26064 1 UNITED STATES OF AMERICA BEFORE THE 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR OCTOBER 14, 1998 22 26065 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire 6 and BRYAN VEIS, Esquire of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 26066 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 26067 1 2 INDEX OF PROCEEDINGS 3 Page 4 CHARLES HURWITZ 5 Continued Examination by Mr. Rinaldi....26068 6 Examination by Mr. Guido................26088 7 Examination by Mr. Keeton...............26232 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 26068 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. 5 I should announce that on Friday, we 6 will adjourn at 1:00 o'clock for logistical 7 reasons. 8 Mr. Rinaldi, you may continue. 9 MR. RINALDI: Thank you, Your Honor. 10 11 CONTINUED EXAMINATION 12 13 Q. (BY MR. RINALDI) Mr. Hurwitz, I 14 believe when we adjourned, we were looking at 15 Exhibit A14116. And I believe this is a new 16 exhibit, which is not -- copies were handed up to 17 the Court at the close. 18 Now, included in this packet is a 19 termination of an escrow agreement, if you look at 20 the second page. 21 First of all, I think you identified 22 Byron Wade as the general counsel of MCO? 26069 1 A. I believe he was the assistant general 2 counsel. 3 Q. Okay. I'm sorry. Assistant general 4 counsel. I gave him a title -- 5 A. Well, he might have got that promotion. 6 Q. That's perhaps why I referred to him as 7 general counsel. 8 And then there's a series of documents, 9 including the termination of an escrow agreement. 10 And then after that at Page OMX21510, there is a 11 second amendment to a stock option agreement and 12 agreement; and it runs for about three pages. And 13 it's that amendment that I wanted to discuss this 14 morning. 15 On the cover page, it indicates that 16 you received a copy of this packet of documents. 17 Do you see that? 18 A. I do see that. 19 Q. And it says it's per the request of 20 Barry Munitz. 21 Do you see that? 22 A. I see that. 26070 1 Q. Had you requested Barry Munitz to keep 2 you informed as to anything that was going on with 3 respect to the put/call option? 4 A. Not that I recall. 5 Q. Do you have any reason as you sit here 6 today to -- or any explanation as to why 7 Mr. Munitz would have asked that the information 8 contained in this letter be directed to you? 9 A. I don't know. 10 Q. Now, it does include, as I say, an 11 amendment. And if you'll take a look at the 12 amendment which begins on Page 21510, do you 13 recall that there came a point in time when the 14 original put/call option was about to come to the 15 point where it could be exercised by MCO and, if 16 not exercised by MCO, then the put back -- well, 17 if the call was not exercised by MCO, that the put 18 option would then spring forward and Drexel could 19 put the option shares to MCO? 20 A. I have some vague recollection of that. 21 Q. Okay. And do you recall that 22 because -- well, do you recall that the option 26071 1 agreement was then extended for some period of 2 time? 3 A. I believe that that's correct. 4 Q. Okay. Do you recall the reason why the 5 option was extended at that period of time? 6 A. Well, we did not have the approval at 7 that time from the Federal Home Loan Bank to 8 acquire more shares and certainly didn't have the 9 ability to negotiate the net worth maintenance 10 obligation. 11 Q. Now, at this point in time, what had 12 happened with respect to the value of the shares 13 of UFG? 14 A. Well, I can't tell you at this time. 15 My guess is they would probably have gone down in 16 value, but I would be speculating. 17 Q. Let me hand you a copy of what's been 18 previously marked as T1213. This is a summary 19 exhibit that was admitted into evidence 20 previously, and what I'm really interested in is 21 the far right-hand column which reflects share 22 prices of UFG. 26072 1 UFG was traded, I think you had 2 testified, on the NASD? 3 A. Yes. 4 Q. Okay. And if you turn to, I think, 5 what would be Page 12 of 20 -- can we go back to 6 Page 7 of 20, first of all? And you'll see 7 that -- if you look at the top of the page, on 8 3/27/85 which was the time that Drexel filed -- 9 A. I'm sorry. What was the date again? 10 Q. 3/27/85. It says 3/20 to 3/27/85. Do 11 you see it's the second line down? 12 A. Yes. 13 Q. Okay. Or the third line down actually. 14 And if you go across, this is the point in time 15 which Drexel reported that it had 585,371 shares. 16 And that's the number that appeared in the 13G 17 that I showed you. 18 Do you recall that? 19 A. Okay. 20 Q. You'll take my word for it? 21 A. (Witness nods head affirmatively.) 22 Q. Okay. At that point in time, this 26073 1 chart indicates anyway that the shares were then 2 trading at $8 and an eighth; is that correct? 3 A. Yes. 4 Q. And that was about the time when 5 Mr. Schwartz had sent you -- or slightly prior to 6 that, Mr. Schwartz had sent you a letter 7 incorporating a proposal with E.F. Hutton. 8 Do you remember that? 9 A. I think I stated yesterday that I 10 didn't remember receiving that -- 11 Q. Yes. 12 A. -- document. 13 Q. But you do recall having reviewed it in 14 court yesterday? 15 A. I do, indeed. 16 Q. And that would have been something that 17 Mr. Schwartz would have undertaken at the 18 direction of either Mr. Leone, Mr. Munitz, or 19 yourself? 20 A. Well, again, I think I testified that I 21 can't speak for Mr. Schwartz on that subject. 22 Q. Well, he wouldn't have gone off to 26074 1 E.F. Hutton all on his own unless either 2 Mr. Leone, yourself, or Mr. Munitz had requested 3 that he enter into some -- or try to negotiate an 4 arrangement with them, would he? 5 A. I think I stated yesterday that we were 6 always looking for different proposals and 7 different ways under the law to own more shares. 8 Q. Okay. 9 A. So, I mean, there was a variety. I 10 can't tell you how many because I don't remember. 11 But there were a variety of things that were 12 looked at over this period of time. 13 Q. And was Mr. Schwartz then 14 understanding, did he simply keep his eyes open 15 for opportunities that could assist MCO in 16 acquiring shares in the future? 17 A. I think that Mr. Schwartz and probably 18 Barry Munitz and others were, yes. 19 Q. Okay. But at the point in time when 20 Mr. Schwartz was making his inquiries with 21 E.F. Hutton and Drexel Burnham Lambert, we were 22 talking about 585,000 shares. 26075 1 Do you remember that? 2 A. I do remember. 3 Q. Okay. And then if we look on further 4 to Page 12 of 20, we see that in or about -- at 5 the top of the page, if you see, there are -- on 6 the fourth -- about the -- I'm sorry. About the 7 third line down, if we try that, there is a record 8 of a sale of UFG shares that's traded on the 12th 9 and it settles on the 19th. 10 Do you see that? And there is a 11 balance of shares owned by Drexel Burnham Lambert 12 over in the gray column. 13 Do you see that? 14 A. Well, I'm not sure that I do. Is that 15 the 1,510 shares that was sold? Is that what 16 you're talking about? 17 Q. No. Maybe we're on the wrong page. 18 This is 12 of 20. 19 A. Yes. And -- 20 Q. We're talking about the third line down 21 on that page. 22 A. Is that 12/19/85? 26076 1 Q. 12/19/85. It indicates that there was 2 a purchase of 150 shares and a balance and then a 3 purchase price. And then if you look at the gray 4 column, it indicates on 12/13/85, the balance of 5 shares owned by Drexel would have been 790,159 6 shares. 7 Do you see that? 8 A. I do. 9 Q. And you may recall that I showed you a 10 letter yesterday that was sent to the NASD 11 requesting permission for Drexel to enter into an 12 option arrangement with MCO for 790,000 shares. 13 Do you see that? 14 A. Yes. 15 Q. So, it would appear that between 16 January of 1985 when Mr. Schwartz first began the 17 discussions with E.F. Hutton and December of 1985 18 when the put/call option was entered into, that 19 Drexel had acquired an additional -- some 200,000 20 plus shares. 21 Do you see that? 22 A. I do. 26077 1 Q. Okay. Now, by the time Drexel had -- 2 by the time we were negotiating the put/call 3 option, the per share price was $6 and I guess 4 that would be five-eighths. Huh? 5 A. Yeah. 6 Q. Six and five-eighths? 7 A. Right. 8 Q. And if we look at the put/call option, 9 I believe that the price in the option was 10 actually $8.59. 11 Do you see that? I'm sorry. I guess 12 they took all of your exhibits away. 13 MR. RINALDI: Can we show the witness 14 Exhibit T1085, which is Tab 26? 15 A. I think I remember that from yesterday. 16 Q. (BY MR. RINALDI) All right. Well, if 17 I tell you then that the option price was $8.59, 18 it would have meant that they were -- I mean, 19 would have meant that MCO was agreeing to pay 20 approximately a 2-dollar premium for the option, 21 direct? 22 A. That's correct. 26078 1 Q. And that -- and then in addition to 2 that, under the terms of the option, there was 3 also a -- I think we saw yesterday a nonrefundable 4 premium of slightly over $2 per share, as well. 5 So, the total premium that MCO was 6 agreeing to pay under the option would have been 7 over $4 a share, correct? 8 A. Okay. I don't remember that. 9 Q. Well, take a look at the option. It's 10 in front of you, and I think if you turn to 11 Page OMX23198, which is the attachment to the 12 minutes -- 13 A. Okay. 14 Q. And you'll see that on the second page, 15 at OMX23199, there is a nonrefundable premium of 16 $683,147 which for 300,000 shares would make it 17 something over $2 a share. Right? 