With jury selection for Governor J. Fife Symington III's criminal trial only weeks away, Symington's bankruptcy attorney last week manufactured a bombshell that the Arizona Republic obligingly splashed on its front page.
The story contained numerous inaccuracies. After New Times brought the errors to the Republic's attention on Monday, the newspaper on Tuesday printed a second story that corrected some of the errors. Conspicuously missing from the second story, however, was any mention that if the Republic had checked its own files, it would have known the first story was erroneous.
The first story appeared on April 4, after Symington's bankruptcy attorney, Robert Shull, told the Republic that a group of union pension funds that seeks to prevent Symington from erasing a $12 million debt already has been repaid by other parties. The debt stems from a loan the pension funds made to finance Symington's failed Mercado development in downtown Phoenix.
Shull told the Republic that a "confidential settlement" of a lawsuit resulted in a $93 million award to the pension funds. Shull said a portion of the governor's Mercado debt may have been paid in that settlement.
Shull's statements were apparently intended to buttress the governor's contention that the pension funds are challenging his bankruptcy for political reasons. Shull and the governor's criminal attorney have claimed that the pension funds experienced no significant loss from a $10 million Mercado loan that Symington personally guaranteed but did not repay. The loan was made in 1990.
The Republic's April 4 story was titled "Pensions' double-dip suspected." The salient information, the story said, had been "disclosed" by Shull last week.
Symington's attorneys had never broached the November 1994 "confidential settlement," the Republic reported, because "it was discovered only this week by Symington's attorneys."
It's true that the pension funds sued their former investment manager--William E. Miller of Mitchell Hutchins Investments (MHI)--for making poor investments. It's also true that the pension funds settled that lawsuit for $93 million.
But Shull's contention that the settlement was confidential and secret--and suddenly newsworthy--is false.
The Republic should have known this--the paper reported on the settlement.
The U.S. Department of Labor, which joined the pension funds in suing MHI, issued a press release about the settlement, and the Republic reported on it on November 3, 1994. The piece, by Guy Webster, appeared on the front of the Republic Business section, and was headlined: "$93 million settles pension-funds suit."
New Times reported on the settlement in an October 1995 story that focused on an apparently illegal kickback Symington had paid to MHI.
Contrary to the Republic's April 4 report, the settlement was not confidential; copies of the agreement have been available at the U.S. District Court in Phoenix for more than two years.
Furthermore, even if Shull had failed to read the 1994 Republic story or the 1995 New Times article, his contention that he was unaware of the settlement rings hollow. All Shull needed to do was walk down the hall of his Phoenix law firm--Mariscal Weeks McIntyre & Friedlander--and knock on the door of partner Gary Birnbaum. Birnbaum represented at least three lawyers who were sued during the pension funds' civil suit and was privy to the settlement, says Michael Manning, an attorney representing the union pension funds in bankruptcy court.
Shull declined to comment on the record in an interview with New Times--other than to say he continues to seek additional documents to determine whether the pension funds attributed any of the $93 million settlement to Mercado-loan losses.
Reached at the Republic Monday afternoon, political editor Dave Wagner said he would return New Times' call "in five minutes." He didn't. Reached at his home on Tuesday morning, Wagner said he had been "forbidden" to return the call. The reporter who wrote both stories, veteran Pat Flannery, did not return phone calls seeking comment.
Flannery's second story, published April 8, was headlined "Union-funds settlement was public." The story paraphrases Manning as saying that, contrary to Shull's claims, the pension-funds settlement was not confidential and had in fact been mentioned in depositions in the bankruptcy case. The second story also paraphrases Manning as saying that "local newspapers" had reported on the settlement in 1994. It doesn't mention that the Republic itself reported the story.
Aside from the errors regarding the settlement's confidentiality, the pretext for the story--Shull's contention that the $93 million payment to the pension funds includes the Mercado--also appears dubious. The settlement was based on loans made by the pension funds--at Miller's direction--between 1980 and 1988. The pension funds didn't make the Mercado loan until June 1990.
