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. Guido......25454

6 Examination by Mr. Villa................25602

7 Further Examination by Mr. Rinaldi......25627

8 .

9 .

10 .

11 .

12 .

13 .

14 .

15 .

16 .

17 .

18 .

19 .

20 .

21 .

22 .


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. Guido, you may continue with your

6 examination.

7 MR. GUIDO: Thank you, Your Honor.




11 Q. (BY MR. GUIDO) When we broke last

12 evening, Dr. Munitz, I was asking you some

13 questions about Mr. Huebsch. Did -- I would like

14 to finish that line of questioning, if I may.

15 Did Joe Phillips -- was his supervisor

16 Ron Huebsch during the time that Joe Phillips was

17 at USAT?

18 A. That would have been in the early

19 Eighties. I remember Ron Huebsch as being one of

20 the people with whom Mr. Phillips would have

21 worked most closely. I'm not sure about the

22 direct sense of supervisor -- I couldn't say that


1 he wasn't, and I do recall that that probably was

2 the closest relationship he would have had, the

3 financial officers at -- I think we were saying a

4 little bit yesterday about the role of financial

5 officers at USAT.

6 Q. Did USAT have an organizational

7 structure?

8 A. Yes.

9 Q. Was Ron Huebsch in that organizational

10 structure?

11 A. Well, as related to certain areas of

12 responsibility, I saw him as playing a role. I

13 don't have a chart in front of my mind.

14 Q. Prior to Sandy Laurenson's arrival, was

15 he the head of investments?

16 A. I don't -- I just don't recall

17 specifically what his title was at that point.

18 Q. Who did Ron Huebsch report to?

19 A. As related to -- again, he was working

20 on his time in different companies. So, I'm

21 assuming you mean as relates to United Savings?

22 Q. Yes.


1 A. Well, again, I assumed that his

2 supervisors would have been in the financial

3 organizational line so that it would have been

4 probably for most of that time, in my mind,

5 Mr. Crow.

6 Q. Take a look at your transcript of

7 April 3rd, 1997.

8 MR. GUIDO: I have another copy for the

9 Court.

10 Q. (BY MR. GUIDO) Now, look at Page 39.

11 A. May I remove this staple, Mr. Guido?

12 Q. Pardon?

13 A. May I remove this staple?

14 Q. Sure.

15 A. Okay.

16 Q. Look at Page 39. There's a colloquy in

17 there about Mr. Huebsch on that page. And on

18 Line 13, it says, "Let me ask the questions. I'll

19 ask another. Did Mr. Huebsch report to you?"

20 ANSWER: "No."

21 Do you see that?

22 A. Yes.


1 Q. And "who did he report to" is the next

2 question. Will you read the response into the

3 record?

4 A. Line 17, "For most of the time on most

5 activities, he" -- 18 -- "would have reported to

6 Mr. Hurwitz."

7 Q. All right. Does that refresh your

8 recollection of who Mr. Huebsch reported to at the

9 time that you were at USAT?

10 A. Well, it does in one sense. I'm just

11 not sure whether that represents -- I don't know

12 the context here. And if I had been answering

13 that as related to Federated, for example, he

14 clearly would have reported to Mr. Hurwitz.

15 So, I'm just not sure which company was

16 referred to on that Page 39.

17 Q. Is this OTS proceeding an investigation

18 of the management of United Savings Association or

19 the management of Federated?

20 MR. VILLA: I'll object to that

21 question.

22 THE COURT: Would you repeat the


1 question?

2 Q. (BY MR. GUIDO) Is the -- is this

3 proceeding a proceeding challenging the management

4 of Federated or the management of United Savings

5 Association of Texas?

6 MR. VILLA: Object to the question.

7 THE COURT: Well, I think we know who

8 the respondents are in this case.

9 Q. (BY MR. GUIDO) What's your

10 understanding, Mr. Munitz?

11 THE COURT: Can you answer the

12 question?

13 A. Well, I assume, again, that the basic

14 interaction dealt with United -- with the insured

15 institution, but I've also -- you have reminded me

16 repeatedly that other companies are involved here.

17 So, I'm -- I guess the proceeding involves the

18 insured thrift institution.

19 Q. (BY MR. GUIDO) Is your testimony today

20 that with regard to the activities of USAT,

21 Mr. Huebsch did not report to Mr. Hurwitz?

22 A. I'm looking at the page where you


1 directed me. Right underneath there, I say, "Ask

2 me the question again."

3 And then I believe that's me saying,

4 "Not necessarily for UFG and USAT because when he

5 was working on issues related to UFG and USAT, he

6 was, at least in my presence, at the investment

7 committee when I was there working with Gerry

8 Williams, with Jenard Gross."

9 That was the point that I was trying to

10 make.

11 Q. Well, let me -- there's a question in

12 between there where I asked you whether or not he

13 would refuse or not discuss his activities with

14 anyone except Hurwitz.

15 Do you see that?

16 A. I see that. Again, it's -- what I was

17 saying was ask me the question again because,

18 again, I just wasn't understanding the question.

19 Q. I'll ask you the question today --

20 MR. KEETON: Your Honor, before he does

21 that, under the rule of optional completeness,

22 let's get this clear. I want to read it beginning


1 at Page 40, Line 2. This is Dr. Munitz. "Ask me

2 that question again, the whole question."

3 Question by Mr. Guido: "Would this

4 sentence 'would not discuss his activities with

5 anyone except H' describe your view of

6 Mr. Huebsch's approach to his work for UFG and

7 USAT?"

8 ANSWER: "Not necessarily for UFG and

9 USAT."

10 QUESTION: "Okay. Why not not

11 necessarily?"

12 ANSWER: "Because as he was working on

13 issues related to UFG and USAT, he also talked, at

14 least in my presence, at the investment committee

15 when I was there and other occasions with both

16 Gerry Williams and particularly with Jenard

17 Gross."

18 Q. (BY MR. GUIDO) Did Mr. Huebsch report

19 to Charles Hurwitz on his activities on behalf of

20 USAT?

21 A. Now, again, when you say "report," I

22 was asked a question yesterday by Mr. Rinaldi, was


1 I reporting to in the sense of talking to and

2 relating -- you just said to me did he report on

3 Mr. Hurwitz on his activities. Did you mean as a

4 supervisory person or did he talk to him about it?

