In the Matter of: )
4 )
5 TEXAS, Houston, Texas, and )
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
a New York Business Trust, )
11 )
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 )
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. )





1 A-P-P-E-A-R-A-N-C-E-S


Special Enforcement Counsel
4 PAUL LEIMAN, 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
11 of: Dechert, Price & Rhoads
1500 K Street, N.W.
12 Washington, D.C. 20005-1208
(202) 626-3306
DALE A. HEAD (in-house)
14 Managing Counsel
15 5847 San Felipe, Suite 2600
Houston, Texas 77057
16 (713) 267-3668

of: Mayor, Day, Caldwell & Keeton
20 1900 NationsBank Center, 700 Louisiana
Houston, Texas 77002
21 (713) 225-7013



3 of: Clements, O'Neill, Pierce & Nickens
1000 Louisiana Street, Suite 1800
4 Houston, Texas 77002
(713) 654-7608
7 MARK A. PERRY, Esquire
of: Gibson, Dunn & Crutcher
8 1050 Connecticut Avenue, N.W.
Washington, D.C. 20036-5303
9 (202) 955-8500


11 JOHN K. VILLA, Esquire
of: Williams & Connolly
13 725 Twelfth Street, N.W.
Washington, D.C. 20005
14 (202) 434-5000


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
Ms. Marcy Clark, CSR
21 Ms. Shauna Foreman, CSR






5 Continued Examination by Mr. Rinaldi....26068

6 Examination by Mr. Guido................26088

7 Examination by Mr. Keeton...............26232

















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.




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?


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.


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


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.


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


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


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.


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?


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


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.


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.


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?


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


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 --


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


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


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.


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 --


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


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


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


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.







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,


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.


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?


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?


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


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.


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.


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.


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


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


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.


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.


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


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


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?


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,


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,


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


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.


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


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


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."


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


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?


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


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


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


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


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,


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,


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


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


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


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


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


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,


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


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


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.


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?


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


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.


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


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


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


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?


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?


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?


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.


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.


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.)


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.


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.


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.


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?"


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"?


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


1 short recess.

2 MR. GUIDO: Yes, Your Honor.


4 (Whereupon, a short break was taken

5 from 10:34 a.m. to 10:55 a.m.)


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.


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.


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.


13 (Discussion held off the record.)


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


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.


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


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


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


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?


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?


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


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?


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?


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


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.


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


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.


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


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


1 the Castle & Cooke, which I must say was -- we

2 should give a little credit due here -- was very

3 profitable as TSG was to United. But TSG Holdings

4 was a position that MCO had at one time and sold.

5 There came a time when a block of stock

6 was available. And again, Gerry Williams or

7 whomever at the time wanted to know if United

8 could participate in it; and they did.

9 And so, MCO backed out of the market;

10 and United bought a position. And there became a

11 piece of $990,000 it says here available. And

12 somebody -- could have been me -- got a phone

13 call, wanted to know if we wanted it from London.

14 And I told them that we would take it. I offered

15 it to UFG. And if they wanted it, they could have

16 it. If not, MCO would have taken it.

17 Q. Now, I'd like to direct your attention

18 back to Exhibit A10560, which is Tab 174, which is

19 in the pile of documents in front of you.

20 This is the Michael Crow memorandum

21 dated May --

22 A. I'm sorry. Would you tell me the


1 number again, please?

2 Q. I'm sorry. It's A10560, which is

3 Tab 174.

4 A. Got it.

5 Q. And I'd like to direct your attention

6 to Page 4 of that memorandum again, which is --

7 look at the Roman Numeral XI.

8 A. I see it.

9 Q. Do you see that?

10 A. Yes.

11 Q. Do you see where it says, "The

12 investment department is working effectively at

13 the present time, but the group agreed that at

14 that monitoring process needs to continue"?

15 Do you see that?

16 A. I see that.

17 Q. Then the last sentence says, "It was

18 also discussed that the reporting process of

19 purchases of investments to Messrs. Gross and

20 Williams needs to be improved."

21 Do you see that?

22 A. I see that.


1 Q. Do you recall that there came a time in

2 1985 that there was concern by Mr. Gross and

3 Mr. Williams that they weren't being fully

4 informed of the nature of USAT's investments?

5 A. I don't recall.

6 Q. Now, look at the middle sentence. It

7 says, "It was discussed that Mr. Hurwitz was the

8 only truly-qualified individual to determine the

9 quality of some of the investments."

10 Do you see that?

11 A. I do.

12 Q. Do you recall anyone at USAT telling

13 you that?

14 A. I don't recall that, no.

15 Q. Did the portfolio managers from time to

16 time consult with you with regard to investment

17 strategy?

18 A. They would from time to time consult me

19 about strategy, yes.

20 Q. Did Joe Phillips consult with you with

21 regard to high-yield bond investment strategies?

22 A. Not so much on strategy. He would ask


1 me on occasion -- and they would not be

2 frequent -- about a particular bond that he was

3 either looking at buying or selling or did I have

4 a view on something.

5 Q. And what about Gene Stodart when he was

6 managing the portfolio? Did he consult with you?

7 A. Probably the same as Mr. Phillips did.

8 Q. And did Mr. Phillips consult with you

9 with regard to mortgage-backed security

10 investments?

11 A. No.

12 Q. No?

13 A. No.

14 Q. Did Ms. Laurenson?

15 A. No.

16 Q. Did Mr. Bruno?

17 A. No.

18 Q. Did Mr. Huebsch consult with you with

19 regard to equity arbitrage investments on behalf

20 of USAT?

21 A. Probably the same as I just described

22 with the other people. We would talk about it on


1 occasion. Still do.

2 Q. You and Mr. Huebsch?

3 A. Yes.

4 Q. Now, I'd like to turn to another

5 exhibit, which is -- two exhibits. One is Tab 88

6 which is A3013, and the second is T8034, which is

7 Tab 479.

8 Tab 88, which is A3013 --

9 THE COURT: What number?

10 MR. GUIDO: A3013, Your Honor, which is

11 Tab 88. It's dated March 31, 1986. It's a letter

12 to the -- and an attachment to the shareholders of

13 United Financial Group.

14 Q. (BY MR. GUIDO) Do you have that in

15 front of you, Mr. Hurwitz?

16 A. I do.

17 Q. Is that a proxy statement?

18 A. Yes.

19 Q. Okay.

20 A. Appears to be.

21 Q. I'd like to direct your attention to

22 Page 15 of the proxy statement.


1 A. Okay.

2 Q. The number is in the middle of the page

3 at the bottom. Look at the third paragraph on

4 that page, which is numbered 6.

5 Do you see that?

6 A. I do.

7 Q. Do you see it makes reference to you

8 receiving $200,000 under the incentive cash plan?

9 A. I see that.

10 Q. Did you receive a bonus for the year

11 1985 at USAT?

12 A. Yes. I didn't receive a salary ever,

13 and there were a couple of bonuses given to me

14 during this period of time.

15 Q. Okay. And did you also receive a bonus

16 in 1986 of approximately $230,000?

17 A. I think that's correct.

18 Q. I'd like to direct your attention to

19 T8034, which is the second document that I've just

20 given you, Tab 479. And in the bottom right-hand

21 corner of the packet of materials, you'll see a

22 Bates stamp number that starts with C.


1 A. Okay.

2 Q. Look at No. 4, the Bates stamp No. 4.

3 A. I see that.

4 Q. Do you see where it says "bonus of

5 $230,000"?

6 A. I do. No salary.

7 Q. No salary?

8 A. Right.

9 Q. And then see Bates stamp No. 6, C with

10 a bunch of zeros, the number 6?

11 A. Yes.

12 Q. See Item No. 2? It says "Hurwitz

13 receives no salary. Bonuses for investment

14 leadership"?

15 A. I do.

16 Q. What is the investment leadership that

17 you provided to UFG and USAT?

18 A. Well, I think direction and some

19 special situations that were -- we were involved

20 in.

21 Q. What do you mean by --

22 A. Well, Castle & Cooke. TSG made a lot


1 of money. We invested in Weingarten Realty and I

2 think made some maybe $40 million on that

3 investment. These are all investments that -- I

4 think that I brought to the attention of the

5 savings and loan.

6 Q. Was one of the investments that you

7 brought to the attention of the savings and loan

8 investing in high-yield bonds?

9 A. No, I don't think I brought that to

10 them. It's a good idea. I wish I had.

11 Q. Had they invested in high-yield bonds

12 prior to the high-yield bonds that Joe Phillips

13 referred to in the memorandum that I showed you?

14 A. Well, you showed me a memorandum before

15 that where there was some floating rate notes

16 purchased before that.

17 Is that what you're talking about?

18 Q. Yeah. Before those purchases, the

19 floating rate notes purchases, had USAT invested

20 in high-yield bonds prior to that?

21 A. Not that I recall.

22 Q. And did you have discussions with


1 people at the outset of USAT's investment in

2 high-yield bonds?

3 A. I'm a little confused by the --

4 Q. I'll rephrase the question.

5 A. Okay.

6 Q. Did you discuss with management of USAT

7 the desirability of making investments in

8 high-yield bonds before they had begun such

9 investments?

10 A. I certainly could have had some

11 discussions, yes.

12 Q. Did you have discussions with

13 management of USAT about the desirability of

14 making investments in mortgage-backed securities

15 prior to the expansion in 1985?

16 A. I could have. I don't recall that. I

17 don't recall either one of them.

18 Q. Did you have discussions with the

19 management of USAT on the desirability of making

20 investments in equity arbitrage transactions prior

21 to USAT having done so?

22 A. I don't recall. I certainly could


1 have.

2 Q. Now, you recall the mortgage-backed

3 security portfolio at USAT?

4 A. Well, when you say "portfolio" --

5 Q. I know. We have a terminology problem

6 in this case.

7 Did USAT purchase mortgage-backed

8 securities at the time you were the chairman of

9 the board of UFG?

10 A. Yes, they did.

11 Q. Did you participate in discussions that

12 led to the determination of the size of those

13 portfolios?

14 A. I don't recall.

15 Q. Did you have any discussions with

16 regard to the strategy that USAT should undertake

17 with regard to investments in mortgage-backed

18 securities portfolios?

19 A. I don't recall if I did.

20 Q. I'd like to direct your attention to a

21 document that we have marked as Exhibit B377,

22 which is a memorandum dated October 24th, 1984,


1 from Salomon Brothers to United Savings

2 Association of Texas. It's Tab 242, which is

3 B377.

4 Do you recall meeting with investment

5 banking firms to listen to presentations on

6 strategies to be used with regard to investments

7 in mortgage-backed securities by USAT?

8 A. I don't recall now that I did. I could

9 have.

10 Q. Did you attend any presentations by

11 Salomon Brothers with regard to investment

12 strategy by USAT?

13 A. Is this relating to mortgage-backs

14 you're talking about or just anything?

15 Q. In general.

16 A. No, I don't recall.

17 Q. Have you ever seen Exhibit B377 before?

18 A. I don't recall it.

19 Q. I'd like to direct your attention now

20 to another document, which is A3021, which is at

21 Tab 1161, and A3022, which is at Tab 719.

22 Do you have A3021?


1 A. I do.

2 Q. I want to direct your attention to

3 Page 25 of the exhibit, which is the numbers in

4 the middle of the page.

5 Do you see that that's the signature

6 page?

7 A. Yes.

8 Q. It says March 26, 1986, it was signed

9 by Charles Hurwitz?

10 A. I don't see where it's signed. Am I

11 looking at the right page?

12 Q. Do you have --

13 A. Are these signature pages you're

14 talking about?

15 Q. Yeah.

16 A. I don't --

17 Q. You don't see the actual signature

18 page?

19 A. Well, I see my name. I don't see where

20 I signed it. I'm --

21 Q. Okay.

22 A. It --


1 Q. But do you recall signing the document?

2 A. I'm certain that I did. I just don't

3 see it here.

4 Q. This document reflects that it was

5 signed on March 26th, 1986?

6 A. I'm satisfied that's correct.

7 Q. Now, why was it that you signed the 10K

8 in 1986?

9 A. Well, I assume I was a director of

10 United Financial Group.

11 Q. And was it your understanding as a

12 director you had an obligation to read and sign

13 the 10K?

14 A. I believe that's correct.

15 Q. Okay. And did you read the document

16 before you signed it?

17 A. I'm not sure I read every word of it,

18 but I certainly looked at the document.

19 Q. Now, I'd like to direct your attention

20 to Page 3. At the bottom of the page, do you see

21 where it says, "The company has significantly

22 improved the interest rate sensitivity of its


1 assets"?

2 A. I do.

3 Q. Okay. I'd like for you to read to

4 yourself that paragraph through the rest of the

5 paragraph that carries over to Page 4, and I have

6 some questions.

7 A. Okay. (Witness reviews the document.)

8 I've read it.

9 Q. Okay. Do you recall the

10 mortgage-backed security investments at USAT in

11 1985?

12 A. I don't.

13 Q. Take a look at the sentence -- the

14 fifth sentence down on Page 3. It says, "The

15 company has also invested approximately

16 1.2 billion in fixed-rate mortgage-backed

17 securities primarily funded with short-term

18 liabilities and hedged arbitrage programs."

19 Do you see that?

20 A. I do.

21 Q. Do you recall that -- who was in charge

22 of making investments in the mortgage-backed


1 security program in 1985?

2 A. I don't. Probably Joe Phillips.

3 Q. Who was Joe Phillips' superior?

4 A. I think he reported to the investment

5 committee, but I can't tell you who was his

6 superior. I don't know.

7 Q. Under the organizational structure, was

8 there a manager of investments in 1985?

9 A. I don't recall.

10 Q. Now, look at Page 4, the sixth line

11 down. Do you see where the line says -- starts

12 "subject to collateral calls"?

13 Do you see that line?

14 A. I do.

15 Q. Then it picks and up there is a new

16 sentence. It says, "The company carefully

17 monitors its hedged programs and attempts to

18 reinvest its assets prior to rapid repayments as

19 well as maintaining a layer of unencumbered

20 collateral for such contingencies."

21 Do you see that?

22 A. I do.


1 Q. Do you know what USAT or UFG did to

2 monitor its hedged programs in 1985?

3 A. I don't recall at this time.

4 Q. Do you know whether or not it

5 maintained unencumbered collateral for

6 contingencies of prepayments?

7 A. A long time ago. I don't recall.

8 Q. I'd like to direct your attention to

9 the second document that's in front of you, which

10 is A3022, which -- this one, I'll use the Bates

11 stamp numbers because the actual pagination goes

12 back and forth on the pages.

13 I'll use the CN numbers. Do you have

14 the CN numbers?

15 A. I do, yes.

16 Q. CN071209. That shows --

17 A. 1209?

18 Q. Yes.

19 A. Okay. (Witness reviews the document.)

20 I don't -- I've got 05. I have CN071205. And you

21 said it's 09?

22 Q. 09.


1 A. Then it goes off into --

2 Q. Let me show you my copy, which is --

3 it's one of those signature pages again. It's

4 dated March 17th, 1987.

5 Does that show that you signed the 10K?

6 A. Yes. Right. It has my name on there,

7 not my signature.

8 Q. Do you have any reason to doubt that

9 you reviewed and signed the 10K in 1986?

10 A. Not at all.

11 Q. Now, I'd like to direct your attention

12 to Page CN071171 of the document. I'm sorry. Not

13 on the document. The Bates stamp of the document.

14 It's actually -- I think it's Page 28 of the

15 document, which is on the left-hand side.

16 A. Yes. Page 28, you said?

17 Q. See where it makes reference to

18 asset/liability management?

19 A. I do.

20 Q. Do you know what asset and liability

21 management refers to there?

22 A. Well, I'd have to go back and read this


1 to refresh my memory, if I could. But, you know,

2 as I sit here today, I can't comment on it.

3 Q. Okay. Look at the next page. I think

4 it's Page 29.

5 A. Okay.

6 Q. The first full paragraph starts, "the

7 overall interest rate risk."

