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

22 .





5 Continued Examination by Mr. Keeton.....26320

6 Further Examination by Mr. Guido........26356

7 Further Examination by Mr. Rinaldi......26374

8 .

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10 .

11 .

12 .

13 .

14 .

15 .

16 .

17 .

18 .

19 .

20 .

21 .

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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 Mr. Keeton, you may continue with your

6 cross-examination.

7 MR. KEETON: Thank you, Your Honor.




11 Q. (BY MR. KEETON) Mr. Hurwitz, did there

12 come a time when you resigned from the board of

13 UFG?

14 A. Yes, Mr. Keeton.

15 Q. Do you remember approximately when that

16 was?

17 A. It was in, I think, the first quarter

18 of 1988.

19 Q. If the record shows it was February of

20 '88, does that comport with your memory?

21 A. Yes.

22 Q. Why did you resign from the board?


1 A. Art Berner, the general counsel of

2 United Financial, had informed me that he had had

3 a meeting with Neil Twomey and that under the

4 Southwest Plan which we wanted very much to win,

5 that for political reasons it would be better if I

6 had less involvement with United Financial at that

7 time.

8 Q. And when you say the Southwest Plan

9 that you wanted to win, give us an overview of

10 what that was.

11 A. Well, the Southwest Plan was -- it was

12 a restructuring of the savings and loan in the

13 Southwest because, as I had mentioned earlier,

14 that virtually all had failed.

15 Q. By this time, had you determined or

16 thought that USAT/UFG would need some sort of

17 restructuring or federal assistance in order to

18 continue?

19 A. Well, it would either need that or

20 certainly some infusion of new capital, like the

21 capital notes we had talked about.

22 Q. And the Southwest Plan appeared to be


1 the way that that was going to happen?

2 A. Yes.

3 Q. And did -- you said "we were interested

4 in winning." Who is "we" in this instance?


6 Q. And what company were you interested in

7 acquiring under the Southwest Plan?

8 A. United Financial.

9 Q. Mr. Hurwitz, I've placed in front of

10 you a series of exhibits with that clip. These

11 have not yet been admitted, and we'll go through

12 them one at a time. But I am giving you, as I am

13 giving the Court and Mr. Langdon, all the exhibits

14 at once; and then we'll talk about them one at a

15 time.

16 If you would look first at

17 Exhibit B2466, is that the -- the cover letter

18 signed by you, sir, that contains the proposal for

19 the recapitalization of certain savings and loans?

20 A. Yes.

21 Q. And this document was forwarded to

22 Mr. Tom Lykos who you mentioned earlier?


1 A. Yes.

2 Q. This is the original proposal that went

3 forward, as far as you know, from MAXXAM?

4 A. That's correct.

5 MR. KEETON: I offer 2466, B2466,

6 Your Honor.

7 MR. GUIDO: Your Honor, the OTS objects

8 to this document and the rest of the documents

9 that are in the packet going into the record. The

10 documents are documents that pertain to the

11 bidding that went on with regard to the

12 Southwest Plan that was the subject of the

13 5th Circuit litigation which the OTS gave

14 Your Honor copies of the materials. We argued at

15 the time that not only was it not material and

16 relevant to this proceeding but it had been

17 adjudicated in the prior proceeding and,

18 therefore, was inappropriate to raise in this

19 proceeding.

20 For that reason, we object to any of

21 these documents going into the record, Your Honor.

22 And we believe that the issue has been adjudicated


1 by the 5th Circuit and, therefore, does not belong

2 in this proceeding.

3 MR. KEETON: Your Honor, whether the

4 issue he contends has been adjudicated or not,

5 this is part of the continuing saga of UFG and

6 USAT. We're still in 1988 in this issue.

7 THE COURT: All right. I'll receive

8 the document. I believe it's necessary for

9 completeness.

10 Q. (BY MR. KEETON) Let me ask you to

11 direct your attention next to the next exhibit,

12 Mr. Hurwitz, which is B2476, a letter dated

13 October 24, '88, to your attention from Mr. Gross.

14 This one appears to have probably come from the

15 UFG files; and therefore, Mr. Gross does not sign

16 that letter.

17 Take a moment to look at it. Do you

18 recall Mr. Gross responding to your initial

19 proposal to tell you about what USAT's role was

20 going to be in UFG?

21 A. Yes, I do.

22 Q. Did you receive this letter?


1 A. I did.

2 MR. KEETON: I offer B2476, Your Honor.

3 MR. GUIDO: Same objection, Your Honor.

4 THE COURT: All right. Received.

5 Q. (BY MR. KEETON) The next exhibit,

6 Mr. Hurwitz, is B2481. It's a letter dated

7 October 25th, 1988, addressed to Mr. Jenard Gross.

8 This letter appears to be signed by you; is that

9 correct?

10 A. Yes.

11 Q. Is this your response to Mr. Gross'

12 letter that we've just seen?

13 A. Yes, it is.

14 MR. KEETON: I offer B2481, Your Honor.

15 MR. GUIDO: Same objection, Your Honor.

16 THE COURT: Received.

17 Q. (BY MR. KEETON) The next exhibit is

18 B2491. This is a letter dated October 31, 1988,

19 to Mr. Michael Patriarca on MAXXAM letterhead.

20 And -- well, I don't -- yeah.

21 On the second page, it appears to have

22 your name; but it looks like someone else signed


1 for you.

2 A. Yes. That was Barry Munitz, correct.

3 Q. You recognize that --

4 A. Well, it says "CH/BM."

5 Q. Okay. You recognize his initials

6 there?

7 A. I do.

8 MR. KEETON: I offer B2491, Your Honor.

9 MR. GUIDO: Same objection, Your Honor.

10 THE COURT: Received.

11 Q. (BY MR. KEETON) I want to pause a

12 moment at this letter. These letters have

13 continued to go back and forth relating to the

14 proposal or bid of MAXXAM in the Southwest Plan.

15 The first -- I want to direct your attention to

16 the first line where it says, "At the specific

17 request of Tom Lykos, with whom we met last Friday

18 afternoon in Washington, D.C., I am submitting the

19 attached detailed bid sheet as a supplement to the

20 letter of October 17," which is the first document

21 in this series. Right?

22 A. Yes.


1 Q. Do you recall meeting with Mr. Lykos?

2 A. I do.

3 Q. Do you recall him saying anything other

4 than encouraging words so far as MAXXAM going

5 forward with its bid?

6 A. That's correct. He did. He was

7 encouraging.

8 Q. And last in this group is

9 Exhibit B2550. This is a letter dated

10 November 22nd, 1988, to Mr. Lykos. It appears to

11 be signed by you; is that correct?

12 A. Yes.

13 Q. And again --

14 MR. KEETON: I offer that exhibit,

15 Your Honor.

16 MR. GUIDO: Same objection, Your Honor.

17 THE COURT: Received.

18 Q. (BY MR. KEETON) You sent this letter to

19 Mr. Lykos?

20 A. Yes. And I see there are copies to

21 Mr. Twomey, Patriarca, and Mr. Bradley.

22 Q. And, again, if you look at the first


1 paragraph of the letter, on Page 1 it would appear

2 that in some fashion, you or members of your staff

3 had been in communication again with Mr. Lykos and

4 you were responding to his comments?

5 A. It does, indeed.

6 Q. And as far as you knew as of

7 November 22nd, MAXXAM was being considered as an

8 eligible bidder for the -- to acquire United

9 Savings?

10 A. Yes.

11 Q. Now, we're at the end of November as

12 far as these letters are concerned. We know that

13 the ultimate award, as far as you learned,

14 happened near the end of December, correct?

15 A. That's correct.

16 Q. And did you have any further

17 conversations yourself with Mr. Lykos --

18 A. I did.

19 Q. -- prior to the award?

20 A. I did.

21 Q. All right. You've mentioned parts of

22 that, but let's take it slowly. Tell me about --


1 what conversation or conversations did you have

2 with Mr. Lykos?