5 I'm just -- as you can see, I was confused --

6 Q. As a supervisory person. As one of the

7 supervisory people over the activities of USAT,

8 did Ron Huebsch report to Charles Hurwitz?

9 A. I did not perceive that that was a

10 direct and sole reporting line as Mr. Huebsch

11 related to USAT and UFG matters.

12 Q. So, Mr. Hurwitz, you're saying, wasn't

13 his supervisor in that term? Is that what you're

14 saying?

15 A. All I'm saying is that as Mr. Huebsch

16 did work related to UFG and USAT, as I saw him, as

17 I interacted with him at those times that I was at

18 the investment committee, the interaction I saw

19 Mr. Huebsch have was with Mr. Crow, Gerry

20 Williams, and Jenard Gross much more than I saw

21 him have interaction with Mr. Hurwitz.

22 Q. Did you see him have interaction with


1 Mr. Hurwitz about the activities of USAT?

2 A. I saw him talk from time to time with

3 Mr. Hurwitz about USAT's activities, yes.

4 Q. Let's move to another topic, and that

5 is: Have you had or did you have discussions with

6 Mr. Hurwitz at the time that MAXXAM and Federated

7 or MCO and Federated were acquiring interests in

8 the stock of UFG about the Garn-St. Germain

9 statute?

10 A. Okay. That's 16 years ago. At this

11 time, I don't remember specific reference to

12 Garn-St. Germain. I just don't recall right now.

13 Q. Okay. Did you, at the time that MCO

14 and Federated were acquiring stock in UFG, have

15 discussions with Charles Hurwitz in which he

16 related to you that he understood that there was a

17 33 to 1 capital-to-asset ratio in thrifts?

18 A. Again, I just -- a 16-year-ago

19 conversation when I saw -- I was just arriving, I

20 saw him in different settings. I just can't at

21 this point comment specifically on exchanges we

22 might have had.


1 Q. So, you don't recall?

2 A. I don't recall specifically a

3 16-year-ago conversation.

4 Q. Take a look at the larger transcript,

5 the June 8th, 1995 transcript of your deposition?

6 MR. VILLA: Your Honor, I point out

7 again that the examination by Mr. Rinaldi asked

8 the same questions about exactly the same time

9 period slightly differently worded. Instead of

10 asking him about specific questions and answers,

11 he said, "What did Mr. Hurwitz find interesting

12 about USAT? What did you discuss with Mr. Hurwitz

13 about the interesting aspects of USAT? Tell us

14 everything you recall about that."

15 Now, we went through that with

16 Mr. Rinaldi for probably 45 minutes. As a matter

17 of fact, with every board meeting, he asked, "And

18 what else defined interesting about USAT?"

19 Now we're going through the same

20 issues; but instead of using the word

21 "interesting," we're going back on a

22 question-by-question basis. I point this out


1 because this is repetitive questioning, and they

2 are going at the same issue by two different

3 examiners. And that's one thing the Court's

4 ruling did not permit them to do. If Mr. Rinaldi

5 hadn't gone into the issue, I wouldn't be up and

6 objecting now.

7 MR. KEETON: Your Honor, I join in that

8 objection. The whole motivation for buying the

9 stock and how much they were going to buy was gone

10 into my Mr. Rinaldi. If he didn't ask the

11 specific question, it doesn't mean Mr. Guido can

12 go in behind him and fill in the gaps.

13 MR. RINALDI: Your Honor, I showed him

14 a board minute in which the chairman of the board

15 said, "I have an opportunity to acquire UFG

16 shares, and it appears to me to be an interesting

17 opportunity." I asked him if he had any

18 conversation about that interesting opportunity.

19 I did not ask him about Garn-St. Germain. I did

20 not ask him about leveraging. I did not ask him

21 about 33 to 1.

22 None of the materials Mr. Guido is


1 asking him about were part of my examination. I

2 restricted my examination to what was going on at

3 the board minutes where Mr. Hurwitz was at the

4 board and what he told the board with respect to

5 those particular minutes.

6 MR. KEETON: I adhere with my objection

7 and join with Mr. Villa. Very tricky if that's

8 how they are interpreting Your Honor's order.

9 They are covering the same areas with two lawyers.

10 THE COURT: Seems to me Mr. Rinaldi

11 covered the control subject. I thought Mr. Guido

12 was going to get into the investments. Last

13 evening, we started to get into the equity

14 arbitrage and those issues. I thought that's why

15 we had this division of labor. You were the

16 investments person, and Mr. Rinaldi covered these

17 areas of control and the takeover and all that.

18 We had an extensive examination about that.

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

20 am transitioning into the wholesale strategy right

21 here. In fact, this page that I've directed the

22 witness to does exactly that, Your Honor.


1 THE COURT: All right. Let's get --

2 MR. GUIDO: I'm not going into the

3 motivation for the purchase of the thrift. What

4 I'm going into is what Charles Hurwitz' role was

5 and what Mr. Munitz' role was in setting the

6 investment direction of the thrift. This was a

7 transition question, and the answer to the -- to

8 the question I asked the witness to refresh his

9 recollection --

10 THE COURT: All right. Well, let's

11 hear what your question is.

12 MR. GUIDO: -- to look at Page 141 of

13 this transcript.

14 THE COURT: Let's move along.

15 Q. (BY MR. GUIDO) Page 141 of the

16 June 8th, 1995 transcript. It talks about

17 there -- it says, Question, "When he spoke to you

18 in terms of Garn-St. Germain, did he indicate to

19 you that because of that legislation, it was his

20 view that it could be used for takeover

21 activities?"

22 ANSWER: "No, not for takeover


1 activities but for a broader range of more

2 wholesale-oriented investment type ventures." And

3 then it says "but." Then I asked you another

4 question.

