The Earthmover and Fife
The sparsely attended bankruptcy-fraud trial of former governor J. Fife Symington III grinds along. Most days, the only observer who is not a lawyer or a journalist is an old guy with a crew cut sitting on Symington's side of the room, seemingly offering moral support to the ex-governor. His name is Bill Dereschuk.
Symington is being sued by a group of local labor unions who say Symington defrauded their pension funds of more than $18 million in connection with a 1990 loan for a Symington partnership that built the disastrous downtown Mercado shopping center.
This is a topsy-turvy trial, where one key question is not whether Symington lied, but rather why the money manager of the pension funds didn't catch Symington lying.
Symington's defense centers on an arcane legal definition of fraud -- one that differs significantly from the standard applied in Symington's criminal fraud trial. In the criminal case -- a jury convicted Symington on multiple counts in 1997, but an appellate court threw out the case in 1999 -- federal prosecutors only had to prove that Symington's fraudulent financial statements were "material," factors in his acquisition of loans he would never repay.
There is a different standard in the bankruptcy case. Simple materiality doesn't hold here. If Symington can prove that the pension funds' money manager, San Francisco-based McMorgan and Company, did not perform sufficient "due diligence" in checking out his bogus financial statement, then Symington might get off the hook. The court would in all likelihood wipe out his debt.
Which brings us back to 68-year-old Bill Dereschuk, who attends the trial every day, sitting expressionless for hours with his arms folded over his ample belly. He usually wears blue jeans, a simple shirt, jogging shoes with Velcro straps and occasionally a windbreaker emblazoned with a "Waddell Dam" insignia.
Dereschuk is a retired operator of earthmoving equipment. His deft maneuvering of "dozers and scrapers" helped carve Waddell Dam out of the desert. For years he arose before dawn to craft sites for Valley residential developments, shopping centers, public works and parkways. He says he never earned more than $35,000 a year for his toils, and with a wife and three children to support he couldn't save much for his retirement. But as a loyal member of Operating Engineers Local 428, Dereschuk had counted on his union pension fund, which was entrusted to the board of trustees of Local 428.
Like practically everyone else in Local 428, Dereschuk initially assumed his precious pension was being safely invested.
But now he sees things differently.
The Mercado loan debacle is one in a long line of scandals Dereschuk discovered in the mismanagement of Local 428's pension fund. And he blames the six-member board of trustees (three are contractors; three are union members) for hiring the high-priced attorneys and money managers whom Dereschuk says have looted his pension fund. He says high overhead and lousy real estate loans caused the fund to perform poorly for several years, even in a Wall Street bull market. In 1998, the fund's net assets jumped $5 million, but Dereschuk says pensioners got nothing to show for it. (Last week, Dennis Teel, a union official, assured me that a spokesman would call me with responses to Dereschuk's allegations, but no spokesman ever called.)
Now Dereschuk and several other disgruntled members of Local 428 want to dissolve the $80 million fund and parcel out the cash to approximately 3,000 operating engineers.
Dereschuk figures it will be much easier to break up the pension fund if Fife Symington wins this trial.
"If Fife wins, we win. Then we can sue the trustees for breach of fiduciary duty and get rid of them once and for all," Dereschuk says, perhaps naively.
Of course, Dereschuk, who grew up poor on a Minnesota dairy farm and has struggled all his life to feed his family, does not absolve Symington. He is well aware that Symington is the high-living heir to a Frick fortune who lied on a financial statement to con Dereschuk's pension fund.
It's just that Dereschuk is focused on getting rid of the trustees and attorneys and money managers who he says have fed off his retirement fund. He will show anyone who is interested U.S. Labor Department documents that bolster his case: From 1990 to 1998, the last year for which figures are available, attorneys for the trustees and money managers for the trustees have charged Local 428 more than $6 million. That's $6 million that Dereschuk figures might have been more appropriately invested in Wall Street stocks and bonds.
Of the $6 million, Local 428 paid approximately $853,518 from 1995 to 1998 to Phoenix attorney Michael Manning, who represents the pension funds in state and federal courts in a no-holds-barred effort to recover the Mercado debt from Fife Symington.