3 A. I was in California completing the

4 acquisition of Kaiser Aluminum, and I got a call

5 from Mr. Lykos informing me that we were not the

6 high bidder and wanted to know if we would like to

7 raise our bid. I asked him how much more it would

8 take, and he said that he wasn't in a position to

9 tell me that. And based on that, I told him that

10 we would pass and wouldn't raise our bid.

11 He told me that he would like to offer

12 some other savings and loans to us to purchase.

13 Q. This was in that same conversation?

14 A. Yes. And he would send me a letter to

15 that effect and said that, you know, he

16 appreciated our hard work and effort in this

17 endeavor but that they had given it to someone

18 else because of the higher price.

19 Q. Over these many months, had MAXXAM

20 worked hard in putting together what ultimately

21 became its bid?

22 A. Well, as you can see through the


1 papers, if one wants to take the time to read

2 this, you have to have economic analysis. It

3 took, you know, many, many dollars to put together

4 these proposals and a tremendous amount of human

5 resource. A lot of thought went into it.

6 Q. I want to direct your attention,

7 please, to a document that I also placed in front

8 of you that's not part of that group because it's

9 already been admitted. It is Exhibit B2667. It's

10 found at Tab 1890.

11 A. (Witness reviews the document.)

12 Q. Do you have that document, Mr. Hurwitz?

13 A. I do.

14 Q. Take a moment and refresh yourself on

15 it.

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

17 Q. Is this the letter that Mr. Lykos sent

18 following the conversation when you were in

19 California?

20 A. Yes, it is.

21 Q. Was it sent shortly after that

22 conversation, as far as you know?


1 A. I don't remember the date in December

2 that I had the conversation; but it certainly was

3 in that short time frame, in December of 1988.

4 This is dated December 30th.

5 Q. Correct. And did the letter fit what

6 Mr. Lykos had told you in his phone call?

7 A. Yes, pretty much so.

8 Q. And in what major ways?

9 A. Well, what he told me on the phone was

10 that we were not the high bidder; and it doesn't

11 state that in this particular letter. But he does

12 go on to say that if we are interested in

13 participating in the Southwest Plan, that there

14 are other opportunities and to please let him

15 know.

16 Q. It does or does not state that in the

17 letter?

18 A. It does state that.

19 Q. When you said you were not the high

20 bidder?

21 A. No, I don't see where it says that we

22 were not the high bidder.


1 Q. Look at the first paragraph, if you

2 would, about two-thirds of the way down. He

3 doesn't use the "high bidder" words, but doesn't

4 he use words to that effect?

5 A. Yes.

6 Q. What words does he use?

7 A. It says, "We have determined it's less

8 advantageous to the FSLIC than other proposals."

9 The other slight difference, I would say, is he

10 was more explicit in saying that we didn't put as

11 much money on the table as someone else and would

12 we like to raise ours, certainly leading me to

13 believe that if we had of raised our bid, they

14 maybe would have accepted it if it had been higher

15 than someone else's. Maybe that's what it means.

16 I'm not arguing the fact that it doesn't say the

17 thing, but the conversation was slightly

18 different. I think it means exactly the same

19 thing.

20 Q. Did there come a time when you had

21 reason to doubt the sincerity of what Mr. Lykos

22 says in this letter?


1 A. Yes. Some eight years later, we got a

2 document in discovery over this lawsuit from

3 Steptoe & Johnson, a law firm, that had the

4 minutes of the meeting.

5 MR. GUIDO: Your Honor, we object to

6 this line of questioning for the same reasons as

7 previously. This is exactly the issue that was

8 raised in the 5th Circuit now, Your Honor; and the

9 Court ruled in that case that it was inappropriate

10 to do so. I think it indicated that the argument

11 was -- we are so far beyond the pale that it was

12 not appropriate grounds for the Court to reopen

13 the litigation in that case; and the Court

14 dismissed the petition which raised exactly this

15 issue, Your Honor.

16 MR. KEETON: There may have been --

17 MR. GUIDO: The documents are already

18 in the record, Your Honor. We have a standing

19 objection to this line of questions.

20 THE COURT: All right. Denied.

21 A. The document stated, Your Honor, that

22 we bid, using their definition, $100 million more


1 than the other bids.

2 Q. (BY MR. KEETON) And yet --

3 A. It's pretty incredible to me that

4 something like that could happen.

5 Q. Mr. Hurwitz, I neglected yesterday in

6 speaking about you and your family -- we talked

7 mostly about business or some family things.

8 I want to drop back for a moment and

9 ask you to tell the Court -- and I know this is

10 never easy to do, but I think it's important for

11 some background here. Tell the Court about what

12 activities of a civic philanthropic or other

13 nature you and Mrs. Hurwitz, Barbara, have been

14 involved in just over the last four or five years.

15 What are the major places you've

16 concentrated on?

17 A. Well, we -- my wife and I truly believe

18 that we should put back into society. The city

19 and the state and the country have been very

20 generous to us, and we do participate. We not

21 only have an open pocketbook, but we work very

22 hard in the community. In the last several years,


1 M.D. Anderson Hospital, of which my wife and I

2 have both been on the board, asked us to have an

3 event with John and Nellie Connolly. John was the

4 former governor. He died a couple of years ago.

5 And I believe it was the most successful event in

6 the history of Houston. M.D. Anderson is

7 certainly one of the major cancer hospitals in the

8 world today. It's a fabulous organization.

9 We had talked earlier that one of the

10 directors of United Financial was Charles

11 LeMaistre, and he was the president of

12 M.D. Anderson.

13 Q. In addition, you don't just put a

14 fundraiser like that on in one day, do you?

15 A. No. They take, obviously, a tremendous

16 amount of time. As I said, we -- we just don't

17 contribute money but we contribute to making these

18 things work.

19 Q. And both of you have been on the board

20 of M.D. Anderson?

21 A. Yes.

22 Q. Okay.


1 A. And some other activities that we've

2 been involved in, several weeks ago we had an

3 affair here in Houston for the Holocaust Museum of

4 which Houston has a museum that started about

5 three or four years ago. My wife and I chaired

6 that. And I brought Stephen Spielberg down

7 because of his contributions by making Schindler's

8 List and other movies. If not the biggest, the

9 top two or three largest events like this ever

10 held in Houston. We had 1800 people at the George

11 Brown and a lot of work and effort.

12 So, it's more than just giving money,

13 which I think we're generous in giving money; but

14 it's a lot of work, as well.

15 On the education side, my wife went

16 back a few years ago and -- to get her master's

17 degree at St. Thomas University, a Catholic

18 university here. And I think she got her master's

19 degree. I think she's the oldest graduate they

20 have ever had.

21 Q. I do divorce work, too, Mr. Hurwitz,

22 but not for you.


1 A. But out of that, she was awarded

2 earlier this year the Distinguished Alumni Award.

3 But we have the Hurwitz lecture series there,

4 which we bring in CEOs; and it's been very

5 popular. We actually got the idea from George and

6 Ronia Kozmetsky because they have a lecture series

7 in Austin for a number of years at the University

8 of Texas.

9 Just recently, my son Shawn that's here

10 and Barbara, we had worked on -- it's a school

11 from the 5th grade to the 8th grade. It's called

12 KIP. And it's to take children from the -- the

13 lower levels of Houston society. The goal is to

14 maybe get -- the ones who get to the 9th grade and

15 drop out, to see if these children can be educated

16 and get them a college education. These are all

17 Ivy League teachers. It's really a grassroots

18 kind of thing. They have to sign a contract with

19 their parents that they will come to school at

20 7:30 in the morning and stay until 5:00 in the

21 afternoon. They have to work half a day on

22 Saturdays, and they have to take a month out of


1 the summer. And it's -- it's an extraordinarily

2 rewarding thing that these children which are

3 underprivileged ranged in the top 10 percent in

4 the State of Texas testing.

