Last Friday's ruling by U.S. Bankruptcy Court Judge George B. Nielsen is a devastating one for former governor J. Fife Symington III.
More than five years after Symington filed bankruptcy seeking dismissal of $25 million in debts, Nielsen ruled that a $10 million loan from a consortium of union pension funds that was used to help finance the Mercado development in downtown Phoenix can't be erased.
Nielsen did not specify how much money Symington owes the pension funds. The amount could be as high as $18 million if interest is included, or far lower depending on how the property is valued.
Nielsen's ruling was celebrated by the pension funds' investment manager, San Francisco-based McMorgan & Company.
"Right does prevail," says McMorgan & Company spokesman Paul Morton.
The pension funds were the only entity to attempt to block Symington from discharging debts that stemmed from his days as a Phoenix real estate developer.
Morton says Nielsen's ruling vindicates the pension funds' dogged pursuit of Symington during the past five years. Morton dismissed claims that the pension funds were engaged in a political attack on Symington, saying the issue was far more clear-cut.
"When someone borrows money and promises to repay the money, they should pay it back," Morton says.
A veteran of many court battles during the last decade, Symington has had his share of victories and defeats. In the early 1990s, he stared down the Resolution Trust Corporation, which filed a civil fraud suit related to his service on the failed Southwest Savings & Loan board of directors. Symington walked away from the suit unscathed.
Symington lived through the public humiliation of resigning as governor in the wake of his September 1997 criminal conviction on seven counts of bank and wire fraud. The federal convictions were later overturned on appeal.
Federal prosecutors were preparing to retry Symington this year and had entered into plea-bargain discussions. Just days before Symington was to enter a guilty plea on one count, he was pardoned by former president Bill Clinton -- a pardon that shocked Justice Department officials who were unaware that a request for the pardon had been submitted to the president.
But these encounters are merely skirmishes compared to the bankruptcy jihad.
Symington is the great-grandson of Henry Clay Frick, one of the richest men in the world at the turn of the 20th century. A vast fortune was and will continue filtering its way to Symington.
Nielsen's ruling hits Symington where it really hurts -- his financial freedom.
"This gives them the ability to harass you for the rest of your life," Symington said during an interview last summer, about the possibility of Nielsen refusing to discharge the debt.
Nielsen ruled in favor of the pension funds' claim that Symington submitted false financial statements and that the funds reasonably relied on those statements when they lent a Symington real estate partnership $10 million in 1989.
Nielsen's ruling marks the second time Symington has been found guilty of defrauding the union pension funds. The criminal jury that convicted Symington included one count related to the pension fund loans.
"It's a very nice win," says Michael Manning, a Phoenix attorney who represented the union pension funds in the bankruptcy case.
But Manning was not always so quick to judge Symington. In the early 1990s, Manning was a Symington supporter and, like voters, the daily press and Republican political leaders, was entranced with Symington's mystique.
"I believed it," Manning says. "I voted for him that first year."
When Symington narrowly defeated Democrat Terry Goddard in a March 1991 runoff election, Manning was intimately aware of the financial shenanigans that characterized the Phoenix real estate market.
"I was seeing financial fraud under every taco stand and every bank. I'm sensitive to this stuff. And I'm looking at this guy [Symington] and saying, 'Son of a bitch, this guy really can, he's developed successfully right into the teeth of a down market,'" Manning says.
That impression soon wore off as Manning began poring over thousands of pages of financial documents and conducting depositions. Manning, who in the 1980s was tapped by federal banking regulators to investigate Charles H Keating's operation of Lincoln Savings & Loan, was well-prepared to review Symington's web of conflicting financial statements and the evasive maneuvers that characterized the former governor's relationship with numerous lenders.
Manning showed during last summer's bankruptcy trial that Symington's financial statement submitted to the pension funds was not a true and accurate reflection of his wealth.