18 A. I see that, yeah. 19 Q. And in addition to that, we just 20 discussed how the price offered -- the strike 21 price under the option was going to be $2 above 22 the then trading price of the shares, correct? 26079 1 A. Yes. 2 Q. So that the total premium, were the 3 option to be exercised, would be for $4 above the 4 then market price of the shares? 5 A. Well, I'm assuming that's right. 6 Again, I'd like to be more comfortable before I 7 absolutely said that. 8 Q. Well, what additional fact do you need? 9 A. Well, I don't know. It sounds like 10 what you're saying is correct. I'm not disputing 11 it. 12 Q. All right. Now, by the time that the 13 option was renewed, which is the next document -- 14 the first document I showed you, A14116, the value 15 of the shares had declined substantially, had they 16 not? 17 A. I don't know that. 18 Q. Well, take a look at Page 18 of 20 in 19 Exhibit T1213. And -- 20 A. Yes. 21 Q. And if you look at A14116, which is the 22 option agreement, you'll see that the option 26080 1 agreement is actually dated August the 2nd, 1988. 2 So, if you run your finger down to the bottom of 3 the page, you will see that in the gray column, 4 during the period of August the 2nd, 1988, the 5 price per share of UFG was anywhere from $1 to 6 81 cents. 7 Do you see that? 8 A. I do. 9 Q. So that the 300,000 shares would have 10 been worth approximately 250,000 to $300,000 in 11 this period of time? 12 A. Yes. 13 Q. Okay. And when you executed the 14 option, you again agreed to pay a premium, a 15 nonrefundable premium, did you not? 16 A. We did. 17 Q. And do you recall that the premium was 18 $524,000? 19 A. I think I noticed it somewhere in here. 20 I think that is -- 21 Q. Okay. If you look at Page 3 of the 22 option, I believe that it -- 26081 1 A. Okay. 2 Q. So, effectively, MCO was willing to pay 3 over -- almost twice the value of the shares in 4 order to continue the option arrangement; is that 5 correct? 6 A. Yes. Sounds that way. 7 Q. And that's exclusive of the $8 -- over 8 the 8-dollar strike price that ultimately they 9 would have to pay if the option were exercised, 10 correct? 11 A. Right. 12 Q. Now, do you recall for how long the 13 option was extended? 14 A. Again, this is from memory way back; 15 but I think -- I don't know. Maybe two years or 16 so. 17 Q. Okay. And ultimately, did the option 18 take effect? I mean, did MCO have the opportunity 19 to call the shares two years after the amendment? 20 A. Again, you know, this is going back a 21 long time. But my guess would be, speculating, 22 that it would be the same option. So, it would 26082 1 have a put and call. 2 Q. Right. And the option is set out here 3 in the second amendment. And if you look at the 4 first page of it, which is OMX21510, which is 5 about the fourth page into the document, it 6 indicates that MCO has a call. And in 7 Paragraph 1, do you see it says "grant of the MCO 8 option"? 9 A. Yes. 10 Q. Then it says in the last sentence that 11 MCO has a call which may be exercised during the 12 period from 9:00 a.m. on New York time on 13 July 1st, 1990, and terminating at 5:00 p.m. on 14 July 31st, 1990. 15 Do you see that? 16 A. Right. 17 Q. Did MCO exercise the call and call the 18 shares? 19 A. No. I think there were two amendments. 20 There was one for the short period and then there 21 was one for, I think, some two-year period or some 22 extended period of time. 26083 1 Q. All right. And does this appear to be 2 the one for the extended period of time? It goes 3 from 1988 through to 1990. 4 Do you see that? 5 A. Yes. 6 Q. So, this would be the last option 7 agreement that was entered into? 8 A. I think that's right. 9 Q. Do you recall why the -- why a short 10 one was entered into between the original option 11 agreement and the second amendment? 12 A. I don't. 13 Q. Okay. Do you recall whether MCO then 14 exercised the call and called the shares of UFG? 15 A. It did not. 16 Q. Now, at that point in time, was UFG 17 even listed on the NASD? 18 A. I don't recall. 19 Q. Okay. And thereafter, did Drexel then 20 exercise its put? 21 A. Yes. 22 Q. Do you recall -- 26084 1 A. But it was for 300,000 shares, though, 2 not the 790,000. 3 Q. Yes. I think we established that when 4 we looked at the option agreement. 5 A. Okay. 6 Q. So, those shares were then put back to 7 MCO? 8 A. Yes. 9 Q. And did Drexel then draw-down on the 10 letter of credit? 11 A. You know, I don't know how they got 12 paid; but I believe they got paid. 13 Q. But ultimately, MCO ended up paying 14 $8.59 a share for the UFG shares? 15 A. I believe that's correct. 16 Q. And at that point in time, do you 17 recall that the shares of UFG were virtually 18 worthless? 19 A. Probably. 20 THE COURT: Mr. Rinaldi, I'm not 21 showing that T1213 was received. 22 MR. RINALDI: We have this listed as 26085 1 tab -- 2 THE COURT: Okay. I think I'm 3 mistaken. 4 MR. RINALDI: We have it listed as 5 Tab 224, and it was put in through Mr. Oliver as a 6 summary exhibit. 7 THE COURT: Thank you. 8 Q. (BY MR. RINALDI) Now, does -- as a 9 result of -- as a result of acquiring these 10 additional shares, did -- well, strike that. 11 MCO had some preferred shares, as well, 12 that we've talked about? 13 A. Yes. 14 Q. Did the preferred shares convert to 15 common shares of UFG at some point? 16 A. You know, I don't think so; but I'm not 17 100 percent sure that's right. 18 Q. Today, does MCO -- as a result of the 19 exercise of the put, MCO acquired the 300,000 20 additional shares, correct? 21 A. I believe that to be correct. 22 Q. And that would have put them over the 26086 1 25 percent ownership level, correct? 2 A. Well, that was after the -- there was 3 no longer a savings and loan. 4 Q. I understand that. But -- so, as of 5 that point, MCO owned in excess of 25 percent of 6 the outstanding shares of UFG? 7 A. At that point being in nineteen -- 8 Q. 1990. 9 A. I believe that's the case, yes. 10 Q. And does MCO still own in excess of 11 25 percent of the outstanding shares of UFG? 12 A. You know, I don't know. I don't think 13 there is a UFG. 14 Q. Okay. Did MCO at any point in time 15 divest itself of its interest in UFG? 16 A. No, but I think it went into 17 liquidation. And I don't think there is a UFG. 18 To the best of my knowledge, MCO never sold its 19 shares, if that's the question. 20 Q. Okay. But MCO continued to hang on to 21 its interest in UFG in order to possibly take 22 advantage of some tax benefits that might be 26087 1 available? 2 Do you recall that? 3 A. Well, I'm satisfied that they took a 4 loss on it. 5 Q. Okay. 6 A. Right. 7 Q. All right. That was the downside risk 8 we talked about earlier? 9 A. Right. 10 Q. And to this day, so far as you know, 11 MCO still has -- owns the shares of UFG? 12 A. To the best of my knowledge. I mean, 13 unless they sold them for tax purposes or 14 something; but I'm not aware of it as I sit here. 15 MR. RINALDI: I have no further 16 questions for you on this subject. I will pass 17 the witness to Mr. Guido. 18 Thank you, Your Honor. 19 THE COURT: Mr. Guido. 20 MR. GUIDO: Thank you, Your Honor. 21 22 26088 1 2 EXAMINATION 3 4 Q. (BY MR. GUIDO) Mr. Hurwitz, good 5 morning. 6 Mr. Hurwitz, at some point in time, you 7 became a member of the board of directors of 8 United Financial Group. 9 Do you remember that? 10 A. I do. 11 Q. And how did that come about? 12 A. It came about through the merger of 13 Houston First Financial with United Financial 14 Group. 15 Q. Had you been on the board of either of 16 those entities prior to the merger? 17 A. Yes. I was on the board of Houston 18 Financial. 19 Q. And how had you become a member of that 20 board? 21 A. As we talked about yesterday, we had 22 bought a position in it, this 20 some-odd percent, 26089 1 and I -- to the best of my knowledge, Mary 2 Grigsby, the then president, I think with Wayne 3 Winters, the chairman, had asked me if I would 4 like to serve on the board. 5 Q. Did they ask you because you had 6 purchased the shares of stock whether or not you 7 would want representation on the board by sitting 8 on the board? 9 A. I don't recall. 10 Q. Now, when the merger occurred with UFG, 11 did you have any discussions with anyone about you 12 going on the board of UFG at the time? 13 A. Well, I think what happened is to the 14 best of my knowledge as I sit here today, that 15 every person on both boards remained in some 16 capacity on the merged company. So, I think it 17 included everybody. It was maybe 17, 18 people -- 18 Q. Was the composition of the UFG board 19 negotiated in the course of negotiating the merger 20 agreement between the two entities? 21 A. You know, it could have been; and I 22 don't recall that. 26090 1 Q. Okay. Now, at some point in time, you 2 became chairman of United Financial Group. 3 Do you recall that? 4 A. I do. 5 Q. How did that come about? 6 A. It came about when Mr. Bentley 7 resigned. 8 Q. Why did Mr. Bentley resign? 9 A. Oh, I think he resigned -- I don't 10 recall. I think he felt he was at retirement age. 11 I think he just -- he wanted to do other things. 12 Q. Did you have any discussions with him 13 at that time that you thought that it was time 14 that he resigned? 15 A. I don't remember that, no. 16 Q. Now, what was UFG's major asset at the 17 time you became the chairman of the board? 18 A. The savings and loan. 19 Q. And at that time, it became United 20 Savings Association of Texas? 21 A. Yes. 22 Q. Were you on USAT's board? 