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