5 MR. KEETON: Your Honor, I object if

6 this is a question or if it's not just reading

7 something into the record that is in violation of

8 Your Honor's order about sustaining the objection.

9 He's still into the control and the purchase of

10 the investment. He's not into the areas he's

11 supposed to be covering.

12 THE COURT: I think we're getting there

13 pretty shortly.

14 MR. GUIDO: Thank you, Your Honor.

15 Q. (BY MR. GUIDO) Now, was Charles Hurwitz

16 a leading proponent of the wholesale strategy at

17 USAT?

18 A. He was one of the people, as I recall,

19 in the strategic planning conversations who argued

20 that we had to make a change from what we had been

21 doing earlier around the board table, yes.

22 Q. Take a look at that same deposition


1 transcript, Page 74. And I'll direct your

2 attention to Line 7 through Line 9. Let me back

3 up, and I'll put it -- start at Page 24, Line --

4 Page 74, Line 24, the first question that puts it

5 into context.

6 "Based upon your conversation with

7 Mr. Hurwitz, did he feel that this was an

8 opportunity to convert United to a wholesale

9 operation?"

10 ANSWER: "I think the UFG board was

11 having that conversation; and he was one of the

12 talkers, as was I. I mean, we were both directors

13 of the UFGI board at that point; so, it need not

14 take a separate confidential walled-off exchange.

15 It was right out there on the table."

16 Do you see that?

17 A. Yes.

18 Q. And then my question is: "I understand

19 that. In that context, he was a leading proponent

20 that they go to this wholesale strategy."

21 What was your answer?

22 A. "Yes, sir."


1 Q. Is that your testimony today?

2 A. Yes, sir.

3 MR. KEETON: Your Honor, that's the

4 whole point. We've now got four times the same

5 answer in the record. I don't know what

6 Mr. Guido's purpose in this is, but I think

7 Your Honor needs to take control of this. He

8 can't impeach the witness when the witness gave

9 the exact answer he's now read to him three times.

10 MR. GUIDO: Your Honor, I think the

11 witness clarified his answer by reading what his

12 response was.

13 THE COURT: I didn't perceive any

14 difference, but let's get to your investment

15 issues.

16 Q. (BY MR. GUIDO) Now I would like to move

17 to another topic, and that is: Did Charles

18 Hurwitz have any role with regard to setting the

19 profit targets for USAT?

20 A. Well, I think particularly in the time

21 when he was the chair of the United Financial,

22 Inc. board, as I recall now, around -- since --


1 again, I mentioned to Mr. Rinaldi yesterday United

2 Savings was the major asset of United Financial

3 Group, Inc. Mr. Hurwitz was the chairman of the

4 UFGI board. So, although I don't recall

5 specifically those conversations, in my mind I

6 would assume he would be one of the participants

7 in that exchange, yes.

8 Q. I would like to show you a document

9 that's been marked as 4340, which is the minutes

10 of the annual meeting of the shareholders of

11 United Financial Group --

12 MR. EISENHART: Your Honor, could we

13 have a real identification of this exhibit?

14 MR. GUIDO: I'm sorry. B4340 was the

15 minutes of the annual meeting of the

16 shareholders --

17 MR. EISENHART: It would simply help to

18 know if it was in evidence and, if so, if there

19 was a tab number. After 103 days, I would think

20 that procedure would have sunk in.

21 MR. GUIDO: Your Honor, it's B4340,

22 which are the minutes of the annual meeting of the


1 shareholders of United Financial Group, Inc.,

2 dated April 30th, 1985.

3 MR. BLANKENSTEIN: Mr. Guido, do you

4 have extra copies of that?

5 MR. KEETON: It's not on the list.


7 (Discussion held off the record.)


9 MR. GUIDO: I think it is on the list,

10 Mr. Keeton.

11 MR. NICKENS: It's on the supplemental

12 list. We were looking at the original list. It's

13 on the supplemental list, and we have it.

14 THE COURT: All right. Let's proceed.

15 Are you offering this exhibit?

16 MR. GUIDO: I move B4340 into the

17 record.

18 Q. (BY MR. GUIDO) Take a look at --

19 MR. VILLA: No objection.

20 THE COURT: Received.

21 Q. (BY MR. GUIDO) Take a look at Page 3 of

22 the document, Dr. Munitz.


1 Do you see Page 3 of the exhibit?

2 A. Yes.

3 Q. Do you see where it says "Mr. Hurwitz

4 discussed" -- the fifth paragraph down?

5 A. Uh-huh, yes.

6 Q. -- "discussed the company's earnings

7 and his desire to smooth out the

8 quarter-to-quarter earnings of the company"?

9 A. Yes.

10 Q. Now, my question for you is: Did

11 Charles Hurwitz set the profit targets for the

12 association?

13 A. Again, I just want to be sure -- I

14 think the company that's being referred to here is

15 United Financial Group.

16 Q. Which you've testified, have you not --

17 A. I just want to be sure that -- was the

18 question you were asking me about United Financial

19 Group?

20 Q. United Savings Association --

21 A. Okay. I wanted to be sure I understood

22 the question. I think he was, as I say, one of


1 the key people participating in planning about

2 both the holding company and the association.

3 Q. Now, did there exist an entity called

4 the strategic planning committee for USAT?

5 A. Yes. Over a certain period of time,

6 yes.

7 Q. And who were the members of that

8 committee?

9 A. Well, I don't know if I could tell you

10 specifically who they all were; and it was an

11 informal group. It wasn't a line operating

12 committee designated by the board, as I recall.

13 But it would have essentially been the key

14 managers of the association and the holding

15 company. In most instances, those were the same

16 people. And then probably experts inside would

17 have come, depending upon the topic.

18 Q. Now, I would like to direct your

19 attention to Tab 1294, which is Exhibit B3925,

20 which is a memorandum from Mike Crow dated

21 April 28th, 1986. B3925, Tab 1294.

22 Have you had a chance to review that?


1 A. The single sheet?

2 Q. Yes.

3 A. Yes.

4 Q. Now, I would like you -- does that

5 refresh your recollection of who the specific

6 individuals were that were members of the

7 strategic planning committee?