8 Do you see that paragraph there?

9 A. I do.

10 Q. And take a look at the second sentence.

11 See where it says, "Much of the company's growth

12 since 1984 has been in the form of arbitrages

13 designed to produce a net -- a hedged net interest

14 spread between mortgage-backed securities and

15 various funding sources"?

16 A. This is in the second paragraph?

17 Q. Well, it's the first --

18 A. First full paragraph?

19 Q. First full paragraph, the second

20 paragraph.

21 THE COURT: Second sentence.

22 MR. GUIDO: Pardon?


1 MR. NICKENS: Second sentence.

2 A. Yes, I see that.

3 Q. (BY MR. GUIDO) Does that conform to

4 your recollection of the mortgage-backed security

5 portfolios at USAT in 1984 through December of

6 1986?

7 A. This is -- I can't tell you at this

8 time. I don't recall.

9 Q. Now, you mentioned an investment

10 committee, I think.

11 A. I'm sorry. I didn't hear you.

12 Q. You mentioned an investment committee,

13 I think, a little while ago in your testimony.

14 Can you tell us what the investment

15 committee was at USAT?

16 A. Well, it was a committee made up of

17 certain people. I don't remember who was on that

18 committee, but I seem to remember there was a

19 committee.

20 Q. Now, was there one investment

21 committee; or were there two?

22 A. I don't remember.


1 Q. I'd like to show you two documents:

2 T7587, and the second is A1112, and the third is

3 B1626. The first one, T7587, is Tab 655. A1112

4 is Tab 1307. And B1626 is Tab 1654.

5 THE COURT: What was the third

6 document, the exhibit number? Was it B something?

7 MR. GUIDO: B -- is that B1626, Your

8 Honor?

9 THE COURT: Okay. Thank you.

10 Q. (BY MR. GUIDO) I'd like to direct

11 your attention to the first document, which is

12 T7587, dated May 8th, 1986. And I'd like to

13 direct your attention to Page 2 of the exhibit.

14 Do you see the "resolved"? It says

15 there was a creation of the investment committee.

16 A. I do.

17 Q. Pardon?

18 A. Yes, I do.

19 Q. And it lists the members there. And

20 then look at the "further resolved." It says,

21 "The investment committee shall establish

22 investment criteria, approve specific investments


1 made by and on behalf of the committee, approve

2 the overall level of the company's investments,

3 monitor compliance with regulatory investment

4 limitations, and approve the investment banking

5 firms and broker/dealer institutions."

6 Do you see that?

7 A. I do.

8 Q. Now, let's take a look at the second

9 document that I've shown you, which is A1112.

10 That also has the establishment of an investment

11 committee, and this time it's for United Financial

12 Group.

13 Do you see on the first page the

14 creation of the investment committee?

15 A. I do.

16 Q. And then do you see on the second page

17 the authority of the investment committee under

18 the "further resolved"?

19 A. Yes.

20 Q. The composition of the investment

21 committees, are they the same?

22 A. (Witness reviews the documents.) No,


1 they are not. But let me see what the difference

2 is.

3 Q. Is the difference that the UFG

4 investment committee has Barry Munitz as chairman

5 as an additional member?

6 A. Yes.

7 MR. NICKENS: I think it's the other

8 way around, Your Honor.

9 A. It's the other way around.

10 MR. GUIDO: I'm sorry. It is the other

11 way around.

12 Q. (BY MR. GUIDO) Barry Munitz is the

13 chairman of the USAT investment committee.

14 Were there one or two functioning

15 investment committees?

16 A. Well, United Financial Group didn't

17 have anything to invest.

18 Q. So, there essentially was one meeting;

19 is that correct?

20 A. Well, they had a small amount of cash.

21 I don't recall the investments made, but it was

22 pretty minor.


1 Q. Do you recall the approximate size of

2 the cash?

3 A. Well, I don't. I remember at one time,

4 there was a dividend paid where there was some

5 maybe 20, $30 million. But before that, I think

6 it was 5 million, $6 million or something.

7 Q. Now, who -- this says that the

8 investment committee has the authority to approve

9 the overall level of the company's investments,

10 whether it's UFG or USAT.

11 Do you see that?

12 A. I don't see that. Where is that?

13 Q. Well, on Page 2 of T7587 --

14 A. Yes.

15 Q. Do you see the "resolved" there with

16 regard to the investment committee's powers?

17 A. Right.

18 Q. It says, "It has the authority to

19 approve the overall level of the company's

20 investments."

21 A. Yes, I do see that.

22 Q. Did the investment committee have the


1 authority to establish the magnitude of the

2 investments in mortgage-backed securities on

3 behalf of USAT?

4 A. I don't recall.

5 Q. Now, take a look at B1626, which is a

6 memorandum from Barry Munitz to Art Berner dated

7 May 19th, 1987.

8 Do you see the first sentence where he

9 says, "I believe that when we originally

10 established the investment committee" -- and he

11 goes on and explains why given formal membership?

12 A. Yes.

13 Q. Do you know what the reference to

14 "critical mass of policy people" was?

15 A. I don't.

16 Q. Did you discuss with Barry Munitz prior

17 to him becoming a member of the investment

18 committee in May of 1986 that he should go on that

19 committee at USAT?

20 A. I don't recall that.

21 Q. I'd like to direct your attention now

22 to another set of documents. Maybe I can speed up


1 the process by directing your attention to one

2 document to start with. That is Tab 1310, B697.

3 This is a memorandum from Jenard Gross

4 to a number of people including yourself dated

5 December 17th, 1985.

6 Do you recall that in November of 1985,

7 a subsidiary, a finance subsidiary was created at

8 USAT called USAT Mortgage Finance to invest

9 $500 million in mortgage-backed securities?

10 A. I don't recall that.

11 Q. Do you recall the collapse of such an

12 entity in December of 1985?

13 A. I have some vague recollection of it,

14 but I would say no.

15 Q. What do you recall?

16 A. I recall there was a subsidiary that

17 was set up and some regulations changed. And I

18 think that the subsidiary was either liquidated or

19 the bonds that were in there were put someplace

20 else, but that's all. Just a vague memory.

21 Q. Do you recall whether or not there were

22 mirror swaps that were purchased to offset


1 existing swaps that had been bought in that

2 portfolio?

3 A. I don't.

4 Q. Do you recall whether or not there

5 became any accounting issues regarding how to

6 properly account for that portfolio?

7 A. I have some vague recollection of that,

8 that there were some accounting issues.

9 Q. Do you recall what they were?

10 A. Well, it's very vague; but it was

11 something to the effect of when you take certain

12 gains. And there was some controversy with the

13 accountants, I believe, of when gains are

14 recognized for book purpose. And I think that

15 there were no -- the gains weren't taken; and

16 later, the accountants came back and said they

17 should be taken. I think that's right.

18 Q. Are you sure that that's with regard to

19 USAT Mortgage Finance?

20 A. No. It could have been another

21 subsidiary. It's very vague in my mind.

22 Q. I'd like to direct your attention now


1 to two documents which are dated -- or Tab 1313,

2 T4171 is the first one. And then the second is

3 Tab 329, which is Exhibit T4333.

4 MR. EISENHART: Your Honor, may we

5 check that first tab again?

6 MR. GUIDO: I have Tab 1313.

7 MR. EISENHART: I'm sorry. It should

8 be 1312.

9 MR. GUIDO: Pardon?

10 MR. EISENHART: 1312.

11 MR. GUIDO: 1312?


13 Q. (BY MR. GUIDO) I'd like to direct

14 your attention to T4171 to start with. It's a

15 memorandum from Jenard Gross to Ron Huebsch and

16 you and other individuals dated February 19th,

17 1986.

18 Do you have that document in front of

19 you, Mr. Hurwitz?

20 A. I do, yes.

21 Q. Now, it makes reference -- it says, "I

22 was glad to learn yesterday that you completed


1 your rolldowns of your mortgage-backed

2 securities."

3 Do you see that?

4 A. I do.

5 Q. Were you managing the mortgage-backed

6 security portfolio at USAT?

7 A. No, I wasn't.

8 Q. Why was Mr. Gross addressing a memo to

9 you and saying he was glad to learn that you

10 completed your rolldown?

11 A. I think he addressed it to a lot of

12 people. There were five people he addressed it

13 to.

14 Q. Were you involved in the management of

15 the mortgage-backed security portfolio at USAT

16 prior to the date of this memorandum,

17 February 19th, 1986, to adjust it for prepayment

18 speeds?

19 A. I was not.

20 Q. Did you have any discussions with Ron

21 Huebsch about that?

22 A. Not that I recall.


1 Q. Did you have any discussions with Joe

2 Phillips about that?

3 A. No.

4 Q. Do you recall the rolldown that's being

5 referred to in this memorandum?

6 A. I don't.

7 Q. Now, I'd like to direct your attention

8 to Tab 329, which is T4333, which is a document

9 that is dated January 22, 1987. And it's from

10 Jenard Gross to Mike Crow, you, and Dr. Munitz.

11 And I only have questions about the

12 last paragraph on the first page, which I'd like

13 to direct your attention to.

14 A. (Witness reviews the document.) Okay.

15 I've read it.

16 Q. Now, do you see the reference to the CD

17 maturities stream against the shape of the bond

18 stream? See that first sentence?

19 A. I do.

20 Q. Do you know what that refers to?

21 A. You know, I just don't remember at this

22 time.


1 Q. Well, do you recall that at USAT some

2 of the bonds were being called away because of a

3 decline in interest rates in 1986?

4 A. I don't recall.

5 Q. Now, see the next sentence? It says --

6 the last sentence in that paragraph says, "Just

7 like our swaps were not designed properly and

8 didn't give any thought to the possibility of

9 prepayments."

10 Do you see that?

11 A. I do.

12 Q. Do you recall having any discussions

13 about the design of the swaps and whether or not

14 they had been properly structured in light of

15 prepayment speeds at USAT?

16 A. No, I don't.

17 Q. I'd like to show you now another set of

18 documents, and I would like to start off by asking

19 you: In nineteen -- late 1985 and 1986, had

20 questions arisen regarding whether USAT could

21 maintain its profitability in light of the

22 restructuring that had occurred starting in the


1 middle of 1995?

2 THE COURT: What was the question? I

3 didn't understand the question.

4 Q. (BY MR. GUIDO) Had questions arisen

5 by the middle of 1986 regarding the profitability

6 of USAT in light of the restructuring that had

7 occurred starting, I think, in the beginning of

8 1985 and carrying forward as reflected in the

9 May 16th minutes that I showed you to the board of

10 directors?

11 MR. KEETON: I object to the form of

12 the question, Your Honor. It's compound, and it

13 has assumptions in it. If he wants to ask it,

14 questions about profitability, period, that's an

15 easy question.

16 Q. (BY MR. GUIDO) Did the question arise

17 in the middle of 1986 about the need to generate

18 gains from USAT's mortgage-backed and high-yield

19 bond portfolios?

20 A. It's possible that that happened, but I

21 don't recall it.

22 Q. I'd like to direct your attention to a


1 document, which is T4219, which is at Tab 868.

2 It's a memorandum dated June 26, 1986,

3 from Michael Crow to you and other individuals

4 regarding an earnings power meeting.

5 Do you have the document in front of

6 you?

7 A. I do, yes.

8 Q. Does that refresh your recollection

9 that given USAT's structure in the middle of 1986,

10 operating earnings were significantly negative

11 without extraordinary earnings boosts?

12 A. No, it doesn't refresh it.

13 Q. You don't recall that issue coming up?

14 A. This just does not refresh my memory,

15 no.

16 Q. I'd like to direct your attention now

17 to a document, A10645, which is at Tab 867, which

18 is a memorandum dated June 23rd, 1986.

19 Do you see on page Bates stamp US237 --

20 let me back up. Excuse me. Let me back up.

21 Do you see the first paragraph that

22 discusses the need for non-operating gains?


1 A. I do.

2 Q. It's making reference to the reported

3 profits for the third and fourth quarters of 1986.

4 Do you see that?

5 A. I see that, yes.

6 Q. Then look at Option No. 2 on Page 237.

7 Just read to yourself the advantages and

8 disadvantages. And Option No. 2 is addressing the

9 sale of USAT's Ginnie Mae portfolio held for

10 general purposes, and it says "outside of the

11 structured arbitrage and cash flow bond."

12 Do you see the advantages and

13 disadvantages?

14 A. I do.

15 Q. And then look at Option No. 4, which

16 talks about the sale of fixed-rate junk bonds.

17 And look at the advantages and disadvantages that

18 are referred to there.

19 Are the advantages and disadvantages

20 that are being discussed in Option Nos. 2 and 4

21 essentially the trade-off between recognized gains

22 and the impact of ongoing earnings in the future


1 periods?

2 A. Well, I don't know. I guess I'd really

3 have to study this document to make sure what you

4 said is correct. I don't know that to be right,

5 and I'm not familiar with this document. I see

6 it's not listed -- my name is not listed.

7 Q. Let me direct your attention to two

8 documents. One is Tab 335, which is T4246. And

9 the second is Tab 870, which is A10666.

10 THE COURT: Mr. Guido, how much more do

11 you have?

12 MR. GUIDO: Probably an hour, maybe an

13 hour and a half, Your Honor.

14 THE COURT: All right. We'll adjourn

15 until 1:30.


17 (Whereupon, a lunch break was taken

18 from 12:04 p.m. to 1:33 p.m.)


20 THE COURT: Be seated, please. We'll

21 be back on the record.

22 Mr. Guido, you may continue.


1 MR. GUIDO: Thank you, Your Honor.

2 Q. (BY MR. GUIDO) When we broke, I

3 wanted to show you Exhibit -- Tab 335,

4 Exhibit T4246, and Tab 870, which is A10666,

5 Mr. Hurwitz.

6 Tab 335 is what's referred to as the

7 Doug Hansen memorandum regarding strategic

8 planning. This one is dated September 8th, 1986;

9 and it's entitled "Growth in capital strategy, the

10 next six months."

11 I want you to look at the Bates stamp

12 US468, which is the next-to-last page of the

13 document.

14 A. (Witness reviews the document.)

15 Q. Do you see the reference --

16 A. I'm still -- excuse me a second,

17 Mr. Guido. 468?

18 Q. 468. US0000468. It's the

19 next-to-the-last page of the document.

20 THE COURT: My exhibit doesn't have

21 those imaging numbers on it. So, maybe the

22 copy --


1 THE WITNESS: Mine doesn't either,

2 Mr. Guido.

3 Q. (BY MR. GUIDO) The next-to-the-last

4 page, do you see where it makes reference to Smith

5 Breeden in the middle of the page?

6 A. I do.

7 Q. That's what I wanted to direct your

8 attention to. See the reference to Smith Breeden?

9 Do you know what Smith Breeden was?

10 A. I believe that they were a consulting

11 firm in bonds.

12 Q. In bonds or mortgage-backed securities?

13 A. Well, I consider those bonds. But I

14 think they did -- and today, I believe I read

15 recently that they do corporate bonds and they

16 have a corporate bond fund.

17 Q. Okay.

18 A. But I believe that Mr. Breeden was a

19 professor from Stanford, and he was teaching at

20 Duke University or something.

21 Q. And do you recall consulting them about

22 the mortgage-backed security portfolio at USAT?


1 A. I seem to remember that they gave a

2 presentation.

3 Q. I'd like to direct your attention --

4 this shows that there's to be a meeting on

5 September 15th.

6 Do you see that? And among the

7 attendees is listed yourself. Do you see that?

8 A. I do see that, yes.

9 Q. Take a look at Tab 870, A10666, which

10 is the second document, which has been

11 explained -- A10666, Tab 870, has been described

12 as the written portion of the presentation that

13 was made by Smith Breeden at the September 15th

14 meeting with senior management of USAT and UFG.

15 And I'd like to direct your attention to the Bates

16 stamp No. CN53088.

17 A. (Witness reviews the document.)

18 Q. Do you see the page that's headed

19 "recommendations" at the top?

20 A. Yes.

21 Q. Do you recall attending the meeting

22 with Smith Breeden?