5 Q. But these aren't necessarily

6 supergifted kids to start with?

7 A. No, they are not. They were part of

8 the Houston Independent School District until this

9 year, and they needed their own school because

10 they had outgrown it. My son Shawn worked on a

11 strategic plan and the financing. And we got the

12 State of Texas and the City of Houston and some

13 banks and the former mayor of Houston, Bob Lanier;

14 and I put in the equity to create the school.

15 Q. I know of at least one other major

16 project you may have contributed money to, but I

17 know your wife contributed a lot of time to it.

18 It's in between the Holocaust Museum and the

19 hospital?

20 A. Yes. Hermann Park, which is, I say,

21 Houston's answer to Central Park. It's the

22 biggest park here. We were involved in that, and


1 my wife -- not only did we contribute again, but

2 she lead a group to raise money for new golf

3 courses and to fix it up.

4 Q. These are public golf courses?

5 A. At last count, it raised over

6 $27 million for that.

7 Q. And at least in her case, she's

8 probably worked every day on that project for

9 several years, hasn't she?

10 A. Yeah.

11 Q. Let me turn, Mr. Hurwitz, to a few more

12 things; and we'll be through. OTS Enforcement in

13 this case has charged that MAXXAM, Federated, and

14 yourself have violated net worth maintenance

15 obligations or failed to live up to net worth

16 maintenance obligations that you owed to USAT,

17 UFG.

18 You're aware of that?

19 A. I am.

20 Q. What's your response to that,

21 Mr. Hurwitz?

22 A. Well, we clearly didn't violate that


1 net worth maintenance.

2 Q. Had MAXXAM or Federated or even you

3 ever been called upon to fulfill some net worth

4 maintenance obligation until this case was

5 brought?

6 A. No.

7 Q. Did you ever sign a net worth

8 maintenance agreement at any time? When I say

9 "you," I'm talking about Federated, MAXXAM, or

10 yourself.

11 A. No. I was never asked to.

12 Q. And at any time, did anyone ever tell

13 you that because you had the preferred stock or

14 the Drexel option, that meant that automatically

15 you had a net worth maintenance obligation?

16 A. No.

17 Q. Had any regulator ever said that, told

18 that to MAXXAM or Federated, what would you have

19 done?

20 A. We would have come back into

21 compliance, and there were many ways to do that.

22 If they had thought that, by owning the preferred


1 or having an option or anything like that, we

2 would have sold them. And certainly complied with

3 the law. The first time I learned about anything

4 like this was in a lawsuit in 1995, you know, many

5 years later.

6 Q. Another allegation that OTS Enforcement

7 has brought is that there was, in fact, an

8 arrangement, an agreement, a quid pro quo,

9 whatever, whereby Drexel, by being offered the

10 opportunity to sell bonds or maybe do the repos

11 with USAT, would in turn favor MAXXAM or do

12 something special for MAXXAM that it otherwise

13 would not do.

14 What's your response to that?

15 A. Well, that's just ludicrous. Of

16 course, it didn't happen. As I've testified, I

17 had never asked anybody at United Financial or any

18 company I've ever been involved with to do any

19 business with any particular person. That's not

20 something I would do.

21 Q. And you mentioned earlier today or

22 yesterday that when it came time for Weingarten


1 Realty to go out and use an underwriter, who was

2 it that you thought and suggested to the board

3 management of Weingarten Realty?

4 A. Well, as I stated yesterday, I told

5 them that I thought Goldman Sachs because they had

6 a certain expertise in REITs. In my view, they

7 were the best underwriter for Weingarten Realty.

8 Q. And we have seen that there were

9 instances where Salomon Brothers did something

10 with USAT, Smith Breeden, people like that?

11 A. Yeah.

12 Q. Was that any quid pro quo that MAXXAM

13 got any benefits from?

14 A. No.

15 Q. And, again, had anyone ever suggested

16 that doing business with Drexel by USAT was in

17 some way improper to you during any of the time

18 that you were associated with UFG?

19 A. Well, not until the Government wanted

20 to find some charges in 1995. I read that. But

21 certainly not before that.

22 Q. And kind of for the last time, what, in


1 fact, was your role since you said you didn't tell

2 people what bonds to buy or anything at UFG during

3 the time you were associated with it, Mr. Hurwitz?

4 A. Well, Mr. Keeton, I think I tried to

5 state yesterday that I thought that my role --

6 again, it changed a little bit; but as chairman of

7 the holding company, my role was one of a

8 strategic planner. I worked with the so-called

9 strategic plan which evolved over a long period of

10 time. I was, obviously, very interested in making

11 sure that the right people were in the right job.

12 And Barry Munitz, that was here in the court

13 before, and I spent a lot of time talking about

14 the factor of the right people in the right spot.

15 I would like to think as chairman of the holding

16 company -- this didn't always happen, and it

17 doesn't happen either in my household now or in

18 MAXXAM -- that if I make a suggestion, it's

19 necessarily carried out. I would like to think

20 that people at least listen if I have something to

21 say. And people would come to me on a regular

22 basis and they would ask me questions on


1 investments or any other thing like that and I was

2 always available to talk.

3 As we showed in a chart yesterday, the

4 directors of this company were, in some cases,

5 people I had heard of; in some cases, I hadn't; in

6 some very few cases, people I knew. The same with

7 the personnel that evolved in United Financial.

8 But it was, in my opinion, a good group of people.

9 I thought that the plan that evolved which is --

10 and it wasn't that one person had an idea. It was

11 a committee that shaped an idea. It was a good

12 plan.

13 Q. You've answered this, but I want to

14 make sure there's no mistakes.

15 Did you ever attempt to have USAT make

16 a particular high-yield bond purchase from Drexel

17 in order to benefit MAXXAM?

18 A. No.

19 Q. And I guess I should ask, since we saw

20 it yesterday: Did you ever ask or insist that

21 USAT do some repos with Drexel in order to benefit

22 MAXXAM or Federated?


1 A. No.

2 Q. Did you ever have a personal loan from

3 USAT during the time of your association?

4 A. I did not.

5 Q. Did your wife or sons or their wives

6 have any personal loans?

7 A. No.

8 Q. Did you have any airplanes you caused

9 them to buy so you could fly around the country or

10 anything?

11 A. No.

12 Q. Other than the two bonuses and some

13 amount of a director's fee, did you get anything

14 out of USAT?

15 A. No.

16 Q. Mr. Hurwitz, were you asked during the

17 stages of this investigation to produce your

18 personal -- all your personal financial records

19 for a period of years as well as personal

20 financial records of your wife, children, trusts,

21 anything like that?

22 A. I don't recall exactly what was asked,


1 but anything that was asked we certainly produced.

2 Q. Was that done without a subpoena?

3 A. Yes.

4 Q. And did you give two depositions during

5 the course of this without a subpoena?

6 A. I did.

7 Q. Did you ever hold back any of the

8 records?

9 A. No.

10 Q. We've been in this case since it was

11 filed. It's something on the order of three

12 years. If we backdate to the FDIC case, it's a

13 little over three years. The investigation has

14 gone on since, really, '88. So, that's almost ten

15 years.

16 Let's direct ourselves to the bringing

17 of this action itself. What's been the effect of

18 bringing this action on MAXXAM?

19 A. Well, I've certainly given a lot of

20 thought to that question; and I think it's had a

21 lot of effects. One is money. The cost of

22 defense of this is over $20 million, plus the


1 amount of money that we invested and lost, and

2 plus tremendous opportunity costs. Some of these

3 very good investments that were made in United

4 Financial would have been purchased in what is now

5 called MAXXAM. And those, of course, are in 1980

6 dollars, not today's dollars. So, the monetary

7 cost has been very significant.

8 Q. Beyond the monetary cost, what kind of

9 effects has it had on you and the other people as

10 far as you're concerned?