8 A. Basically, yes, although the point I

9 was trying to make was that that -- I'm -- if you

10 had shown me another invitation to another meeting

11 of the strategic planning group, in all likelihood

12 it would have had some different people. I'm not

13 certain those were all specifically the members,

14 but that sounds basically like the core group.

15 For example, Ron Huebsch -- I would be surprised

16 if Ron Huebsch was a regular member of the

17 strategic planning committee.

18 Q. Were you a regular member of the

19 strategic planning committee?

20 A. Oh, yes.

21 Q. Was Gerald Williams a regular member?

22 A. Yes.


1 MR. KEETON: Your Honor, could you ask

2 Mr. Guido to speak up?

3 MR. GUIDO: I'm sorry.

4 MR. KEETON: Thank you.

5 Q. (BY MR. GUIDO) Gerald Williams, I think

6 you said "yes"?

7 A. Yes.

8 Q. Was Michael Crow a regular member?

9 A. Well, again, as I say, this wasn't a

10 formal operating line responsible group. But Mike

11 Crow had the sort of role where he was either a

12 member or he would have regularly been at that

13 group.

14 Q. And was Jenard Gross?

15 A. In the time that he was there, yes, he

16 would be -- in my judgment, it would have been

17 hard to imagine having some conversation of

18 strategic planning where, if Mr. Gross was

19 available, he wouldn't have been there.

20 Q. Was Charles Hurwitz?

21 A. In many instances, he would have been a

22 person we would have invited to that conversation,


1 yes.

2 Q. Now, I would like to direct your

3 attention to the investment committee now.

4 A. Okay.

5 Q. When was the investment committee set

6 up?

7 A. I couldn't tell you right now

8 specifically the time. I don't know.

9 Q. Okay. Was there -- were there

10 different investment committee -- was there a

11 different investment committee for UFG than there

12 was for USAT?

13 A. I don't recall.

14 Q. Was the -- was there essentially one

15 functioning investment committee?

16 A. I mean, my memory at this point is an

17 investment committee that essentially looked at

18 issues related to UFG and USAT, although it --

19 there would have been such a natural overlap, it

20 wouldn't surprise me if that were the case.

21 Q. So, if the minutes show that there were

22 joint meetings, then you wouldn't have any dispute


1 about that?

2 A. Well, I wouldn't have any dispute with

3 what the minutes showed normally anyway. But in

4 this case, I agree with you.

5 Q. Now, did Charles Hurwitz attend

6 investment committee meetings when you were at UFG

7 and USAT?

8 A. Not every one of them but regularly,

9 yes.

10 Q. Now, how did -- do you recall the

11 origination of USAT's investments in

12 mortgage-backed securities?

13 A. The origination?

14 Q. Uh-huh.

15 A. No.

16 Q. Do you recall whether -- how you

17 learned that USAT was going to be making

18 investments in mortgage-backed securities?

19 A. Well, here again, both a long time past

20 and not an area of expertise; but if I'm not

21 mistaken, I think there were some mortgage-backed

22 securities either or both already underway at


1 United or perhaps -- I might be confusing that

2 with the institution we were discussing yesterday

3 with which we merged. But my vague recollection

4 is there were some mortgage-backed securities on

5 either or both of those activity lists as I was

6 arriving.

7 Q. Well, in terms of the expansion in

8 let's say 1984, do you recall that?

9 A. Well, we had talked yesterday about the

10 arrival of Joe Phillips and fixed income

11 activities. So, I remember his arriving -- and I

12 think he was at American General -- and some more

13 complex activity in that time period.

14 Q. Did you attend any presentations of

15 investment bankers regarding mortgage-backed

16 security risk-controlled arbitrage programs?

17 A. Yes.

18 Q. And who were those investment bankers?

19 A. Well, I believe that there were

20 several; and I don't know that I sat in on all of

21 them. The one that comes to mind as you ask the

22 question, I think, is Salomon Brothers.


1 Q. Do you recall when that occurred?

2 A. No.

3 Q. I would like you to look at Tab 242,

4 B377.

5 THE COURT: Is that B377?

6 MR. GUIDO: B377, Your Honor.

7 Q. (BY MR. GUIDO) Does that refresh your

8 recollection of about the time that USAT was

9 expanding its investments in mortgage-backed

10 securities?

11 A. Well, I don't -- again, I'm assuming

12 you don't want me to read this. So, what it --

13 what it says to me is that there was a

14 presentation by Salomon Brothers on the 24th of

15 October 1984 to United Savings of Texas. I don't

16 know if that was the one to which I was referring.

17 I don't know what this is about.

18 Q. Well, was the Salomon presentation on

19 that date at about the time that USAT was

20 increasing its investments in high-yield bonds and

21 equity arbitrage?

22 A. I don't remember the exact timing, but


1 it seems to me roughly the time period that Joe

2 Phillips was arriving. I can't comment now, but

3 I've got no reason to not feel it's in roughly

4 that period.

5 Q. What was the original reason for hiring

6 Joe Phillips?

7 A. My recollection was the desire to have,

8 as part of the management group, someone with more

9 experience in fixed income investments.

10 Q. High-yield bonds?

11 A. I think to the extent to which you

12 would call high-yield bonds within a fixed income

13 category and that that was his experience, I

14 suspect yes.

15 Q. Wasn't that his prior experience?

16 A. I commented again yesterday what I

17 recall about Mr. Phillips -- and I think it was at

18 American General -- that his broad experience, as

19 contrasted with the equity side, was more on the

20 fixed income side. I don't know specifically,

21 Mr. Guido, what part of that. I just don't

22 remember.


1 Q. Now, did Jenard Gross and Charles

2 Hurwitz inform you that they wanted the

3 mortgage-backed security portfolio to increase at

4 about the time of the Salomon presentation?

5 A. Can I separate -- there are two parts

6 of the question. Let me comment to the latter. I

7 can't say right now specifically as to the timing.

8 So, if you'll allow me, I'd like to take that part

9 separately.

