a $10 million note for the Mercado construction loan.
First Interstate knew Symington's real estate business was a shambles. By March 1990, Symington was so pressed for cash that one of his partnerships couldn't make payments on a relatively small, $2.5 million note First Interstate held on an East Valley shopping center called Alta Mesa. The Alta Mesa project was so decimated that one of Symington's lieutenants wrote First Interstate Bank in February 1990, saying the partnership's investment had been "wiped out."
The First Interstate loan on Alta Mesa had been extended three times because the Symington partnership was unable to make payments. Property taxes were unpaid and a tenant was owed $13,000.
Rather than foreclosing on the property, First Interstate Bank extended the loan again. The bank agreed not to take further action against Symington if he came up with $20,000 by July 1, 1990.
July 1 was a crucial date for both Symington and First Interstate. The only hope First Interstate had of recouping its $10 million construction loan was for the pension funds to issue the permanent loan before June 30.
By extending the Alta Mesa loan to July 1, First Interstate helped Symington avoid a foreclosure, which would undoubtedly have scared off the pension funds.
In his deposition, Symington told Manning that the July 1 extension on the Alta Mesa loan was a coincidence.
Coincidence or not, on May 4, 1990, Symington submitted a grossly misleading financial statement to the pension funds, making it appear that he and his partnerships were healthy and solvent. The financial statement--dated December 31, 1989, but presented as accurate as of May 4, 1990--claimed the governor had $12 million in net worth.
The misrepresentations in the statement are reflected in Symington's valuation of the Alta Mesa property--the investment that First Interstate had been told was "wiped out." Symington told the pension funds that his share of the Alta Mesa property was still worth $250,000.
Symington's financial condition continued to erode as the deadline to obtain the pension fund loan approached.
On June 26, 1990--just seven weeks after he had given a financial statement to the pension funds--Symington made a crucial amendment to that same statement. He told First Interstate that his claim of $15 million in real estate equity was "highly subjective" because of the "current depression in the real estate market." Symington never gave that crucial information to the pension funds. Neither did First Interstate Bank.
Symington says in his deposition that he didn't tell the pension funds that the value of his real estate was "highly subjective" because he didn't think the loan hinged on his financial statement.
"The union pension funds made a loan against the real estate," Symington says. "They weren't lending against my financial statement. It was an asset-based loan."
Based, at least in part, on Symington's fabricated financial statement, the pension funds issued a $10 million loan on June 29, 1990, to the Mercado partnership.
The Mercado partnership immediately paid off the bulk of the construction loan, letting First Interstate largely off the hook.
First Interstate Bank officials declined to comment on their dealings with Symington.
Among Symington's first gubernatorial appointments was a First Interstate Bank executive to head up the state Department of Administration, an agency that oversees millions of dollars in state contracts.
By July 1991, the pension funds' fears about the Mercado loan came to pass. Symington's Mercado partnership couldn't make payments.
After a lengthy legal battle with Symington, the pension funds purchased the Mercado at a trustee's sale in 1993. The pension funds won an $11 million judgment against the governor last July.
The judgment prompted Symington to file for bankruptcy in September, seeking to erase $24 million in debts. The pension funds are expected to contest Symington's attempt to have his $12 million debt to the funds discharged.
Confronted by Manning with overwhelming documentation of errors and omissions in his financial statement, the governor at first admitted that mistakes were made.
But as the mistakes piled up and Manning was able to establish a pattern--Symington consistently overstated the value of assets and understated liabilities--Symington began to invoke his creative accounting methods.
Documents show, however, that Symington hasn't always relied on imagined valuations.
In 1982, for example, a Symington financial statement specifically stated the percentage he owned in each of his partnerships. That statement specified that he had a 15 percent share of the 1515 East Missouri investment. Based on the 15 percent ownership share, Symington correctly claimed $187,500 equity in the project, which had a total equity of $1.25 million.
But by 1989, Symington had made a small but crucial adjustment in the way he reported the value of his investments. His statements no longer specified his percentage of ownership. Instead, Symington simply stated the dollar value of his share.
In the financial statement submitted to the union pension funds, Symington said his share of the 1515 East Missouri partnership was worth $255,750--a figure apparently based on the 15 percent ownership share he had claimed seven years earlier.
But Symington's true ownership percentage in the partnership was far less. In fact, 1989 tax returns disclosed in the deposition indicate that Symington had sold the bulk of his stake and owned a minuscule 0.5 percent in the 1515 East Missouri project.
Symington's 1989 statement overstated his shares of several other properties in this manner as well.
At some point, Symington simply stopped listing his ownership percentage in an investment when determining his net worth. Instead, he began calculating his net worth according to what he hoped the properties would be worth in the future.
The governor's accounting firm--Coopers & Lybrand--didn't necessarily agree with Symington's accounting techniques.
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Symington claimed in his deposition that Coopers & Lybrand periodically reviewed his "methodology" for preparing financial statements, but Symington avoided stating that the Big Six accounting firm ever approved it.
"Well, I don't know if 'approve' is the right word," Symington said.
A year after the pension funds loan was made, Coopers & Lybrand reviewed the governor's finances at the insistence of the lenders. Coopers & Lybrand's May 1991 assessment of Symington's finances reached a much different conclusion. Instead of being worth $12 million, as Symington had claimed to the pension funds a year earlier, Symington was actually $23 million in the hole.
The $15 million in real estate equity Symington claimed when he obtained the $10 million loan from the pension funds had vanished into thin air.