1 A. I don't, no.

2 Q. Did you attend any meetings in which

3 Smith Breeden made a presentation?

4 A. I certainly could have, but I don't

5 recall it.

6 Q. Now, see the second item in here, it

7 says "take gain on portfolio to offset operating

8 losses," the second bullet point.

9 A. I see it, yes.

10 Q. Do you recall that Smith Breeden had

11 advised USAT to take gains to offset operating

12 losses?

13 A. I don't recall at this time.

14 Q. I'd like to direct your attention now

15 to Tab 544, which is A1407; Tab 379, which is

16 B1212; Tab 380, which is A1409.

17 Tab 544, the first document, is the

18 minutes of the investment committee dated

19 September 3rd, 1986. And Page 2 makes reference

20 to a committee being set up by the investment

21 committee.

22 Do you see that at the top of the page


1 on Page 2?

2 A. (Witness reviews the document.) The

3 one that starts with "Mr. Phillips"?

4 Q. Yes.

5 A. Yes.

6 Q. Do you see the reference to the

7 committee being set up, being empowered to make

8 value trades? Do you see that?

9 A. I do.

10 Q. Do you know what the reference to value

11 trades is in that document?

12 A. No. I used to know at one time. I

13 don't know that I can tell you today what that is.

14 Q. Do you recall that there was a

15 mortgage-backed security trading committee that

16 was set up on or about September 3rd, 1986?

17 A. No, I don't.

18 Q. Now, I'd like to direct your attention

19 to Tab 379, B1212. These are minutes of a

20 mortgage-backed security trading committee.

21 I want to direct your attention to the

22 last paragraph on that page. Do you see -- well,


1 read to yourself the last two paragraphs, and then

2 I'll ask you some questions.

3 A. The one that starts with "the committee

4 noted"?

5 Q. Yes.

6 A. Okay. (Witness reviews the document.)

7 I've read those two paragraphs.

8 Q. Now take a look at Tab 380, A1409,

9 which are the minutes of the investment committee

10 dated September 18th, 1986, and it lists you as

11 being in attendance.

12 Do you see that?

13 A. I do, yes.

14 Q. I want to direct your attention to the

15 second-to-the-last paragraph on Page 2 of those

16 minutes.

17 Could you read that paragraph to

18 yourself, please?

19 A. The one that starts with "the

20 committee"?

21 Q. Yes. "The committee reviewed the

22 minutes of the mortgage-backed security trading


1 committee for the week."

2 A. (Witness reviews the document.) Yes,

3 I've read it.

4 Q. Now, do you recall you testified

5 earlier that you recalled there was a period of

6 time at USAT where there was an accounting issue

7 that came up regarding when gains could be

8 recognized for accounting purposes on

9 mortgage-backed securities?

10 A. I think I said I had a vague

11 recollection of a subsidiary that was set up, and

12 it turned out that there was a new regulation.

13 And I think that's what happened. There was some

14 potential accounting changes in there from the

15 accountants.

16 Q. Do you recall that an issue came up

17 when gains on mortgage-backed securities should be

18 deferred as opposed to recognized at the date of

19 the transaction?

20 A. No, I don't.

21 Q. Do you recall whether a committee was

22 set up to determine when sales should be made out


1 of the mortgage-backed security portfolios at USAT

2 to generate gains to bolster profits?

3 A. No, I'm not familiar with that.

4 Q. I'd like to direct your attention to

5 Tab 871, which is T4250.

6 T4250 is another one of the Doug Hansen

7 memoranda to you and to others regarding a meeting

8 of September 22nd, 1986. And it makes reference

9 on Bates stamp US2073, some points which I'd like

10 to direct your attention to.

11 A. (Witness reviews the document.)

12 Q. Look at the middle of -- well, it's

13 about a third of the way down where it says,

14 "quarter end actions," the bullet point.

15 Do you see that? It says, "Quarter end

16 actions will be considered next Monday. We should

17 take all MBS and liquidity portfolio gains."

18 A. No, I don't see that. That's 2073?

19 Q. Yes, sir.

20 A. This is terribly hard to read; so, I'm

21 not sure.

22 Q. This is one of those that I thought


1 might be a problem. Would you like me to read it

2 to you from the way we have it in the record?

3 A. Sure.

4 Q. "Quarter end actions will be considered

5 next Monday. We should take all MBS and liquidity

6 portfolio gains, monitor equity arbitrage results,

7 alert Joe as to the possibility of taking junk

8 bond gains, and track the profit and capital

9 positions closely."

10 Do you recall that the strategic

11 planning committee in the fall of 1986 was in the

12 process of considering the sale of high-yield

13 bonds and mortgage-backed securities to generate

14 gains to bolster profits?

15 A. I do not recall that, no.

16 Q. I'd like to direct your attention now

17 to Tab 547, A1411, which are the minutes of the

18 investment committee of October 1st, 1986.

19 Do you see in the first paragraph, it

20 makes mention of you being in attendance at this

21 meeting?

22 A. I do.


1 Q. And see in the fourth paragraph, it

2 says, "Mr. Phillips recommended the sale of a

3 portion of the liquidity and mortgage-backed

4 securities portfolios to recognize profits which

5 were recently created by the market rally"?

6 Do you see that?

7 A. I do.

8 Q. Do you recall discussions in the fall

9 of 1987 in which Mr. Phillips reported on sales in

10 the mortgage-backed securities portfolio to

11 recognize profits which were created by a rally,

12 market rally?

13 A. I didn't mean to interrupt you there.

14 I don't recall that, no.

15 Q. Now, I'd like to direct your attention

16 to two documents: Tab 566 -- I'm sorry --

17 Tab 348, which is A1417, and Tab 566, which is

18 T4302.

19 A. (Witness reviews the document.)

20 Q. I'd like to direct your attention to

21 first the document that is Tab 566, which is

22 T4302.


1 A. I'm sorry. Tab what?

2 Q. 566. It's the one-page document.

3 A. (Witness reviews the document.)

4 Q. See where it says, "We had a discussion

5 at the investment committee on selling junk bonds

6 for profits for purposes of quarterly earnings"?

7 A. I do.

8 Q. Do you see where it says that Ron

9 Huebsch made an impassioned plea to get the word

10 now so that the investment department could plan?

11 A. Yes, I see that.

12 Q. Now, look further down where it says,

13 "C," Charles, "asked to see some projections on

14 the quarter prior to making a definitive

15 decision"?

16 A. Yes, I see that.

17 Q. Now, look at the minutes, A1417, which

18 is November 12th, 1986. The memorandum indicates

19 that there was a discussion on selling high-yield

20 bonds for purposes of quarterly profits. And the

21 minutes and the note indicates that you asked to

22 see some projections before a decision was made on


1 that. The discussion of the mortgage-backed

2 securities portfolio.

3 It doesn't say anything about making

4 sales of high-yield bonds to generate gains, does

5 it?

6 A. Is this a -- this A1417 document?

7 Q. Yes, sir.

8 A. Would you like me to read it?

9 Q. I'm sorry. I thought you had.

10 A. No. Is there any part that you want me

11 to look at?

12 Q. Look at the second paragraph. It talks

13 about a report by Mr. Huebsch and Mr. Stabell

14 discussing the high-yield bond portfolio.

15 Do you see that?

16 A. I do, yes.

17 Q. Then it has Mr. Stabell making a

18 discussion of certain proposed offerings in the

19 third paragraph. And then it has Mr. Huebsch

20 noting that there had been a continual decline in

21 the spread between the high-yield bond securities

22 being offered and the current treasury.


1 Do you see that?

2 A. I do.

3 Q. Why was the investment committee, as

4 reflected in Tab 566 at T4302, discussing the sale

5 of high-yield bonds for purposes of quarterly

6 earnings?

7 A. You know, I don't know. It would just

8 be speculation on my part, but I don't recall

9 that.

10 Q. You don't recall?

11 A. I don't.

12 Q. I'd like to direct your attention to

13 Tab 569, which is T4320, which is another set of

14 minutes of the strategic planning committee dated

15 December 17th, 1986. It's a memorandum from

16 you -- from Doug Hansen, again, to you and others

17 regarding the strategic planning committee meeting

18 of December 17th, 1986.

19 A. (Witness reviews the document.) This

20 document is difficult to read, so...

21 Q. Let me -- see Items 8 and 9 on that

22 memorandum?


1 A. I do.

2 Q. Item 8 talks about high-yield bonds.

3 It's only the last sentence that I want to direct

4 your attention to, and it says, "Economic spread

5 to date has been" -- I think it's "308 basis

6 points. This has been reduced to 220 on an

7 accounting basis due to profit-taking."

8 Do you see that?

9 A. I do.

10 Q. And then the MBSs -- it talks about the

11 spread -- if you look to the last line -- being

12 minus 108 basis points in 1987 due to

13 profit-taking.

14 Do you see that?

15 A. I do.

16 Q. Do you recall the strategic planning

17 committee discussing the fact that sales out of

18 the high-yield bond portfolio had reduced the net

19 interest spread going forward?

20 A. I don't, no.

21 Q. Do you recall that the strategic

22 planning committee had discussed the effect of


1 sales made out of the high-yield bond portfolio to

2 generate profits creating a negative spread in the

3 mortgage-backed security portfolio at USAT?

4 A. I don't recall at this time, no.

5 Q. Now, how would you measure the success

6 of USAT's mortgage-backed security portfolios if

7 you were to do that today?

8 A. Gosh. I don't know. I'd like to think

9 about that a while. I haven't thought about that

10 in years. I don't know that I can sit here today

11 and give you an answer on that. It's a

12 complicated question.

13 Q. So, you can't today tell us how to

14 measure the success of the mortgage-backed

15 security portfolio at USAT?

16 A. That's correct.

17 Q. What steps did you take to ascertain

18 whether the managers of the mortgage-backed

19 security portfolios at USAT understood the

20 mortgage-backed securities and their derivatives

21 in order to avoid a risk of loss to the

22 association?


1 A. Well, I'm not sure I totally understand

2 the question. Was it like an experience thing?

3 Did I interview the people and see if they

4 understood what they were talking about and knew

5 about mortgage-backs?

6 Q. Did you make any efforts to obtain

7 reports on the performance of the portfolios?

8 A. Well, I can't tell you that I asked;

9 but there were periodic reports that I received.

10 Q. Did you make any effort to ascertain

11 whether the members of the investment committee

12 had the expertise to oversee the managers of the

13 mortgage-backed securities portfolio?

14 A. I don't know that I made an independent

15 check on that, but I believe that the people they

16 had were competent, yes.

17 Q. Do you recall what you did to ascertain

18 whether or not the portfolio's performance was

19 meeting its expectations?

20 A. Well, at the time, as I mentioned, I

21 think that everyone received some type of

22 performance report on all investments.


1 Q. Did you take any steps to ensure the

2 accuracy of the information that you were

3 receiving?

4 A. Independent of the report?

5 Q. Uh-huh.

6 A. I don't recall that I did.

7 Q. What reports did you receive?

8 A. Just the manager reports that were

9 circulated.

10 Q. What do you mean the management reports

11 that were circulated?

12 A. Well, the management reports. There

13 was some types of reports that were sent out on

14 some regular basis. I don't know if it was to the

15 board or otherwise, but there were reports sent

16 around.

17 Q. Are these the performance reports that

18 went to the board? Is that what you're referring

19 to?

20 A. Could well be. I don't know what they

21 are called.

22 Q. Now, did you receive investment


1 committee minutes?

2 A. I may have, but I don't recall.

3 Q. Now, I'd like to turn to another set of

4 questions.

5 I think you testified that -- to

6 Mr. Rinaldi when he asked you about after

7 Mr. Ludwig had withdrawn from attempting to

8 acquire United Financial Group what your reasons

9 for going ahead. And I think you said something

10 about you were an optimist about the Texas and

11 Houston economy.

12 Is my memory correct?

13 A. I didn't see you here during that

14 testimony, but certainly your recollection is

15 right.

16 Q. Mr. Rinaldi is a very tall man.

17 A. I understand.

18 Q. Now, in 1985, '86, and '87 time period,

19 USAT was relying upon non-operating income to

20 offset its operating losses.

21 Do you recall that?

22 A. I can't tell you that I recall that.


1 Q. You don't recall that?

2 Were you optimistic about the future of

3 USAT in 1985 through 1988?

4 A. I would say there was a time in 1988

5 that I didn't feel quite so good about it.

6 Q. And when was that in '88?

7 A. I don't recall.

8 Q. Now, what was it that you were

9 optimistic about with regard to USAT?

10 A. Well, I was optimistic that the

11 southwest was a great growth area and that Houston

12 would be one of the great engines in the

13 southwest.

14 Q. What impact did you foresee that would

15 have on USAT's financial condition?

16 A. Well, we had a tremendous amount of

17 real estate owned and a lot of mortgages that

18 turned to be delinquent. And if that economy

19 changed, then that real estate would turn to be

20 good; and it had been -- a lot of that had been

21 written off on the books of the company. And so,

22 it would go from either a write-down of some


1 proportion or 100 percent to a realization.

2 Q. Now, did -- did you or did MCO own any

3 interests that would allow it to increase its

4 share of the profits that USAT would earn during

5 the period 1985 through 1987?

6 A. Could you ask the question again? I

7 just didn't understand it.

8 Q. I think you testified to Mr. Rinaldi

9 that USAT owned 23.4 percent of United Financial

10 Group or MCO and Federated combined owned

11 something around 24.9 percent.

12 Do you recall that testimony?

13 A. Yes. Below 25.

14 Q. And I think you also testified that MCO

15 owned some securities, some preferred stock

16 securities, I think?

17 A. Yes. In United Financial?

18 Q. Yes.

19 A. Yes, I did.

20 Q. And you also testified that it owned an

21 interest -- a put/call agreement with Drexel.

22 Do you recall that testimony?


1 A. In what year was that you're talking

2 about?

3 Q. Between 1985 and 1987.

4 A. Yes, I think there was a put/call

5 arrangement sometime -- maybe at the end of 1985.

6 Q. And I think you -- do all of those

7 interests or contractual arrangements that MCO had

8 allow it to participate in the profits of

9 United Financial Group going forward?

10 A. Only if we got the approval to -- in

11 the case of the preferred -- to exercise those

12 shares and only in the option in the case of being

13 able to exercise the option.

14 Q. Now, with regard to, you know, going

15 forward in your views of the operations at USAT,

16 did you foresee that USAT would benefit or the

17 shareholders of USAT, including MAXXAM or MCO,

18 would benefit from the recovery of the southwest

19 economy?

20 A. I did.

21 Q. Now, I'd like to direct your attention

22 to another document, which is Tab 69, which is


1 referred to as Lazard 19.

2 THE COURT: Can you give us an exhibit

3 number?

4 MR. GUIDO: Your Honor, I think it is

5 one of those before we had formal exhibit numbers.

6 It was listed as Lazard No. 19. It was the 69th

7 exhibit that was put into the record, Your Honor.

8 A. (Witness reviews the document.)

9 Q. (BY MR. GUIDO) This is a document

10 that Mr. Lazard testified about which are the

11 high-yield bond issuances by MCO Holdings or

12 MAXXAM or their related entities.

13 Would you take a minute to glance at

14 that to familiarize yourself with the document?

15 A. Sure. (Witness reviews the document.)

16 Okay.

17 Q. The first one makes reference to a

18 MAXXAM Group, Inc. issuance of 5/21/1985 as the

19 closing date for $150 million.

20 Do you see that?

21 A. I do.

22 Q. And the second one makes reference to


1 MCO Holdings, Inc., 14 and a quarter senior

2 subordinated note dated 7/31/1985 for $35 million.

3 Do you see that?

4 A. I do.

5 Q. Who was the underwriter on those two

6 issuances?

7 A. Drexel Burnham.

8 Q. Did you approach any other underwriters

9 to ascertain whether or not they would be willing

10 to underwrite those bond issuances?

11 A. I don't recall.

12 Q. Were any efforts made to ascertain

13 whether or not any other underwriters would offer

14 better underwriting fees for their underwriting?