10 I don't remember exactly the timing,

11 but Salomon Brothers is a company that I remember

12 making a presentation. So, that sounds, timing,

13 right.

14 Then back to the first part. I don't

15 know that Mr. Gross was there in 1984; but at some

16 point during the strategic planning conversations

17 and around the board table, both Mr. Hurwitz and

18 Mr. Gross would have been amongst the people

19 talking about that strategic direction.

20 Q. Did they -- either Mr. Gross or

21 Mr. Hurwitz -- at any time ask you to recruit

22 somebody to manage the mortgage-backed securities


1 portfolio?

2 A. At any time?

3 Q. Uh-huh.

4 A. Yes. They would have been two of the

5 people who asked me to be in the middle of

6 recruitment that led to Sandy Laurenson's hiring,

7 for example.

8 Q. What about Joe Phillips?

9 A. Well, I would have -- again, as I told

10 Mr. Rinaldi yesterday, I just have less clear of a

11 recollection because that would have been several

12 years before that. I'm pretty clear on the

13 process of Sandy Laurenson because I was right in

14 the middle of that one. I just don't remember as

15 well the Joe Phillips hiring.

16 Q. Why did they tell you -- either

17 Mr. Gross or Mr. Hurwitz -- tell you that they

18 wanted to recruit someone with Sandy Laurenson's

19 qualifications?

20 A. I think by then, it's -- I don't

21 know -- probably a couple of years after this date

22 you've shown me. That exchange I remember more


1 clearly with Mr. Gross where we had had subsequent

2 to this a number of other consultants and

3 conversations with other financial institutions

4 about fixed income paper, about mortgage-backed

5 securities. And the conclusion reached by all of

6 us was that, again, we wanted to further

7 strengthen the portion of the management team that

8 had experience in that area. Their request to me

9 was to look everywhere we could look and try to

10 find the strongest possible person for that role.

11 Q. Why did they want to strengthen the

12 team? Did they tell you?

13 A. Well, they probably -- I can't at this

14 time comment what they said. I could give you a

15 feel for my sense of it.

16 Q. Go ahead. What was your understanding?

17 A. My sense of it was that it was an area

18 that we were gaining great and great understanding

19 of; that amongst our strategic choices, it was an

20 activity that made sense to us; and that, as in

21 all things we did, no differently than they said

22 to me, "We think that that money desk activity


1 makes sense, and let's find the strongest possible

2 person." That led to Jim Jackson. It was the

3 same exchange regarding "Let's find the strongest

4 possible person for this other strategic area of

5 the company."

6 Q. Well, you already had Joe Phillips

7 managing the mortgage-backed security portfolio,

8 didn't you?

9 A. I can't comment specifically on the

10 timing. The only thing I recall was -- again,

11 this would not have been strange at all -- if this

12 is an area we want to be involved and it's a

13 complicated area, let's be absolutely certain that

14 we have the best possible people.

15 Q. Now, what were the purposes of the

16 mortgage-backed security portfolio?

17 A. Well, in general, my sense of it was

18 to -- that it would be one component of an overall

19 financial strategy. That part, as I recall,

20 basically geared to, in general, obviously the

21 generation of revenue. I think that was the

22 purpose of everything we were doing. And


1 specifically in this way, to create a yield income

2 over time that would strengthen the bottom line.

3 Q. How was it to generate a yield income

4 or spread?

5 A. Well, you're about to enter an area

6 where I move precariously in terms of my own

7 knowledge and particularly after all of this time.

8 My general sense was that by matching certain

9 assets and certain liabilities without any

10 scientific certainty, that what Salomon Brothers

11 and others were saying were this was a financial

12 strategy that, in all likelihood, would generate a

13 yield positive impact on the bottom line.

14 Q. Well, how were you to protect against

15 interest rate shifts?

16 A. Well, again, my feel -- I'm not sure

17 that anyone was guaranteeing that you could

18 protect against interest rate shifts. I remember

19 either Salomon Brothers or someone else making a

20 presentation that had an overhead that looked at

21 historically here's how interest rates have

22 shifted and, in all likelihood, they shift in this


1 pattern up and this pattern down and that in

2 certain combinations of assets and liabilities and

3 there were -- again, without being able to

4 scientifically define them -- hedges and swaps

5 related to the mortgage-backed securities that

6 would generate that revenue.

7 Q. Well, was it your understanding, then,

8 that what was being proposed was a risk-controlled

9 arbitrage in which short-term funding of reverse

10 repurchase agreements were used to finance

11 purchases of mortgage-backed securities and the

12 interest rate risk was to be hedged with swap

13 agreements?

14 A. Well, you've just told me a lot more

15 than I either knew or remembered. I'm just not

16 sure at this point in time about that level of

17 detail, Mr. Guido. I ought not to comment on that

18 degree of specificity.

19 Q. So, you don't know?

20 A. I don't right now remember that level

21 of detail.

22 Q. Let's take a look at your June 8th,


1 1995 transcript at Page 1 --

2 A. Is that the big one?

3 Q. The big one. Page 154 through 155

4 starting on Line 10 of 154 through Line 19 of

5 Page 155.

6 A. Sir, I want to be sure I have the

7 right -- Line 10 says, "Mr. Stuart, excuse me. Is

8 there a date on that?"

9 Q. Hold on one second. I'm sorry. Well,

10 I can't address you to the transcript because I

11 have the wrong page.

12 So, you don't recall specifically what

13 the nature of the mortgage-backed security

14 portfolio was to be in 1984?

15 A. I was referring -- just trying to move

16 through with you to the last question. I don't

17 recall at this point the specific -- you mentioned

18 something repo, and I simply don't at this point

19 remember the specificity that you were reflecting

20 in your question.

21 Q. Okay. Was it your understanding that

22 the interest rate risk was to be hedged with some


1 instrument?

2 A. In general, that there was to be a

3 balance or -- and/or a hedge, yes.

4 Q. Now, did there come a time when the

5 portfolio was to be increased in size beyond what

6 happened at the end of 1984 and early 1985?

