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Might He Be Innocent

O.J., DeLorean, North -- and Symington?
At first blush, the federal government's 23-count criminal indictment against Arizona Governor J. Fife Symington III appears to be a devastating document.

The indictment charges that Symington knowingly misled five lenders about his financial health in connection with nearly $150 million in loans for seven real estate projects he managed. All of those developments failed.

Once Symington became governor, prosecutors allege, Symington used the power of his office to try to extort one lender that wouldn't cooperate with his demands to be released from a $10 million loan-repayment guarantee.

The government rounds out its case by claiming the governor lied in sworn testimony at an October 31, 1995, bankruptcy examination about his financial condition during a crucial period in early 1990.

The government's case is backed by thousands of pages of documents. Those records include a multitude of conflicting personal financial statements that appear to show Symington claiming to have multimillion-dollar positive and negative net worths at virtually the same time.

Indictments, however, can be misleading. There are many complex, high-profile cases where prosecutors appeared to have overwhelming--almost irrefutable--evidence, only to lose the case; O.J. Simpson, John DeLorean and Oliver North are but a few of the defendants in such cases.

Criminal lawyers, real estate experts, law professors and accountants say they wouldn't be surprised to see Fife Symington's name added to the list of prominent people who escaped final conviction, despite an apparent plethora of evidence against them.

Like Simpson, DeLorean and North, Symington is represented by the best legal counsel money can buy. The governor's attorneys know the intimate details of the government's case and are confident they can win at trial.

"Is there a criminal case?" Symington's attorney John Dowd rhetorically asks. "The answer to this question is no."

Dowd, a former federal prosecutor who once headed the U.S. Department of Justice's white-collar criminal task force, knows the strengths and weaknesses of the 23-count indictment against Symington better than anyone. He's been discussing the case with the government since late 1991 and submitted five lengthy memorandums between May 1993 and January 1996 arguing why Symington should not be indicted. And Dowd has the expertise and resources of the renowned Washington, D.C., law firm of Akin, Gump, Strauss, Hauer & Feld behind him.

A common theme runs through Dowd's memorandums to federal prosecutors: Mistakes were made, but no harm was intended.

"Fife Symington, while perhaps negligent, did not knowingly submit false statements to any financial institution," Dowd wrote federal prosecutors on March 17, 1994.

Dowd's thesis--that Symington simply made "errors and omissions" in his financial statements and never intended to mislead lenders--continues to be the core of Symington's defense. The mistakes-were-made strategy cannot simply be dismissed as a desperate legal tactic.

"We would all be making a mistake if you just assume what these documents show are damning and that he's toast," says Phoenix criminal attorney Mark Budoff.

Or as Phoenix attorney Murray Miller puts it: "I think the government will have to go a long way to prove he defrauded banks and is guilty of a crime."

Miller, by the way, helped prepare former governor Evan Mecham's defense against state charges of financial wrongdoing. Contrary to virtually all expectations, Mecham was acquitted.

Defense No. 1: Honest Mistakes That Fooled Nobody
If Symington does escape conviction, it will not be because there is some legally fatal lack of evidence against him.

Prosecutors are using Symington's own personal financial statements and tens of thousands of pages of other financial records to build their case. They also have taken grand jury testimony from more than 300 witnesses.

To buttress what appears to be an all-but-ironclad case, prosecutors reached an agreement in September with Symington's former personal, business and campaign accountant to assist the government in its case against the governor. As part of a settlement of a federal investigation earlier this year, the Big 6 accounting firm of Coopers & Lybrand admitted that Symington had misled the firm by presenting false financial information to its accountants.

"Symington's December 31, 1987, 1988 and 1989 statements of financial condition contained material errors and omissions," Coopers & Lybrand stated in a September press release.

The government's case hinges largely on proving that Symington knowingly submitted these purportedly false financial statements to an array of lenders.

The government's settlement with Coopers & Lybrand seemed to seal Symington's fate. The United States said Fife Symington had falsified financial statements; Symington's own accountants had agreed.

But court records released last month suggest that the governor's defense is not as hopeless at the micro level as macroanalysis would make it seem. Detailed correspondence between Dowd and federal prosecutors during the past three years--correspondence recently filed into the official court record--reveals that the governor's attorneys have long claimed Symington's personal financial statements were prepared by Symington without the help of professional accountants. Those statements were, in his attorneys' view, simply the governor's best estimates of his financial condition, not the representations of experienced accountants.  