15 A. I don't recall.

16 Q. Now, with regard to the next two, those

17 make reference to some private placements for

18 Pacific Lumber dated 12/2/85. One is for

19 $180 million, and the other is for $270 million.

20 Do you see that?

21 A. I do.

22 Q. Who was the underwriter of those?


1 A. Drexel Burnham Lambert.

2 Q. Was any other underwriter approached to

3 underwrite those?

4 A. I don't recall.

5 Q. Were discussions held with any other

6 underwriters?

7 A. I don't know.

8 Q. Now, the next one -- see the one that's

9 dated 6/2/1986 for $480 million?

10 A. Yes.

11 Q. That's a MAXXAM/Pacific Lumber senior

12 subordinated extendible note?

13 A. Yes.

14 Q. Was that bridge financing?

15 A. It could well be.

16 Q. Who was the underwriter?

17 A. Drexel Burnham. Those were all related

18 to Pacific Lumber.

19 Q. Now, the next three are three issuances

20 that are also related to Pacific Lumber.

21 Do you see that?

22 A. Yes.


1 Q. One for 75 million, the second for

2 355 million, the third for 250 million. And they

3 are all dated June 26th, 1986.

4 Do you see that?

5 A. I do.

6 Q. Who was the underwriter?

7 A. Drexel Burnham.

8 Q. Was any other underwriter approached

9 for those underwritings?

10 A. I don't know that.

11 Q. Were discussions held with any other

12 underwriters?

13 A. I don't know.

14 Q. Now, the next three, you see -- the

15 next two are Kaiser Tech notes, one for

16 625 million and the second for 300 million dated

17 10/28/1988.

18 Do you see those?

19 A. Yes.

20 Q. Who were the underwriters there?

21 A. Drexel Burnham.

22 Q. Now, with regard -- wasn't Pru-Bache


1 also a co-underwriter on those?

2 A. No. I think PaineWebber.

3 Q. PaineWebber was. But was Drexel the

4 lead underwriter?

5 A. I believe that's right.

6 Q. Okay. Now, the next one is 12/14/1989,

7 Kaiser Aluminum and Chemical Corporation.

8 Who was the underwriter there?

9 A. I think it was Drexel Burnham and

10 PaineWebber.

11 Q. Drexel being the lead underwriter?

12 A. I believe that to be the case.

13 Q. Were any other underwriters approached

14 with regard to the Kaiser Tech underwritings?

15 A. You mean other than PaineWebber and

16 Drexel?

17 Q. PaineWebber and Drexel.

18 A. I don't know.

19 Q. Was Bear Sterns approached?

20 A. I don't remember.

21 Q. Did you have discussions with

22 Bear Sterns?


1 A. Certainly could have. I don't know.

2 Q. Now, I'd like to show you two exhibits.

3 One is at Tab 211, A2057, and the other one is not

4 in the record as of yet. It is A2060, which is

5 dated 12/31/1988. Both of those are annual

6 reports, MCO and MAXXAM.

7 MR. NICKENS: Do you have extra copies

8 of A2060?

9 MR. GUIDO: Excuse me.

10 Q. (BY MR. GUIDO) I'd like to direct

11 your attention on A -- let me back up.

12 MR. GUIDO: I move the admission of

13 A2060, Your Honor, which is the annual report of

14 MAXXAM for 1988.

15 MR. KEETON: No objection. I'm told

16 it's in, Your Honor.

17 THE COURT: We're showing A2060 as

18 having been received.

19 MR. NICKENS: 197.

20 MR. GUIDO: I'm sorry, Your Honor. I

21 didn't find it on our index.

22 Q. (BY MR. GUIDO) Let me direct your


1 attention to the -- to the 1985 annual report,

2 Mr. Hurwitz, Page 21 of the one that's in the

3 folder.

4 Do you have Page 21?

5 A. (Witness reviews the document.)

6 Q. Which is the selected financial data of

7 MCO Holdings.

8 Do you see that?

9 A. Yes.

10 Q. Take a look in the column 1985 down

11 under "consolidated balance sheet at end of

12 period." See where it says "total assets,

13 648 million"?

14 A. I do.

15 Q. Do you see where it says "stockholder

16 equity, 94 million"?

17 A. Yes.

18 Q. Now, I'd like to direct your attention

19 to Page 26 of Exhibit 2060, which is Tab 197.

20 A. I don't see the pages in here.

21 Q. The pages are on the left by the -- to

22 the left-hand side in the middle of the page.


1 A. Got you.

2 Q. Or at least the even numbers are there,

3 Mr. Hurwitz.

4 A. What did you say? 26?

5 Q. 26. It says, "consolidated balance

6 sheet" at the top of the page.

7 A. Got it.

8 Q. Do you see where it talks about --

9 under "assets," it lists about $3.6 billion worth

10 of assets?

11 A. I do.

12 Q. And do you see where it talks about the

13 total stockholders equity? Do you see that? It

14 says 103 million.

15 A. I do.

16 Q. Now, those are the book values between

17 the two time periods.

18 What was the stock value in 1985 of MCO

19 Holdings?

20 A. I don't know.

21 Q. What was the stock value on

22 December 31, 1988, of MAXXAM?


1 A. I don't know. I'd have to look it up.

2 Q. Now, what was it that caused the

3 increase in size from 600 million to $3.6 billion

4 in the size of MCO and MAXXAM?

5 A. I'm sure it was -- must have been the

6 purchase of Kaiser Aluminum.

7 Q. Now, I'd like to direct your attention

8 to another document, which is A3023, which is at

9 Tab 79.

10 I want to direct your attention to

11 Page 51 of 3023, which is the 10K for UFG of

12 December 31, 1987.

13 A. Got it.

14 Q. Do you have that?

15 A. Yes.

16 Q. Do you see where it makes reference to

17 Note 7, "securities sold under repurchase dollar

18 repurchase agreements"?

19 A. I do.

20 Q. Do you know what that refers to?

21 A. You know, maybe a repo. I'm not sure.

22 Q. Were those the financing vehicles that


1 USAT used to finance its investments in

2 mortgage-backed securities?

3 A. You know, I don't recall at that time.

4 Q. Do you see where it says "securities

5 sold under reverse/dollar repurchase agreements

6 which were collateralized by mortgage-backed

7 investment securities"?

8 A. I do.

9 Q. Does that refresh your recollection?

10 A. No.

11 Q. Do you see the dollar amounts there for

12 the reverse repurchase agreements counter-parties?

13 A. I do.

14 Q. Do you see where Drexel Burnham Lambert

15 is -- has under repurchase agreements

16 $473,820,000?

17 A. Yes.

18 Q. And then you see under "dollar

19 repurchase agreements," it has 315,221,000?

20 Do you see that? It's down about

21 halfway down the page or more than -- a little

22 more than halfway down the page.


1 A. I don't see that, no.

2 Q. Look under the column that says

3 "amount" without the date.

4 Do you see where it says 315 million,

5 just working your way down the column that says

6 "amounts"?

7 A. Is that on the left-hand side?

8 Q. It's on the right-hand side.

9 A. 315. Yes, yes. I do see that.

10 Q. Okay. And do you see under 1986 for

11 Drexel Burnham Lambert, it has for the amount

12 251 million?

13 A. Yes.

14 Q. Did you have any discussions with

15 Drexel Burnham Lambert about its assistance in

16 financing the mortgage-backed security purchases

17 by USAT in light of the fact that other investment

18 banking firms had indicated a reluctance to enter

19 into such agreements with USAT or its

20 subsidiaries?

21 A. Not that I recall.

22 Q. You don't recall one way or the other?


1 A. I don't remember that happening.

2 Q. Was Drexel Burnham Lambert's activities

3 in financing USAT's MBS purchases with reverse

4 repurchase agreements a benefit to USAT and UFG?

5 A. I don't know that I could answer that

6 right now.

7 Q. You just don't know?

8 A. I don't know.

9 Q. Okay. Was Drexel Burnham Lambert's

10 financing of the high-yield bonds for MAXXAM and

11 MCO that were referred to in Lazard 19 of a

12 benefit to MCO or MAXXAM?

13 A. Well, they acted as underwriters. So,

14 I don't know what you mean, benefit.

15 Q. Well, did MCO or MAXXAM benefit by the

16 issuances of those debt securities?

17 A. Well, we made acquisitions of

18 companies: Pacific Lumber and Kaiser Aluminum.

19 Q. So, to that extent, MAXXAM and MCO

20 benefited?

21 A. To the benefit that we made them better

22 companies, made them worth much more than the day


1 we bought them, yes.

2 Q. Now, with regard to Drexel Burnham

3 Lambert's underwriting of the mortgage-backed

4 securities portfolios, what is it about today or

5 that issue that leads you to believe you can't

6 ascertain what the benefits were to USAT or UFG?

7 A. Well, I'm just not as conversant as I

8 once was on the repos and how they worked. So, I

9 just -- it just doesn't refresh my memory in that

10 area.

11 Q. Okay. Now, you testified that Drexel

12 had been a market maker in the high-yield bond

13 markets.

14 Do you recall that testimony?

15 A. I do, yes.

16 Q. And that it was a major underwriter,

17 was it not, of high-yield bonds I think you

18 testified to?

19 A. I did.

20 Q. And what was the percentage that it had

21 of the market? Do you recall?

22 A. You know, I don't. But, you know, I've


1 heard that as much as 75 percent, 80 percent of

2 the market.

3 Q. Now, USAT purchased high-yield bonds,

4 did it not?

5 A. It did.

6 Q. Did Federated purchase high-yield bonds

7 during the period of time that USAT was?

8 A. Not that I recall.

9 Q. Did MCO?

10 A. Not that I recall.

11 Q. Did Drexel benefit from the sale of

12 high-yield bonds to USAT?

13 A. Well, I don't know what you mean by

14 "benefit." They were in the business of selling

15 bonds and making markets in it.

16 Q. And they also received an underwriting

17 fee, did they not?

18 A. It depended if it were a new issue or

19 not. On the secondary market, there was not an

20 underwriting fee.

21 Q. I'm sorry. I misunderstood what you

22 said. Could you repeat that?


1 A. Sure. On a new issue of a bond that's

2 coming out brand new, the underwriters receive

3 what's called an underwriting spread.

4 Once a bond or a stock or anything is

5 traded in the marketplace, there's what's called a

6 bid and an ask price. And typically, you can sell

7 on the bid and buy on the ask. But it's not an

8 underwriting spread. It's just a market maker.

9 It's negotiated.

10 Q. Would you describe Drexel Burnham

11 Lambert's business relationships with UFG, USAT,

12 MCO, and MAXXAM as a mutually-beneficial

13 relationship?

14 A. I would think so.

15 MR. GUIDO: No further questions, Your

16 Honor.

17 THE COURT: All right. Does OTS have

18 more questions? Mr. Veis or one of the other

19 counsel?

20 MR. GUIDO: No, Your Honor. We are

21 finished with our questions of this witness.

22 THE COURT: We'll take a short recess.


1 (Whereupon, a short break was taken

2 from 2:24 p.m. to 2:46 p.m.)


4 THE COURT: Be seated, please. We'll

5 be back on the record.

6 Mr. Keeton, are you going to

7 cross-examine your client?

8 MR. KEETON: Yes, I am, Your Honor.

9 Thank you.

10 THE COURT: Proceed.




14 Q. (BY MR. KEETON) Mr. Hurwitz, I want

15 to drop back a little bit after this day and a

16 half, two days of examination and get a little

17 more personal background of you in the record.

18 How old are you, sir?

19 A. I am 58 years old.

20 Q. And what is the position that you

21 currently hold with MAXXAM?

22 A. I'm the chairman of the board and chief


1 executive officer.

2 Q. Now, take MAXXAM as it's configured

3 today. And would you tell us kind of the various

4 major operating units and what MAXXAM is?

5 A. Yes. It's a fairly substantial real

6 estate developer. It's in the aluminum business

7 through Kaiser Aluminum. It owns Pacific Lumber

8 Company and has some investments.

9 Q. And as far as the real estate is

10 concerned, are there any particular major

11 projects; or is it just bits and pieces here and

12 there?

13 A. Well, there are major projects; and as

14 I stated during the last day and a half, my own

15 personal philosophy is that of a long-term

16 investor. And some of the projects that we have

17 are -- like when we bought into McCullough Oil,

18 they had a project called Fountain Hills. It's in

19 Arizona. Part of it is in Scottsdale. If you go

20 out Shea Boulevard, it's a 12,000-acre

21 development. And when we got involved in it,

22 there were less than a thousand people. Today, I


1 think there are 18,000 people. It's a thriving

2 community. And I guess one of the things that I

3 enjoy the most in business is the development part

4 because it's very tangible. It's different than

5 maybe trading securities. You can see your life's

6 work in a new school or a new church or a new golf

7 course, homes, things like that.

8 Q. This ownership would date back in

9 whatever corporate entities to the early Eighties?

10 A. I would say in the mid-Seventies maybe.

11 And I can -- there are a lot of examples. An

12 example is that we got involved in a project

13 called Palmas Del Mar, which is in Puerto Rico,

14 and it was a development --

15 Q. "We" in this instance is MAXXAM?

16 A. Yes. And it was a development that was

17 started by a great visionary named Charles

18 Frazier. And Charles Frazier had developed Sea

19 Pines and Hilton Head and he was head of the urban

20 development at Yale before that. And he had

21 started Palmas Del Mar. And the Chase Mortgage

22 Investors, which is the largest REIT -- was the


1 largest REIT in the United States managed by the

2 Chase Manhattan Bank was the primary lender. And

3 they had lent him some $250 million. And he lost

4 the project when interest rates went to

5 20 percent. And the company, Chase Mortgage

6 Investors, declared bankruptcy. And a gentleman

7 named J.B. Fuqua had bought the company for its

8 tax loss in this property. Mr. Fuqua -- the

9 business school of Duke University is called the

10 Fuqua School of Business. And Mr. Fuqua is a

11 friend of mine and a business acquaintance. And

12 he bought the pattern part of Simplicity Patterns,

13 and we --

14 Q. You told us or you told, I believe,

15 Mr. Rinaldi yesterday that along the line, you and

16 your companies had acquired an interest in

17 Simplicity Patterns. Right?

18 A. Yes. And we kept the investment part

19 of it and -- eventually after we fixed it up and

20 made it better and much more profitable. And we

21 were a full taxpayer. And Mr. Fuqua's company had

22 a 200-million-dollar tax loss through -- they


1 changed the name to Trident Industries. It was

2 Chase Mortgage Investors. And so, he got to

3 shelter the income. And we took Palmas Del Mar

4 and a lot of cash and some stock in his company,

5 but we have --

6 Q. What year would that have been?

7 A. That would have been 1986, '87,

8 somewhere in that --

9 Q. And MAXXAM is still developing that

10 property?

11 A. Yes. Not only are we still developing

12 it, we have put in many, you know, tens of

13 millions, if not more building hotels. We built

14 the school there. A lot of condo developments.

15 Still major development going on. And the thought

16 process is that you can make these very good

17 long-term developments by adding to the

18 infrastructure, and we have a lot more details --

19 I mean, we own Lake Havasu City and -- when we

20 bought into McCullough, and we are the proud owner

21 of the London Bridge.

22 Q. I was going to say is that where the


1 London Bridge is?

2 A. It is.

3 Q. The real London Bridge?

4 A. The real London Bridge.

5 Q. How about your Palmas development?

6 Hurricane leave you anything?

7 A. Not much. We got hit pretty hard

8 there.

9 Q. Mr. Hurwitz, are you married?

10 A. I am married.

11 Q. And I don't believe it will embarrass

12 her because she was probably five years old when

13 you married her.

14 How long have you been married?

15 A. 35 years.

16 Q. And this is Mrs. Hurwitz back here, the

17 blonde lady?

18 A. (Witness nods head affirmatively.)

19 Q. Is that Mrs. Hurwitz?

20 A. (Witness nods head affirmatively.)

21 Yes, that's her.

22 Q. And where did you meet her?


1 A. I met her at the University of

2 Oklahoma.

3 Q. You told Mr. Rinaldi when you left

4 Kilgore, you went to OU and that's where you met

5 your then -- your to-be wife?