7 A. As I recall -- I'm not sure whether it

8 was that particular portfolio. But as I recall,

9 somewhere in that period to which you were

10 referring earlier about the hiring of Sandy

11 Laurenson, that there was a change in order of

12 magnitude.

13 Q. And was it a threefold increase in

14 magnitude? Do you recall?

15 A. I don't remember -- I don't remember

16 the specifics, but I do remember a change -- an

17 increase.

18 Q. All right. A sizable increase?

19 A. Well, I don't know what the definition

20 is; but I certainly do remember -- it was an

21 increase that, in my memory, wasn't unrelated to

22 the question that I participate in finding what


1 led to Sandy Laurenson.

2 Q. If Sandy Laurenson had testified that

3 she was instructed by Jenard Gross to increase

4 that mortgage-backed security portfolio to

5 $3 billion by May of 1987, would you have any

6 reason to disagree with her?

7 A. I wouldn't have any reason to challenge

8 her testimony, no.

9 Q. Now, who supervised Sandy Laurenson?

10 A. Well, to my -- the conversations I

11 remember most regularly were with Mr. Gross and

12 Mr. Crow. Of hers, that is. Not of mine.

13 Q. Now, you testified that there was an

14 investment committee. Do you recall?

15 A. Today?

16 Q. Do you recall that there was an --

17 A. Yes. I didn't remember when it

18 started; but yes, there was an investment

19 committee.

20 Q. And do you recall whether you were the

21 person that created the investment committee?

22 A. Well, I didn't -- I didn't create it.


1 I certainly remember being involved -- I was

2 involved in getting it started.

3 Q. And do you recall who the members of

4 the investment committee were?

5 A. I don't specifically. Again, as with

6 the strategic planning group, I have a general

7 sense of who was likely to be the members. But

8 I -- if you were to read me the names, I could

9 give you probably a good sense.

10 Q. Was Jenard Gross a member of that

11 committee?

12 A. Well, again, I'm almost certain that he

13 was. You know -- I mean, I just -- it seems to me

14 that he would be one of the people who would be on

15 the investment committee.

16 Q. Were you a member of the committee?

17 A. I originally was a member of it to get

18 it started. And then at some point -- I wouldn't

19 attend regularly each meeting because my function

20 there was very different than the other people's

21 there. And then at some point, I made it --

22 formally made it clear that I was leaving so they


1 would stop saying in the minutes that I wasn't

2 there.

3 Q. Whatever it reflects in the minutes,

4 you have no reason to disagree with them?

5 A. I have no reason to disagree with that.

6 Q. I would like to show you Document 1654,

7 B1626.

8 A. Thank you.

9 Q. Have you had a chance --

10 A. I have.

11 Q. Now, does that refresh your

12 recollection of when you resigned formally from

13 the investment committee?

14 A. Yes. Yes, absolutely.

15 Q. Okay. Now, the -- when was the

16 investment committee created?

17 A. Well, I think I said earlier I just

18 don't remember the specific time.

19 Q. Was it more than a year before

20 May 19th, 1987?

21 A. Again, you -- I suspect you know the

22 date. I don't know the date.


1 Q. If the records show that, would you

2 have any reason to disagree with the fact that you

3 sat on the investment committee for over a year?

4 A. I wouldn't have any reason to disagree

5 with my being a member of the investment committee

6 from whenever the record shows the starting time

7 was to this memo.

8 Q. The memo says that the reason you were

9 given formal membership was "in order to have a

10 critical mass of policy people shaping the initial

11 framework for our activities."

12 Do you see that?

13 A. Yes.

14 Q. What are you referring to there?

15 A. That when the first committee was first

16 established, I believe, by the board, they were

17 concerned -- it was at a time that I was spending

18 more time -- somewhere in that period, I discussed

19 with Mr. Rinaldi about the change of my role and

20 that my responsibility here was to see that the

21 committee was established, that minutes were being

22 taken, that issues were being discussed openly,


1 and that enough people around that table had

2 different policy perspectives to literally, what

3 it says, shape the initial framework for our

4 activities.

5 That having been done, I needed to move

6 on.

7 Q. Now, did the investment committee

8 review mortgage-backed security transactions on an

9 individual basis?

10 A. On an individual basis? I just -- I'm

11 not sure. I mean, the minutes -- I'm just

12 assuming the minutes would have reflected what

13 they did. I don't know if it was on an individual

14 basis. And I wasn't there, as you can see, at

15 every meeting or subsequent to the 19th of May.

16 So, I don't know the specific answer to that

17 question.

18 Q. Was every trade that was made in the

19 mortgage-backed security portfolio reviewed by the

20 investment committee during the period of time you

21 were a member of that committee?

22 A. I'm just not sure. Every trade? I'm


1 just not sure.

2 Q. If Sandy Laurenson testified to that

3 fact, would you have any reason to disagree with

4 her?

5 A. I would have no reason to dispute her

6 sworn testimony.

7 Q. Now, I would like to direct your

8 attention to another topic. And I would you to

9 take a look at Tab 329, which is T4333.

10 Do you have the document before you?

11 A. The one that says "bond man"?

12 Q. Yes. Look at the very last paragraph

13 on that first page.

14 MR. VILLA: Your Honor, may I ask that

15 we give the witness an opportunity to read this

16 document? It wasn't on their pull list; and it's

17 been 14 years or 12 years, whatever it's been. He

18 ought to be given an opportunity to read it, even

19 if he is on the stand.

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

21 Q. Do you see the last paragraph on the

22 first page where it makes a reference to the


1 swaps? It says, "Just like our swaps were not

2 designed properly and didn't give any thought to

3 the possibility of prepayments."

4 Do you see that?

5 A. Yes.

6 Q. Do you know what that refers to?

7 A. No.

8 Q. Do you recall that --

9 A. I should correct one thing. The "no"

10 was to the swaps issue. I have some vague

11 recollection of the issue of prepayments. So, my

12 "no" was to the swap question. Perhaps I answered

13 too quickly.

14 Q. What do you recall about the

15 prepayments?

16 A. Only that at some point in time, there

17 was a discussion about the relationship between

18 interest rates and the rate of prepayment.