11 A. Well, I think the --

12 Q. I interrupted something.

13 You said something about opportunity

14 costs. What did you mean when you said that?

15 A. Well, the time, you know, hopefully

16 that we have some talents of how to run businesses

17 and do things. So, that certainly wasn't

18 available. And a lot of the dollars that we have

19 tied up could have been more productive.

20 To answer your other question, on the

21 people side, going through the defendants, Ron

22 Huebsch, which I see today on a regular basis, I


1 can tell you it's -- it's had a big toll on him.

2 We've been together for in excess of 25 years.

3 He's a wonderful person. I don't think anybody

4 enjoys being sued by the United States Government.

5 It's a pretty awesome feeling. We had a towing

6 agreement, I think, for seven years. And we

7 notified the Government that we were not going to

8 extend it, and that's when we got sued. So, this

9 has happened since then.

10 But Mr. Huebsch is going to retire.

11 He's 67 years old at year end. But, certainly,

12 part of the decision for him to retire is because

13 of this lawsuit.

14 Michael Crow, which I don't see -- I've

15 run into him maybe a couple of times or had an

16 opportunity to talk to him. His whole life has

17 changed because there's certain jobs he can't get

18 because of this lawsuit that is pending, and it's

19 an unhappy feeling.

20 All of these people, in my own

21 judgment, are good people. They are honest

22 people, and I would be proud to be in business


1 with any of them or anything else.

2 Art Berner, which was general

3 counsel -- I thought Art was a very good general

4 counsel, Law Review from NYU. He was a hard

5 worker. He used to get in at 3:00 or 4:00 o'clock

6 in the morning. Good guy. I've been informed,

7 even though I don't see Mr. Berner anymore, not

8 for any other reason other than the fact that I

9 just don't seem to run into him, can't work in

10 certain types of regulatory law that has to do

11 with banking regulations. That's what he was

12 before. So, that's too bad.

13 Jenard Gross, again, I have a great

14 admiration for Mr. Gross. He's a wonderful

15 person. As you can see from what they

16 affectionately called the Jenard-O-Grams which he

17 seemed to write on a regular basis, he was a very

18 hands-on person that cared deeply about the --

19 about United Savings. And, certainly, he had a

20 great effect on that relationship.

21 Barry Munitz, I was best man in Barry's

22 wedding. It's -- I have a very slight


1 relationship with Barry today. He lives in

2 California, and he gets the brunt of being called

3 a financial crook and things like that which has

4 hurt him. He's an enormously able person, and

5 he's certainly been able to survive. He was the

6 chancellor of the largest college in the United

7 States. Now he's chairman of the Getty Museum.

8 Barry may have the best job in the world of giving

9 away $200 million a year. It's had a toll on

10 Barry personally. A large -- very large toll. He

11 and I had those discussions.

12 Dr. Kozmetsky, we talked about. I

13 would say -- and if this is an exaggeration, it's

14 very slight. I would say in the last 30 years

15 since George and I have been doing business

16 together, that for the first 25 of those years,

17 that we either saw each other or talked at least

18 five days a week. We traveled all over the world

19 together. It's a wonderful relationship. And I

20 got a call from George's family asking what I

21 could do to make sure he wasn't sued in this case.

22 And very teary-eyed family members. George had


1 received the highest peacetime award that the

2 President of the United States can give. And at

3 the time -- he just turned 81 about two weeks ago;

4 so, maybe he was 78 or 79 at the time. And he did

5 not want to be sued by the United States

6 Government, as none of us want to. And I would

7 have done anything to make sure that George wasn't

8 sued. He was asked to come to Washington on

9 several occasions and was told that they wouldn't

10 sue him if he would pay them $5 million. He

11 informed me that he did not believe in extortion.

12 They called him back a year later and said that

13 they wouldn't sue him if he would pay them

14 $1 million, and he didn't --

15 MR. GUIDO: Your Honor, I object to

16 this. This is hearsay, and I think that this has

17 something to do with another government agency and

18 may involve settlement negotiations. I find it to

19 be, you know, one, as a violation of the rules. I

20 don't know how Mr. Hurwitz even knows this

21 information with regard to settlement

22 negotiations. It seems to me he's now talking


1 about matters that were related to him by a family

2 member of Mr. Kozmetsky. If Mr. Kozmetsky was on

3 the stand, he would have been asked these

4 questions himself. I believe this is not only

5 hearsay but may intrude on 408 privileges that

6 another government agency has.

7 MR. KEETON: Another government agency

8 who gets any funds out of this suit and who's

9 paying those people's expenses all the way

10 through. That's the "another government agency,"

11 right and left hand.

12 MR. GUIDO: Your Honor, my objection

13 stands.

14 THE COURT: I'll deny the objection.

15 A. At any rate, Your Honor, Dr. Kozmetsky,

16 as we know, wasn't sued. In the authorization to

17 sue, which we got a copy of, it says in there that

18 Dr. Kozmetsky wasn't sued because he was too rich

19 and too famous to sue.

20 MR. GUIDO: Your Honor, I object again.

21 This is now talking about an authorization to sue

22 that has nothing to do with the OTS. It is


1 another government agency, and I believe that that

2 is another piece of litigation that Mr. Hurwitz

3 has and that it does not belong in this

4 litigation.

5 MR. KEETON: It is an FDIC memorandum,

6 Your Honor.

7 THE COURT: All right. We've heard it.

8 Can we move along?

9 MR. KEETON: Yeah.

10 Q. (BY MR. KEETON) Go ahead, Charles.

11 A. So, I wish that for all of these people

12 that if that's the criteria not to sue somebody,

13 that they were rich and famous.

14 Q. How about the effect on you?

15 A. I wish that all of these defendants

16 maybe were richer and more famous, if that's the

17 criteria to bring a suit.

18 Q. Has it affected you at all?

19 A. Sure. You know, it's affected my

20 family a lot and myself. It's a hardship. You

21 know, you live with it; and you do what you have

22 to do. I did nothing wrong. No one in this case


1 did anything wrong. The Government -- they hired

2 a Houston law firm, paid them $5 million, and

3 spent three years to decide whether they should

4 bring this lawsuit.

5 MR. GUIDO: Your Honor, may I have a

6 standing objection to this whole line?

7 THE COURT: All right.

8 A. And it was determined they shouldn't,

9 that there was no self-dealing, and what they

10 should do is they should try to work out some

11 modest amount of money and not bring this lawsuit.

12 It says in the authorization to sue that there is

13 a 70 percent chance of a summary judgment; and it

14 says even if they don't get a summary judgment,

15 that they have a most modest case at best.

16 At the same time, the general counsel

17 is giving speeches to Congress and other people

18 stating unless they have a 50 to 60 percent chance

19 of winning a lawsuit, it shouldn't be brought with

20 good economics. It absolutely violates what they

21 are saying.

22 And on top of that, Your Honor, there


1 was a letter from Leon Panetta which was then the

2 chief of staff of the President of the United

3 States, writing the FDIC --

4 MR. GUIDO: Objection, Your Honor.

5 It's again hearsay, and it's again pertaining to

6 something that is not a part of this proceeding.

7 THE COURT: Denied.

8 A. -- stating to the FDIC that they would

9 like to have more redwood trees and they don't

10 want to put it in the budget and they can't afford

11 it. There was a deposition of an FDIC staff

12 attorney saying that this is the most politicized

13 lawsuit that he had ever seen in his 22 years. I

14 forgot how many Senators and how many Congressmen

15 and how many Secretaries of Interior and

16 Secretaries of Agriculture and the White House had

17 been over to talk with them before this lawsuit

18 was brought. We have learned in this process that

19 there were meetings with environmental groups at

20 the White House before this lawsuit was brought on

21 what they called a debt for nature.

22 One can't help but wonder, you know,


1 what is this all about?

2 I'm through, Mr. Keeton.

3 MR. KEETON: I'm through, too,

4 Mr. Hurwitz. Thank you.

5 THE COURT: Does the OTS have some

6 redirect?