And the $93 million settlement was not paid by borrowers, such as Symington, who defaulted on pension fund loans. The bulk of the settlement was paid by the corporations that owned Miller's company, MHI.
"What was lost on the Mercado had nothing to do with the damage calculations," says Manning.
Shull is also claiming that Symington is not responsible for a loan that came as a result of shoddy underwriting practices by Miller.
"If the loans shouldn't have been made, what was the basis for the loss?" Shull asked in last week's Republic piece.
The pension funds' loan to Symington is far more complicated than Shull suggests. While the commitment to make the loan was made by Miller, the actual funding of the loan came nearly three years later--under far different conditions. And Symington's and Miller's role in obtaining the pension funds' initial loan commitment was questionable, to say the least.
In October 1987, a Symington-led partnership reached a three-way agreement with First Interstate Bank and the union pension funds to build the Mercado. First Interstate agreed to advance a $10 million construction loan while the pension funds, represented by Miller, agreed to provide permanent financing once the project was built.
As part of the agreement, Symington's partnership paid Miller a $10,000 "loan processing fee" in connection with receiving the pension funds' $10 million loan commitment. The pension funds would later allege in their lawsuit against Miller that the $10,000 payment was essentially a kickback that violated federal law. (The Republic has never reported the $10,000 payment or the claim that it was illegal.)
The Mercado project wasn't the only loan Miller made on behalf of the pension funds. He invested nearly $250 million of the pension funds' money in scores of Arizona real estate projects. By 1988--a year after Miller and Symington reached agreement on Mercado funding--the Arizona real estate market was in steep decline.
The real estate collapse exposed Miller's poor investment advice, which resulted in huge losses to the pension funds. It also exposed Miller's illegal tactic of accepting payments from borrowers to facilitate loans.
The union pension funds fired Miller in November 1988 and brought in McMorgan & Co. to manage its accounts. Four months later, the pension funds filed a lawsuit in U.S. District Court in Phoenix against Miller and the companies he worked for.
Meanwhile, McMorgan & Co. reviewed the pension funds' real estate portfolio and realized Miller had committed them to issuing a $10 million loan on the Mercado to Symington's partnership once Mercado construction was completed in the spring of 1990.
McMorgan & Co. officials claim they were reluctant to issue the loan because of the declining real estate market in Arizona. But the firm was also threatened with a lawsuit from First Interstate Bank (now Wells Fargo) if it didn't provide the permanent financing as Miller had promised in 1987.
McMorgan & Co. refused to issue the $10 million loan unless Symington signed a personal guarantee to repay it. "We had one of those eyeball-to-eyeball meetings," says Paul Morton, a McMorgan & Co. vice president. "We needed to collateralize this loan because of the changing market."
Symington signed the personal guarantee on June 29, 1990. At the same time, he submitted a personal financial statement indicating that he and his wife held community assets worth $11.9 million. (The pension funds allege in a civil suit filed in bankruptcy court that Symington lied on this and other personal financial statements.)
After obtaining Symington's personal promise to repay the loan, McMorgan & Co. issued the Symington partnership the $10 million. That was the last the pension funds ever saw of that money.
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The pension funds sued Symington in Maricopa County Superior Court in December 1991 after Symington, who had since been elected governor, failed to repay the loan. In July 1995, the pension funds won a judgment against Symington for the debt, which with interest had grown to $12 million. Symington filed for bankruptcy two months later, seeking to erase $25 million in debts, including the $12 million judgment to the pension funds.
Miller, meanwhile, attracted the attention not only of the pension funds, but also federal prosecutors. In June 1991, the pension funds amended their civil suit and accused Miller of accepting an illegal payment from Symington. That payment was later turned over to the pension funds by the owners of MHI.
Federal prosecutors in Tucson indicted Miller in November 1992 for taking under-the-table payments from a Tucson real estate broker in exchange for loans from the pension funds. Miller, and the broker, were convicted and sentenced to three years in federal prison in March 1994.
Symington's $10,000 payment to Miller was not targeted by prosecutors because it was later repaid and it had been documented in the October 1987 Mercado loan-commitment papers.