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Shallow Victories

For most of the past seven weeks, Governor J. Fife Symington III has spent his days in U.S. District Court busy scribbling in a black, loose-leaf binder, seldom raising his head.

But on Friday, June 27, Symington leaned back in his chair, stared at the witness and jury and thoroughly enjoyed himself.

The third pillar of his grand defense plan was taking shape, and he and his attorneys could barely suppress their glee.

After attempting to shift blame for Symington's many inaccurate financial statements to his longtime secretary, Joyce Riebel, and former chief financial officer, Jim Cockerham, Symington's defense was now attacking the work of a dead man.

Beaming with delight as the lunch recess was called, Symington stood up from his defendant's chair and leaned over to his defense attorney to express his pleasure.

"There it is," Symington said to John Dowd, one of Symington's three defense attorneys from the high-powered Washington, D.C., firm of Aiken, Gump, Strauss, Hauer & Feld.

The "it" that so excited Symington was testimony by former Coopers & Lybrand accountant Katherine Wrigley, who had avowed that she consulted her firm's tax department in the late 1980s when she was assisting Symington in the preparation of his personal financial statements.

Symington's primary defense in his 22-count criminal trial is that he relied on Coopers & Lybrand personnel to alert him to any errors in his 1987, 1988 and 1989 financial statements. Symington's attorneys argue that once his accountants checked off on the statements, Symington had every reason to believe they were accurate.

Witnesses have already established that Coopers & Lybrand's tax department had detailed business records of The Symington Company and Symington's personal tax returns. Close examination of those records by Coopers & Lybrand personnel should have revealed Symington's financial statements were filled with inaccuracies.

Symington, Dowd has repeatedly claimed, was unaware of the mistakes because he was preparing the financial statements from memory. Now, Symington was hearing testimony that Wrigley indeed had asked the chief of the tax department to look at Symington's financial statements for "a reality check."

Wrigley turned to John Yeoman, Symington's friend and tax accountant who later became Symington's gubernatorial campaign treasurer.

Yeoman, Wrigley testified, "was familiar with much more of Mr. Symington's personal affairs than anyone" in Wrigley's audit department.

Wrigley testified that Yeoman looked over Symington's 1987, 1988 and 1989 personal financial statements, and only one time did he make an adjustment--a relatively minor one at that--to what Symington had prepared.

To Symington's defense team, Wrigley's testimony about the tax department's involvement was a godsend.

"Now, if they have all this information and only come back and correct [one partnership], and that's conveyed to Fife Symington, don't you think he's entitled to believe everything else is okay?" defense attorney Terry Lynam told reporters outside the courthouse.

No one has testified about how closely Yeoman examined Symington's financial statements, although Wrigley testified that Yeoman returned the 1987 statements to her in "less than two hours."

Yeoman won't testify. He was killed in April 1996 after running a stop sign and being struck by a speeding, three-quarter-ton pickup truck.

Delighted as Symington and his hired guns were last week, other evidence undercuts their contention that it was a naive Symington who blindly accepted Coopers & Lybrand's stamp of approval on his financial statements.

Symington's handwritten notes reveal he understood exactly what was at stake--and what he wanted to avoid at all costs--when he hired Coopers & Lybrand in the fall of 1987.

By the spring of 1987, Symington's real estate business was faltering. It needed another injection of cash. And the only way that would come was to build another building and collect developer fees.

Symington's potential cash cow was the Camelback Esplanade. After being spurned by Arizona lenders who refused to lend money on such a massive project as the Phoenix real estate market was sliding into recession, Symington turned to Japan.

In May 1987, he was in the final stage of negotiations with two Japanese corporations that would provide more than $100 million to get construction rolling, and, more important, start generating developer fees.

The principal lender was Dai-Ichi Kangyo Bank, one of the 10 largest banks in the world at the time. Evidence introduced in the trial shows that while Dai-Ichi Kangyo Bank was willing to lend Symington $79 million for the first phase of the project, it also wanted assurance from Symington that he had sufficient wealth to chip in up to $9 million if needed.

The bank insisted that Symington maintain a minimum net worth of $4 million throughout the term of the construction loan, or face default. This requirement didn't pose an immediate problem for Symington because he was reporting a net worth of about $10 million on the financial statements he prepared and circulated to Arizona lenders.

 

But Dai-Ichi wasn't satisfied to accept the financial statements prepared by Symington. Dai-Ichi wanted the statements reviewed by a major accounting firm that would issue a letter certifying the accuracy of Symington's statements to the bank. Unlike the net-worth requirement, this stipulation was a huge concern for Symington.