26091 1 A. No. 2 Q. Was there a reason for that? 3 A. I don't recall. I do remember when the 4 merger took place, that there were four people 5 from the merged company that went on the holding 6 company and not on the savings and loan board. 7 And it had to do, I believe, with Burt Borman. 8 Mr. Borman was the chairman of PennCorp. And I 9 think however it worked out, he wanted -- we were 10 going to be the same. And so, we just went on the 11 board of the holding company. 12 I also remember that -- I believe this 13 is right -- that there were two additional 14 directors put on that Mr. Bentley -- people that I 15 didn't know -- had put on the board of the holding 16 company, as well, that didn't go on the savings 17 and loan. 18 Q. Now, did you sit on the executive 19 committee of United Financial Group? 20 A. I did at some point. 21 Q. Okay. Do you recall the membership of 22 the executive committee of United Financial Group? 26092 1 A. You know, I believe it was Jim Whatley. 2 It was Barry Munitz. Again, it depends on what 3 time frame you're talking about. I think it was 4 Sonny Bentley, Jenard Gross. 5 Q. Was Gerald Williams on that board or 6 executive committee? 7 A. You know, I -- yeah. He could have 8 been. Again, it depends on what time frame you're 9 talking about. 10 Q. I'd like to show you two exhibits. One 11 is A1109. The second is A1110. The first is 12 Tab 132. The second is Tab 133. One is the UFG 13 board minutes of February 13th, 1986; and the 14 second is the USAT board meeting of the same date. 15 I'd like to direct your attention to 16 A1109, which is the UFG board of directors meeting 17 minutes of February 13th, 1986, and direct your 18 attention to Page 6 of the document. 19 Do you see in the middle of the page it 20 talks about the executive committee? 21 A. I do. 22 Q. Is that your recollection of the 26093 1 composition of the executive committee subsequent 2 to February 13th, 1986, at UFG? 3 A. Well, it's -- I'm satisfied as of this 4 date that that was -- that's correct. 5 Q. Do you recall whether or not the 6 composition of the committee changed after that 7 date? 8 A. Well, I know that Mr. Williams was no 9 longer with the company after some time after 10 that. So, that would have changed. 11 Q. Now, I'd like to direct your attention 12 to Tab 133, A1110, and direct your attention to 13 Page 2 of that document which talks about the 14 composition of the executive committee as of 15 February 13th, 1986, for USAT. 16 Do you see that list there? 17 A. I do. 18 Q. Okay. Does that conform to your 19 understanding of the composition of the executive 20 committee as of February 13th, 1986? 21 A. I have no reason to think that's not 22 correct. 26094 1 Q. And except for the dropping of Gerald 2 Williams when he resigned at USAT, was the 3 composition of the committee the same subsequent 4 to February 13th, 1986, until the time you left 5 UFG? 6 A. I can't tell you that. I'm not sure. 7 Q. Did the executive committees of UFG and 8 USAT hold joint meetings? 9 A. Gosh, you know, I don't -- I don't know 10 that I remember that. I don't think so, but -- 11 not that I recall. 12 Q. Did you attend USAT executive committee 13 meetings? 14 A. I certainly could have from time to 15 time. I don't remember it as I sit here today. 16 Q. Do you know how the membership of the 17 two executive committees was determined? 18 A. I'm satisfied by the board of 19 directors. 20 Q. Do you know who recommended the slate 21 to the board of directors? 22 A. I don't. 26095 1 Q. Did you participate in any discussions 2 regarding the composition of the executive 3 committees prior to them being appointed? 4 A. I don't remember. 5 Q. Now, I think you testified with regard 6 to Barry Munitz that you had initially hired Barry 7 Munitz at Federated to work with you at Federated. 8 Is that a correct characterization of 9 your testimony? 10 A. Yes, it is. 11 Q. And how did Barry Munitz end up working 12 at UFG? 13 A. Well, I don't know what "working" means 14 exactly; but he became a board member, as I stated 15 yesterday, I believe in 1982 or 1983. Maybe '82. 16 Q. He also became the chairman of the 17 executive committee, did he not? 18 A. He did, yes. 19 Q. Did you recommend that he take that 20 position? 21 A. The executive committee of what? 22 Q. Of UFG. 26096 1 A. Of UFG? I don't think that I did, but 2 I don't recall. 3 Q. Okay. You don't recall one way or the 4 other? 5 A. That's correct. 6 Q. Did you participate in any discussions 7 regarding his appointment as the chairman of the 8 board of USAT -- I mean the executive committee of 9 USAT? 10 A. Well, as we just stated, I wasn't a 11 director of USAT; and their board would have 12 picked the executive committee. 13 Q. Did you have any discussions prior to 14 his appointment by the board with anyone regarding 15 him becoming chairman of the executive committee 16 of USAT? 17 A. Not that I recall. 18 Q. Now, did you have any role in the 19 hiring of Jenard Gross? 20 A. Well, I had known Mr. Gross before; and 21 when you -- had any role, I -- we brought him 22 in -- Mr. Bentley and myself and Williams -- as a 26097 1 consultant to the savings and loan. And that 2 evolved into a bigger role for Mr. Gross. The 3 board hired Mr. Gross. 4 Q. Did you have any discussions with Barry 5 Munitz where you suggested he contact Jenard Gross 6 and see whether or not he would be interested in 7 working at USAT? 8 A. That's possible. I don't recall it as 9 I sit here today. 10 Q. Did you have any role in the hiring of 11 Gerald Williams? 12 A. Well, it's almost kind of like 13 Jenard Gross in a way. I had known Mr. Williams. 14 He was -- I'm not sure these titles are right, but 15 I think he was the chief financial officer of 16 First City Financial which was Texas', I think, 17 largest bank, bank holding company. And I knew 18 him in that capacity. And for some reason which I 19 don't know today, he was available and he called 20 me. And I introduced him to the people at United, 21 and they interviewed him and later offered him a 22 position. 26098 1 Q. Now, did you have any role in the 2 hiring of Michael Crow? 3 A. It's possible that I interviewed 4 Mr. Crow, even though I don't remember it as I sit 5 here today. 6 Q. What about your role in the hiring of 7 Joe Phillips? What do you recall about that? 8 A. I think that I interviewed with 9 Mr. Phillips. 10 Q. Did you request anyone to seek out a 11 person with Mr. Phillips' qualifications to manage 12 the high-yield bond portfolio and the 13 mortgage-backed securities portfolio at USAT? 14 A. I think that that was something that 15 the -- that the board had determined that we 16 needed some expertise in that area. 17 Q. Which board are you talking about? 18 A. I'm talking, I think, the board of 19 USAT. 20 Q. Now -- 21 A. Could have been the board of UFG. I 22 don't recall. 26099 1 Q. Now, did you have any role in the 2 hiring of Sandy Laurenson? 3 A. Again, I think that I interviewed with 4 Ms. Laurenson. 5 Q. Did you have any discussions with Barry 6 Munitz, requesting him to find somebody with Sandy 7 Laurenson's qualifications to manage the 8 mortgage-backed security portfolio at USAT? 9 A. I don't recall that I did. 10 Q. Did you interview Sandy Laurenson? 11 A. I did. 12 Q. And did you express your views 13 regarding her qualifications to anyone at USAT? 14 A. I just don't remember. 15 Q. Did you express your views to anyone 16 regarding Mr. Phillips' qualifications to anyone 17 at USAT? 18 A. I don't remember. 19 Q. Did you express your views to anyone at 20 USAT regarding Jenard Gross' qualifications? 21 A. I don't recall. 22 Q. Did you express your views to anyone 26100 1 regarding Gerald Williams' qualifications? 2 A. I don't recall. 3 Q. Did you express your view to anyone 4 regarding Mr. Crow's qualifications? 5 A. I don't remember. 6 Q. Now, did you have any role in the 7 hiring of Dominic Bruno to manage the 8 mortgage-backed security portfolio after Sandy 9 Laurenson left? 10 A. I don't remember interviewing him. I 11 mean, it's possible that I could have met him. 12 Q. Did you have any discussions with 13 anyone about the need for somebody with Dominic 14 Bruno's qualifications to manage USAT's 15 mortgage-backed security portfolio? 16 A. I don't recall. 17 Q. Did you have any role in the hiring of 18 Gene Stodart to manage the high-yield bond 19 portfolio at USAT? 20 A. It's possible that I interviewed 21 Mr. Stodart; but, again, I don't remember. 22 Q. Did you express any views about 26101 1 Mr. Stodart's qualifications to anyone at USAT? 2 A. Not that I recall. 3 Q. Did you express your views with regard 4 to Mr. Bruno's qualifications to anyone at USAT? 5 A. Not that I recall. 6 Q. Now, where were your offices located 7 while you were the chairman of the board of UFG? 8 A. The address? 9 Q. Uh-huh. 10 A. It was on Westheimer, what we call the 11 Galleria area. I don't know that I can give you 12 the right address right now. This goes back a 13 long time. 14 But it was on the corner of Bering and 15 Westheimer, if that will help you. 16 Q. Was it a suite of offices? 17 A. You mean where I sat? 18 Q. Yeah. 19 A. Well, there were -- we had -- the 20 company had several floors. I think a couple of 21 floors. 22 Q. Were you on the 22nd floor? 26102 1 A. That sounds right. 2 Q. Okay. Who was on that floor with you? 3 A. Well, it depends on what time frame. 4 Barry Munitz was on that floor. I believe Ron 5 Huebsch was on that floor. Again, it depends on 6 what time frame you're talking about. 7 Q. At some point in time, did other people 8 that worked at USAT also become officed on that 9 floor? 