Symington admitted to making "errors and omissions" on the financial statement, but asserts it was as accurate a statement as he could prepare given the uncertainty of valuing real estate assets.
"Even to this day nobody really knows what my net worth was at that point in time because the valuation of real estate assets is an opinion-driven exercise, it is not a factual or scientific exercise," Symington said.
The essential point in the bankruptcy trial was whether the union pension fund manager -- McMorgan & Company -- reasonably relied on Symington's financial statement at the time the loan was issued.
Symington claimed that McMorgan failed to scrutinize his financial statement and did not ask him any questions about his net worth. If fund managers had, they would have soon learned he was facing significant financial troubles.
"The bankruptcy laws are written to prevent a scenario where a lender sticks his head in the sand while the rest of the world is burning around them," Symington said last summer in the first extensive interview with New Times in eight years.
"What they have to prove in court in order not to make a debt dischargeable is real reliance, that they reasonably relied on the financial statement. That is more than just accepting the financial statement, looking at it with a cursory manner, and putting it in the file."
Nielsen's ruling supports Manning's contention that McMorgan & Company relied on the financial statement and did a review suitable to the information available at the time. While the review -- conducted by McMorgan fund manager Don Eaton -- was not to audit standards, it was a reasonable underwriting effort, Manning says.
"The reasonable reliance issue isn't supposed to be an escape hatch for clever con artists," Manning says. "This is supposed to be if you find a lender out there that is operating in bad faith and they know the financial statement is bullshit and they went with it anyway. It is not a safe harbor for someone who engages in a massive financial fraud."
Now, the pension funds will have to collect on the debt.
The pension funds will look to three sources for repayment -- inheritances and disbursements from trusts, Symington's future earnings and hidden assets.
The pension funds are closely monitoring Symington's trust funds and potential inheritances. Manning says the pension funds expect Symington to inherit about $5 million from a relative, whom he declined to name.
Manning says Symington's mother rewrote her will so that her money bypasses him and goes to his children.
"She changed her will just before she died at his request to skip him . . . and it went to the kids," Manning says. "What is going to happen, of course, is the kids are going to favor dad with the money they got from grandma."
Symington's attorney, Rob Shull, angrily dismisses Manning's contention that Symington asked his mother to change her will on her deathbed. "There is no evidence that Fife Symington asked his mother to do anything," Shull says.
Shull declined to comment on the details of the will.
Manning says there are additional trusts that can be tapped besides the four spendthrift trusts that became a focus in both the criminal and bankruptcy trials. The so-called Frick Trusts at one time had blue chip stocks worth more than $1 million.
In last summer's interview, Symington said the four trusts had been drained of all assets to pay his legal fees, which he estimates top $5 million.
"All four of the trusts are gone. All that money has been spent on my criminal and my bankruptcy cases. It's all gone," Symington said last summer.
Manning doesn't believe that claim. "That's not true and he knows it," he says.
In any case, the four Frick trusts have tight "spendthrift" provisions, making it legally impossible for the pension funds to go after whatever principal may remain.
The pension funds will also try to locate assets Symington may have diverted to other people, including friends and relatives, Manning says.
Finally, the pension funds can tap into Symington's future earnings. Symington is free to resume his real estate development business now that he's been pardoned by the president.
"He can get his license and be a real estate developer, and if he ever makes money honestly again, we want to be there to share that money with him," Manning says.
Symington, who was out of the country and could not be reached for comment on Nielsen's ruling, will likely have at least one more direct confrontation with Manning -- at a future debtor's examination that will allow the pension funds to closely examine all his personal assets.
"We want that to happen as soon as possible. It will be fun," Manning says.
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It's unlikely that Symington shares the same upbeat view of yet another round on the witness stand.
Last summer, Symington looked into his future and gave a mixed vision of bleak defiance.
"If they win, and they may well win . . . they will in effect have buried me financially for the rest of my life," Symington said. "They are not going to get any money."
Read more New Times coverage of J. Fife Symington III