6 A. Yes.

7 Q. Do you-all have children?

8 A. We have two boys: Shawn, which is

9 sitting next to her, and David. Shawn lives here

10 in Houston. He is married to Debbie Hurwitz, and

11 they have two children, a daughter, 3, and a son,

12 2, Ellie and Scott. And his wife just did the

13 iron man.

14 Q. His wife?

15 A. His wife, not him. His wife.

16 Q. And the other boy, where does he live

17 and what does he do?

18 A. Shawn works for MAXXAM in the real

19 estate area. One of his responsibilities is

20 Palmas Del Mar. He actually lived there for a

21 two-year period of time. David is in New York,

22 and he's an investment banker. And both of our


1 sons have advanced degrees in business

2 administration, MBAs.

3 Q. Now, you obviously skipped quickly when

4 Mr. Rinaldi was asking you through your background

5 up to the time that you became involved in USAT.

6 I'd like to slow it down just a bit, see how you

7 got to the place where we are.

8 You told him that you had gone to Bache

9 and Company in New York City along with your new

10 bride in, I guess, '63 or '4 after you got out of

11 the Army?

12 A. Yes.

13 Q. Following that, you left and went to

14 San Antonio?

15 A. Yes, that's correct.

16 Q. And after a few years, you said you

17 moved to Houston. But you said you had formed a

18 private partnership and then maybe a public mutual

19 fund about the time you were moving to Houston; is

20 that correct?

21 A. Yes.

22 Q. With whom did you form the private


1 investment partnership?

2 A. When I was in San Antonio and left

3 Bache and Company, I had formed with two

4 gentlemen. One was a retired major general named

5 Burt Hovey. And we had formed a company, and we

6 managed money for other people and had a sales

7 organization. And I managed money for some of the

8 securities firms, some of the partners' money.

9 And in the process of that, we formed a

10 partnership. And the co-general partner was a

11 gentleman named Arnold Burnhart out of New York,

12 and he --

13 Q. Let me stop you. When you formed the

14 partnership first with the general and your

15 brother-in-law, what was the name of that firm?

16 A. Hurwitz, Hovey & Penner.

17 Q. And its major business was what?

18 A. It was money management, securities,

19 and mutual fund sales.

20 Q. And how was that firm capitalized?

21 A. I think it was capitalized with

22 $25,000.


1 Q. And how old were you?

2 A. I was 24, 25.

3 Q. How much of your money was the 25,000?

4 A. I had borrowed $16,000 from my father.

5 Q. And did you pay him back?

6 A. In other ways maybe.

7 Q. But that's the total capital that went

8 into that company?

9 A. Yes.

10 Q. Plus some from, I guess, the other two

11 gentlemen?

12 A. The difference. The $9,000, right.

13 Q. Now, I interrupted you. You said as a

14 result of that venture, you ended up forming a

15 private investment fund with a man named Arnold

16 Burnhart?

17 A. Yes.

18 Q. Who's Mr. Burnhart?

19 A. Mr. Burnhart is no longer alive. But

20 he was the founder of a company called the Value

21 Line, and it's a --

22 Q. And what's Value Line?


1 A. It's a very well-known service for

2 serious people in the stock market, plus he had a

3 lot of -- a lot being at that time maybe five or

4 six open-end mutual funds.

5 Q. Is Value Line still around today?

6 A. Yes, it is. It's a public company, New

7 York Stock Exchange.

8 Q. And still has mutual funds?

9 A. Yes, it does.

10 Q. And how old was Mr. Burnhart?

11 A. At the time?

12 Q. Yes.

13 A. At the time, I think he was about 60

14 years old.

15 Q. How old were you?

16 A. 24, 25.

17 Q. How did a 25-year-old from Kilgore,

18 Texas, living in San Antonio hook up with this

19 gentleman?

20 A. In my travels, I had met a fellow named

21 Don Clark, and Don was at the Fidelity Group of

22 Mutual Funds. And Don had gone to Value Line to


1 be president, and I asked Don for a meeting with

2 Mr. Burnhart and he arranged that.

3 Q. And where did you meet him?

4 A. I met him in New York at his offices.

5 Q. And ultimately, as a result of your

6 talking with him, he agreed to form this private

7 partnership with you?

8 A. Yes. We were the co-general partners.

9 Q. How was this venture capitalized?

10 A. It was capitalized with $250,000.

11 Q. How much of your money did you put in

12 there?

13 A. I think five to 10,000.

14 Q. And Mr. Burnhart the rest?

15 A. Yes.

16 Q. Let me get a picture here.

17 Did you grow up under affluent

18 circumstances, Mr. Hurwitz?

19 A. I group grew up in a small town in East

20 Texas. It's about 100 miles east of Dallas going

21 towards Louisiana. It's a town of about 10,000

22 people. It was at one time called the oil capital


1 of the world. It's a little town that has a lot

2 of oil wells.

3 Q. People in Kilgore called it that?

4 A. Well, that's probably where it got its

5 name. But famous people like H.L. Hunt made their

6 money there. It was a small town, and the town

7 was made up of -- the vast majority of the people

8 there were roughnecks or what we call toolpushers

9 that worked in the oil field.

10 Q. A roughneck's not a thug, is it?

11 A. No, no. Workers in the oil field. And

12 there was a small medium class, middle class group

13 of people that included my family. My dad was a

14 merchant. He had a men's clothing store there.

15 And then there was some very affluent people in

16 the oil business.

17 Q. Others in his family in the same

18 business in surrounding towns?

19 A. Yes. They are originally from Fort

20 Worth, Texas; and they had moved down in the

21 1930s, he and my mother. My mother was from Fort

22 Worth, as well. They were actually next-door


1 neighbors. And his brothers had moved down -- one

2 brother older than him had moved down a year or

3 two before my dad, and his other brothers -- they

4 were younger than him, and they had a little men's

5 store. One in Kilgore and one in a little town

6 called Longview and one in Tyler.

7 Q. Let me come back now to Mr. Burnhart.

8 You formed a partnership with him, and then there

9 came a time where you also -- you and Mr. Burnhart

10 formed a public -- or thought about having a

11 public mutual fund?

12 A. We did discuss that. It didn't happen.

13 But Mr. Burnhart was my partner in this

14 partnership.

15 Q. Why didn't the public fund work with

16 Mr. Burnhart?

17 A. Well, as I stated, he had his own

18 public funds at that time.

19 Q. And was he concerned about possible

20 conflict of interest then?

21 A. I'm sure that was it.

22 Q. You remained friendly with


1 Mr. Burnhart?

2 A. Did I?

3 Q. Yes.

4 A. Yes. He's no longer alive.

5 Q. I understand.

6 A. Yes.

7 Q. He didn't refuse to go with you because

8 of something about you, did he?

9 A. No. We became quite good friends.

10 Q. In forming the public mutual fund, what

11 was the procedure that you went through? Did you

12 have to go to underwriters or what happened?

13 A. Yes. We had to go to underwriters, and

14 we had put together an underwriting group. And it

15 was a large list of Wall Street firms. Again,

16 this was 1967 and 1968. And a lot of these firms

17 are either merged today or non-existent. But at

18 that time, there were firms like White, Weld and

19 F.I. DuPont and Walston. A lot of them are still

20 around. The First Bostons of the world are

21 obviously still around, the Bear Sterns, Eastman,

22 Dillon, which is part of Salomon today. It was a


1 large list of underwriting firms.

2 Q. You were how old?

3 A. When it came public, I was 28 years

4 old.

5 Q. Now, as a public fund, did you have to

6 have a board of directors?

7 A. We did. We had a board of directors.

8 Q. And did you go around and recruit a

9 board of directors for this fund?

10 A. I did, yes.

11 Q. Had you ever recruited a board before?

12 A. No.

13 Q. This was your first instance -- had you

14 ever even been on a board of directors before

15 that?

16 A. No, I had not.

17 Q. All right. Who did you ultimately end

18 up with as members of your board of directors at

19 the time this fund went public?

20 A. Well, I had hoped to be able to put

21 together a group of people who had very diverse

22 backgrounds that were knowledgeable, very


1 knowledgeable in their respected fields. And

2 Dr. Willard Libbey was a Nobel prize winner in

3 chemistry from UCLA. He was on the board. And we

4 thought that he would be a great person to help us

5 understand science-type securities. General Tom

6 Power. General Power was the former head of the

7 strategic air command in defense areas. Fred

8 Corneal was a professor at Harvard Law School.

9 Dr. Paul McCracken, which is still around today,

10 he was head of the economic consult for President

11 Nixon. George Kozmetsky, which everyone here has

12 met. A gentleman named Charles Pierce, which was

13 the founder of Rauscher-Pierce, which was the

14 largest securities firm in Texas at the time.

15 Q. And that's the board?

16 A. That's the board.

17 Q. I take it, by and large, those board

18 members were probably, average, twice as old as

19 you. Right?

20 A. At least, right.

21 Q. Now, let's talk for a moment about

22 Dr. Kozmetsky because he has testified here and


1 his name trails through much of the matters in

2 this case.

3 Had you known Dr. Kozmetsky before?

4 A. No. I read in the paper that George

5 Kozmetsky was moving to Texas. George became very

6 famous with a fellow named Henry Singleton, and

7 they had formed a company called Teledyne which

8 was fabulously successful. And George was also

9 involved with Scientific Data Systems and other

10 companies, and he had decided to leave -- he had

11 been in academia. He decided to leave and go into

12 business and stay I don't know how many years -- I

13 think ten years or so -- and then to go back. And

14 he was selected to be the dean of the business

15 school of the University of Texas. And I wrote

16 him a letter and asked him if I could come see him

17 on this venture we just talked about and got a

18 letter back that it would take about a year for me

19 to get in to see him.

20 Q. Well, was that it? You waited a year?

21 A. Of the firm Rauscher-Pierce, which I

22 discussed a few minutes ago, the managing partner


1 in San Antonio was a gentleman named Louis Kacerek

2 and Mr. Kacerek was on the board of regents at the

3 University of Texas and on the committee that

4 selected the dean. And I told him my story, and

5 he called and got me a meeting with Dr. Kozmetsky.

6 And Dr. Kozmetsky agreed to meet with us for an

7 hour one Saturday morning, and we drove from --

8 Q. In Austin?

9 A. In Austin.

10 Q. And you were -- were you still in

11 San Antonio at this time?

12 A. Yes.

13 Q. Okay.

14 A. And we drove --

15 Q. That's about 75 miles away. Right?

16 A. Yes.

17 Q. Okay. Did you go to Austin?

18 A. I went to Austin, and I met

19 Dr. Kozmetsky. And the hour meeting turned out to

20 be eight hours. When I left, he agreed to go on

21 this board.

22 Q. Why did it take eight hours?


1 A. I don't know. I was certainly glad to

2 have someone like Dr. Kozmetsky supporting my

3 efforts.

4 Q. And was the underwriting successful?

5 A. The underwriting was very successful.

6 It was one of the largest underwritings of its

7 time on Wall Street.

8 Q. Approximately how much money did you

9 grace?

10 A. You know, I was trying to think as we

11 were doing this thing. I think it was in the

12 neighborhood of, I don't know, 60 to $70 million

13 which at that time made it --

14 Q. 68, 67?

15 A. -- made it one of the largest equity

16 offerings of the time. Pretty small in today's

17 dollars compared to what's happened.

18 Q. Well, did your board function once the

19 operation got going?

20 A. Yes, it did.

21 Q. Have regular meetings?

22 A. We did.


1 Q. Would they pay attention to the

2 business?

3 A. I would hope they did, yes.

4 Q. You were in charge of the day-to-day

5 operation of the fund?

6 A. I was the chief executive officer of

7 the company. I testified earlier that a fellow

8 named Fred Palmerly was the chief portfolio

9 manager. I certainly was involved in that area.

10 Q. Now, Mrs. Hurwitz has actually shared a

11 story with me, Charles, that you don't know about.

12 I asked you about whether or not you had been on a

13 board, and you said no.

14 Do you recall the first board meeting

15 you ever had with that group of august gentlemen?

16 A. I do.

17 Q. Anything odd happen there or maybe

18 embarrassing, if it will bring it to your mind?

19 A. The first meeting I remember was held

20 in Houston, Texas, at the old Texas Commerce Bank

21 Building. And this group of distinguished people

22 were coming down, and it was a shareholders


1 meeting as well as a board meeting. And I

2 realized about 3:00 in the morning that I had to

3 conduct this meeting, and I had never been to a

4 board meeting or a shareholders meeting.

5 So, I woke up my wife; and we went out

6 and found a book of Robert Rules of Order where I

7 could attempt to run this meeting. And we were

8 there at the shareholders meeting, and I remember

9 it said in this book that when you want something

10 done, you say "all in favor" and it's "E-Y-E."

11 And so, I remember getting up and asking the

12 group, "All in favor, say eye." And my

13 distinguished director, Fred Corneal, the

14 professor from Harvard, punched me in the ribs and

15 said, "It's I, not eye." So, I got off to an

16 embarrassing start.

17 Q. Been to a lot of board meetings since

18 then, though, haven't you?

19 A. I have.

20 Q. All right. Now, was -- is this fund

21 still in existence, or how long were you involved

22 with it?


1 A. No. It was sold and eventually ended

2 up at the Oppenheimer fund, merged into the

3 Oppenheimer fund.

4 Q. And why did you get out of this fund?

5 A. Well, it became clear that -- we tried

6 to buy some other mutual funds and didn't have the

7 capital to -- it's a business like so many

8 businesses, that you have to get large or get out.

9 And at that time, American Express did announce

10 that they were going into the mutual fund business

11 and their direct marketing was so extensive that

12 it would be hard to compete. And so, we merged

13 with some other fund group.

14 Q. After you sold or merged the fund, what

15 was the next venture, major venture, that you

16 recall?

17 A. Well, we bought into a company called

18 Federated Development Company. Federated

19 Development was a New York Stock Exchange company.

20 It was a business trust, as we had discussed

21 before. And it was 25 percent owned by a very

22 famous Wall Street gentleman named John Loeb of


1 Loeb, Rhodes. And his firm owned another 10 or

2 12 percent, and John owned 25 percent. And I went

3 to New York, and I met with Mr. Loeb and a fellow

4 named Carl Mueller, which was at the time

5 president of Loeb, Rhodes, later became head of

6 Bankers Trust.

7 And after a period of a month or so,

8 they agreed that if we would make a tender offer,

9 that they would tender their shares. And so, we

10 had a tender offer; and we bought their shares and

11 other shares. It was open to the public.

12 Q. And the assets or the principal assets

13 of Federated Development at the time were what?

14 A. Mostly real estate and second

15 mortgages.

16 Q. And, of course, Federated is the same

17 Federated, or at least in some guise, as we've

18 been talking about in this case. Right?

19 A. Yes.

20 Q. So, what year are we at now,

21 Mr. Hurwitz?

22 A. We're in the early 1970s.


1 Q. All right. After that acquisition or

2 endeavor -- and I assume that there was management

3 responsibility with the real estate and matters

4 with Federated. Right?

5 A. Yes. Its operations were in Los

6 Angeles and remained there.

7 Q. Federated's operations were there?

8 A. Yes.

9 Q. Is that what led to your involvement

10 with McCullough Oil?

11 A. No, but --

12 Q. Coincidence?

13 A. Yeah. Coincidence.

14 Q. All right. What is the next venture

15 that you are working on?

16 A. Well, we made an investment in

17 McCullough Oil, which happened to be in

18 Los Angeles.

19 Q. And is McCullough before Simplicity or

20 Simplicity before --

21 A. Simplicity is after.

22 Q. After McCullough. All right. Tell us


1 about what McCullough Oil was.

2 A. McCullough Oil was kind of a

3 hodgepodge, and it had what's called heavy oil.