10 A. At some point in time, USAT had moved 11 from their other office to that building on a 12 different floor; and they set up a trading floor 13 on -- I believe it was the 22nd floor. 14 Q. What do you refer to when you refer to 15 a trading floor? 16 A. Well, that's where they traded stocks 17 and bonds and anything else that they were buying 18 and selling. 19 Q. Is that where the people that managed 20 the mortgage-backed security, the high-yield bond, 21 and the equity arbitrage portfolios were housed? 22 A. I believe that's right. On that floor, 26103 1 yes. 2 Q. Was there anyone else on that floor? 3 A. Well, I think there were a lot of 4 accountant types; and yeah, there were other 5 people. I'm not sure who they were. 6 Q. Were Michael Crow and Bruce Williams on 7 that floor? 8 A. No. I think they were not. I think 9 they were on the -- maybe the fifth floor or sixth 10 floor. 11 Q. Now, where was Gerald Williams' office? 12 A. I believe he was on the fifth or sixth 13 floor. 14 Q. And where was Jenard Gross' office? 15 A. The same. Fifth or sixth floor. 16 Q. Did you have contact with the people in 17 the trading room? 18 A. Well, I would -- I don't know what 19 "contact" is. But I would go in there from time 20 to time. 21 Q. Did you discuss with the managers of 22 the high-yield bond, mortgage-backed security, 26104 1 equity arbitrage portfolios the advantages or 2 disadvantages of any investment strategies they 3 were engaged in? 4 A. It's possible that I could have. 5 Q. Did you have any discussions with them 6 regarding the advantages or disadvantages of any 7 particular investments? 8 A. No. 9 Q. Now, I'd like to direct your attention 10 to a document that is -- 11 A. I want to take that back. I mean, 12 that's not exactly right. If they asked a 13 question, if I knew something about a particular 14 situation, certainly I would express my views on 15 that. What I never did and never have in my 16 career in the securities business is tell them or 17 suggest that they buy or sell a particular 18 mortgage or bond or something like that. I always 19 have views on interest rates, stock market prices, 20 or whatever. 21 Q. And particular companies. Right? 22 A. I guess that I could. In the equity 26105 1 arbitrage area, I had views on that. 2 Q. Okay. I'd like to direct your 3 attention to Tab 174, which is A10560, which is a 4 memorandum dated May 1st, 1986, from Mike Crow to 5 you and others. 6 Do you recall a meeting in the middle 7 of 1985 with representatives of Bane & Company in 8 Austin, Texas, to discuss strategic planning for 9 United Savings Association of Texas? 10 A. I do remember a meeting with 11 Bane & Company, and I'm not questioning that's the 12 date. But I wouldn't want to swear under oath 13 that was the date. 14 Q. Who were the representatives of 15 Bane & Company at that meeting? 16 A. You know, I just don't remember. 17 Q. Was David Neurenburg one of those 18 people? 19 A. I think that's fine, yes. 20 Q. Pardon? 21 A. Yes. I think he was a representative 22 of Bane -- partner of Bane & Company. 26106 1 MR. KEETON: Charles, you need to keep 2 your voice up a little bit. 3 Q. (BY MR. GUIDO) Had you known of 4 Bane & Company prior to that meeting? 5 A. Yes. 6 Q. And what did you know of them? 7 A. Well, they are, I believe, one of the 8 top five management consulting firms in the world. 9 Q. Did you contact them and ask them to 10 come to a meeting to discuss the strategic 11 planning at USAT? 12 A. No, I don't recall that. 13 Q. Did you have any discussions with 14 anyone about them being contacted to come to that 15 meeting? 16 A. No. Somebody, I think, had visited 17 with the McKenzies and Boston companies and other 18 type of consulting firms. And Bane is -- I 19 believe is one of the best in the financial 20 service area. 21 Q. Did you have any discussions prior to 22 the meeting about the performance, the financial 26107 1 performance of USAT, and the need to rethink the 2 strategic plan at USAT prior to the meeting? 3 A. Did I have a discussion with anyone? 4 Is that your question? 5 Q. At USAT. 6 A. Certainly, I had talked to Mr. Gross 7 about that and probably everyone on this list 8 here, which is Mr. Munitz, Gross, Williams, and 9 Crow. 10 Q. Now, the minutes of the meeting or the 11 notes of the meeting are broken into two parts. 12 One -- it's the second page. It says it's a 13 mission statement. 14 Do you see that? 15 A. I do. 16 Q. And the mission statement sets out 17 certain objectives for USAT or United Financial 18 Group going forward after that date. 19 Was this mission statement something 20 that was adopted by that committee or group? 21 A. You know, I think it was -- I don't 22 know if anything was adopted. I think what 26108 1 happened is there was kind of an evolution of 2 things that happened and then certain activities 3 evolved. I don't recall ever people sitting down 4 and saying, you know, "As of 30 days from now, 5 this is what's going to happen." 6 Q. Well, the second page talks about a 7 mission statement. 8 Do you see that? 9 A. I do. 10 Q. Do you recall what the reference is to 11 a mission statement? 12 A. Well, I can read what it says, that 13 these are areas that maybe should be looked at. 14 Q. Do you recall receipt of the notes of 15 the meeting from Mr. Crow? 16 A. I don't recall them, but I don't doubt 17 for a moment that I received them. 18 Q. Okay. Now, it says in the second 19 sentence -- it says, "The company will emphasize 20 entrepreneurial activities and divest itself of 21 transaction-related activities which involve 22 significant overhead." 26109 1 Do you see that? 2 A. I do. 3 Q. Do you know what the reference is to 4 entrepreneurial activities? 5 A. You know, I don't as I sit here today. 6 Q. Do you know what the reference to 7 "divest itself of transaction-related activities 8 which involve significant overhead? 9 A. It would just be a speculation on my 10 part at this time. 11 Q. So, you don't recall? 12 A. I don't recall. 13 Q. Now, it lists certain activities to be 14 retained or expanded. 15 Do you see that list? 16 A. I do. 17 Q. Okay. And one of them says "marketable 18 securities." 19 Do you see that heading? 20 A. Yes. 21 Q. It says, "Investment in non-hostile 22 takeover situations that offer the potential of 26110 1 significant returns." 2 Do you know what that refers to? 3 A. I believe that to be equity arbitrage, 4 as I would call that. 5 Q. Okay. Take a look at the second -- the 6 one right under that. It says, "Investments in 7 fixed and floating rate investments for a spread." 8 Do you know what that refers to? 9 A. Again, I would just be speculating. 10 Q. Well, what sort of investments have 11 fixed or floating rate interest rates? 12 A. Bonds certainly do. 13 Q. Okay. Does that include 14 mortgage-backed securities? 15 A. I believe that's right, but also 16 corporate bonds. 17 Q. Okay. Does that also include 18 high-yield bonds? 19 A. Yeah, that's a corporate -- I was 20 including that as a corporate bond, yes. 21 Q. Does anything else fall within that 22 category? 26111 1 A. Nothing comes to mind right now. 2 Q. Now, I'd like to direct your attention 3 to the document that follows that. It's called 4 "Summary - Strategic Planning Retreat Weekend 5 4/26/85." 6 Do you see that? 7 A. I do. 8 Q. Now, I'd like to direct your attention 9 to the Item No. 13 in there. 10 Do you see where it says "Investments 11 and securities was discussed, and it was agreed 12 that this is a very sensitive area"? 13 A. I see that. 14 Q. Do you know what that refers to? 15 A. I don't. 16 Q. Now, look at item number -- I'm sorry. 17 Strike that. 18 Take a look now at Tab No. 886, which 19 is T4422. It's a memorandum from Mike Crow to the 20 strategic planning committee dated 12/10/1987. 21 A. (Witness reviews the document.) 22 Q. I'd like to -- have you ever seen this 26112 1 document before? 2 A. I don't recall it as I sit here today, 3 no. 4 Q. Now, I'd like to direct your attention 5 to the first paragraph on the second page of the 6 memorandum. 7 Do you see where it says "background"? 8 "As a result of deliberations during the year 9 1983" -- 10 A. No, I don't see that. What page is 11 that? 12 Q. Well, if you look on the -- it's the 13 very second page. It says "confidential" at the 14 top. 15 A. Yes. 16 Q. "United Savings Association of Texas 17 strategic profile." See the first paragraph under 18 "background" there? 19 A. Yes. 20 Q. See where it says, "As a result of 21 deliberations during the year 1983," and then it 22 goes on and it says that "United embarked upon a 26113 1 wholesale strategy." 2 Do you see that? 3 A. I do. 4 Q. Okay. It says, "These activities 5 included equities, junk bonds, mortgage-backed 6 securities, Bank United, real estate merger, 7 banking/lending, venture capital, et cetera." 8 Do you see that? 9 A. I do. 10 Q. Does that refresh your recollection 11 that the mission statement that was adopted in May 12 of 1985 included investments in high-yield bonds, 13 mortgage-backed securities, and equity arbitrage? 14 MR. KEETON: Could I -- 15 A. The answer is -- 16 MR. KEETON: I'd like to hear the 17 question. It got swallowed by Mr. Guido. 18 THE COURT: Would you restate the 19 question? 20 MR. GUIDO: I'll restate the question. 21 MR. KEETON: Thank you. 22 Q. (BY MR. GUIDO) Does that refresh your 26114 1 recollection that the mission statement adopted in 2 May of 1985 included investments in equity 3 arbitrage, high-yield bonds, and mortgage-backed 4 securities? 