The Governor and the Lawyer

Aftershocks from Governor J. Fife Symington III's 23-count federal indictment are shaking foundations at the state's most powerful law firm.

Phoenix-based Snell & Wilmer already has confirmed its long-term relationship with Symington is under federal criminal investigation.

Now, records obtained by New Times reveal that Snell & Wilmer senior partner and Symington confidant Richard Mallery appears to have aided the governor in what the federal government alleges was an illegal deception of First Interstate Bank in 1991.

The governor is accused in count four of the indictment of "causing submission of a letter" to First Interstate Bank that falsely stated preliminary agreements had been reached between Symington and a lender for his Mercado development.

That letter, a copy of which New Times has obtained, is written on Snell & Wilmer letterhead and signed by Mallery. It was hand-delivered on July 18, 1991, to First Interstate Bank officials moments before a board of directors meeting that would address delinquent Symington debts to the bank.

Because it is mentioned in the Symington indictment, the letter raises the possibility that Snell & Wilmer attorneys could face prosecution for their roles in Symington's alleged financial misconduct. There are other indications that federal prosecutors are examining Snell & Wilmer activities. A source with knowledge of the investigation says Mallery and another Snell & Wilmer attorney have received letters from federal prosecutors informing them they are targets of a criminal investigation.

Mallery did not return phone calls seeking comment. Mark Stanton, a Snell & Wilmer spokesman, said Monday the firm had no comment. David Schindler, an assistant U.S. attorney prosecuting the governor, also declined to comment.

In his July 1991 letter to First Interstate Bank, Mallery said Symington had reached a "preliminary understanding" the day before with representatives of union pension funds that had extended $10 million in permanent financing to Symington's Mercado partnership. That understanding, Mallery wrote, would release the governor from his personal guarantee to repay the $10 million loan and reduce the partnership's monthly debt payments.

Mallery's assertions--which, federal prosecutors allege, are false--were crucial to the governor's attempt to restructure debts he owed to First Interstate Bank. Those debts were related to the Mercado and another Symington development.

Prosecutors allege in the indictment that Mallery's letter was meant to "induce" First Interstate Bank to give Symington more time to repay a $1.1 million loan from the bank, and to release the governor from his personal guarantee of that loan.

The pension funds' money management firm, McMorgan & Company, did meet with Symington and Mallery to discuss the $10 million Mercado loan. That meeting occurred on July 17, 1991, the day before First Interstate was to consider Symington's loan problems with the bank.

But a McMorgan official said this week that releasing the governor from his personal guarantee of the $10 million Mercado note was never seriously considered.

"That was a baseline that was not going to be crossed," says Paul Morton, a spokesman for McMorgan & Company.

In his letter to First Interstate, Mallery characterizes the meeting with McMorgan officials as a "constructive negotiating session."

But prosecutors charge that Symington resorted to extortion at that meeting and in subsequent events between July and October 1991.

The indictment alleges the governor threatened to drive away the Mercado's prime tenant, Arizona State University, unless McMorgan agreed to release Symington from his personal guarantee of the pension fund loan, modify the loan's repayment terms and promise not to file a default notice.

A McMorgan official attending the meeting wrote a four-page memo the next day--the day Mallery sent his letter to First Interstate Bank--describing the two-and-a-half-hour meeting.

McMorgan's Mark Taylor said Symington became "noticeably agitated" when McMorgan officials told him that unless there was a "formal workout program" for repayment of the Mercado loan, a default notice would be filed.

Symington left the negotiations to meet with some Arizona mayors, but returned later. Then, he was pressed once again for a formal repayment program and was informed of the potential for default, Taylor's memo states.

The governor, according to the memo, told McMorgan that forcing the Symington partnership into bankruptcy or filing a default notice against it would diminish the governor's influence with the Legislature--and his ability to keep ASU as a tenant at the Mercado.

"He stated that he had to go to extreme lengths to lobby the Legislature to continue to have ASU in occupancy on their year to year lease however if we were to pursue bankruptcy he would not be as influential in the future," Taylor's memo states.

Symington's problems with the Legislature left McMorgan officials unmoved. According to the memo, McMorgan officials concluded the meeting and made it clear to Symington and Mallery that a public default notice was possible.

"We stated that if the property goes into default that we will be forced to file a default notice to protect our legal remedies," Taylor's memo states.

Symington has long-standing, close ties with Snell & Wilmer, and Mallery, who specializes in complex real estate deal-making.

A Stanford law school graduate who holds a master's degree in English from Cornell, Mallery has long been considered one of the most powerful men in the state, at least among movers and shakers in the business community.