7 MR. GUIDO: Yes, Your Honor.




11 Q. (BY MR. GUIDO) Mr. Hurwitz, we

12 discussed -- remember the exhibit, Lazard 19, the

13 list of the high-yield bond underwritings that

14 Drexel had underwritten for MAXXAM and

15 MAXXAM-related entities?

16 Do you recall that?

17 A. I do.

18 MR. GUIDO: And I would like to -- at

19 this time, Your Honor, I would like to introduce

20 the prospectuses for those underwritings into the

21 record, if I may.

22 MR. KEETON: No objection, Your Honor.


1 THE WITNESS: Your Honor, would you

2 mind if my wife and son could sit up here?

3 THE COURT: All right. We'll take a

4 short recess.


6 (Whereupon, a short break was taken

7 from 9:54 a.m. to 10:16 a.m.)


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

10 be back on the record.

11 Mr. Guido, you may continue with your

12 redirect.

13 MR. GUIDO: Your Honor, at this point

14 in time, we would like to move the admission of

15 the documents that we had given to counsel a few

16 days ago which are the backup documents for the --

17 what's referred to as the Lazard 19 exhibit.

18 T9029 is the first one, which is the

19 150-million-dollar MAXXAM group, Inc. issue. It's

20 dated May 21, 1985, which is the first document.

21 THE COURT: Just to move things along,

22 they seem to be numbered sequentially from 9029 to


1 9035; is that correct?

2 MR. GUIDO: That's correct.

3 THE COURT: There's no objection to

4 receiving --

5 MR. KEETON: No objection, Your Honor.

6 THE COURT: All right. Received.

7 Q. (BY MR. GUIDO) Now, you were asked some

8 questions, Mr. Hurwitz, about the board of

9 directors of various entities that you've been

10 affiliated with prior to United Financial Group.

11 Do you recall those questions that

12 Mr. Keeton asked you? One, I think, was the

13 mutual fund that you established; and you

14 discussed the board of directors?

15 A. Yes.

16 Q. Now, the -- let me focus you back onto

17 the board of United Financial Group and United

18 Savings Association of Texas.

19 They held, I think you testified, joint

20 board meetings; is that correct?

21 A. Yes.

22 Q. Now, were completed transactions that


1 had been either approved by the strategic planning

2 committee or the executive committee presented to

3 the board of directors of USAT for its

4 ratification?

5 MR. KEETON: I object, Your Honor.

6 He's mixed two different committees. I'm not sure

7 "either approved completed transactions" -- I

8 don't believe the strategic planning committee,

9 any testimony said they approved it. What the

10 executive committee might have done, I don't

11 remember.

12 MR. GUIDO: Let me separate out the

13 question.

14 THE COURT: All right.

15 Q. (BY MR. GUIDO) Do you know of any

16 instances whether the board of directors of USAT

17 approved transactions by ratification of an act

18 that had previously occurred?

19 A. I don't recall that.

20 Q. Do you know whether the board of

21 directors of USAT had approved transactions after

22 they had been consummated?


1 A. I don't recall.

2 Q. Were there any board of director

3 members other than you and Mr. Munitz who

4 participated in the meetings of the strategic

5 planning committee?

6 A. Any other directors of UFG, was that

7 your question?

8 Q. Yes.

9 A. Jenard Gross.

10 Q. Other than Jenard Gross, you, and Barry

11 Munitz?

12 A. I don't think so.

13 Q. Now, did any other directors of USAT

14 other than Mr. Gerald Williams and Jenard Gross

15 attend the strategic planning committee meetings?

16 A. I think we listed the members of that.

17 I don't recall any.

18 Q. Now, with regard to one of the

19 underwritings that -- I think it was the May

20 underwriting for MAXXAM Group which is at T9029.

21 It's the 150-million-dollar issuance of May of

22 1985, May 21st of 1985 that Mr. Keeton asked you


1 about. You indicated that you had some

2 conversations with an underwriter regarding his

3 knowledge or lack thereof of MAXXAM or MAXXAM

4 Group, Inc.'s interest in a savings and loan.

5 Do you recall that testimony?

6 A. No, I don't.

7 Q. You don't recall that you testified

8 that you had a conversation with a Drexel

9 underwriter who didn't even know that MCO or

10 MAXXAM held an interest in the savings and loan?

11 A. Yes, yes.

12 Q. Who was that underwriter?

13 A. Ken Moelis.

14 Q. And who was he?

15 A. He was co-director of corporate finance

16 of Drexel Burnham.

17 Q. And in what context did you have that

18 conversation?

19 A. I don't recall.

20 Q. Do you recall anything else about the

21 conversation?

22 A. I don't.


1 Q. Can you spell his name for the record?

2 A. I think it's M-O-E-L-I-S, I think.

3 Q. Now, I would like to direct your

4 attention to another document that you were asked

5 questions about -- I asked you questions about,

6 and that's A3023. And Mr. Keeton asked you

7 questions about it. Particularly, Page 51 of the

8 document.

9 MR. KEETON: Seeing which document it

10 is, Your Honor, I asked no questions about this

11 document.

12 MR. GUIDO: A3023, Mr. Keeton, is the

13 chart of the reverse repurchase agreements.

14 MR. KEETON: I beg your pardon. I did.

15 I had one page Xeroxed.

16 THE COURT: All right. Let's move on.

17 Q. (BY MR. GUIDO) Now, with regard to --

18 do you remember Mr. Keeton asked you questions

19 about the interest rates, the average rates that

20 were listed there?

21 A. Yes.

22 Q. Do you know why the rates differ?


1 A. I don't.

2 Q. During the period of time between

3 September and December of 1987, had the stock

4 market crashed?

5 A. Between what period?

6 Q. Between September and December of 1987,

7 had the stock market crashed?

8 A. Yes.

9 Q. Were interest rates very volatile

10 during that period of time?

11 A. Yes.

12 Q. Did they shift by at least 100 basis

13 points?

14 A. I don't recall that.

15 Q. But it was quite a dramatic shift, as

16 you recall?

17 A. I believe there was a shift.

18 Q. Do you recall the dates any of these

19 reverse repurchase agreements were entered into?

20 A. I don't.

21 Q. Now, Mr. Keeton left off in his

22 questions -- the second part, see at the bottom it


1 says "dollar repurchase agreements"?

2 Do you see that? It says "Drexel

3 Burnham Lambert" under the "counter-party"

4 section.

5 A. Yes.

6 Q. Did you participate in negotiations of

7 dollar repurchase agreements with Drexel Burnham

8 Lambert?

9 A. No.

10 Q. Now, you testified, I think, that you

11 resigned in September of 1988 -- I mean February

12 of 1988 from the board.

13 Do you recall that testimony?

14 A. I do.

15 Q. I would like to show you Tab 1254,

16 which is A1520, which is the minutes of the board

17 of directors -- 1245, excuse me, is the tab

18 number.

19 I would also like to show you a

20 document which is -- we've had marked as T9036,

21 which is a memorandum from Jenard Gross to you and

22 others dated June 9th, 1988.


1 First, I would like to ask you to take

2 a look at A1520.

3 Do you have that in front of you?

4 A. I do.

5 Q. Look at the first paragraph of the

6 document. It says -- these are the minutes of the

7 investment committee of July 13th, 1988. It says,

8 "A meeting of the investment committee was held on

9 July 13th, '88. All members of the committee were

10 present. Also present was Mr. Charles Hurwitz."

11 If you had resigned as a director of

12 UFG, why were you attending an investment

13 committee meeting in July of 1988, four months

14 later?

15 A. From time to time, I would go to

16 investment meetings and other meetings that United

17 had. I was invited. And if I was in town, I

18 would certainly try to go. As you may recall, we

19 were hopeful to be the winner of the

20 Southwest Plan; and it was in my interest to know

21 what was going on.