5 MR. KEETON: Now, I'll object because 6 the witness testified he did not know if that had 7 been adopted as the mission statement, Your Honor. 8 Mr. Guido just said it was adopted. 9 THE COURT: Well, he's asking him 10 whether this present exhibit refreshes his 11 recollection as to what -- 12 MR. GUIDO: That's -- 13 MR. KEETON: Well, that question would 14 be fine. It was implicit in the way he phrased 15 it. 16 MR. NICKENS: Your Honor, the 17 difficulty is that Mr. Guido included the phrase 18 "adopted." There has been prior testimony, in 19 fact which he elicited, that it went to the board 20 and was tabled and there was a discussion about 21 that. And he's just included the fact that the 22 witness -- that is not otherwise in the record. I 26115 1 believe that to be the basis of the objection. 2 MR. GUIDO: Your Honor, I'll rephrase 3 the question. I now understand what the objection 4 is, and I think that I can rephrase the question 5 to avoid the objection. 6 THE COURT: All right. 7 Q. (BY MR. GUIDO) Does this refresh your 8 recollection that what is referred to in the 9 mission statement under "marketable securities" 10 and "investments in fixed and floating rate 11 instruments" included equity arbitrage, high-yield 12 bonds, and mortgage-backed securities? 13 A. No. 14 Q. Now, I'd like to direct your attention 15 to the minutes of the May 16th, 1985 board of 16 directors meeting of United Savings Association of 17 Texas. It's at Tab 175, which is A10561. I want 18 to direct your attention to the first paragraph of 19 the minutes. 20 Do you see where it makes reference to 21 all members of the board being present? And it 22 says "Also present were Messrs. Hurwitz, Borman, 26116 1 Michael Crow, and James Pledger." 2 Do you see that? 3 A. I do. 4 Q. Now, do you have any reason to dispute 5 the accuracy of the statement that you were in 6 attendance at the USAT board meeting? 7 MR. KEETON: Optional completeness, 8 Your Honor. The next sentence. "The meeting was 9 conducted as a joint meeting of the board of 10 directors of the association and its parent 11 company, United Financial Group, Inc." 12 Q. (BY MR. GUIDO) Does that refresh your 13 recollection that you were in attendance at the 14 meeting? 15 A. I think this was a joint meeting held 16 with United Financial Group, and we did have joint 17 meetings of the board. 18 Q. So, USAT and United Financial Group 19 held joint board meetings? Is that what you're 20 saying? 21 A. Yes. It was actually one big meeting, 22 and people would come and hear both presentations, 26117 1 yes. 2 Q. Were they held on the same day? 3 A. Yes. When I say "joint," I mean the 4 same time. 5 Q. Okay. 6 A. Even on the same day, right. 7 Q. In the same room? 8 A. Well, that's another story. No. Of 9 course. 10 Q. Now, why were the meetings held as 11 joint meetings? 12 A. It was the same information, I suspect. 13 Just to bring everybody up-to-date. I mean, it's 14 pretty common. 15 Q. Was that primarily because the major 16 asset of United Financial Group was United Savings 17 Association of Texas? 18 A. Well, in reality, as I stated earlier, 19 that was the major asset or almost the sole asset. 20 Q. Now, I'd like to direct your attention 21 to the Bates stamp -- there are two Bates stamps 22 on the right-hand side. I will use the -- I think 26118 1 you have CN numbers on yours? 2 A. I do. 3 Q. Take a look at CN057147. See at the 4 bottom where it makes reference to "Mr. Hurwitz 5 discussed the plans for the establishment of 6 finance subsidiary"? 7 Do you see that? 8 A. I see that, yes. 9 Q. And the auction of 75 million of Dutch 10 auction rate transferable securities? 11 A. I see that. 12 Q. Do you recall the creation of that 13 entity? 14 A. Again, I believe that that happened, 15 but I'm not 100 percent sure. 16 Q. Now, would you review the full 17 paragraph to yourself? It's starting with your 18 discussion of the plans for the establishment of 19 the subsidiary, the finance subsidiary. I have a 20 couple of questions about that paragraph. 21 A. (Witness reviews the document.) 22 Q. This is all in the past tense, isn't 26119 1 it? Is this reporting on something that had 2 already transpired? 3 A. I don't recall. 4 Q. Now, I'd like to direct your attention 5 to Page 6 of the document. 6 A. My pages may be a little different than 7 yours. Is that the 150 number? 8 Q. CN -- yeah -- 150. CN057150. I'm 9 sorry. I was looking at the pagination at the 10 top. Excuse me. 11 A. It turns out I have both of them; so, 12 either one is fine. 13 Q. Thank you. 14 Now, you see the reference to the 15 paragraph "Mr. Hurwitz briefed the board on the 16 recent planning meeting with Bane & Company"? 17 A. Yes. 18 Q. It says, "The meeting was held in 19 Austin and focused on the need to become 20 operational and profitable." 21 A. Yes. 22 Q. And look at the Paragraph -- do you see 26120 1 where it says under that, "Mr. Crow showed several 2 slides"? 3 Do you see that? Pardon? 4 A. New paragraph? Okay. I was looking at 5 the old paragraph. Yes, I see that. 6 Q. And look at the fourth line down. See 7 where it says, "Mr. Crow also displayed a proposed 8 mission statement for the association which 9 reflected the conclusions reached in the Austin 10 meeting"? 11 A. I see that. 12 Q. Does that refresh your recollection 13 that the document that I showed you, A10560, the 14 mission statement, was adopted at that meeting for 15 further action by USAT and UFG? 16 A. It doesn't refresh my memory, no. 17 Q. Now, going back to the paragraph where 18 it says "Mr. Hurwitz briefed the board," do you 19 see the -- 20 THE COURT: Where are you, Mr. Guido? 21 MR. GUIDO: I'm on CN057150, Your 22 Honor. The paragraph -- it's about a quarter of 26121 1 the way down. It says, "Mr. Hurwitz briefed the 2 board on the recent planning meeting." 3 THE COURT: Thank you. 4 Q. (BY MR. GUIDO) The fifth line down or 5 fourth line down says, "Bane & Company was engaged 6 to study the association's operations, and the 7 result of the session was that major changes to 8 operations will be required in order to restore 9 profitability." 10 Do you see that? 11 A. I do, yes. 12 Q. In the middle of 1985, was a decision 13 made to restructure USAT's operations in order to 14 restore its profitability? 15 A. Again, I can't -- I don't recall. 16 Q. Now, I'd like to direct your attention 17 to the next page, which is CN057151. 18 Do you see the paragraph -- the 19 next-to-the-last paragraph that starts with 20 "Mr. Keltner asked about regulatory compliance"? 21 A. What paragraph is that in? 22 Q. The next-to-the-last paragraph of the 26122 1 minutes. 2 A. Yes, I see that. 3 Q. Do you see where it says "Mr. Hurwitz 4 stated that the association will maintain 5 60 percent of its assets in mortgage or 6 mortgage-related investments which will qualify 7 the institution as a savings and loan 8 association"? 9 A. I see that. 10 Q. What does that refer to? 11 A. I believe that in order to qualify as a 12 savings and loan, that 60 percent of the asset has 13 to be in mortgages. 14 Q. Or mortgage-related instruments? 15 A. Well, I think that qualifies as 16 mortgage. 17 Q. And USAT, as part of its restructuring, 18 did it sell off its branches and its retail 19 operations that generated single-family mortgages? 20 A. Well, the branch sales started taking 21 place, I think, in 1981 or maybe '80. And 22 Mr. Bentley and Mr. Coles were doing branch sales, 26123 1 I think, long before this. Again, as I say, I 2 think this plan kind of evolved over a period of 3 time. And clearly, all the branches weren't sold. 4 I mean, it was a scaled-down position where you 5 could keep a presence in the major cities. 6 Q. Well, I'd like to direct your 7 attention -- take a look back at Tab 886, T4422, 8 the Michael Crow September 10th, 1987 memorandum. 9 A. Is there a particular page? 10 Q. The second page again which says 11 "confidential" at the top. 12 Do you see that? 13 A. I do. 14 Q. See where it makes reference to the 15 successful year end 1984 branch sale which created 16 significant capital? 17 A. Yes. 18 Q. And then it says, "United went on -- 19 embarked on a wholesale strategy." 20 Does that refresh your recollection 21 that around the middle of 1985, USAT shifted its 22 investments so that it was relying more on 26124 1 mortgage-backed securities to satisfy the 2 60 percent thrift test than whole mortgage loans 3 that it originated? 4 A. No. 5 Q. No, it didn't happen, or no, it doesn't 6 refresh your recollection? 7 A. It doesn't refresh my memory. 8 Q. Thank you. 9 Now, the Michael Crow memorandum I just 10 showed you makes reference to a strategic planning 11 committee. 12 Do you see that? 13 A. Could you help me out and tell me where 14 that is? 15 Q. It's on the very first page of the 16 exhibit. Look back one page. Do you see it at 17 the top? The addressee is "strategic planning 18 committee." 19 A. Yes. 20 Q. Do you -- I'd like to show you a 21 document which is Tab 1294, which is B3925. This 22 is a memorandum from Michael Crow dated 26125 1 April 28th, 1986, almost a year after the 2 discussion of the mission statement. 3 This makes reference to an entity 4 called the strategic planning committee. 5 Do you see that? 6 A. I do. 7 Q. Do you recall the existence of an 8 entity that was denominated the strategic planning 9 committee? 10 A. I don't recall that there was an actual 11 committee set up by the board of directors. But I 12 remember meeting with these gentlemen now that I 13 see their name and talking about strategic 14 planning. 