Since Local 428 is responsible for one-third of Manning's bill, one could extrapolate that Manning's law firm was paid $2.56 million by all the pension funds during that period. The other funds that got shorted by Symington were the Arizona State Carpenters Union and the Arizona Laborers, Teamsters and Cement Masons Local 395.
Manning's firm reportedly renegotiated the fees this year, and is working on a contingency plan, which means the firm won't be paid any more unless it recovers funds.
Dereschuk doesn't think the funds will recover a penny from the ex-governor. He believes the legal fees are a waste of money.
McMorgan and Local 428 proponents dismiss him as a misinformed malcontent.
Some even accuse Dereschuk of wanting to wrest management from McMorgan so Dereschuk's nephew, a former McMorgan employee, can run the pension funds.
Dereschuk laughs at the accusation.
"I don't ever see the kid, except once for a reunion," he says.
He wants no manager, not even a nephew. He wants to break up the fund once and for all.
Dereschuk has reason to be distrustful. The year he retired, 1994, his pension fund was steeped in scandal. That was the year William Miller, a Phoenix money manager of several pension funds, including Local 428's, was sentenced to 37 months in federal prison for racketeering and taking kickbacks "to influence the operation of a pension plan."
The feds said Miller illegally took "finding fees" from developers, then arranged to get them pension fund loans for lousy real estate projects.
That same year, 1994, the Department of Labor helped the pension funds recoup more than $93 million from Miller, affiliated companies, and, curiously, the trustees of the pension funds (who paid $9 million but admitted no wrongdoing) and their law firm Ward, Keenan and Barrett (the lawyers paid $300,000 but admitted no wrongdoing) for allegedly turning a blind eye to Miller's machinations. It irks Dereschuk to no end that the Ward law firm in Phoenix continues to do legal work for the Operating Engineers.
Miller actually got a $10,000 "loan processing fee" from a Symington partnership to arrange the Mercado loan.
When it became apparent Miller was headed for the slammer, the trustees hired a new money manager, McMorgan.
McMorgan agreed to approve the prearranged $10 million loan (unpaid interest has upped the debt to $18 million, unions say) only if Symington and his wife, Ann, the heiress to a chemical fortune, "personally guaranteed" the loan with their community property.
In 1990, Symington submitted to McMorgan a financial statement that said he and his wife, Ann, had community property worth $12 million. Ann Symington signed a document promising to pay the pension funds from their community property should the Mercado go belly up.
Dereschuk believes McMorgan did little to research the wildly inflated financial statement. Even though the real estate market was tanking in Phoenix, McMorgan did not order a new appraisal of the properties Symington listed on his financial statement. In most cases, Donald Eaton, the McMorgan representative who okayed the loan, didn't even inspect some of the buildings Symington held up as collateral.
Eaton later testified that Symington was an "exception to the rule" and he "checked out with people."
The pension funds loaned $10 million to fund the Mercado, which was a flop from the start.
When the pension funds tried to recover their money, Symington filed for Chapter 7 bankruptcy. His wife, Ann, claimed she and Fife had no substantial community property. Her wealth was sole and separate.
Were the pension funds conned, largely because McMorgan hadn't checked out the Symingtons' financial statement?
"That personal guarantee couldn't have been much of a personal guarantee," snorts Bill Dereschuk.
"Our trustees never should have made that loan, and now they are spending millions in legal fees to cover their improper conduct."
Manning, the pension fund attorney, contends McMorgan wasn't the only one duped into thinking Symington was the "Donald Trump of the Valley." Major banks, the press and the voting public all believed Symington was a successful developer, Manning says.
"Fife Symington was adept at anesthetizing lenders, the press and the public and now he's trying to anesthetize the press and this judge," says Manning,
But that doesn't excuse McMorgan's apparent laxity.
As for the Symingtons, they took a European vacation shortly after Fife Symington claimed he was destitute in bankruptcy court.
The pension funds have been trying to recover their money from Symington for nearly a decade. Throughout this period, Symington has had unusually good luck, while the funds have suffered legal setback after legal setback.