"Thus the government should not hold Fife Symington to a standard that only a professional accountant could attain," Dowd stated in a January 1996 memorandum to prosecutors.

In the course of preparing those statements, the governor's own attorneys acknowledge, errors were sometimes made: Debts were occasionally omitted, valuations of real estate overstated and understated. But the errors, Symington's attorneys argue, were not intentional and had no significant impact on Symington's net worth.

"What Fife Symington provided on his personal statement were his best estimates of the value of his share in each of his development partnerships. If errors occurred in this process, they were inadvertent," Dowd wrote federal prosecutors in May 1994.

The claim that Symington's financial statements were merely "best estimates" is but the first line in a defense that has many layers.

Defense No. 2: It's the Real Estate, Stupid
Dowd has long claimed publicly and in letters to prosecutors that the accuracy of Symington's financial statements was all but irrelevant, because lenders didn't rely on them when they made development loans to Symington's partnerships.

"Lending institutions looked to the real estate asset being developed for repayment, not to Fife Symington personally," Dowd said during a post-indictment press conference last June.

And Dowd won't have much trouble finding experts to support the contention that financial institutions extended capital based on the value of the development project rather than the stated net worth of the developer.

"Nobody at the time looked at the developer's assets to do anything," says Jay Butler, director of Arizona State University's Real Estate Center.

Butler says lenders looked to developers' assets for back-up funds, in case a project didn't perform quickly. But few lenders expected developers to have most, if not all, of their projects fail.

Lenders were primarily looking at a developer's assets to see if a developer could support a project during the first couple years of construction and early leasing.

"Do you have the assets, the capability to support this building for a period of time, say, three years, during its shakedown cruise?" Butler says was the question most lenders had of developers.

While Butler and others point to possible explanations Symington can use to counter the government's evidence of multiple financial statements, at some point a pattern of inconsistencies could come back to haunt Symington.

If the government can show Symington's financial statements were consistently inflated by hiding debts and overstating assets, then the governor's defense would be greatly weakened.

"The issue is going to be did he outright, knowingly lie," Butler says. "I think that is going to be tough to prove."

Defense No. 3: The Banks Knew
The third line in Symington's first tier of defenses involves the amount of knowledge lenders actually had about Symington's overall financial condition. The financial statements aside, Dowd claims, lenders had access to a broad array of fiscal information about Symington, including income-tax returns, documents detailing his $800,000 trust fund and his company's business records.

"Fife Symington could not have intended to defraud these lenders when he well knew that any valuation he listed for a project was subject to scrutiny by the lender if the lender saw fit to question the valuation," Dowd wrote federal prosecutors in January 1996.

Lenders eventually did begin to question Symington's valuation of his real estate projects. The union pension funds that lent Symington $10 million for the Mercado development in downtown Phoenix demanded a financial statement prepared by an accounting firm in mid-1991. That statement, prepared by Coopers & Lybrand, showed Symington's net worth had collapsed. In May 1990, Symington had prepared a financial statement that showed his net worth to be $11.9 million; the new Coopers & Lybrand statement showed him to have a negative net worth of $22.6 million--a swing of more than $34 million in a year.

But it is this amazing swing that, in Dowd's estimation, proves Symington had no intention of defrauding his lenders. Dowd claims that Symington distributed the Coopers & Lybrand statement to all his lenders--even though it had been requested only by the pension funds--thereby revealing, by his own hand, that he had made errors and omissions on his earlier financial statements. (Prosecutors dispute Dowd's contention that all lenders were notified about Symington's sudden financial collapse.)

"One who intends to defraud an institution by errors and omissions does not voluntarily order the disclosure of all the errors and omissions in his estimates," Dowd says in court papers. "This single act by Governor Symington is a clear demonstration that his errors and omissions were not the product of wrongful intent or motive."  

After receiving the Coopers & Lybrand statement, none of the lenders called its Symington-related loans, Dowd says.

As often happens with defense attorneys, Dowd overstates his case. The union pension funds did sue Symington in Maricopa County Superior Court after he defaulted on a personal guarantee to repay the $10 million Mercado loan. And the pension funds won a judgment in August 1995 that has since grown to $12 million. The judgment eventually forced Symington to seek bankruptcy protection in September 1995. Three fraud suits have since been filed against the governor in bankruptcy court, two by creditors and one by the trustee.