22 Q. Now, I would like to direct your


1 attention to T9036, which is a memo from Jenard

2 Gross to you and others dated June 9th, 1988.

3 MR. GUIDO: I would like to move the

4 admission of that document, Your Honor.


6 believe it's already in evidence under T9009 --

7 A9009.



10 THE COURT: It's already in the record.

11 MR. GUIDO: It's already in the record.

12 I apologize.

13 Q. (BY MR. GUIDO) This is a memorandum

14 that refers to a meeting of the strategic planning

15 committee dated June 9th, 1988.

16 Did you also participate in the

17 meetings of the strategic planning committee after

18 your resignation from the board of UFG?

19 A. Well, it looks like I attended this

20 meeting, yes.

21 Q. Now, you testified that -- let me

22 strike that.


1 Was the reason that you attended these

2 meetings because of your involvement in the

3 Southwest Plan application at the time? Is that

4 what your testimony is?

5 A. Yes, and plus I liked these people.

6 And, hopefully, they may have thought I had

7 something to bring to whatever they were doing.

8 Q. Now, did you -- you testified about the

9 Southwest Plan and your involvement in that.

10 Who was the underwriter for the

11 securities that you were proposing to issue?

12 A. I don't recall.

13 Q. Did Merrill -- did you have discussions

14 with Merrill Lynch about the issuance of

15 subordinated debt?

16 A. I don't recall.

17 Q. Did you have discussions with Drexel?

18 A. I don't recall.

19 Q. Do you know who the underwriters were

20 that MAXXAM was dealing with with regard to that

21 issue?

22 A. I don't remember.


1 Q. Do you recall whether the -- if one of

2 the underwriters that you had arrangements with

3 had decided that they didn't want to deal with you

4 because you had withdrawn from previous

5 negotiations with them about a subordinated debt

6 application as part of the Southwest Plan?

7 A. I don't recall that.

8 Q. Have you been involved in any

9 litigation other than this case involving a

10 put/call agreement?

11 A. Yes.

12 Q. Pardon?

13 A. I think there was, yes. There was a

14 zero coupon note, I think, that there was

15 litigation, which the litigation was later

16 dropped.

17 Q. Was that case settled?

18 A. No. It was dropped, I believe.

19 Q. You think it was just dropped.

20 Do you recall what the nature of the

21 put/call agreement was in that situation?

22 A. It had to do with a zero coupon note


1 that -- before they changed the tax laws, that you

2 could have high accretion. So, the corporations

3 could deduct the amount of accretion each year.

4 That tax law was later changed. And it was

5 convertible into common stock, and I think

6 that's --

7 Q. That was sometime in 1982, was it not?

8 A. I remember it sometime in the early

9 Eighties. It certainly could have been '82 or

10 '83.

11 Q. And you -- and who was -- do you recall

12 who the underwriter was?

13 A. Yes. Drexel Burnham.

14 Q. Did Drexel Burnham purchase the

15 interest?

16 A. Well, they were the underwriters of the

17 issue.

18 Q. And did they pay MAXXAM the money out

19 of their own funds for that zero coupon bond?

20 A. Well, I think any underwriter does that

21 on any transaction.

22 Q. Do you know whether or not Drexel


1 Burnham was the beneficial owner of that zero

2 coupon bond?

3 A. No.

4 Q. You don't?

5 Do you know who purchased the zero

6 coupon bond?

7 A. I know at one time a company called

8 Clarendon Insurance out of Bermuda owned them.

9 Q. Is that the company that you entered

10 into the put/call agreement with?

11 A. I believe so.

12 Q. Did you negotiate that put/call

13 agreement through Drexel?

14 A. No. I think Ezra Levin negotiated that

15 with Clarendon, I believe.

16 Q. Was the litigation that involved that

17 put/call agreement litigation that alleged that

18 that was a way that you could gain control of


20 A. I don't recall what it was. I don't

21 think so. I think it had to do with whether we

22 had done it in time before the tax law changed,


1 but I'm not clear on that.

2 Q. You don't recall?

3 A. No.

4 Q. Now, had you -- you testified about the

5 Southwest Plan and what transpired in the

6 Southwest Plan.

7 Did you -- have you reviewed the

8 minutes of the board in which they discussed the

9 Southwest Plan bidders for United Savings

10 Association of Texas?

11 A. I think I read it, but it's been some

12 years ago.

13 Q. What do you mean it was some years ago?

14 I mean, did you have access to the board minutes

15 prior to the last six months?

16 A. I think so. I got -- what I remember

17 reading is the Steptoe Johnson report. That's

18 what I was talking about. And I think I may

19 have --

20 Q. So, your knowledge is based on the

21 so-called Steptoe Johnson report?

22 A. Yes. And that's been several years ago


1 since I read that.

2 Q. Now, did you -- when the receivership

3 was appointed in December 30, 1988, did you

4 subsequently file an action challenging the

5 appointment of the receiver?

6 A. No, I don't think so.

7 Q. Did you discuss it with anyone?

8 A. I don't believe I did.

9 Q. Have you filed any goodwill claims with

10 regard to MAXXAM's ownership or your ownership of

11 UFG?

12 A. No, I don't think so.

13 Q. And when did you file the challenge to

14 the bidding process on December 30, 1988?

15 A. I think that was, I don't know, several

16 years ago maybe. I don't know that it was a

17 challenge to the bidding process. It was a

18 challenge to how it was awarded. Maybe that's the

19 same thing.

20 Q. Did you have an agreement with

21 Mr. Gross, Crow, and Bruce Williams that MAXXAM

22 would work jointly with them to recapitalize USAT


1 in 1988?

2 A. No. We didn't have an agreement with

3 them. We would have certainly -- if we had of

4 won, we certainly would have invited that team to

5 come aboard; but I don't recall that we had an

6 agreement.

7 Q. So, you don't -- you don't recall

8 whether or not you had an agreement with them?

9 A. I don't.

10 Q. And the -- going back just one last

11 question before I turn it over to Mr. Rinaldi for

12 his area, the question with regard to the put/call

13 agreement that came up in the litigation, did the

14 question involve your use of the put/call

15 agreement to obtain additional shares of MCO or


17 A. I don't recall that.

18 Q. Okay.

19 MR. GUIDO: No further questions,

20 Your Honor. Mr. Rinaldi, I think, has a few

21 questions for this witness.

22 THE COURT: Mr. Rinaldi.


1 MR. RINALDI: Yes, sir.




5 Q. (BY MR. RINALDI) Your counsel showed

6 you several charts of the directors, and I would

7 like to go over those. So, if we could take a

8 look at B4345.

9 MR. RINALDI: Can we pull that?

10 MR. KEETON: It's right here.

11 MR. RINALDI: I think it's just as easy

12 to deal with the smaller copies.


14 (Discussion held off the record.)


16 Q. (BY MR. RINALDI) Now, I notice that at

17 the latter part of 1987 and the beginning of 1988,

18 there are a number of people that resigned from

19 the board. And we've gone through this -- you've

20 gone through this with your counsel.

21 I notice that at the beginning of 1988,

22 Paul Schwartz gets appointed to the UFG board.


1 Do you see that?

2 A. I do.

3 Q. We've talked about Mr. Schwartz. He

4 was at this point -- what position did he hold

5 with MCO?

6 A. I can't tell you his title, but he was

7 a senior officer of MCO.

8 Q. Okay. And was he also an officer of

9 Federated?

10 A. No.

11 Q. Okay. And I notice that Mr. Schwartz

12 goes on the board at precisely the same time that

13 you leave the board; is that correct?

14 A. That's correct.

15 Q. So, is it fair to assume that

16 Mr. Schwartz took your place on the board?

17 A. I don't know that I would phrase it

18 that way.

19 Q. Well, how was it that Mr. Schwartz came

20 to be on the board?

21 A. I told Jenard Gross, the CEO, that I

22 was leaving the board.