4 And heavy oil is oil that you get out of the

5 ground by what they call a procedure of huff and

6 puff. And it's a --

7 Q. Huff and puff?

8 A. Huff and puff. It's a steam-injected

9 process, and it makes the oil -- it's a very --

10 it's almost like a tar sand. And you loosen this

11 tar sand up and you extract it into oil. It's an

12 expensive process, but it's an interesting

13 business. It's almost the largest business of

14 Shell Oil, as an example, today.

15 And it had that, and it had some

16 limited partnership oil funds. And it had very

17 extensive real estate holdings of which it owned

18 51 percent of the real estate. And a gentleman

19 who used to work at McCullough had a 49 percent

20 interest with an option to buy the 51 percent.

21 Q. So, over the -- some years, how did it,

22 what, evolve as far as McCullough was concerned?


1 A. The heavy oil was sold. Oil had had an

2 enormous spike-up, and we had sold the heavy oil.

3 Q. Is this during or after the oil

4 embargo?

5 A. It was during. And the partnerships

6 were sold. The oil company -- the balance of it

7 was spun out into a new public company, and we

8 reacquired the 49 percent of the real estate.

9 Q. And Fountain Hills that you described a

10 moment ago, I take it, is one of the assets that

11 McCullough had, as well as Lake Havasu?

12 A. Yes. They had a handful of really

13 major developments of which maybe three of the

14 five we are still developing today.

15 Q. What are those three?

16 A. Well, Fountain Hills, which I had

17 mentioned to you. They had started a development

18 called Lake Havasu city, which was some

19 60,000 acres, I believe. A huge development in

20 between Arizona and California. And it's on a

21 lake called Lake Havasu. It's an interesting

22 area. It's got a natural 3 percent grade up; so,


1 it's almost perfect for development. I didn't

2 start this. They started it.

3 Q. I understand.

4 A. A fellow named C.V. Wood that was the

5 originator of all of this was a guy named Bob

6 McCullough, which I did not know he had died. But

7 the CEO was a very interesting guy and became a

8 good friend of mine and we did a lot of things

9 today, named C.V. Wood. I called him Woody. But

10 Woody was president of Stanford Research, and at

11 least he claims he built Disneyland, which I think

12 he did. He was president of Disney at one time.

13 But he had this great flare.

14 And so, he's the one that went to

15 London on the -- when they said they would sell

16 the London Bridge and bought the London Bridge and

17 brought it back brick by brick as it's still there

18 today.

19 Q. Any other major developments?

20 A. Yes. They had those and then Fountain

21 Hills, which I had talked about. And again, Woody

22 was the founder of this. It's got the world's


1 largest fountain. So, we had that. Pueblo West,

2 which is a -- it's west of Pueblo, Colorado,

3 mammoth 30,000-acre development, a big land

4 development in Arkansas called Holiday Island, and

5 one in Amarillo, Texas.

6 Q. Amarillo?

7 A. Woody was from Amarillo; so, he had a

8 big development --

9 Q. Some of our friends in this courtroom

10 may not have been to Amarillo. I don't think

11 there is a -- they know there is a big development

12 there.

13 A. Well, that's a big development that's

14 going to last a while. Sold three homes there

15 last year.

16 Q. How did McCullough Oil's name or why

17 was it all changed, Mr. Hurwitz?

18 A. Well, it sold the oil company, as I

19 mentioned you to. And so, the name was changed to

20 MCO, which was just the ticker symbol on the

21 exchange, MCO. So, we changed it to MCO Holdings.

22 Q. And then ultimately, many years later,


1 it becomes MAXXAM?

2 A. Yes. And there was a fair amount of

3 activity in between. I had mentioned that we had

4 purchased a company called Horizon which was a

5 large land company and a company called Maryland

6 Realty which was an REIT. But there came a time

7 when we had purchased a block of -- and I believe

8 it was almost 40 percent of Simplicity Pattern

9 which I talked about yesterday.

10 Q. Right.

11 A. And Simplicity Pattern ended up

12 acquiring 100 percent of Pacific Lumber Company.

13 And then there was an acquisition of --

14 Q. Let's pause there. Over what year or

15 years was the acquisition of Pacific Lumber?

16 A. 1985, 1986.

17 Q. It extended over that year plus or

18 whatever?

19 A. Well, I think it was at the end of '85.

20 Q. End of '85 and then it went over into

21 '86?

22 A. I think that's correct.


1 Q. Now, the acquiring company in that

2 instance was Simplicity?

3 A. Yes.

4 Q. And simplicity at that time was owned

5 by whom?

6 A. Well, it was a New York Stock Exchange

7 company and --

8 Q. I'm sorry. Did Federated or MCO have

9 ownership interest in Simplicity?

10 A. No, they did not.

11 Q. Okay. And Simplicity acquires Pacific

12 Lumber.

13 Were you involved in that acquisition?

14 A. I was.

15 Q. Heavily involved?

16 A. Yes.

17 Q. And what's the next acquisition?

18 A. Kaiser Aluminum.

19 Q. And who made the acquisition of Kaiser

20 Aluminum?

21 A. What had happened somewhere in that

22 time frame is the old Simplicity/Pacific Lumber


1 had merged with MCO Holdings, and jointly they had

2 purchased Kaiser Aluminum.

3 Q. In the acquisition of Pacific Lumber,

4 how was that done? Was that done by a tender

5 offer, buying the shares, or what happened there?

6 A. It was a tender offer that was

7 unanimously approved by the board of directors.

8 Q. The board of directors of?

9 A. Pacific Lumber.

10 Q. All right. So, you call that a

11 friendly acquisition?

12 A. Well, it started out as probably not so

13 friendly and ended up as friendly.

14 Q. They negotiated price with you, and you

15 ultimately got to a price that the board could

16 accept?

17 A. Yes.

18 Q. Now --

19 A. We had originally tendered, I believe,

20 $36 a share and ultimately paid, I believe, $40 a

21 share.

22 Q. 10 percent, plus or minus, increase?


1 A. Yes.

2 Q. Now, the next major business venture

3 running through this -- that's '85-'86. What --

4 is Kaiser?

5 A. '86, '87. Sometime in 1987, I believe.

6 Q. No. I meant '85-'86 was Pacific

7 Lumber. Right?

8 A. Yes.

9 Q. Kaiser starts in late '87 and goes on

10 into '88?

11 A. It does.

12 Q. Tell us about how that acquisition

13 occurred.

14 A. In 1987 when the stock market had its

15 crash, the next day on the front page of the Wall

16 Street Journal, it said that Kaiser Aluminum

17 shares had gone from $22 a share, I think, to $8 a

18 share and that a fellow from London named Allen --

19 no, he's from Switzerland -- Allen Clore had owned

20 a big position in it. And I think it was at

21 28 percent or something. And he was the new

22 chairman and that his shares were going to have to


1 be sold and --

2 Q. Because of the stock market drop?

3 A. Yes. And he was getting margin calls.

4 The journal article said that PaineWebber, an

5 investment banking firm in New York, was going to

6 handle this transaction for him and that the head

7 of investment banking, a guy named Langhorne Reed,

8 III, was handling the transaction. And I called

9 Mr. Reed, Lang Reed, on the phone. And I went to

10 New York and met with him and ultimately met with

11 Mr. Clore. He had come to the United States.

12 And some three months later, we had

13 purchased his shares. It was with some Swiss

14 banks, and it was complicated.

15 Q. All right. But that's just 28 percent?

16 A. Yes. Then what happened, the board of

17 directors wanted to put the entire company up for

18 sale.

19 Q. Again, we're talking about the Kaiser

20 board?

21 A. The Kaiser board.

22 Q. Not your board?


1 A. Right. And there was a meeting at one

2 of the major New York law firms -- Cravath,

3 Swain -- on a Sunday. And they asked for bids,

4 and there were two groups that bid on it. And we

5 were the high bidder; so, then we bought the rest

6 of the shares.

7 Q. Have there been any major dispositions

8 or acquisitions in MAXXAM or Federated since that

9 time?

10 A. Yes. I mean, certainly in the

11 subsidiary level in the case of Pacific Lumber, we

12 have made some rather major acquisitions. We buy

13 on a regular basis more land. We've made enormous

14 capital improvements there. We have spent well

15 over $100 million in the last five years in mills

16 and development and on our people which, of

17 course, is our greatest asset. We offer

18 scholarships to anyone at Pacific Lumber's

19 children who qualify to go to college, and we give

20 them scholarships there.

21 And in the case of Kaiser Aluminum, we

22 have made quite a few acquisitions inside of


1 Kaiser, as well.

2 Q. Let's talk about investments and the

3 people at Pacific Lumber. I take it given its

4 location, somewhat remote, there is -- the town

5 itself is fairly remote. Right?

6 A. Yes. It's a town called Scoia, and I

7 believe it's one of the last of the company-owned

8 towns in America. And Pacific Lumber itself owns

9 the town, owns the homes, owns the church, owns

10 the school, owns the bank, owns the shopping

11 center.

12 Q. Do you maintain those places?

13 A. Yes. I think it's some 328 or

14 something -- maybe it's 48 homes. I mean, it's a

15 small town.

16 Q. You're talking something over a

17 thousand people, plus or minus, I guess?

18 A. Probably. A great town.

19 Q. And that's northern California

20 obviously?

21 A. Yes.

22 Q. All right. Have you done any other


1 major acquisition or acquired any other company

2 such as we've been talking about since the time of

3 Kaiser?

4 A. No.

5 Q. Been operating the businesses and

6 running the developments?

7 A. Yes.

8 MR. KEETON: Your Honor, I need to get

9 some charts in here. If I might have just a

10 moment.

11 THE COURT: We'll be off the record.


13 (Discussion held off the record.)


15 THE COURT: Mr. Rinaldi, you haven't

16 offered Exhibit A14116. Did you want to offer it

17 now? That's a letter from Byron Wade to Howard

18 Sobel.

19 MR. RINALDI: Yes. I would move to

20 admit the letter. Thank you.

21 MR. KEETON: No objection, Your Honor.

22 THE COURT: Received.


1 Q. (BY MR. KEETON) Mr. Hurwitz, some of

2 what I'm going to ask you about you testified

3 earlier with, I believe, Mr. Rinaldi. Maybe bits

4 and pieces with Mr. Guido. But let me try it so

5 we can put it in context.

6 You've told us about how you became

7 interested in an investment in UFG. You've told

8 us about Mr. Ludwig's deal not happening and then

9 the decision to nonetheless maintain the

10 investment and, in fact, to seek to gain more.

11 You've told us briefly, but I'm not sure it fits

12 in, about the fact that there came a time where

13 you bought not just UFG shares but you bought

14 First American shares or whatever the correct name

15 is, correct?

16 A. Yes.

17 Q. All right. And your motivation in

18 buying the shares of First American was what?

19 A. Well, as I stated, there was an

20 announced merger of First American and United

21 Financial. And at the time, MCO and Federated

22 together owned some 20 some-odd percent of the


1 shares; and this block was 20 some-odd percent.

2 Q. Right.

3 A. And so, based on the ratio -- and I

4 don't remember what the ratio is today. But

5 whatever it is, it would not have been very

6 dilutive. In other words, we would have still

7 owned 20 some-odd percent of the combined

8 companies.

9 Q. And so, you acquired those shares?

10 A. We did.

11 Q. And you've told us that your best

12 memory is that Mary Grigsby asked you and I guess

13 Dr. Kozmetsky to join the board of First American?

14 A. Yes.

15 Q. And I take it you were only on that

16 board a matter of months?

17 A. That's correct.

18 Q. And then upon the merger being

19 consummated, I guess, for various regulatory

20 approvals, you joined the board for the first time

21 of United Financial Group. Right?

22 A. That's correct.


1 Q. And your belief was that through

2 discussions probably, you said, between

3 Ms. Grigsby or maybe Winter and Bentley, they had

4 agreed that everybody would go on the board, I

5 mean both people?

6 A. Yes. It's my belief that everyone did

7 go on the board.

8 Q. I want to show you a chart that one

9 year ago we tried -- were using but not in this

10 form. And it's now got an exhibit number.

11 MR. KEETON: I apologize to Mr. Guido,

12 Your Honor, but I'll try not to block him too

13 much.

14 Q. (BY MR. KEETON) This is B4345. It's

15 a chart. It has labeled "Tenures of UFG board

16 members (1981-1988)." And we gave a copy of this

17 to counsel a week or so ago since it's a large

18 exhibit.

19 And for the Court's benefit, if you

20 look at '82, for instance, you see Barry Munitz'

21 line. The colors are pretty much irrelevant

22 except most of this -- the red were the original


1 UFG board members before the merger.

2 But, for instance, you look at '82 and

3 Barry Munitz, you would estimate he probably came

4 on about September, given his location in '82.

5 And you see Gerald Williams here towards the end

6 of '83. I don't know if that's November or

7 December. But the backup record is all in this

8 record, and we used that backup record in

9 constructing this chart, Your Honor.

10 MR. GUIDO: Your Honor, I object to

11 counsel being the witness. I mean, if he wants to

12 ask the witness whether or not he's reviewed the

13 document and that the document reflects what's in

14 the record, I have no objection. Or if counsel

15 wants to introduce it to this witness --

16 MR. KEETON: I'll just offer the

17 exhibit the way it is, Your Honor. I was trying

18 to save a little time on some points since they

19 know the accuracy and that's why we gave it to

20 them a week ago.

21 MR. GUIDO: Your Honor, we've been able

22 to verify everything but three of the entries.


1 There are three sets of the minutes that we don't

2 have.

3 MR. KEETON: Which ones are you

4 missing?

5 MR. GUIDO: We don't have any objection

6 to introducing the document subject to us

7 verifying three points with regard to --

8 MR. KEETON: That's fine with me.

9 MR. GUIDO: -- Mr. Gross and

10 Mr. Kozmetsky on the USAT board chart. You have

11 the start date, I think, of 1/24/85. We haven't

12 been able to locate the minutes as of yet. And

13 with regard to the stop date for Mr. Campbell and

14 Mr. Holt.

15 THE COURT: You're talking about

16 Exhibit 4346. Now we're on 4345.

17 MR. GUIDO: I'm sorry, Your Honor. I

18 thought he was introducing both of the exhibits.

19 I can't see the exhibits.

20 MR. KEETON: I will get to 4346 in a

21 minute. But it's agreeable with me that they can

22 have an objection later if we can't satisfy them.


1 Brian, if you'll give them to David.

2 THE COURT: All right. Proceed.

3 MR. GUIDO: Thank you, Your Honor.

4 Q. (BY MR. KEETON) Okay. Can you see,

5 Mr. Hurwitz?

6 A. Yes.

7 Q. All right. I want to focus in on the

8 date of '83 when it appears that you and these

9 other persons from the First American board went

10 on the UFG board.

11 Do you see the chart?

12 A. I do.

13 Q. All right. Now, let's look at who was

14 on the board at the time you first went on.

15 First, Mr. Bentley.

16 Mr. Bentley was what position at the

17 time?

18 A. I believe he was chairman of the board.

19 Q. And Mr. Bentley is not anyone that you

20 had had any relation with or work relation before

21 there, had you?

22 A. No.


1 Q. Mr. Coles was on the board, and what

2 was his position?

3 A. I believe he was president.

4 Q. And again, had you any association with

5 Mr. Coles?

6 A. No.

7 Q. Prior association, I mean.

8 Mr. Duckett, any prior association with

9 him?

10 A. No.

11 Q. Mr. Keltner?

12 A. No.

13 Q. Dr. LeMaistre?

14 A. Yes.

15 Q. Now, he's been identified; but go ahead

16 and tell me who Dr. LeMaistre is again, please.

17 A. Dr. LeMaistre was chancellor of the

18 University of Texas. And when I knew him and when

19 he was on the board here, he was the president of

20 M.D. Anderson. It's a major cancer hospital. And

21 I was on the board of directors of M.D. Anderson

22 at that time; so, I did know him.


1 Q. Did you have anything to do with

2 Dr. LeMaistre being on the UFG board?

3 A. No. He was on long before.

4 Q. Mr. Putegnat?

5 A. No.

6 Q. And you had no prior association?

7 A. No.

8 Q. What about Mr. Whatley?

9 A. No.

10 Q. Had you known of Mr. Whatley or known

11 of him is what you said?