His handwritten memos dated May 20, 1987, reveal the quandary Symington faced if his personal financial statement was subjected to a formal accounting.

"The CPA firm, in order to issue the letter [attesting to his net worth], will, in the end, decide on the value of my properties--not me!" Symington scribbled on a memo titled "Symington Issues."

Symington appears to have realized that his reported net worth of $10 million was grossly overstated--that the values he placed on his real estate assets were far higher than what an accounting firm would conclude. Symington feared the accounting firm's lower real estate valuations would slice more than $6 million off his net worth.

"I might disagree, for good reason, but, taken to the extreme, they could put me in default re $4.0," his notes state.

If Symington failed to meet the $4 million net-worth test, Dai-Ichi could jettison him from the project, and Symington could lose the developer fees he desperately needed.

Symington turned to Jim Cockerham, The Symington Company's chief financial officer, for advice. Cockerham testified he reviewed with Symington several different types of services accounting firms could provide. The services ranged from the most rigorous, under which auditors would verify financial information and issue an opinion of its accuracy, to a cursory scan of the documents to check for obvious mistakes.

Cockerham testified earlier in the trial that Symington had made it clear "he didn't want an audit" of his financial statements.

Symington's notes indicate he was ready to push hard in negotiations with Dai-Ichi for the least rigorous accounting review. Dai-Ichi bowed to Symington's demands.

Loan documents signed one week after Symington's May 20, 1987, handwritten memo show that Dai-Ichi agreed to allow Symington to hire an accountant to simply review the "methodology" Symington used to value his real estate and, hence, his net worth, and make sure it was consistent with the methodology used in prior financial statements.

Symington was off the hook.
Instead of facing a possible audit of his personal financial statement, or an even less rigorous "review" of his statements, Symington was allowed to define the accountant's scope of work to fit Symington's needs.

Six months later, in November 1987, Symington hired Coopers & Lybrand to conduct an examination of his soon-to-be-completed December 31, 1987, financial statement that would be forwarded to Dai-Ichi to meet the bank's $4 million net-worth requirement.

The examination Symington hired Coopers to do, however, was not an examination in the strictest sense.

Instead, Coopers & Lybrand signed an engagement letter with Symington to follow "agreed-upon procedures" in examining Symington's 1987 financial statements for a $2,000 fee. Symington personally negotiated with Wrigley what duties Coopers & Lybrand would perform for the agreed-upon-procedures report, or AUP, Wrigley testified.

The AUP report Symington sought would only compare a November 1, 1987, financial statement he sent to Dai-Ichi with his December 31, 1987, report that would also go to the bank. The accountant's work was limited to determining whether Symington used the same methods to determine his net worth on both statements.

Symington later hired Coopers & Lybrand to conduct identical AUPs for his 1988 and 1989 financial statements.

Symington agreed in writing to be responsible for providing Coopers & Lybrand with accurate financial information concerning all his assets and liabilities.

Wrigley testified that Symington also agreed that Coopers & Lybrand was not responsible for verifying the accuracy of the information he provided; nor would the firm provide an opinion on the accuracy of his statement.

"My understanding was that Mr. Symington didn't want us to spend any more time than we minimally felt necessary in performing this procedure. He didn't want to spend money on procedures that he had no need for," Wrigley testified.

The cursory and unusual nature of the work requested by Symington left Wrigley uneasy. Wrigley testified that she and others at Coopers & Lybrand were "concerned about the possibility that we would associate ourselves with a statement that had gross errors in it."

But the company made an internal decision, she said, to do the work because one of the firm's tax partners, John Yeoman, was familiar with Symington's personal finances. Yeoman prepared Symington's tax returns. Yeoman volunteered to look over the report "and advise us if he saw anything out of line," Wrigley testified.

 

Wrigley told the jury she spent less than eight hours reviewing Symington's financial statements, including an hour meeting with Symington to go over each item on the statement.

Symington never expressed any concern about the valuations he placed on his assets and liabilities, Wrigley testified.

Before issuing the final report, Wrigley says she passed on Symington's financial statement to Yeoman for his review--a task he completed in less than two hours.

Yeoman reported that Symington had overvalued his ownership share in one phase of the Esplanade project--instead of the 10 percent share Symington was reporting, it was actually 8 percent. Wrigley testified that she did not know how Yeoman determined the figure was erroneous.