15 Q. Were those meetings held on a regular 16 basis? 17 A. I don't think so. 18 Q. How often did the strategic planning 19 committee meet? 20 A. As I stated, I don't think it was an 21 official committee. But, you know, I don't 22 recall. 26126 1 Q. But it wasn't a committee that was 2 established by the board is your recollection? 3 A. Not that I remember, no. 4 Q. You don't recall, or it wasn't 5 established by the board? 6 A. Well, I don't recall that it was 7 established by the board. I don't think it was. 8 Q. Now, who was in attendance at these 9 meetings? 10 A. Well, I would assume the people that 11 are listed here. 12 Q. Well, let's go down the list. There's 13 some names that may not be in the record or 14 identified in the record. G.R. Williams, I guess, 15 is Gerald Williams; is that correct? 16 A. Yes. 17 Q. Then it makes reference to Jeff Gray. 18 Who is Jeff Gray? 19 A. He was a person that had been at United 20 for, I don't know, 25, 30 years, I believe, in the 21 real estate area. 22 Q. And what about Jim Jackson? 26127 1 A. Jim Jackson, I believe, was in charge 2 of branches. 3 Q. Was anyone in charge of what's referred 4 to as the money desk? 5 A. That could have been Jim Jackson, as 6 well. 7 Q. What was the money desk? 8 A. As I remember it, it was -- it was an 9 operation set up to acquire -- to sell 10 certificates of deposits through branches and also 11 through securities firms. 12 Q. Now, I'd like to direct your attention 13 to Exhibit T4304, which is at Tab 873. Some of 14 these documents will be a little difficult to 15 read, Mr. Hurwitz, because of the font that was 16 used on the typewriter. So, if you have any 17 difficulty reading them, I have a copy that has 18 been retyped. So if I ask you to read something 19 and you can't read it, I'll be happy to read it. 20 A. Well, you should just give me the good 21 copy. 22 Q. Counsel for the respondents have 26128 1 prepared the good copy, Mr. Hurwitz; and we 2 haven't had an opportunity yet to fully agree on 3 all of the translations or transcriptions of the 4 document. But I'll try and do the best I can if 5 there are any problems with reading the document. 6 This is a memorandum dated 7 November 17th, 1986, from Doug Hansen to you and a 8 number of other individuals regarding the 9 strategic planning committee. And it makes 10 reference to some items that I wanted to go 11 through with you. 12 Is your recollection of the strategic 13 planning committee a committee that discussed the 14 objectives that USAT had for the size of its 15 portfolios? 16 A. No, I don't recall that. 17 Q. Take a look at Item No. 6. See where 18 it says "desired growth areas"? 19 A. Yes. 20 Q. "MBS, corp bonds, arb, corp merchant 21 banking, real estate merchant banking"? 22 A. Yes. 26129 1 Q. Does that refresh your recollection 2 that that's one of the items that were discussed 3 at the strategic planning committee? 4 A. It doesn't. 5 Q. Now, see Item No. 8? See where it says 6 "growth"? "We want to grow to overcome our poor 7 ongoing earnings situation"? 8 A. (Witness reviews the document.) I do. 9 Q. And then see where it says, "This 10 situation is caused primarily by real estate but 11 also by the swaps"? 12 A. Yes. 13 Q. Do you know what that refers to, the 14 swaps? 15 A. I don't recall. 16 Q. Now, Item No. 10 says, "The thrift 17 test. We must meet the test at the end of the 18 year." 19 Do you see that? 20 A. I do. 21 Q. Now, looking at those three items and 22 the -- what is your recollection of the purpose of 26130 1 the strategic planning committee? 2 A. To come up with a strategic plan for 3 the association and the holding company, the 4 entities, to be profitable. 5 Q. And was it designed to set investment 6 policy? 7 A. Oh, I don't know that I would -- I'm 8 sure that investments were discussed, different 9 investments. But the idea is what are the 10 strengths and what are the weaknesses of this 11 association? And I vividly remember that the 12 Bane & Company analysis came up -- and the reason 13 I remember it, it was astonishing to me that -- 14 for us to service a loan, a single-family loan, 15 was $50. And for GMAC to service a loan was $10. 16 And Bane's point is that you can never be 17 competitive, I mean, unless you drive your cost 18 down to a point that they didn't think we could. 19 And so, this is an area that you have 20 to change because you are not competitive and 21 you're not even close to being competitive. These 22 are the kind of thought processes that went 26131 1 through this to see where we were good and where 2 we weren't good. 3 Q. Well, let's take a look at Tab 1803, 4 which is B1879, for examples of some of the agenda 5 items that were discussed by the strategic 6 planning committee. 7 See under "action items," under No. 3, 8 "update and/or implement" on that agenda? 9 A. I do. 10 Q. Was it customary for Barry Munitz to 11 circulate agenda items for the strategic planning 12 committee? 13 A. I don't recall. 14 Q. Now, take a look at Item No. F under 15 the action items. You see it says "Investment 16 policy for 1988. Return on equities -- spread 17 versus speculation -- margin requirements -- 18 thrift tests -- asset value -- manager 19 risk/reward -- alter bond and arbitrage 20 assumptions?" And then "-- corporate investment?" 21 A. I do. 22 Q. Does that refresh your recollection 26132 1 that the strategic planning committee established 2 an overall investment policy for USAT? 3 A. No. 4 Q. It doesn't refresh your recollection? 5 A. It does not. 6 Q. Do you know what the reference to 7 spread versus speculation is there? 8 A. I don't. 9 Q. Do you know what a portfolio is that is 10 managed to generate a spread over time? 11 A. Well, I think I do, yes. 12 Q. What is your understanding? 13 A. Well, in the -- I think in the bond 14 market, you could buy one bond and sell something 15 else against it, and there is a spread. I believe 16 that's what it means. 17 Q. Now, what do you mean sell something 18 against -- 19 A. Well, maybe some derivative of some 20 type. 21 Q. Now, do you know what the reference to 22 speculation is? 26133 1 A. I don't. 2 Q. Now, I would like to direct your 3 attention to another document, which is A1601. 4 It's in the record at Tab 1656. A1601, Tab 1656. 5 Its a document dated November 6th, 6 1987. 7 Do you know what the reference to 8 management committee is in this document? 9 A. I don't. 10 Q. Now, this document sets out various 11 objectives for the mortgage-backed securities, the 12 high-yield bond portfolio, and the equity 13 arbitrage portfolio. 14 Do you see that? 15 A. I do. 16 Q. Do you know why the strategic planning 17 committee that was not appointed by the board was 18 setting those investment objectives for those 19 portfolios? 20 A. I don't. 21 Q. Do you know how often the strategic 22 planning committee met? 26134 1 A. I don't, no. 2 Q. Do you recall whose idea it was to 3 create the strategic planning committee? 4 A. I'm sorry. I just don't recall. 5 Q. Do you recall who determined who the 6 attendees were in the strategic planning 7 committee? 8 A. It would only be a guess on my part. 9 Q. Was there anyone at USAT or UFG who was 10 responsible for the -- determining the membership 11 of the various managing staff entities at USAT or 12 UFG? 13 A. Well, I would assume it would be the 14 chief executive officer. 15 Q. Who was the chief executive officer of 16 USAT? 17 A. Jenard Gross. 18 Q. Who was the chief executive officer of 19 UFG? 20 A. Depending on what time, Jenard Gross. 21 This period, Jenard Gross. 22 Q. And who did Jenard Gross report to? 26135 1 A. Well, he reported to the board of 2 directors. 3 Q. Did he report to the chairman of the 4 board of directors? 5 A. I think he reported to the board as 6 chief executive officer. 7 Q. Pardon? 8 A. He reported to the board of directors. 9 Q. How often did the board of directors 10 meet? 11 A. You know, I believe on a quarterly 12 basis. 13 Q. During the interim, who did he report 14 on the activities of USAT to? 15 A. I don't know that he reported to 16 anyone. I mean, there were updates; and he talked 17 to people, I'm satisfied. I don't know that he 18 reported to anyone. 19 Q. Did he keep you informed of the 20 activities at USAT? 21 A. I would certainly talk to him from time 22 to time. 26136 1 Q. And how often was time to time? 2 A. It varied. 3 Q. Was it at any time less than a month? 4 A. Could have been. 5 Q. Do you recall or just -- 6 A. I don't recall. 7 Q. Now, the -- I'd like to direct your 8 attention to a document which has been marked as 9 B665, which is at Tab 1391. It's a memorandum 10 from Bruce Williams to Jenard Gross and others 11 dated November 29th, 1985. And I'd also like you 12 to take a look at B4340, which is at Tab 1935, and 13 then A1590, which is at Tab 1295. 14 THE COURT: What was that last exhibit 15 number? 16 MR. GUIDO: The last exhibit number, 17 A1590, Your Honor, which is at Tab 1295. 18 Do you see Exhibit B665? See where it 19 makes reference to a November 17th, '85 strategic 20 planning committee meeting. 21 MR. NICKENS: It says "strategic 22 planning meeting," Your Honor. 26137 1 MR. GUIDO: Excuse me. 2 Q. (BY MR. GUIDO) Strategic planning 3 meeting. 4 A. I do. Did you say November 17th, '85? 5 Q. Yes. 6 A. Yes. 7 Q. Do you see where it discusses the 1986 8 liability growth? 9 A. I do. 10 Q. Okay. And then do you see Item No. 2 11 where it says "report a gradual stable earnings 12 record throughout the year"? 