In September 1997, a federal jury in Phoenix found Symington guilty of multiple criminal counts in connection with his failed real estate empire. Everyone thought the fraud convictions would make it easy for Manning to prevent Symington from discharging the $10 million debt to the pension funds in bankruptcy court. (A bankruptcy debt isn't dischargeable if fraud is involved.)
Then Symington got lucky. In 1999, an appellate court threw out the ex-governor's felony convictions, saying Judge Roger Strand had improperly removed an elderly juror from the jury. The appellate court essentially reaffirmed its decision a couple of weeks ago.
So Symington didn't serve the 30-month prison sentence imposed by Judge Roger B. Strand.
Instead, he went to cooking school. Now he flips ravioli at Franco's Trattoria, an upscale north Scottsdale Italian eatery, and has become something of a radio personality, maintaining, as always, that he committed no crime.
The feds have yet to decide whether to retry Symington, arm-wrestle him into a plea bargain or drop charges.
The pension funds recently got another legal setback when a Maricopa County Superior Court judge ordered them to pay more than $300,000 in legal fees for a Mercado-loan-related case against a bank. The funds are appealing the ruling to the Arizona Supreme Court.
Fife Symington's luck has been so good, he seems remarkably confident at his bankruptcy trial.
He knows that instead of spending his evenings in a prison cell, he will be whisking cream sauce at Franco's.
Despite many legal setbacks, the unions vow to continue fighting to recover their money. If the pension funds succeed in bankruptcy court, they will pursue Symington's accountant, Coopers & Lybrand, and keep a close eye on any inheritance Symington might get in order to garnish it.
But is McMorgan getting the pension funds to pay for a legal melee to cover its own mistake, as Dereschuk alleges? Is it a waste of money and time to go after a bankrupt ex-governor?
"Absolutely not," says McMorgan spokesman Paul Morton.
"From the beginning we have conducted an ongoing evaluation of cost and benefit of pursuing this particular debt to the plan. We still believe it is an appropriate and prudent course to follow. It is the trustees' and management's duty . . . to pursue any asset of the plan that can benefit participants. We cannot walk away and we will not walk away when the stakes are real. We believe as part of the ongoing evaluation that there are [Symington] assets . . . there are enough avenues, be it personal wealth or future business engagements, that will be satisfied."
"No amount of distraction can change the fundamentals of this case," he says.
"A commitment was made to pay this loan and that commitment has not been honored."
He does not agree that McMorgan failed on its commitment to the pension funds to check out the Symington financial statement before okaying the Mercado loan.
Bill Dereschuk is not the most popular guy at Operating Engineers Local 428 these days. Beyond his trial vigil, Dereschuk has repeatedly badgered union trustees for bank records that detail some unexplained expenditures.
The trustees arrogantly refused Dereschuk's request, saying that copying the records was too expensive and time-consuming and was not required by laws governing union pension funds.
So Dereschuk sicced the Department of Labor on Local 428. The department is currently investigating the bank records.
Michael Keenan, an attorney for the trustees, tells me Dereschuk's never-ending suspicions about possible wrongdoing are groundless. He says Local 428 is cooperating with the Department of Labor.
(Dereschuk is uncomfortable about the fact that I am writing about him, and not his other union buddies who are equally distrustful and suspicious of the management at Operating Engineers Local 428. He repeatedly says his friends Tommy Garner and Dale Helm have worked just as hard as he has, and explains that his name appears on correspondence to the union because the Dereschuk family owns a computer and his grandson can type.)
Dereschuk is the first to admit that pension-fund management will be vindicated if Manning succeeds in blocking Symington's debt.
Nevertheless, he is determined to bust the pension fund. He says he has a good chance because, among other things, the fund stopped taking new members in 1984. That means quite a few of the people who contributed to the pension might be close to retiring.
Why wouldn't they want to manage their own retirement money?
If the Local 428 dissidents ever succeed in getting their money, you can bet on one thing.
Bill Dereschuk won't go to cooking school.
Contact Terry Greene Sterling at 602-229-8437, or online at email@example.com
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