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.

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John Dougherty
Contact: John Dougherty