1 Q. Uh-huh.

2 A. And if he liked and if Paul Schwartz

3 was willing, if he wanted Paul as a director, that

4 he should visit with Paul. And I think they did

5 visit, and Paul was asked to go on the board by

6 Mr. Gross.

7 Q. So, you were the one that suggested

8 that Mr. Schwartz be considered to go on the board

9 upon your leaving?

10 A. I believe that's right.

11 Q. Now, I notice that a number of other

12 people had left. And Mr. Arthur Berner and

13 Michael Crow went on the UFG boards.

14 How did that come about, sir?

15 A. I don't recall.

16 Q. Do you recall that Mr. Berner and

17 Mr. Crow had entered into employment contracts

18 with UFG while you were the chairman of the board

19 that required that they go on the UFG board if

20 asked to do so?

21 A. I don't remember that.

22 Q. Did you ask them to do so?


1 A. To do what?

2 Q. To go on the board.

3 A. No.

4 Q. Okay. Would you take a look at

5 Exhibit -- let's see -- T805 -- well, let me just

6 ask you this: So, as a consequence of your

7 leaving and the other directors that are indicated

8 here leaving, the board at the beginning of 1988

9 consisted of Mr. Arthur Berner; and he was an

10 insider. Right?

11 A. That's right.

12 Q. And Mr. Michael Crow, he was an

13 insider, correct?

14 A. That's right.

15 Q. And Mr. Paul Schwartz, he was at least

16 an affiliated party, was he not?

17 A. I don't know that I would call him an

18 affiliated party.

19 Q. Well, he was affiliated with MAXXAM;

20 and MAXXAM was the entity that owned almost 24

21 plus percentage of the entity?

22 A. Well, does that make it affiliated?


1 Q. Well, maybe that's a technical term;

2 but let's go on.

3 Who else was on the board? Mr. Gross;

4 is that correct?

5 A. Whatley, looks like, was on the board.

6 Q. And Whatley would have been an outside

7 director, correct?

8 A. Yes.

9 Q. And Mr. Munitz. And he, again, was an

10 individual that had been appointed to the board or

11 brought to the board by MCO, correct?

12 A. Yes.

13 Q. So that of all the remaining board

14 members, of which there were six, only one of them

15 was an outside director, correct?

16 A. Well, during that period, we had

17 lost -- I believe at some point in there, we had

18 lost our directors' insurance, as well. So, it

19 was pretty hard to keep directors.

20 Q. Is that the reason that you left,

21 because you didn't have insurance, sir?

22 A. No.


1 Q. Okay. Was that the reason -- did you

2 have discussions with other people as to why they

3 were leaving?

4 A. You know, I don't. I think when I got

5 off the board -- was that the same time that Burt

6 Borman got off the board?

7 Q. It was. It indicates that you and

8 Mr. Borman, as well as -- well, Mr. Silverman, I

9 guess, got off slightly later but only slightly.

10 Do you see that?

11 A. Yes.

12 Q. Did you have any discussion with them

13 when you got off the board?

14 A. I remember discussions with Burt

15 Borman.

16 Q. Did he indicate to you his reason for

17 getting off the board?

18 A. No. I think he said that -- I don't

19 recall.

20 Q. Once you and Mr. Borman and

21 Mr. Silverman left, then the majority of the board

22 were insiders, correct?


1 A. Well, there was Gross, Munitz, Whatley,

2 Crow, Berner. I would say so.

3 Q. And as you moved further into 1988 and

4 discussions -- I think you just testified a moment

5 ago that as discussions regarding the

6 Southwest Plan came up, this is the group of

7 people that you were dealing with. Right?

8 A. I don't know what that means. What do

9 you mean "dealing with"?

10 Q. When a question arose with respect to

11 the Southwest Plan and your involvement, the

12 people you would go to to talk about it were the

13 insiders that were then running USAT, correct?

14 A. Most probably.

15 Q. And I think you testified a while ago

16 that you attended several board meetings because,

17 quote, you had an interest in knowing what was

18 going on; is that correct?

19 A. That's correct. I don't know about

20 board meetings. I think there were strategic

21 meetings or something else. I don't remember

22 board meetings.


1 Q. But you testified a moment ago you did

2 attend some at least informal meetings of the

3 strategic planning committee?

4 A. I did, yes.

5 Q. Throughout this period of time, you

6 were being constantly advised of the progress of

7 the Southwest Plan so that you could put in a bid,

8 weren't you?

9 A. Well, I don't know that I was

10 constantly advised; but I was informed, I would

11 say.

12 Q. Let me ask you this: Are you telling

13 me Mr. Schwartz didn't keep you apprised of what

14 was going on with respect to the Southwest Plan?

15 A. I didn't say that at all.

16 Q. Well, did he?

17 A. I was very busy, and I don't know that

18 I was constantly advised or anything to do with

19 United.

20 Q. You're hanging up on a word there,

21 "constantly."

22 You were kept apprised or advised with


1 respect to what was going on with respect to the

2 Southwest Plan?

3 A. I was.

4 Q. And Mr. Munitz, that was his job,

5 wasn't it, to keep you advised?

6 A. Well, he had a lot of jobs. He did

7 keep me advised.

8 Q. That was one of them, wasn't it?

9 A. Yes.

10 Q. Once you were off the board of UFG, it

11 was also his job to keep you advised about UFG.

12 Right?

13 A. Well, I think we talked about it a lot

14 less, but sure.

15 Q. Was that also a role that Mr. Schwartz

16 would play, keeping you apprised of what was going

17 on at UFG?

18 A. I don't know if it was or not.

19 Q. And Mr. Berner kept you apprised of

20 what was going on at UFG and USAT, didn't he?

21 A. I don't recall that, that he did.

22 Q. You're telling me that he didn't send


1 you memos periodically about his conversations

2 with the regulators and what was going on with

3 respect to the Southwest Plan?

4 A. I think he may have.

5 Q. In fact, there's a number of memos in

6 the record -- in fact, you made reference to one

7 the other day?

8 A. That was before this period.

9 Q. During this period, there are any

10 number of memos sent to you by Mr. Berner telling

11 you exactly what was going on with respect to the

12 Southwest Plan, didn't he?

13 A. There may have been.

14 Q. That was so you could have all the

15 available information to formulate a bid on the

16 Southwest Plan?

17 A. We were interested and did formulate a

18 bid.

19 Q. Did any of the other bidders have privy

20 to all that inside information that was being

21 passed along to you?

22 A. Sure. Larry Connell worked very


1 closely with the other side and gave them all the

2 information.

3 Q. You know that to be a fact because

4 Mr. Connell told you?

5 A. I knew it as a fact at the time. I

6 wouldn't be surprised if he hadn't told me that.

7 They worked with everybody in the company, sure.

8 Q. It was your intention, if MAXXAM

9 obtained the bid, to retain Mr. Berner, to retain

10 Mr. Crow, and to retain Mr. Munitz at the

11 surviving institution; is that correct?

12 A. I don't know that we totally thought

13 that out, but I would be surprised if we wouldn't

14 because we thought they were very competent

15 people.

16 Q. In fact, you had committed to them that

17 in the event that MAXXAM were to prevail, they

18 would honor all the contracts of UFG and USAT,

19 correct?

20 A. I don't know that that's the case.

21 Q. I think that's -- let me just ask you

22 one final question because there is a slight


1 overlap on these boards.

2 I take it that the questions I asked

3 you with respect to the -- to the board membership

4 of USAT, the answers would be the same? You

5 recommended that Mr. Gross talked to Mr. Schwartz

6 about putting him on the board?

7 A. Yes.

8 Q. So, when we end up at the end at USAT,

9 there's a slightly different constituency.

10 I notice that Michael Crow isn't on the

11 board.

12 A. I do see that.

13 Q. Michael Crow is on the UFG board but

14 not on the USAT board.

15 Do you know why Mr. Crow didn't go on

16 the USAT board?