13 A. Yes, I do. 14 Q. Do you recall having any discussions 15 with anyone about that objective of gradual stable 16 earnings throughout the year? 17 A. No, I don't recall it. 18 Q. I'd like -- will you take a look at 19 B4340, which is the minutes of the annual meeting 20 of United Financial Group shareholders dated 21 April 30th, 1985? 22 A. Okay. (Witness reviews the document.) 26138 1 Is there a particular area you want me to look at? 2 Q. Yeah. I'd like you to take a look 3 at -- look at the pagination in the upper 4 right-hand corner. I'd like you to take a look at 5 Page 3 of the document. 6 A. Okay. 7 Q. And the paragraph in almost the middle 8 of the page, do you see where it says, 9 "Mr. Hurwitz discussed the company's earnings"? 10 A. Yes. 11 Q. It says, "His desire to smooth out the 12 quarter-to-quarter earnings of the company"? 13 A. Yes. 14 Q. Do you recall making that presentation 15 to the shareholders in 1985? 16 A. I don't recall that. 17 Q. I'd like to direct your attention to 18 Tab 1295, which is A1590. And I'll be using the 19 pagination in the Bates stamp numbers in the 20 right-hand corner at the bottom. 21 Do you see that where it says US3? The 22 right-hand corner at the bottom. 26139 1 A. Right. 2 Q. These have been identified in the 3 record as notes of a meeting of November 17th, 4 1985, written by Bruce Williams of the notes. And 5 I'd like to ask you a few questions about some of 6 the items. 7 MR. GUIDO: Mr. Keeton? 8 MR. KEETON: Your Honor, it's a 9 technical matter, and we went through this at 10 length with Mr. Williams. These are in 11 Mr. Williams' handwriting, but he testified they 12 were not taken as notes contemporaneous with what 13 was said. Some of these were notes to himself 14 that were maybe never expressed. Some of them are 15 reminders to talk to people that came to him as he 16 was at the meeting. He certainly did write the 17 notes. 18 MR. NICKENS: Some of the notes, Your 19 Honor. There is one page that is not his 20 handwriting. 21 MR. KEETON: Well, that's right. There 22 is another page. 26140 1 MR. GUIDO: Your Honor, these are notes 2 that were written by Mr. Williams, Your Honor. 3 How they -- how they are characterized, I think 4 we'll have to leave that to the Court. I'm not 5 going to get into a debate about -- 6 THE COURT: All right. Pose your 7 question. 8 MR. GUIDO: Thank you. 9 Q. (BY MR. GUIDO) There is a reference 10 to a "CH" in these notes. 11 Did anyone else at USAT have the 12 initials CH besides yourself, Mr. Hurwitz? 13 A. I don't know. 14 Q. I'd like to direct your attention to 15 Page US38028. 16 Do you see in the middle of the page 17 where it says "CH"? 18 A. Let me try to find it. These don't 19 have numbers on them. 28? 20 Q. Yeah. 8028, the Bates stamp. Do you 21 see that? 22 A. Yeah. 26141 1 Q. It says, "Could we take gains over four 2 quarters?" Do you see that in the middle of the 3 page? 4 A. This is in someone's handwriting? 5 Q. This is someone's handwriting. This is 6 Bruce Williams' handwriting. 7 A. Where it says "CH"? 8 Q. Yeah. 9 A. Yeah. Okay. 10 Q. Do you recall having any discussions at 11 the end of 1985 regarding whether or not gains 12 could be taken over a number of quarters going 13 into the future? 14 A. I do not. 15 Q. Okay. I'd like to direct your 16 attention to 8030 now at the bottom of that page. 17 A. Okay. 18 Q. Do you see where it says "CH" at the 19 bottom of the page again? 20 A. Yes. 21 Q. It says, "What is maximum equity 22 arbitrage?" 26142 1 Do you see that? 2 A. Oh, yes. Yes. 3 Q. Do you recall raising a question at 4 that time about what is the maximum equity 5 arbitrage at USAT? 6 A. I don't recall that. 7 Q. Now, I'd like to take -- direct your 8 attention to 8032. Do you see the third item down 9 under growth for remainder of '85 and '86, the two 10 items there? The second one says, "Is junk bond 11 market there? They have reached a limit per CH." 12 A. I see that. 13 Q. Do you recall at the end of 1985 having 14 discussions about the size of the junk bond 15 portfolio and whether or not USAT had reached its 16 limit? 17 A. I don't recall. 18 Q. Okay. Now, look at the middle of the 19 page. 20 Do you see where it says "CH" again 21 under the word "liquidity"? See where it says 22 "need to avoid quarterly losses"? 26143 1 A. Yes. 2 Q. Then it says, "try to something gains, 3 smooth out earnings." 4 Do you see that? 5 A. Try to what? I can't -- 6 Q. The word is indecipherable. It says, 7 "try to something gains." Then it says "smooth 8 out earnings." 9 Do you see that? 10 A. Yes. I can't read the third word, but 11 yes. 12 Q. Then it says, "Goal: Not show a 13 quarterly loss in 1986." 14 A. I see that. 15 Q. Do you recall discussing those items 16 with people at USAT at the end of 1985? 17 A. Again, that's a long time ago. I don't 18 recall it. 19 Q. I'd like to direct your attention to a 20 document which we have marked. It's a new 21 document which we have marked as T -- 22 THE COURT: Mr. Guido, we'll take a 26144 1 short recess. 2 MR. GUIDO: Yes, Your Honor. 3 4 (Whereupon, a short break was taken 5 from 10:34 a.m. to 10:55 a.m.) 6 7 THE COURT: Be seated, please. We'll 8 be back on the record. 9 Mr. Guido, you may continue with your 10 examination. 11 MR. GUIDO: I think the last document 12 we were looking at was T9026, Your Honor, which 13 has not been admitted into the record as of yet. 14 Q. (BY MR. GUIDO) T9026 is a memorandum 15 from Bruce Williams to Charles Hurwitz and Ron 16 Huebsch dated November 4, 1986, regarding 17 maximizing equity arbitrage investments until the 18 year end 1986. 19 MR. GUIDO: I move the admission of 20 T9026, Your Honor. 21 MR. KEETON: No objection. 22 THE COURT: Received. 26145 1 Q. (BY MR. GUIDO) Do you recall 2 receiving the memorandum that's marked as T9026, 3 Mr. Hurwitz? 4 A. Mr. Guido, I'm sorry. I don't -- 5 Q. Do you recall making the request to 6 determine what the maximum equity arbitrage for 7 USAT could be at the end of 1986? 8 A. You know, it's possible that that could 9 have happened; but I don't recall it. 10 Q. Now, see the reference in the chart at 11 the middle of the page where it says "UFG" and 12 then it says "UFC" under that? 13 A. I do. 14 Q. Is that United Financial Corporation? 15 A. I would think so. 16 Q. Pardon? 17 A. The UFC, you mean? 18 Q. Yes. 19 A. I would think so. 20 Q. And what was UFC? 21 A. It was a subsidiary of the savings and 22 loan. 26146 1 Q. So, it was a subsidiary of USAT? 2 A. Yes. 3 Q. And you don't recall this memorandum or 4 making the request that's addressed in the 5 memorandum? 6 A. I don't. 7 Q. I'd like to direct your attention to 8 B1702, which is at Tab 1658. Also, I'd like to 9 direct your attention to Tab 1808, which is T9015, 10 and Tab 1807, which is B1623. 11 MR. GUIDO: Excuse me, Your Honor. 12 13 (Discussion held off the record.) 14 15 Q. (BY MR. GUIDO) B1702 at Tab 1658 is 16 the first of the memoranda, and I just want to 17 direct your attention to something in each of 18 these memoranda and then I'm going to ask you some 19 questions, Mr. Hurwitz. 20 In the third paragraph in the 21 memorandum from Jenard Gross, which is B1702, the 22 last sentence in the paragraph says, "We need to 26147 1 allude to the strategic planning committee setting 2 the limits on each group," and it's making 3 reference to the investment policies that were 4 being discussed at the time. 5 And then Tab 1808, T9015, which is the 6 second of the documents that I gave you, makes 7 reference to a strategic planning committee. 8 Do you see that reference? 9 A. I do. 10 Q. Now, do you recall having discussions 11 with Jenard Gross about the size of the equity 12 arbitrage portfolios at USAT? 13 A. I certainly could have, but I don't 14 recall it. 15 Q. You don't have any reason to dispute 16 the accuracy of the memorandum? 17 A. I do not. 18 Q. And then look at Exhibit B1623, which 19 is Tab 1807. This is a memorandum to Gene 20 Stodart -- 21 A. I'm sorry. B what? What was the -- 22 Q. B1623. 26148 1 A. Okay. 2 Q. Do you have that? 3 A. Yes. 4 Q. Tab 1807. Do you see the reference to 5 the executive management committee at the top? It 6 says, "decided to commit total junk bonds up to 7 $700 million"? 8 A. I see that, yes. 9 Q. Did you participate in any discussions 10 to establish the size of the junk bond portfolio 11 at the time you were chairman of the board of UFG? 12 A. I don't recall. 13 Q. Now, did you -- do you recall United 14 Financial Corporation's investment in 15 Castle & Cooke? 16 A. I do. 17 Q. And could you tell us how that came 18 about? 19 A. Yes. It was an investment that MAXXAM 20 had made, and it was disclosed in the papers that 21 we had gone over $15 million worth. And I 22 remember that Gerry Williams and Sonny Bentley 26149 1 came to me and asked if that was something that 2 United could invest in. First, they asked why we 3 had invested in it. And I told them that it was a 4 major real estate company, a lot of real estate in 5 northern California and Hawaii. They owned the 6 aisle and of Lanai, which is an island off of 7 Maui. It's 88,000 acres, mostly pineapples, and 8 had extensive holdings in Honolulu as well as Dole 9 Foods. And we were buying it because we thought 10 it was enormously attractive. 11 And they asked if United could buy 12 shares, and I remember that it was a discussion at 13 the board of directors. And they asked me to make 14 a presentation of why we had purchased the shares, 15 and United, did in fact, buy some shares and 16 MAXXAM had stock purchase in the shares. 