Wrigley notified Symington that there appeared to be a mistake on his real estate schedule, and Symington agreed to change the ownership percentage, she testified.

Wrigley's staff also corrected values Symington listed for "stock investments" that he reported were held in the Mellon Bank Trust. Symington had failed to revise the values of the stocks after the October 1987 stock-market crash.

Wrigley testified that while she knew the stocks were in trust, Symington had indicated that he had control over the stocks, and he listed them on his financial statement as "readily marketable securities."

On March 31, 1988, Coopers & Lybrand completed the "agreed-upon procedures" report on Symington's December 31, 1987, financial statement. Symington signed the report stating he was "responsible for the fair presentation in the statement of financial condition . . ."

Nine years later, on the last Friday in June, Symington's attorneys tried to change the story.

In a crisis, Symington loves to turn the tables on an opponent. He is used to shifting loyalties and doesn't flinch at attacking a former ally. Symington has built his political reputation on such tactics.

Which explains why he was so pleased with assistant defense attorney Terry Lynam's expert cross-examination of Wrigley.

Lynam mounted a three-pronged assault in what appeared to be a devastating attack against the prosecution.

First, Lynam sought to expand the role Coopers & Lybrand played in assisting Symington in preparation of his 1987, 1988 and 1989 financial statements.

Seizing on Wrigley's testimony that Yeoman made one correction on Symington's financial statements and that the value of Symington's stock was altered, Lynam made it seem that the entire Coopers & Lybrand tax department was combing Symington's financial statements.

But Lynam couldn't continue this line of questioning for too long, because another facet of Symington's defense got in the way. Symington has long conceded that "errors and omissions" appear in his financial statements--and that some of those are the result of shoddy advice.

After exaggerating Coopers & Lybrand's role in the AUP reports, Lynam switched gears and launched his second theme by attacking the firm for doing a lousy job on the reports.

Lynam pointed out mistakes Wrigley apparently had made on the AUPs. And Lynam blamed her for not telling Symington the "accounting principles" he was to follow in preparing his personal financial statement.

Lynam: "And, again, the accounting principles that you were referring to were not explained to Mr. Symington; is that right?"

Wrigley: "I don't believe we sat down and had a specific discussion."
But once again, Lynam moderated his assault--he could not beat up Coopers & Lybrand too badly, because the firm had to appear respectable for this third and final theme, which focused on the firm's more rigorous review of Symington's finances in 1991. After that examination, Coopers & Lybrand reported that Symington's net worth had fallen to a negative $23 million.

Symington clearly was in violation of Dai-Ichi Kangyo Bank's $4 million net-worth requirement for the Esplanade loans.

Neither Coopers & Lybrand nor Symington notified the bank of the violation. Wrigley testified that such notification is typically Symington's responsibility.

But Lynam exploited Coopers & Lybrand's knowledge of Dai-Ichi's net-worth requirement to drive home a point.

Coopers & Lybrand noted in its May 1991 report that Symington's negative net worth constituted a "technical default" on the Dai-Ichi loan. Coopers & Lybrand also noted that the default wasn't expected to cause Dai-Ichi to change the terms of the loan because Symington's other Japanese partner, Shimizu Land Corporation, was covering Symington's inability to pay his share of operating losses at the Esplanade.

In other words, Coopers & Lybrand didn't think it was a big deal that Symington was in default on the $4 million net-worth requirement and believed that Dai-Ichi Bank was probably aware of his financial problems.

Three of the 22 counts Symington faces stem from his submission of "materially false" requests for funds from Dai-Ichi while continuing to certify that he had a net worth of $4 million even though he knew he was in the red.

 

Now, Lynam had Symington's accountant testifying that Symington's default was a minor problem, a footnote in the firm's final report on Symington's May 1991 financial statement.

Lynam wrapped up his cross-examination of Wrigley as the court session drew to a close--leaving jurors with the weekend to ponder the points he'd raised.

Symington sprang from his chair, grinning.
"That was great," he told his defense team.
Lynam's cross-examination of Wrigley cuts to the core of the case.

Will the jury believe Lynam's contention that Coopers & Lybrand and the late John Yeoman did a thorough review of Symington's finances and failed in their duties to inform him of errors?

Or will the jury closely examine Symington's handwritten memos, in which he expresses fear of having his personal financial statement audited because more than half his net worth would vanish?

In the end, the question may be even simpler.
Does the jury believe Symington is an intelligent man capable of weaving a decadelong web of fraud, or will it accept the defense contention that he simply relied on others to monitor his finances, and that they failed him?


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