A 1991 poll by the Arizona Republic placed him in the top ten most powerful individuals in Arizona.

Mallery's power base is linked to his friendships. One of his most important ties is with Symington. It is a relationship that dates back 25 years.

Symington and Mallery became friends in the early 1970s; they soon entered into business relationships, at first small but later huge.

Symington purchased a lot from Mallery in 1974, with Mallery carrying its $60,000 mortgage for six years.

The two men continued to work together during Symington's tenure on the Southwest Savings & Loan board of directors, which lasted from 1972 until 1984. The governor frequently obtained funds from Southwest Savings for his development projects.

Many of those projects--including the $200 million Esplanade development in the Camelback corridor--were built by HuntCor Inc., an Indianapolis-based construction company that included Mallery on its board of directors.

Mallery continued to be a close adviser to Symington after Symington was elected governor in February 1991. Six months into the new administration, Mallery accompanied Symington on a state trade mission to Japan.

During the ten-day excursion, Symington and Mallery met with officials of Shimizu Corporation, which had invested $35 million in Symington's Esplanade. It was an investment that Mallery was instrumental in putting together.

The public would not learn of the meeting for many months. When the meeting did become public, Symington administration officials said no private business had been discussed.

But the meetings occurred at a crucial time for Symington, whose finances were already collapsing. Bankruptcy records now show that Shimizu was covering millions of dollars in Esplanade partnership payments that were to have been made by Symington.

Mallery remained in proximity to Symington--and to state business. In March 1993, Mallery, on behalf of Snell & Wilmer and two other firms, proposed a $3.75 billion plan to build private toll roads to speed completion of the Valley's freeway system.

The companies involved in the proposal included Symington's accounting firm, Coopers & Lybrand, which later became embroiled in the Project SLIM bid-rigging scandal. Coopers agreed last summer to pay a $725,000 penalty to the state to settle bid-rigging charges.

The freeway proposal was immediately attacked as a political deal that would favor firms and individuals close to the governor.

A Symington aide, however, defended the plan.
"Just because certain individuals happen to know the governor, you cannot discount them from offering proposals to state government," Symington's press secretary, Douglas Cole, told a Valley newspaper.

It is far from certain that federal prosecutors will indict Richard Mallery in connection with the assistance he gave Symington on the Mercado loan. Although target letters are indicative of serious prosecutorial interest, they are not always precursors to criminal charges.

Receiving a target letter from a federal prosecutor will not burnish Mallery's image as Phoenix's most talented deal maker. But Mallery has encountered other deal-making disasters--and lived to deal again.

In 1984, Mallery was a member of a Phoenix business group seeking to build a domed stadium and cultural center near Seventh Street and Van Buren.

As the group worked toward the stadium, its members learned that Mallery and 24 other Snell & Wilmer attorneys had purchased a two-block parcel of land next to the Phoenix Union High School campus, which had been the proposed site for the stadium.

The group also discovered that Mallery was an officer in HuntCor Inc., the construction firm set to bid on the contract to build the facilities.

Mallery was forced to resign from the group. His resignation marked the end of efforts to build the stadium.

A few years later, Mallery came under scrutiny by the State Bar of Arizona in regard to a real estate transaction in which he gained control of a key Phoenix intersection from two developers--developers Mallery had been hired to represent. Mallery emerged unscathed by the bar probe and went on to spearhead the $325 million Phoenix Gateway Center, located at the intersection of 44th Street and Washington.

In 1989, Mallery played a role in creating a controversial plan to build an amphitheatre in north Phoenix. It was subsequently revealed that a Snell & Wilmer secretary had obtained the liquor license for the proposed amphitheatre. Once again, HuntCor was expected to play a major construction role in the project.

The amphitheatre was eventually rejected by officials representing the City of Phoenix.

The City of Phoenix also was to play a significant role in Mallery's and Governor Symington's plans to salvage the Mercado, according to Taylor's 1991 memo.

Mallery proposed an exchange. If the pension funds released the governor from his personal guarantee to repay the $10 million loan, Mallery would "use all influence he could muster" to get the city to contribute to the project.

When Taylor pressed Mallery on what this meant, Symington reportedly said the city could "feed any downside" on the project by agreeing to lease retail space in the Mercado.

McMorgan officials were cool to the proposal, Taylor's memo indicates.
"My analysis indicates that today we received a lot of talk and good ideas however I doubt that both Fife Symington and Dick Mallery are in a position to have an acceptable workout agreement in place prior to Fife Symington defaulting on the Mercado," Taylor's memo concludes.

Symington defaulted on the Mercado in the fall of 1991.


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