12 A. I think I knew of him. He was a

13 well-known person in Houston. He was the chairman

14 of the board and CEO, I believe, of Kaneb.

15 Q. Mr. Munitz was already on the board?

16 A. Yes.

17 Q. You certainly had association with him?

18 A. Yes.

19 Q. Burt Borman?

20 A. No.

21 Q. He's the gentleman that's chairman of

22 PennCorp. Right?


1 A. Yes. Lived in Los Angeles.

2 Q. We put these four in yellow, and maybe

3 we can skip down for a minute. These three,

4 rather -- Sterling, Silverman, and Borman -- all

5 had association with PennCorp?

6 A. Yes.

7 Q. And then Mr. Winters down here at the

8 bottom was what position?

9 A. I think that he was the chairman of

10 Houston First. Could be president. One of them.

11 Q. Did you have a prior association with

12 any of those people in yellow?

13 A. I had met Mr. Winters before, but no

14 association.

15 Q. Mr. Campbell?

16 A. No.

17 Q. Mr. Holt?

18 A. No.

19 Q. No prior association?

20 And then, of course, there's

21 Dr. Kozmetsky?

22 A. Yes.


1 Q. And if we move to the right, we see

2 Jenard Gross goes on the board. And by the way,

3 Mr. Hurwitz, the fact he's on this line is just to

4 keep the chart from going down. Okay? Because

5 you can see Mr. Holt seems to go off at the same

6 time. He wasn't replacing one. You had an

7 association with Mr. Gross. And you've testified

8 as to your past knowledge and relationship with

9 Mr. Williams who goes on?

10 A. Yes. I don't think that I had had a

11 prior association with Mr. Gross. I think I

12 testified that I knew him on a social basis.

13 Q. Well, that's -- that's correct.

14 So, at its peak, this board had

15 something -- 16 people. And if you draw the line

16 down through there, we hit Mr. Munitz,

17 Mr. Hurwitz, and Mr. Kozmetsky, three out of 16.

18 A. Well, but Mr. Kozmetsky was not asked

19 by myself to go on the board. He was asked by

20 someone else. Certainly he was a close friend of

21 mine.

22 Q. I didn't mean to imply that they were


1 your designees. We've seen Dr. Kozmetsky, and I

2 think we all agree he's a pretty independent

3 person.

4 A. I would say.

5 Q. And this board continues with size up

6 until we get into the -- really on into '87, but

7 the chart speaks for itself. Now, let's see.

8 MR. KEETON: Well, I'm going to

9 formally offer B4345, Your Honor.

10 THE COURT: It's been received.

11 MR. KEETON: I beg your pardon.

12 Let's look at B4346, although I'd like

13 to -- well, I'd like for him to be able to see

14 both at once.

15 Q. (BY MR. KEETON) You've testified and

16 the record shows you were not on the board of

17 USAT.

18 To your knowledge -- and we see that

19 Mr. Borman wasn't on the board of USAT when you

20 went on the board of UFG. Campbell and Holt, had

21 you known them?

22 A. No.


1 Q. Do you know how they got on the board

2 of UFG?

3 A. Yes. Sonny Bentley had invited them on

4 as part of the merger.

5 Q. Okay. So, they didn't come from old

6 UFG or from First American?

7 A. That's correct.

8 Q. Did they have prior association,

9 however, with UFG and Mr. Bentley?

10 A. I don't recall that.

11 Q. Okay. You're not on the board.

12 Borman's not on the board. Kozmetsky's not on the

13 board. And at the outset, Mr. Sterling is not on

14 the board. So, there were six of you; but as you

15 said, there were kind of a two and two pairing,

16 you and Borman and Sterling and Kozmetsky.

17 As far as your recollection is

18 concerned, is that accurate as far as what the

19 USAT board looked like?

20 A. Yes.

21 Q. Just formally for the record, although

22 it's probably unnecessary now, Mr. Berner you had


1 a prior association with or you did once he gets

2 to USAT?

3 A. Yes.

4 Q. Right?

5 Mr. Schwartz, as you testified, worked

6 and still works at MAXXAM. Mr. Connell?

7 A. I did not know him.

8 Q. And I guess -- I don't see any others.

9 Well, there's Mr. Crow; and again, you've

10 testified about what you knew about Mr. Crow.

11 Right?

12 A. Yes.

13 MR. KEETON: Your Honor, subject to

14 counsel checking and finding we're wrong, which

15 we'll be happy to change, I'll offer B4346.

16 MR. GUIDO: No objection, Your Honor.

17 THE COURT: Received.

18 Q. (BY MR. KEETON) During the UFG board

19 meetings, would you say that the board was an

20 active one?

21 A. I would, yes.

22 Q. Tell me -- and again, I realize we're


1 talking a period of years. But overall, what was

2 your impression of that board, given that by this

3 time you had been on a lot of boards?

4 A. I would say this was a very good, very

5 independent board of directors.

6 Q. Did you ever attempt to bulldog --

7 bulldoze the board or in some fashion run

8 roughshod over it?

9 A. Well, I can answer that, I guess, in

10 two ways. This would be a tough board to bulldog

11 or bulldoze, and that's not my style anyway. So,

12 it wouldn't have happened.

13 Q. Let's fall back on the management of

14 Pacific Lumber.

15 Do you spend time out there on a daily

16 basis operationally?

17 A. I go there on an infrequent basis. I

18 am not on the board currently. I was at one time.

19 It's run by a fellow named John Campbell.

20 Mr. Campbell was the president when the company

21 was acquired. He's still the president. At the

22 time we acquired the company, they had had a


1 chairman and a president. Mr. Campbell, as I

2 mentioned, was president. I think the chairman

3 was a gentleman named Tom Malarkey and,

4 unfortunately, he died a few years ago of throat

5 cancer. But it's the same management team since

6 1985 since we got involved.

7 Q. What about Kaiser Aluminum? Who's the

8 CEO there?

9 A. The CEO today is a fellow named George

10 Haymaker. Mr. Haymaker was the -- he studied

11 metallurgical engineering at MIT. He was at

12 ALCOA. He was the youngest treasurer of ALCOA. I

13 believe he was chief financial officer and

14 president of their major division, and then he was

15 hired away to become the president of Alumax

16 Aluminum. And it was purchased, and he's now the

17 CEO of Kaiser Aluminum.

18 Q. And Kaiser Aluminum is actually not

19 100 percent owned by MAXXAM, is it?

20 A. No. It was at one time, and it became

21 public.

22 Q. And again, as far as your relationship


1 with the operations of Kaiser, how would you

2 characterize those?

3 A. Well, I'm on the board of directors.

4 I'm on the executive committee. And I pretty much

5 know what's happening. The company is run by its

6 own management.

7 Q. Had you known Mr. Haymaker before some

8 search firm turned him up for you?

9 A. I did not, no.

10 Q. And Mr. Campbell was already at Pacific

11 Lumber as president when that acquisition

12 occurred?

13 A. That's correct.

14 Q. Let's turn briefly to UFG. And to the

15 extent its wholly-owned sub, USAT.

16 How would you, in a broad sense,

17 characterize your role at UFG, Mr. Hurwitz?

18 A. Well, it changed over a period of time.

19 At one time, I was a director of the company. And

20 later when Mr. Bentley retired, I became chairman.

21 I was the president for a short period of time. I

22 think four months or six months or something like


1 that.

2 Q. President of UFG?

3 A. UFG. I was not on the board of the

4 savings and loan as these charts show. And I

5 think my role was one as -- hopefully as a

6 resource, that if people wanted to brainstorm, if

7 people wanted to talk about either problems or

8 opportunities, that I would be there. I was not

9 involved in day-to-day operations any more than I

10 am at Kaiser Aluminum today or at Pacific Lumber.

11 So, it's kind of a pattern.

12 Q. And insofar as your input, you were

13 shown by, I think, Mr. Guido a number of

14 notes/minutes of strategic planning meetings.

15 Do you recall attending some of those

16 meetings?

17 A. I do, yes.

18 Q. And as time went by, how did the

19 strategy evolve for UFG and USAT in those

20 meetings?

21 A. Well, I think as I stated today, it

22 truly was an evolution. It wasn't that somebody


1 came in or some management consulting firm or

2 myself or Mr. Gross or Mr. Williams or Mr. Bentley

3 or anybody sat down and said, "This is the new

4 United."

5 We had a problem. And United, during

6 that period of time, we wanted to survive. And it

7 was hard, the fact that all these financial

8 institutions had failed and were failing. And

9 sometimes in life, you have to make changes to do

10 better.

11 And it evolved, as I mentioned. There

12 were branch sales, I think, even before I got

13 involved with the company. The only thing I may

14 have brought to that branch sale was I truly

15 believe I helped them get a lot more money for

16 branches.

17 Q. How did you do that?

18 A. Well, instead of the -- and I don't

19 mean this in any derogatory way. But instead of

20 the good old boy network of saying, "We've gotten

21 branches for sale," we put a process to it. And

22 we brought in in the branch sales -- I think it


1 was Goldman Sachs and Salomon Brothers -- and had

2 an auction. And instead of getting 8 percent or

3 9 percent premium, we were getting 20 percent

4 premium.

5 So, I think that we got a lot more

6 money by having an auction and a better

7 presentation kind of thing. So, it's not that it

8 changed; but the way of packaging it changed to

9 get more money. So, I think there was a better

10 process brought to it.

11 And any good idea that people had that

12 would work, people were interested in. This was

13 hopefully an entrepreneurial group of people.

14 They worked very hard against very long odds to

15 make this work. I thought it would work. I

16 didn't think that the economy in Texas would stay

17 down so long and be so severe.

18 And later -- and we may touch on this.

19 The RTC later auctioned off savings and loan

20 properties, and they had an auction process. And

21 the first one done in the United States, we were

22 the purchaser of it; and they were properties that


1 came out of --

2 Q. "We" is MAXXAM?

3 A. "We" is MAXXAM. And we did purchase

4 those from savings and loans in this auction

5 process, and there were many auctions. We bid

6 on -- it was either six or eight. I forgot. We

7 purchased the first one. We were not successful

8 in the other ones, but we were active bidders in

9 them. And it turned out then that it was right at

10 the bottom of the market, and they were enormously

11 successful. But the same concept would have

12 happened if United could have been kept together.

13 Q. By the way, the accounting firm that

14 you use at MAXXAM is which?

15 A. We use Arthur Andersen.

16 Q. And have you worked with Arthur

17 Andersen for a number of years?

18 A. A long time. Since the Seventies.

19 Q. Back before UFG?

20 A. Yes.

21 Q. And do you know which accounting firm

22 UFG used?


1 A. Peat Marwick.

2 Q. Did you ever attempt to use any

3 influence you might have to change the

4 accountants?

5 A. No.

6 Q. Why not?

7 A. Peat Marwick is a wonderful firm. It's

8 one of what's now called the Big Six accounting

9 firms. And I think Peat Marwick -- I'm not sure

10 this is right, but I believe it to be correct --

11 is probably -- has the largest accounting practice

12 for financial institutions in the United States,

13 maybe the world.

14 Q. And the fact that UFG and USAT, some of

15 their offices were on the same floor as you, I

16 think you said the trading room or trading floor

17 or something was on the same floor as your office?

18 A. Yes.

19 Q. Had a variant of that trading floor

20 been in existence for a long time?

21 A. Yes. It was there long before UFG had

22 moved to the same building.


1 Q. And was it, in your opinion, a good

2 thing for UFG to use that same trading room?

3 A. It certainly was a lot cheaper and a

4 lot more convenient.

5 Q. You didn't put them there just so you

6 could go in there and monitor the trades and make

7 the trades?

8 A. No. Hardly.

9 Q. Now, you had some questions about

10 Castle & Cooke. Again, I think this is Mr. Guido.

11 Would you -- you explained part of it,

12 but not all of it. Explain how it came about that

13 USAT made an investment in Castle & Cooke and how

14 that fit in, if it did, with any activity that

15 MAXXAM was engaged in.

16 A. Well, I think I stated earlier that

17 MAXXAM had an investment in Castle & Cooke; and it

18 was in the newspapers that it had purchased over

19 $15 million worth, which triggered something

20 called Hart-Scott-Rodino, which is a filing and

21 you have to wait -- I think it's 30 days. It's an

22 antitrust filing. It's -- we weren't in -- there


1 is no antitrust in land.

2 And Mr. Williams --

3 Q. I'm an antitrust lawyer sometimes.

4 You'd better watch out.

5 A. Mr. Williams had approached me on the

6 fact that did it make any sense for United

7 Financial to invest in it if I thought it was so

8 attractive.

9 I did want at the time and I wanted the

10 whole time and I wish even today that we could

11 have had more investments like that. But

12 Mr. Williams thought, I think, at the time that I

13 could just turn on a spigot and make great

14 investments, and it wasn't quite that easy. But I

15 was happy to forego the opportunity for MAXXAM to

16 buy more shares if, in fact, United Financial

17 thought it was a good opportunity.

18 And so, the opportunity did present

19 itself. It was approved by United Financial, and

20 it was a very successful investment and United

21 Financial made a lot of money.

22 Q. Over a relatively short period of time,


1 you earned 9, $10 million?

2 A. Yes, that's correct.

3 Q. You were also shown a letter -- and I

4 think if I -- that related to TSG.

5 Do you remember TSG?

6 A. I do, yes.


8 (Discussion held off the record.)


10 Q. (BY MR. KEETON) Okay. Now,

11 Mr. Hurwitz, Exhibit T4374, which is Tab 1348, is

12 the letter you were shown earlier today?

13 A. Yes. The one that has "TSG Holdings"

14 on top?

15 Q. Correct, with handwriting.

16 A. Yes.

17 Q. And then I have placed in front of you

18 Exhibit A1421, which is Tab 352. It's the board

19 minutes or the minutes of the investment

20 committee?

21 A. Yes.

22 Q. December 4, '85. Do you see that?


1 A. I do.

2 Q. I can't see.

3 THE COURT: '86.

4 MR. KEETON: You're right, Your Honor.

5 I beg your pardon. My eyes are getting -- '86.

6 THE COURT: Take your glasses off.

7 MR. KEETON: Well, I'm in the

8 unfortunate position that it's worse, Your Honor.

9 Q. (BY MR. KEETON) All right. Look --

10 how did you first come to bring TSG, if you did,

11 to the attention of someone at UFG or USAT?

12 A. Well, as I testified earlier today,

13 Mr. Keeton, it's almost the same thing as

14 Castle & Cooke except that MCO Holdings had made

15 an investment in there and it sold it and it was

16 public information. And then an opportunity came

17 again to do that, and I told -- I think it was

18 Gerry Williams or Jenard Gross or someone about

19 it. And you know, any way that we could make

20 money in United Financial that was a good way of

21 making money, you know, we wanted to do that. I

22 thought it was a good opportunity, and I presented


1 it -- it was presented to them. They thought it

2 was a good idea and they bought it and fortunately

3 made a lot of money.

4 Q. If you will look on Page 2 of A1421,

5 the minutes of the investment committee, the third

6 paragraph from the bottom -- fourth, actually --

7 discusses the possible acquisition of a position

8 in TSG. Right?

9 A. Yes.

10 Q. And without -- well, read it to

11 yourself. Then let me ask you a question.

12 A. Okay. I've read it.

13 Q. Okay. Does it reflect that the

14 committee thought it would be a good thing to

15 acquire some TSG stock?

16 A. Yes.

17 Q. And what range were they looking at

18 there?

19 A. 10 to $12 million.

20 Q. All right. And were shares acquired in

21 TSG after this time in December of '86?

22 A. Yes.


1 Q. But they were not of that magnitude,

2 were they?

3 A. No. It was less than a million.

4 Q. I think it was more -- less than a

5 million or 5 million?

6 A. Well, this --

7 Q. That's the second one. I'm not talking

8 about that acquisition.

9 A. Yes, it was about 5 million, right.

10 Q. Now, how did -- what's the background,

11 as best you can piece it together, to any

12 involvement you had in T4374 which is the May '87

13 letter?