19 Q. Now, when I asked you earlier about the

20 question of what the mortgage-backed security

21 portfolio was, as you understood it to be, did

22 you -- you indicated that the purpose was to have


1 some sort of a yield going forward so that it

2 would generate a profit.

3 Do you recall that testimony?

4 A. Yes, sir.

5 Q. That was your understanding of that

6 portfolio?

7 A. That was my general understanding, yes,

8 sir.

9 Q. Now, do you recall there came a point

10 in time after the Salomon Brothers presentation in

11 November of 1984 that that turned out not to be

12 the case?

13 MR. NICKENS: Your Honor, I'm not sure

14 what "not to be the case" means. And "after 1984"

15 takes into a period of about seven years where he

16 was involved. I mean, we need to be a little more

17 specific. We know we have United MBS. We have

18 other portfolios. I'm not sure what he's asking.

19 MR. GUIDO: I'll rephrase the question,

20 Your Honor.

21 Q. (BY MR. GUIDO) Do you recall that there

22 came a time when interest rates declined and it


1 had an impact on the mortgage-backed security

2 risk-controlled arbitrage portfolio at USAT?

3 A. I recall at least one period of time

4 when an interest rate decline caused a greater --

5 at least my memory now is that it caused a greater

6 pace of refinancing or prepayment or both than had

7 been originally assumed in the structure. At

8 least, that's vaguely right now what I remember.

9 That may be, in part, because you have a similar

10 phenomenon. As I look in the newspaper, the same

11 thing is happening today.

12 Q. Do you recall whether it was -- there

13 was an interest rate shift both in time and by

14 intensity of interest rates that caused

15 prepayments to accelerate beyond the point that

16 people at USAT had anticipated?

17 A. I think that was the question I was

18 answering. Maybe I misunderstood the first

19 question.

20 Q. Is your answer "yes"?

21 A. Yes.

22 Q. Do you remember the entity called USAT


1 Mortgage Finance?

2 A. Do I remember it? No.

3 Q. Okay. Do you recall that at the end of

4 1985, that USAT created a subsidiary to purchase

5 additional mortgage-backed securities?

6 A. Well, I have a vague recollection

7 somewhere in that time period that, at least one

8 instance, that a subsidiary was created. And I

9 think -- at least my recollection was one of those

10 subsidiaries was created and then fairly soon

11 after was uncreated.

12 Q. Okay. And do you recall whether or not

13 you participated in any decisions regarding the

14 creation and dissolution of that subsidiary?

15 A. Whether I personally participated?

16 Q. Yeah, as a member of a committee or a

17 member of management.

18 A. I don't remember now where I would have

19 been.

20 Q. If the minutes would reflect that you

21 participated in its creation and discussion of its

22 dissolution, would you have any reason to disagree


1 with those minutes?

2 MR. NICKENS: What minutes are we

3 referring to, Your Honor?

4 MR. GUIDO: The minutes of the

5 executive committee. Excuse me.

6 A. Is this something I've seen? Am I

7 missing something?

8 Q. (BY MR. GUIDO) No. I haven't shown you

9 anything just yet.

10 A. So, I don't know --

11 Q. I'm just asking you whether or not --

12 A. I don't know.

13 Q. I would like you to take a look at a

14 series of documents which are at -- the first

15 document is Tab 1389 at A1218. The second is

16 Tab 1438, which is at A1219. The third is

17 Tab 1390, which is A1220. The fourth is Tab 1310,

18 which is at B697. And the fifth is Tab 585, which

19 is B690.

20 A. Do you want me to look at all of them

21 now or one at a time?

22 Q. We'll go through them one at a time.


1 A. First one is?

2 Q. This is Tab 1389. I think they are in

3 the order that I will be going through them.

4 A. No, they are not. Tell me the first

5 one.

6 Q. Tab 1389.

7 A. Okay.

8 Q. Do you see the discussion of the -- in

9 the second paragraph of the new financing

10 subsidiary regulations?

11 A. Yes.

12 Q. Okay. Does that refresh your

13 recollection that you participated in discussions

14 of the creation of a financing subsidiary of USAT

15 to purchase mortgage-backed securities?

16 A. Yes. That is, that I was there. It

17 doesn't give me much more than that, but yes.

18 Q. Now, take a look at the next document,

19 which is Tab 1438 which is A1219.

20 Does that refresh your recollection

21 that you attended meetings of the --

22 A. Hold on for a minute. (Witness reviews


1 the document.) Okay.

2 Q. Now, I would like to direct your

3 attention in that to Page 2 in the

4 next-to-the-last paragraph.

5 Do you see that?

6 A. Uh-huh. (Witness nods head

7 affirmatively.)

8 Q. It also talks about the new financing

9 subsidiary regulations and possible alternatives.

10 That paragraph which is for the minutes of the

11 executive committee of United Savings Association

12 of Texas is virtually identical to the second

13 paragraph on A1218, which is the minutes of the

14 executive committee of United Financial Group, is

15 it not?

16 A. Looks a lot alike, yes.

17 Q. And did the executive committee of UFG

18 meet jointly with the executive committee of USAT?

19 A. Sometimes. Sometimes.

20 Q. And did it do so at times that the

21 minutes reflect that two separate meetings

22 occurred?


1 A. I don't remember if it was -- one of

2 you yesterday asked me about the membership of the

3 executive committees, and I think you showed that

4 they were virtually the same group. So, I

5 don't -- it wouldn't have surprised me if they

6 were meeting together or in series. And I don't

7 recall -- this is just an occasion where I see

8 there are two separate minutes. I don't know

9 whether that would happen frequently or

10 infrequently.

11 Q. Now I would like to direct your

12 attention to B690, which is at Tab 585.

13 A. (Witness reviews the document.)

14 Q. Have you seen this document before?

15 A. Well, it shows a copy to me. And so, I

16 suspect -- I have no reason to believe that at

17 some point I had not seen it.

18 Q. Have you reviewed this document

19 recently?

20 A. Have I reviewed it recently? No. I

21 don't recall reviewing this document.