17 A. I don't.

18 Q. So, the USAT board was only composed of

19 five individuals. There would have been

20 Mr. Gross, and he was an insider; is that correct?

21 A. He was chairman of the board, chief

22 executive officer.


1 Q. Right. Then there was Mr. Munitz, who

2 likewise was an insider; is that fair?

3 A. Well, he worked -- he got paid by the

4 savings and loan.

5 Q. Then there's Mr. Whatley, who was an

6 outsider; and then there's Paul Schwartz, who was

7 with MCO that you had recommended, correct?

8 A. When you say "recommended," I mean, I

9 told you the story --

10 Q. Well, we know.

11 Who you had referred Mr. Gross to?

12 A. Right.

13 Q. Then there's Arthur Berner. So, at

14 least three of these people were insiders; that

15 is, Mr. Gross, Mr. Berner, and Mr. Munitz. And

16 then there's Mr. Schwartz, who -- I'm not sure

17 he's an affiliate of MCO.

18 And the only outsider would have been

19 Mr. Whatley at this point in time, correct?

20 A. Correct.

21 Q. And was the group, as you recall it,

22 that was -- the board of directors of USAT at this


1 time, were they generally in favor of MAXXAM

2 obtaining USAT in the receivership?

3 A. I believe that to be the case; but I

4 know that they had talked to the other group, as

5 well.

6 Q. Well, I guess my question to you is:

7 Did you have discussions with them, and did they

8 indicate to you a preference?

9 A. I don't recall that.

10 Q. You don't recall telling them that it

11 would be preferential to have MAXXAM take over

12 USAT as opposed to the Ranieri Wilson group?

13 A. That's right. I don't remember that.

14 MR. RINALDI: I have no further

15 questions, Your Honor.

16 THE COURT: Any recross?

17 MR. KEETON: No, Your Honor.

18 THE COURT: I didn't ask the other

19 respondents if they had questions. I assume they

20 did not.

21 MR. EISENHART: We're not shy,

22 Your Honor.


1 MR. NICKENS: No questions, Your Honor.

2 MR. BLANKENSTEIN: No questions,

3 Your Honor.

4 MR. GUIDO: Your Honor, the OTS rests

5 its case at this time.

6 We have a procedural matter which we

7 would like to address with the Court with regard

8 to documents that have not been admitted into the

9 record.

10 Mr. Nickens and I -- Mr. Hurwitz, thank

11 you very much for your testimony.

12 THE COURT: Mr. Hurwitz, you may step

13 down. Thank you.

14 MR. GUIDO: Your Honor, at this point

15 in time, the OTS rests its case. We have been

16 having discussions with opposing counsel regarding

17 the inclusion in the record of documents that have

18 been on the exhibit lists that have not been

19 introduced. In review, in preparation for the

20 close this week, I was able to ascertain there are

21 a number of investment committee minutes,

22 executive committee minutes, and board minutes


1 that may be useful to the Court to be included in

2 the record.

3 We've had discussions with opposing

4 counsel about a stipulation that would allow the

5 OTS to move the admission of those documents

6 during the break. And Mr. Nickens has informed me

7 that he hasn't finalized the stipulation with his

8 co-counsel as yet, but we do intend -- the OTS

9 would like to have the opportunity to move to

10 supplement the record or add to the record

11 documentary evidence which are primarily going to

12 be minutes of the various governing boards of USAT

13 and UFG and some of the SEC filings that have been

14 made -- that have not been included in the record

15 but have been alluded to at different points in

16 time during the course of the testimony,

17 Your Honor.

18 So, we would like to rest with the

19 opportunity to include in the record those

20 additional documents. And at the time, we would

21 make a written filing of that and give the

22 respondents an opportunity to indicate whether or


1 not they had any opposition to that, Your Honor.

2 MR. NICKENS: Your Honor, we have had

3 such discussions. Our concern is that this might

4 lead or grow to something larger than it now

5 appears to be; that is, just a cleaning up of the

6 record for documents that we would not have

7 objection to and that there might be an effort to

8 expand the issues, bring other witnesses, or to

9 otherwise get into things that we think have

10 already been settled.

11 So, we propose a written stipulation so

12 that everyone would understand what we regard as

13 the narrow aspects of this request for which I

14 don't believe we would have an objection; that is,

15 things like board minutes, executive committee

16 minutes, things of that nature. We would be -- we

17 would object and do object to expanding it beyond

18 that.

19 But what we would propose is that we be

20 allowed a short period of time in which to work

21 out a stipulation. And in the absence of a

22 stipulation, that if for some reason or another,


1 the parties wouldn't be able to agree, that we

2 would submit an order to the Court expressing

3 precisely the circumstances under which the OTS,

4 if any, would be able to reopen their case in

5 chief.

6 THE COURT: All right. I suggest that

7 you attempt to work out a stipulation. In the

8 absence of a stipulation, I'm not inclined to add

9 additional documents.

10 MR. GUIDO: Very fine, Your Honor. We

11 are -- we understand that, and we've been

12 negotiating with counsel with regard to that.

13 We're only talking about a narrow set of governing

14 documents, Your Honor.

15 THE COURT: All right. Ms. Clark?

16 MS. CLARK: Your Honor, one quick

17 housekeeping matter. During the testimony of

18 Vivian Carlton, we offered Exhibit A11039. There

19 was a problem with the copying of one page. So,

20 Your Honor admitted the document subject to us

21 providing a clean copy. And I would like to offer

22 the Court clean copies of that document at this


1 time and ask Ms. Richardson to make sure that the

2 official Court records contain a clean copy of the

3 document. Mr. Veis has had an opportunity to

4 review the document and confirm that it is a

5 proper version of the document. It was previously

6 admitted at Tab 1282.

7 MR. VEIS: That's correct, Your Honor.

8 I have reviewed the document. It's acceptable to

9 the OTS.

10 THE COURT: All right. Fine. We'll

11 receive the substituted exhibit.

12 MR. NICKENS: One other housekeeping

13 matter, Your Honor.

14 With regard to the official exhibits,

15 we would like representatives from both the OTS

16 and the respondents to be able to quality control,

17 go through those. We have noticed there are some

18 missing exhibits that need to be located and put

19 back in place. There are some instances where

20 some of our copies of exhibits have made their way

21 into the folders that we have noticed as late as

22 yesterday.


1 So, we believe it would be -- it is

2 necessary for us, in order to get our records

3 straight, to have representatives from both sides

4 meet together and go through these exhibits to

5 make sure that we all know what we have or what we

6 may be missing at this point.

7 MR. GUIDO: Your Honor, we've had

8 discussions with the court reporting service with

9 regard to having an area that can be made

10 accessible to both representatives of the

11 respondents and representatives of the OTS to

12 review the documents. And we will jointly work

13 out that procedure with the court reporting

14 service if that's acceptable to Your Honor.

15 THE COURT: The documents would be

16 under the custody of the court reporters during

17 the recess?

18 MR. GUIDO: Yes.

19 THE COURT: If there is access, it will

20 be joint access by the parties?

21 MR. GUIDO: It will be joint access by

22 the parties. That's what both Mr. Nickens and I


1 are proposing to do.

2 THE COURT: Fine. Are there other

3 matters?

4 MR. GUIDO: I think that covers all of

5 the matters.

6 THE COURT: Looks like the next session

7 will commence on February 9th. I believe that's a

8 Tuesday. We'll leave the 8th open for

9 preparation.

10 MR. NICKENS: Thank you, Your Honor.

11 THE COURT: We'll adjourn.


13 (Whereupon at 10:55 a.m.

14 the proceedings were recessed.)

15 .

16 .

17 .

18 .

19 .

20 .

21 .

22 .



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 15th 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
21 .

22 .



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 15th 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

OTS vs MAXXAM Trial Testimonies

Barry Munitz Testimony | Charles Hurwitz Testimony | Kenneth Guido's Opening Remarks
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