14 A. Well, what it states here is that I had

15 committed for UFC to purchase $990,000. And I

16 think what that was is I got a call from London

17 stating that that was available, and I said that

18 we would buy it. I offered it to UFG. And if

19 they wanted it, they could have it. And if they

20 didn't want it, they didn't have to. They were

21 already shareholders, and they had authorization

22 to buy up to another $500 million worth.


1 Q. And this was something just under a

2 million dollars?

3 A. It says here 990,000.

4 Q. And did UFG or USAT ultimately buy

5 that -- those shares?

6 A. They did.

7 Q. So, now they have got about $6 million

8 invested?

9 A. That sounds right.

10 Q. And did they sell those shares at some

11 time reasonably shortly thereafter?

12 A. Yes.

13 Q. And how much money did they make on

14 that?

15 A. I think they made $3 million or so

16 on -- 50 percent on their money.

17 Q. And again --

18 A. Good thing it went up, isn't it?

19 Mr. Guido would really have something to talk

20 about.

21 Q. Maybe you should have taken it in



1 Let's get to the last of these three,

2 although there may be others.

3 Tell me how it came to be that USAT

4 invested in Weingarten Realty.

5 A. Weingarten Realty is a New York Stock

6 Exchange REIT, the largest shopping center other

7 than in Houston, one of the largest in the

8 country. I believe it's the largest in Texas, as

9 well. And it came out of a company originally

10 called Weingarten Supermarket, which was kind of a

11 family-owned business, the largest supermarket

12 chain in Houston. And a gentleman named Stanford

13 Alexander, after he got out of business school,

14 joined the company. And he wanted to start

15 shopping centers and to put supermarkets in it, in

16 the shopping centers, as an anchor tenant. And

17 this was a new concept.

18 And what happens many times in life,

19 the supermarket kind of stayed still and his part

20 of the business skyrocketed. It was enormously

21 successful. And Mr. Alexander is one of the most

22 able shopping center developers/operators that I


1 know.

2 The family -- the company traded in the

3 pink sheets, which is -- I don't know if they

4 still have pink sheets, but it was less than

5 NASDAQ. And there was not a quoted market, but it

6 was a semi-public market. A handful -- small

7 handful, three or four of the Weingarten family

8 wanted to sell their shares. And they had

9 retained the firm of Smith Barney to sell the


11 And I was presented with the

12 opportunity and looked at it and didn't do

13 anything with it. And it was kind of kicked

14 around for some period of time, more than a

15 year --

16 Q. You said a small group, but was it a

17 significant holding they were trying to sell?

18 A. Yes. It represented in the high

19 30 percent of the company.

20 Q. I'm sorry I interrupted.

21 A. We looked at the company again and --

22 Q. That's MAXXAM you're talking about?


1 A. Yes. It looked very attractive as the

2 price came down. We thought the assets, Your

3 Honor, were worth twice what they were -- could be

4 bought for. I did present the opportunity to

5 United Financial because it was in the business

6 they are in, investing in real estate, one of

7 their businesses. And it was right here in

8 Houston. Their own real estate department looked

9 at it, analyzed the shopping centers -- a couple

10 of warehouses were in there, but mostly shopping

11 centers -- and agreed with the analysis. And we

12 negotiated a price and had purchased this block of

13 stock. It was my --

14 Q. All right. Let me interrupt you a

15 second.

16 From the time you first looked at this

17 until the time of purchase, I take it, is some

18 several months?

19 A. No. Two years maybe.

20 Q. Two years. Okay.

21 A. Right.

22 Q. MAXXAM had been studying it, and then


1 you came back to UFG with it?

2 A. Yes. Their price went down, what they

3 wanted. My thought process was that if you could

4 take this group of fantastic assets, convert it

5 from a corporation to an REIT, have an

6 underwriting and get the company more shares in

7 the marketplace, that it had a chance of doubling

8 in value. I think one of the charges the

9 government has against me is that conflict of

10 interest because I did go on the board of

11 Weingarten Realty.

12 Q. There's been some indication that and

13 you Mr. Gross both went on and both, therefore,

14 had a conflict of interest.

15 A. Well, what happened there is that the

16 stock was purchased by United Financial. The

17 chief executive officer, Stanford Alexander, and I

18 met. I told him what I thought should happen. He

19 asked if Mr. Gross and I would go on his board.

20 It was a large board. And they thought that the

21 idea that I had was a good idea. I remember at

22 the time telling them I thought that the best


1 possible underwriter for what they were trying to

2 accomplish was Goldman Sachs. Goldman Sachs did a

3 big secondary offering, and it was successful.

4 The stock doubled. And in about a six-month

5 period of time, I think that United -- I forgot

6 the dollar amount, maybe $40 million profit or

7 something on it.

8 Q. And that's an opportunity that at the

9 time you took it to UFG, you knew it was good and

10 you could have taken it to MAXXAM?

11 A. Well --

12 Q. Or Federated?

13 A. You never know that they are good. You

14 can use your best judgment, and that's --

15 Q. You thought it was good?

16 A. I thought it was good. Turned out to

17 be right.

18 Q. And again, modesty is fine. But

19 without your involvement, they would not have ever

20 had that opportunity, would they?

21 A. Well, I can't say that. They may have.

22 I doubt it. It's possible.


1 Q. Okay.

2 MR. NICKENS: What's the tab number for

3 Lazard 12? 196?

4 Q. (BY MR. KEETON) Mr. Hurwitz, you just

5 talked about how you got or certainly helped the

6 Weingarten board make the decision to go with

7 Goldman Sachs on the deal. And you've mentioned

8 numerous other investment bankers throughout the

9 course of your testimony.

10 I have placed in front of you

11 Exhibit 19, Tab 69.

12 MR. NICKENS: It's Lazard 19.

13 Q. (BY MR. KEETON) It's Lazard 19. That

14 is the listing that Mr. Guido used of what he said

15 were Drexel underwritings or Drexel financial

16 arrangements with MAXXAM or related companies.

17 MR. GUIDO: Objection, Your Honor.

18 That's not what counsel said. Counsel asked

19 questions of the witness and the witness testified

20 to the facts. Counsel did not indicate who was

21 the underwriter of the documents. I think that

22 mischaracterizes what transpired in the courtroom.


1 MR. KEETON: Okay.

2 Q. (BY MR. KEETON) Drexel was the

3 underwriter on all of these, weren't they?

4 A. Yes.

5 MR. KEETON: I apologize, Mr. Guido.

6 Q. (BY MR. KEETON) Let's take it from

7 the top. The -- there's a MAXXAM Group, May 21,

8 '85, for $150 million.

9 How did you happen to end up at Drexel

10 with that one?

11 A. You know, I'm not even sure. It was --

12 I don't know that I can even tell you.

13 Q. Do you know what you paid Drexel for

14 that?

15 A. Whatever the competitive prices were.

16 We competed like crazy on all the underwriters,

17 and we paid whatever the going rate was.

18 Q. They didn't give you a cheaper price

19 because of something they were doing with USAT?

20 A. I've never been able to do that with an

21 investment banking firm.

22 Q. Did anyone ever indicate they were


1 going to do something cheaper for you because of

2 what USAT was purchasing?

3 A. No. As a matter of fact, they had a

4 corporate finance at Drexel Burnham. The guy who

5 was responsible for these told me after all this

6 happened, he didn't know that we had an investment

7 in a savings and loan.

8 Q. You mean after the savings and loan

9 gets acquired or collapses?

10 A. Yes.

11 Q. And at any time, with any of the

12 underwritings shown on here, even though it may be

13 redundant, did MAXXAM or related companies --

14 Pacific Lumber, Kaiser Tech -- obtain any

15 favorable treatment from Drexel because of

16 anything Drexel was doing with USAT?

17 A. No.

18 Q. Did -- and that might not just include

19 a break on the underwriting fee. It might include

20 doing an underwriting for you that they might not

21 otherwise do.

22 A. That's correct.


1 Q. Now, in the underwritings that Drexel

2 did for you, some of them were high-yield bonds.

3 Right?

4 A. Yes.

5 Q. And how have the high-yield bonds that

6 Drexel issued for whether Kaiser, Pacific Lumber

7 or MAXXAM worked out?

8 A. They have all been paid off in full.

9 Q. So, the people that purchased those

10 high-yield bonds got all their money back, plus

11 the promised interest?

12 A. Yes.

13 Q. Until this investigation started, did

14 anyone with the government ever challenge, to your

15 knowledge, Drexel's relationship with USAT as

16 somehow being a favoritism to MAXXAM?

17 A. No.

18 Q. And in that regard, did anything that

19 you did at UFG, was it calculated to benefit

20 Drexel in some fashion that would have been

21 improper?

22 A. No. And I think I have testified, as


1 well as others, that I never told anybody what

2 bond or security to buy or mortgage-back or

3 whatever or where to buy them.

4 So, people were free to make not only

5 their own decisions but to get the best price they

6 could get.

7 Q. And insofar as USAT purchased bonds

8 that were underwritten by Drexel, the decision to

9 purchase those bonds would have been others other

10 than you?

11 A. That's correct.

12 Q. When -- were you ever asked your

13 opinion about what you thought about a particular

14 high-yield bond issue by Mr. Stodart or

15 Mr. Phillips?

16 A. Most probably. I can't tell you today

17 that I remember that, but I'd be surprised if they

18 didn't.

19 Q. In one of those conversations, would it

20 be relevant as far as giving your opinion as to

21 who the underwriter of that bond was?

22 A. Of course not.


1 Q. What would you be discussing if they

2 asked your opinion?

3 A. The creditworthiness of it.

4 Q. And explain what you mean when you say

5 "the creditworthiness of it."

6 A. Well, is it an industry that's going to

7 continue to be able to produce enough profits to

8 pay off their obligations?

9 Q. And so, you're looking at the company

10 that's issuing the bond as opposed to the

11 underwriter?

12 A. Sure. But you also look at industries,

13 as well. There's more that goes into it than just

14 that.

15 Q. Yeah. During the time that you were

16 doing the business shown on that chart in front of

17 you, were you at MAXXAM or the related companies

18 also dealing with other investment banking firms

19 other than Drexel?

20 A. I'm sure that's the case. I can't tell

21 you what firms. I do know that, you know, it's

22 rather curious to me -- all these charges are


1 curious to me. But just this particular one, you

2 know, we talked about -- we could have given

3 Drexel Burnham Weingarten Realty to underwrite. I

4 mean, it's -- Bear Sterns and Paribas did a

5 fairness opinion. You had Salomon Brothers and

6 Goldman Sachs who did branch sales. I mean, all

7 these investment banks do somewhat the same kind

8 of thing. I mean, there were -- it's across the

9 whole board there, the people that do business.

10 Q. If they all do somewhat the same thing,

11 the question might arise in some suspicious

12 person's mind as to why so many of the

13 transactions on that chart are all with Drexel

14 during this period of time.

15 A. Well, they represented some 75 percent

16 of the worldwide market. So, they had to get some

17 part of it.

18 Q. Do you get your market share by being

19 no good or good, or how does that work in this

20 business?

21 A. Well, it's a very competitive business,

22 as we all know.


1 Q. Are you aware of other investment

2 banking firms that USAT or UFG might have done

3 business with?

4 A. I don't recall at this time. You mean

5 in the purchase of bonds?

6 Q. In anything.

7 A. Well, I just mentioned a whole bunch of

8 investment banking firms.

9 Q. While it may be obvious, I want you to

10 look at a page that you were shown earlier today.

11 MR. NICKENS: It's Page 51.

12 MR. GUIDO: Pardon?

13 MR. NICKENS: Page 51.

14 MR. KEETON: It's which exhibit,

15 though?

16 MR. NICKENS: Your Honor, it's

17 Exhibit A3023 at Tab 79.

18 Q. (BY MR. KEETON) Mr. Hurwitz, again,

19 just for the record, what is the exhibit I just

20 placed in front of you? What type of document?

21 A. This is a Form 10K of United Financial

22 Group.


1 Q. All right. And then would you turn to

2 Page 51, which is the same page that Mr. Guido had

3 you look at?

4 A. Okay.

5 Q. And that sets out a number of companies

6 that had repurchase agreements with USAT and UFG.

7 Right?

8 A. Yes.

9 Q. Now, he pointed you to Drexel. But how

10 many other investment banking firms are shown

11 there? Go ahead and read them for the record.

12 A. Drexel Burnham, First Boston,

13 Prudential Bache, Bear Sterns, Merrill-Lynch,

14 Kidder Peabody, Goldman Sachs, and the Federal

15 Home Loan -- is it the Federal Home Loan Bank? I

16 don't know if -- it's FHLMC something. Federal

17 Home Loan --

18 MR. NICKENS: Freddie Mac.

19 Q. (BY MR. KEETON) Freddie Mac. And of

20 the total repos, it shows what amount?

21 A. The billion 6? Is that the number?

22 Q. Yes. Almost a billion 7. Right?


1 A. Yes.

2 Q. And it shows Drexel having something

3 under 30 percent of that, maybe 25 percent or so,

4 a little more than 25. Right?

5 A. Yes.

6 Q. And it also shows the rate. What type

7 of rate was Drexel giving UFG and USAT?

8 A. It says here "average rate of 7.82."

9 Is that what you're talking about?

10 Q. Right. And if you look -- look down

11 the list, the only one that seems to have done

12 better is Bear Sterns by two basis points, 7.80,

13 and Freddie Mac, 7.74. Right?

14 A. Yes.

15 Q. And Drexel's rate is well under the

16 average rate for the total repo line. Right?

17 A. Yes.

18 Q. And yet, you testified that at least at

19 this point in time, since we're looking back at

20 '86, I guess, Drexel -- this is not a high-yield,

21 but Drexel was a strong player in this market.

22 Right?


1 A. In which market?

2 Q. The repo.

3 A. You know, I don't know that. I know

4 that they were in it.

5 Q. And from this exhibit at least, we can

6 say they were certainly competitive if not more

7 than competitive?

8 A. Yes.

9 Q. And yet, we also see that USAT was

10 dealing with a number of other investment bankers.

11 Right?

12 A. That's correct.

13 MR. KEETON: Your Honor, I'm getting

14 ready to go into another area. If we could --

15 THE COURT: How much more are you going

16 to have?

17 MR. KEETON: I would think I could

18 finish in an hour, maybe a little more. But

19 certainly we'll -- I would finish well before

20 noon.

21 THE COURT: All right. We'll adjourn

22 until 9:00 o'clock tomorrow.


1 (Whereupon at 4:25 p.m.

2 the proceedings were recessed.)























4 I, Marcy Clark, the undersigned Certified

5 Shorthand Reporter in and for the State of Texas,

6 certify that the facts stated in the foregoing

7 pages are true and correct to the best of my ability.

8 I further certify that I am neither

9 attorney nor counsel for, related to nor employed

10 by, any of the parties to the action in which this

11 testimony was taken and, further, I am not a

12 relative or employee of any counsel employed by

13 the parties hereto, or financially interested in

14 the action.

15 SUBSCRIBED AND SWORN TO under my hand

16 and seal of office on this the 14th day of

17 October, 1998.

18 ____________________________
19 Certified Shorthand Reporter
In and for the State of Texas
20 Certification No. 4935
Expiration Date: 12-31-99




4 I, Shauna Foreman, the undersigned

5 Certified Shorthand Reporter in and for the

6 State of Texas, certify that the facts stated

7 in the foregoing pages are true and correct

8 to the best of my ability.

9 I further certify that I am neither

10 attorney nor counsel for, related to nor employed

11 by, any of the parties to the action in which this

12 testimony was taken and, further, I am not a

13 relative or employee of any counsel employed by

14 the parties hereto, or financially interested in

15 the action.

16 SUBSCRIBED AND SWORN TO under my hand

17 and seal of office on this the 14th day of

18 October, 1998.

19 _____________________________
20 Certified Shorthand Reporter
In and for the State of Texas
21 Certification No. 3786
Expiration Date: 12-31-98

Continue with Hurwitz testimony, Oct. 14, 1998
OTS vs MAXXAM Trial Testimonies

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