So far, however, only the pension funds are claiming Symington fraudulently obtained a loan. The rest of the lenders--First Interstate Bank (now Wells Fargo), Valley National Bank (now Bank One), Dai-Ichi Kangyo Bank and Citicorp Real Estate, Inc.--have remained publicly silent concerning Symington's loans.

Because only one lender is alleging, on its own, to have been defrauded by Symington, the government will have a difficult time trying to show that the lenders were deceived by Symington's financial disclosures, Dowd says. And what Dowd says in court papers is more than lawyerly windiness.

Symington's lawyers have had at least five years to prepare their general defense. As a result, the governor's legal team is well-versed in the fine points of each entry on every financial statement Symington has prepared since 1986.

The correspondence between Dowd and government prosecutors reveals that the grand jury dug deeply into the details of Symington's financial life. Prosecutors repeatedly raised a series of questions about certain transactions, loans or real estate valuations, and Dowd responded with lengthy explanations.

In some instances, Dowd's replies appeared to be accepted as a reasonable explanation by prosecutors. At other times, the government would repeatedly ask for more information.

In the months before and after the indictment, the correspondence reveals that prosecutors no longer believed Dowd was always providing truthful responses to their questions.

"Moreover, as we have previously advised you, we believe that those submissions contained a number of material false statements," prosecutors wrote Dowd in July 1996.

Whether Dowd was truthful remains to be seen. The submissions do, however, make one thing clear: There are plenty of possible explanations that can be given for questionable entries on Symington's financial statements.

All Dowd has to do is find experts to provide plausible explanations to a jury for each of those entries; a barrage of expert testimony supporting the governor's "honest mistake" line of defense may raise reasonable doubt of Symington's guilt in jurors' minds.

And finding expert witnesses to support Symington's case won't be difficult.

Defense No. 4: The Banks Screwed Up
Phoenix certified public accountant Mark Harris was born and raised in the Valley and has spent his career tracking the real estate market. He's seen the market rise and fall through several real estate cycles in his 54 years of life.

Although he doesn't have intimate knowledge of the details of Symington's case, he knows enough to believe the government will have a very difficult time proving Symington intentionally deceived lenders.

Harris has one primary problem with the government's case: He believes lenders in the late 1980s had to have known that Symington's financial health was intimately tied to the Phoenix real estate market--regardless of the numbers on his financial statement.

"Any lender, anyone with any sophistication at that point in time, would have had to have known that if real estate values in Arizona crater, so would Symington," he says.

It was common knowledge by 1987 or 1988 at the latest that real estate values were declining dramatically in Arizona and throughout most of the country, Harris says. A lender reviewing Symington's financial statements would quickly have seen that his millions of dollars in net worth were completely tied to a healthy real estate market.

Symington's December 31, 1989, financial statement, for example, shows Symington had $15 million in real estate equity. But millions of dollars of debts cut into that equity, giving him an overall net worth of $11.9 million. Any serious decline in real estate values would immediately cut into Symington's wealth.

The government alleges that Symington knew his December 31, 1989, financial statement, among a dozen others, grossly overstated his net worth because he overvalued his real estate interests.

But Harris and other experts say placing valuations on real estate--especially during a changing market--is extremely difficult.

"The governor is going to find it very easy to find a lot of people who will say how difficult it is to value an interest in real estate . . . especially since he was engulfed in a plunging market in Arizona," Harris says.  

Another problem for the government, accountants say, is that it is the lending institutions' responsibility to do the proper review of a developer's financial statement to make sure values are not overstated.

"Even if these financial statements were fraudulent, it is the lenders' responsibility to do their due diligence before they lend money," says Phoenix CPA John Flynn.

But nobody can accuse Arizona lenders of being prudent in the late 1980s. Banks continued lending money on real estate projects long after it became clear the market was overextended. Few lenders anticipated the bottom of the real estate cycle would be so deep and take so long to reach, says Flynn.

"The banking climate at the time was, 'It's anybody's guess as to what the real values are of anything, so let's just go ahead and make the loans,'" Flynn says.

In hindsight it was clearly bad business practice by the banks, he says.
"Whether there was criminal intent on Symington's part is more difficult to say," Flynn says.