17 Q. Who did the research and the due 18 diligence on the investment? 19 A. Well, originally, our group had done 20 that; and we shared our information with 21 Gerry Williams and others at United. 22 Q. Did MCO -- was it MCO Holdings that 26150 1 bought the Castle & Cooke shares? 2 A. Yes. 3 Q. And was it UFC that bought the shares 4 on behalf of USAT? 5 A. I'm not sure. That's probably right. 6 Q. Did UFC and MCO Holdings file a 13D in 7 the acquisition of the Castle & Cooke stock? 8 A. I wouldn't be surprised. I don't 9 remember as I sit here today. 10 Q. Now, was it the UFG board that approved 11 the purchase of the Castle & Cooke stock for UFC? 12 A. I don't recall. 13 Q. Was it the -- was it the executive 14 committee of UFG who approved the acquisition of 15 this stock? 16 A. I don't recall. 17 Q. Did you participate in the 18 deliberations with regard to the purchase of the 19 Castle & Cooke stock? 20 A. I certainly could have. 21 Q. Now, I'd like to direct your attention 22 to another document, which is B371, which is at 26151 1 Tab 163. 2 This is a memorandum from Joe Phillips 3 to Gerald Williams dated September 24, 1984. And 4 it says, "The purpose of the document -- of the 5 memo is to document Mr. Phillips' review of 6 holdings of high-yield fixed-income securities 7 held by the association upon his arrival." 8 Do you see that? 9 A. I do. 10 Q. Do you recall who it was that initiated 11 the purchases of high-yield bonds referred to in 12 the memorandum before Joe Phillips arrived at 13 USAT? 14 A. I don't. It would just be speculation 15 on my part. 16 Q. Well, who at USAT had the ability to 17 evaluate high-yield bond investments prior to Joe 18 Phillips' arrival? 19 A. I don't recall. 20 Q. Did you participate in the decision to 21 purchase high-yield bonds for USAT prior to Joe 22 Phillips' arrival? 26152 1 A. Did I participate? Is that what you 2 said? 3 Q. In discussions leading up to 4 investments in high-yield bonds prior to Joe 5 Phillips' arrival. 6 A. It's possible. I don't recall that. 7 Q. Do you recall whether or not you had 8 discussions regarding any specific investments in 9 1984? 10 A. I don't. 11 Q. I'd like you to take a look at the 12 second page of the memorandum, which makes 13 reference to seven issues that were held by the 14 association at the time that Joe Phillips was 15 hired. 16 Do you know what the reference to 17 MDC Corporation is? 18 A. Where do you see that? 19 Q. It's on Page 2. It's the second entry 20 under "issuer and rating." 21 A. No, I don't. 22 Q. Have you ever heard of MDC Corporation? 26153 1 A. I don't recall it. 2 Q. Do you see Kaufman & Broad? Do you see 3 that? 4 A. I do. 5 Q. Do you know what that refers to? 6 A. I think that's a homebuilder. 7 Q. Do you know how USAT acquired these 8 high-yield bonds that are listed on this Page 2? 9 A. I don't. I believe these are all 10 floating rate notes, though, aren't they? I 11 believe they are. 12 Q. Well, they make reference to coupons. 13 A. Yeah, but I think -- 14 Q. How do you know they are floating rate 15 notes? 16 A. Because I seem to remember that they 17 were floating rate notes. 18 Q. So, you do recall that there were 19 high-yield bonds that were purchased by USAT prior 20 to Mr. Phillips' arrival? 21 A. I'm looking at this portfolio, and I 22 seem to remember that these may have been floating 26154 1 rate notes. 2 Q. Do you recall who it is that initiated 3 the purchases of these notes? 4 A. I don't. 5 Q. Now, it makes reference to the market 6 prices in the paragraph right under the chart. Do 7 you see that? It says, "The above markets 8 represent the bid cite provided by Drexel --"? 9 A. Yes. 10 Q. -- "Burnham Lambert"? 11 A. Yes. 12 Q. Why was Drexel providing the bids to 13 Mr. Phillips? Do you know? 14 A. Well, they were certainly market makers 15 in bonds. 16 Q. What do you mean they were market 17 makers in bonds? 18 A. They made a market, an active market, 19 buy and sell. 20 Q. So, they were in the market in a major 21 way to maintain the market? Is that what you 22 mean? 26155 1 A. Well, they along with other investment 2 banking firms made markets in bonds. That's their 3 business. 4 Q. In particular bonds or in the market in 5 general? 6 A. Well, in general. 7 Q. In general. 8 Now, what do you mean when you use the 9 term "market maker"? 10 A. Well, they made a buy and -- it's 11 called a bid and ask market. And that's what 12 investment bankers do. They make a two-way market 13 for people to buy or sell. 14 Q. If there are no purchasers to put out a 15 bid price, do they purchase it at that price? Is 16 that what you're saying? 17 A. If there are no purchasers, there's no 18 bid. 19 Q. So that when you say "market maker," 20 you're not saying that they are there to maintain 21 liquidity in the market by being a purchaser in 22 case there are none? 26156 1 A. That's what a market maker is. 2 Q. So, that is what you're referencing? 3 A. Yes. 4 Q. So, they are not there just setting out 5 quotes that are made by sellers unrelated to 6 the -- to Drexel? It's their -- it's their quotes 7 and what they will buy the instrument for? 8 A. Or sell. 9 Q. Or sell. 10 Now -- and you don't know how these 11 came to be acquired by USAT? 12 A. I don't. 13 Q. Now, I'd like to direct your attention 14 to Exhibit B817, which is at Tab 618. 15 This is a document dated January 31, 16 1986, and it's been described in the record as 17 part of the correspondence between Mr. Phillips 18 and the Texas Savings and Loan Commission 19 regarding activity in the high-yield bonds or 20 mortgage-backed -- high-yield bonds or equity 21 arbitrage portfolio which has been referred to as 22 the non-liquidity portfolios at USAT for purposes 26157 1 of the Texas Savings and Loan Commission. 2 And you -- did you have any role in the 3 purchases of any of the stocks that are listed on 4 Page 1 of this exhibit? 5 A. Not that I recall. 6 Q. Do you see the reference to Amsted 7 common, the second entry on that page? 8 A. I do. 9 Q. What was Amsted? 10 A. It was an industrial products company. 11 Q. Was it a company that MCO had attempted 12 to acquire control of? 13 A. It was a company that MCO had an 14 investment in. 15 Q. Was it a company that MCO had filed 16 13Ds with regard to? 17 A. Yes. 18 Q. And then turn to the next page, which 19 lists a number of purchases of common stock. 20 And did you have any role in the 21 purchase of any of those stocks for USAT? 22 A. No. 26158 1 Q. There is a mention of Pacific Lumber. 2 Do you see that? 3 A. I do. 4 Q. Did USAT purchase Pacific Lumber stock? 5 A. I don't think so. 6 Q. So, this document, you think, is 7 incorrect? 8 A. That's my understanding. 9 Q. Pardon? 10 A. That's my understanding. 11 Q. Now, I'd like to direct your attention 12 to Tab 1348, which is T4374. 13 Now, with regard to the document that I 14 just showed you, it's a listing of a number of 15 common stocks that are listed there as purchased 16 by USAT. 17 Who was it at USAT that was responsible 18 for making the decision to purchase stock in the 19 equity arbitrage portfolio? 20 A. Ronald Huebsch. 21 Q. And when did he first start making 22 purchases of equity arbitrage -- stock purchases 26159 1 on behalf of USAT? 2 A. I don't recall. 3 Q. Did you ask him to do so? 4 A. I think he was -- got approval from the 5 board of directors to do so. 6 Q. Had he worked with you at Federated and 7 MCO prior to doing so for USAT? 8 A. Yes. 9 Q. And did you discuss his role in making 10 such purchases on behalf of USAT with the board of 11 directors of USAT? 12 A. Did I discuss his role with the board? 13 Q. Yes. 14 A. Oh, I don't recall if I did or not. I 15 could have. 16 Q. I'd like to direct your attention now 17 to Tab 1348. This is a letter on TSG Holdings, 18 Inc. stationery, and it's signed Lawrence 19 O'Connell. Is that how you -- O'Connell. 20 Do you see that? Do you know who 21 Mr. O'Connell is? 22 A. I don't. 26160 1 Q. Do you see the CC, Stanley Cohen over 2 there on the left? 3 A. I do. 4 Q. Do you know who that is? 5 A. I do. 6 Q. Who is that? 7 A. I think he was president of TSG 8 Holdings. 9 Q. Can you tell us what TSG Holdings was? 10 A. Yes. TSG Holdings was a closed-in 11 investment company in London which was controlled 12 by the Rothchild family. Jacob Rothchild was the 13 senior chairman. Nathaniel Rothchild was the 14 chairman. 15 Q. Now, the -- who is Jim Paulin? 16 A. Jim Paulin is -- he did some work at 17 United but worked at Federated Development. 18 Q. What was his role at Federated 19 Development? 20 A. I think he was the secretary, maybe the 21 treasurer. 22 Q. And what work did he do at United 26161 1 Savings Association of Texas? 2 A. I don't recall. It had something to do 3 with the -- something. I don't recall. 4 Q. Do you know who hired him at USAT? 5 A. Jenard Gross, I believe. 6 Q. Did you recommend him for the position 7 at USAT? 8 A. Well, I forgot what he did; but I think 9 it was a part-time thing, that he helped with the 10 trading room and stuff. 11 Q. Was Jim Paulin an employee of Federated 12 prior to helping at USAT part time at the trading 13 room? 14 A. Yes. 15 Q. And how long had he been at Federated? 16 A. Longer than ten years, if that will be 17 helpful to you. I just don't recall. 18 Q. Did you commit, as it says in this 19 handwritten note from Michael Crow, for UFC, 20 United Financial Corporation, to purchase 990,000 21 more of TSG Holdings? 22 A. Well, again, what happened, much like 26162 1 the Castle & Cooke, which I must say was -- we 2 should give a little credit due here --