Defense No. 5: Everything's Just Too Damn Confusing
Even though there is a long list of experts ready to support Symington's business practices as reasonable, Valley attorneys say the governor's barristers will likely also rely on a standard defense in white-collar cases: confusion.

The financial twists and turns in Symington's case are complicated enough to confound a roomful of Harvard MBAs, let alone a dozen commoners plucked from Maricopa County computers to serve on a jury.

The case involves numerous complicated financial statements, submitted on different dates to different lenders. Simply keeping track of what financial statement was filed when and for what reason--let alone understanding nuances of each statement's entries--will be a difficult task for any jury.

"In a lot of instances, jurors get very confused and confounded," says Phoenix attorney Murray Miller.

A confused jury works strongly in favor of the defense. Confusion often equals doubt, and reasonable doubt means acquittal.

There will be plenty of opportunity for confusion in Symington's trial.
For example, the government must prove that Symington's valuations of his real estate were false and that he knew them to be false, Miller says.

Most experts say the equity value of real estate is determined by taking the current market price and subtracting debt. In other words, someone who owns a home with a market value of $150,000 and a $140,000 mortgage sitting on it has equity of $10,000 in the home.

Symington, however, has said in sworn statements given in his bankruptcy case that he based his equity value in real estate projects on a projected future value of the projects rather than current market value.

While Symington's method would not be used by a certified public accountant to determine real estate values, Miller says it is not an unreasonable method for a developer like Symington, who intends to hold a property for a long period and has an optimistic view of the future.

"If you project it and put down the numbers that you think will probably hold true three, five, six years from now, and the economy takes a severe downturn, the financial institutions will want the money right away. They may scream fraud, but that is not the case," Miller says.

Symington's valuation methods may be unorthodox, Miller says, but that doesn't necessarily mean he intended to defraud lenders.

Defense No. 6: Fife Are Dum
After confusing the hell out of jurors, defense attorneys in white-collar cases often claim their clients aren't clever enough to have pulled off the complicated sort of deception the government alleges.

Valley criminal defense attorney Mark Budoff says Symington will likely attempt to defuse the government's allegation that he intended to defraud lenders by claiming lenders were too smart to be conned by a mere developer.

"Sure, I made those [financial] statements," Budoff says Symington's attorneys will likely acknowledge. "The record speaks for itself. But it was never an intent to defraud anyone."

The defense is also likely to claim that bankers know how to read financial statements and investigate net worth, Budoff predicts.

"How can I pull the wool over their eyes? I'm just a businessman," Budoff says to describe this potential defense theme.

Defense No. 7: Fife Are Careless
Another tactic of use to defendants such as Symington involves attention to detail. They often claim they are big-picture types who don't pay close attention to minor details like personal financial statements.

Former U.S. attorney Melvin McDonald says the defense will likely say Symington waltzed through his preparation of financial statements because they were a relatively small factor in obtaining loans.  

"They can say, 'Here's a guy who isn't involved in the minutiae. He was a general-interest kind of guy when he filled out the financial statements,'" McDonald says.

This defense could come in handy when Dowd has to explain why Symington omitted half a dozen debts from various financial statements over the years. Omitting debts from personal financial statements is considered a cardinal sin in financial reporting.

Lenders can always check on the value of assets listed, but if a borrower hides debts, it is very difficult to accurately determine net worth.

Dowd, as usual, has a host of responses to the government's allegations that Symington purposely hid debts to inflate his net worth.

Dowd says some of the loans were not personal debts, therefore Symington didn't need to report them. One loan--a $900,000 note from Symington's mother--didn't need to be listed, Dowd says, because his mother told Symington he didn't need to repay the money.

Other loans, he says in written submissions to the government, were so minor that leaving them off the financial statement had no material impact on Symington's net worth.

Most important, Dowd argues, there was nothing sinister about leaving off certain loans that should have been reported on the financial statements, but weren't.

"There is no evidence that these notes were intentionally omitted from the statements; rather, it appears they were oversights," Dowd stated in a May 17, 1993, letter to prosecutors.

Defense No. 8: What About Him? And Him? And Him?
Finally, Symington's attorneys can turn to one of the most reliable defense tactics in white-collar cases: Everybody was doing it.

"The truth of the matter, the defense is, folks, this is the way deals were done back at that period of time," says McDonald, who assisted convicted financier Charles H Keating Jr. in his civil fraud trial.

The "everybody was doing it" defense will come in particularly handy when Symington is asked to explain why he was circulating different financial statements at the same time. Arizona State University law professor Dale Furnish says many developers were circulating different financial statements in the 1980s.

"Was it unusual that a developer would give one financial statement to a bank one day and a different financial statement to another bank the next day? No," Furnish says.

Developers would customize financial statements depending on the type of loan they were seeking. If the loan was relatively small, a developer might submit a very conservative financial statement. If it was a larger loan, some of the values on the statement could be inflated somewhat.

As long as the developer listed all his assets, then lenders could always review property valuations with their own experts, Furnish says.

This is not to say the developers could run amok with widely varying versions of financial statements, Furnish says.

If developers such as Symington concealed debts, then lenders would have no way of making an accurate assessment of the developer's net worth. In such cases, lenders, and possibly prosecutors, could squarely lay the blame for submitting a false financial statement on the developer.

In Symington's case, Furnish says there really is only one crucial question concerning his financial statements that needs to be resolved.

"The worst thing that could get him into trouble is if he had a debt or two or three that he didn't list," Furnish says.

The government alleges exactly that.

Defense No. 9: The Kitchen Sink
One of the strongest charges in the government's case against Arizona Governor J. Fife Symington III is also one of the simplest to explain. And because it is so simple, Dowd will likely have to pull out all the stops--blaming others, confessing to inadvertent error and boring or confusing the hell out of the jury--if he is to defend his client successfully against it.

The government accuses Symington of preparing two different financial statements, both dated December 31, 1990. Those statements--which showed net worths that varied by $9.5 million--were later submitted to two different lenders.

Not only did Symington prepare two statements for the same date; the government also alleges Symington then lied to a third lender by falsely claiming he had never prepared a December 31, 1990, financial statement.

In May 1992, Dai-Ichi Kangyo Bank asked Symington for a copy of his December 31, 1990, financial statement. Rather than sending either of the two statements he had prepared, Symington sent Dai-Ichi a letter claiming he had a net worth of $5.4 million as of December 31, 1990.

The government charges Symington knew the $5.4 million net worth was a phony number because he had prepared another financial statement using current real estate values that showed he had a negative net worth of $4.1 million.  

The two radically conflicting financial statements appear to support the government's contention that Symington prepared rosy financial statements when he wanted a loan and presented a negative outlook when it was time to repay.

Dowd has told prosecutors that Symington used different methodologies to prepare the two radically different financial statements. The one that shows a $5.4 million positive net worth was, Dowd says, based on Symington's long-term view of the value of his real estate projects. The other, which shows a negative net worth of $4.1 million, was based on the current value of his real estate, the lawyer claims.

Dowd says both financial statements are correct.
The government disagrees.
In September 1991, Citicorp Real Estate, Inc., also asked Symington for a copy of his December 31, 1990, financial statement.

Rather than sending either of his two December 31, 1990, financial statements, Symington simply sent Citicorp a letter claiming he had not prepared a December 31, 1990, financial statement.

"In fact, as defendant Symington well knew, he had prepared two personal financial statements dated as of December 31, 1990," the government alleges in count 20 of its indictment.

Coopers & Lybrand, in its settlement agreement with federal prosecutors, says one of its former accountants, the late John Yeoman, helped draft the deceptive Citicorp letter later sent by Symington. Public records have not revealed Dowd's reply concerning Symington's Citicorp letter. Dowd last week declined to discuss the case.

The criminal charges stemming from the letters Symington sent to Dai-Ichi Kangyo and Citicorp appear to be free from the complexities that dog much of the rest of the case against Symington. It is such simple examples of apparent deceit that will likely make or break the criminal case against the governor, says ASU law professor Dale Furnish.

"If he's lying to Dai-Ichi by concealing debts and by making it look like he's got more net worth than he's got, then he's in trouble and there's not much you can do to defend that," Furnish says.

But Symington knows he has many cards to play before his case is concluded. The governor has long lambasted courts for providing too many rights to the accused.

"The courts have fashioned a broad range of criminals' rights that greatly hinder every phase of criminal justice, from arrest to trial to punishment," Symington told members of the Arizona Town Hall meeting last month.

Despite Symington's public disdain for such rights, it's clear his defense intends to exercise every one.


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