22 Q. Have you reviewed any documents that


1 were designated by the OTS as potential exhibits

2 to be used in your testimony by me in this case?

3 MR. VILLA: For the record, I don't

4 know that he knows the source of the documents

5 that we gave him; but they were most of the

6 documents that the OTS had designated. So, he was

7 just shown documents. I'm not sure he could

8 answer that question.

9 Q. (BY MR. GUIDO) You reviewed documents

10 before your testimony?

11 A. It depends on the definition. I flew

12 in the night before this, and I had a brief period

13 once before to take a quick look at some of those

14 documents.

15 Q. Okay. Now, take a look at Page 2 of

16 the document. It talks about USAT Mortgage

17 Finance.

18 Do you see that at the bottom of the

19 page?

20 A. (Witness reviews the document.)

21 Q. Does that refresh your recollection

22 about the creation of the subsidiary by USAT to


1 buy $500 million worth of mortgage-backed

2 securities hedged with swaps?

3 A. Beyond -- in any meaningful way beyond

4 reading this paragraph right now, no.

5 Q. Okay. Let's take a look at

6 Exhibit B697, which is at Tab 1310.

7 A. Two pages?

8 Q. I have one page.

9 A. Okay.

10 Q. Do you see it indicates you as being a

11 recipient of that memorandum?

12 A. Yes, sir.

13 Q. Do you recall reviewing this document

14 before your testimony?

15 A. I'm not -- again, I don't know -- I

16 just don't know. Do you want me to read it?

17 Q. Do you recall ever seeing this

18 document?

19 A. I have no reason to believe I didn't,

20 but I don't remember it.

21 Q. Do you know why USAT Mortgage Finance

22 was dissolved?


1 A. I have a vague recollection if -- as I

2 referred earlier, if this is the one -- and Jim

3 Pledger -- I think Jim Pledger had been the

4 general counsel and then became the Texas Savings

5 and Loan commissioner. If that's the -- if this

6 is the occasion, some expectation about

7 regulations referred to in this Pledger memo

8 turned out not to be the case. That's a very

9 vague -- I'm not sure that I'm even referring to

10 the right situation.

11 So, I probably should answer the

12 question, "No, I'm not certain."

13 Q. Now, I would like to direct your

14 attention to another area; and that is how the

15 mortgage-backed security portfolio was managed

16 by -- by USAT.

17 A. Okay.

18 Q. You testified that your understanding

19 was that the general purpose was -- your

20 understanding of the general purpose of the

21 portfolio is it would be a risk-controlled

22 arbitrage hedged with instruments such as swaps to


1 generate an interest rate spread.

2 Do you recall that testimony?

3 A. I think you just summarized it better

4 than I did. That was basically my understanding.

5 Q. Basically your understanding of what

6 the mortgage-backed security portfolio was?

7 A. Yes.

8 Q. Did the mortgage-backed securities

9 portfolios end up operating that way?

10 MR. NICKENS: Your Honor, he just asked

11 the witness "portfolio"; and now he's asking a

12 question which I can barely hear where I believe

13 he said "portfolios." Now, this witness'

14 recollection of these events from a long time ago

15 is understandably vague. We have known from,

16 what, 103 days here that there were many

17 strategies involving mortgage-backed securities.

18 If Mr. Guido wants to focus on a

19 specific one and get the witness' recollection, we

20 have absolutely no problem with that. For him to

21 summarize a strategy and say "portfolio" and then

22 come back and say, I will say under his breath,


1 "portfolios" is not a fair question.

2 THE COURT: All right. Restate it

3 so --

4 MR. KEETON: I want to join in that,

5 Your Honor; and I don't think it's unintentional

6 when he drops his voice.

7 Q. (BY MR. GUIDO) Mr. Munitz, do you have

8 any understanding of any mortgage-backed security

9 portfolios or portfolio at USAT that USAT didn't

10 attempt to reduce the interest rate risk in that

11 portfolio by the use of hedging instruments?

12 A. Well, I -- I don't even under the

13 question. So, I guess the answer is "no."

14 Q. You sat on the investment committee,

15 correct?

16 A. As I think I said earlier, I was not

17 there as one of the world's greatest experts on

18 these instruments. I was there to make sure the

19 people who were were acting in the best interests

20 of the institution.

21 Q. How were you able to ascertain whether

22 or not they were acting in the best interests of


1 the institution?

2 A. Well, this is basically what I do for a

3 living, deal with people in my academic life who

4 know more than I do about virtually everything.

5 My task is to use my good judgment to be sure the

6 right issues are raised, that the rights experts

7 are there, that the right materials are studied,

8 and to make sure responsible expertise is brought

9 to bear. This is what I've been raised to do.

10 Q. Is one of your views of your role to

11 make sure that the proper policies are followed?

12 A. I don't monitor it all the time, but

13 one of my roles is to try to be sure that

14 appropriate policies are in place and that there

15 are people there whose job it is to monitor their

16 application.

17 Q. Was it your understanding at the time

18 that you were at USAT that sales out of a

19 mortgage-backed security risk-controlled arbitrage

20 for the purpose of generating accounting gains was

21 a proper function of a risk-controlled arbitrage

22 portfolio?


1 A. Again, I don't -- I just don't know

2 enough at this point in time to answer that

3 question or even be certain that I understand the

4 technical nature of that question.

5 Q. So, you don't know what the distinction

6 is between managing a portfolio for purposes of

7 generating an interest rate spread and managing a

8 portfolio in order to generate accounting gains

9 through sales?

10 A. Well, I have a general sense of a

11 distinction between managing a portfolio for yield

12 and spread, managing a different kind of portfolio

13 for investment returns. I'm not sure about the

14 question about accounting gains because that --

15 being raised by a father who's an accountant, he's

16 taught me a long time ago not to throw that word

17 around. I'm not sure what that means.

18 I understand the distinction between

19 those two. And at least I thought I once

20 understood that in looking at earnings, sometimes

21 one acts in a way that looks like the other. I

22 just don't understand the specifics of the


1 question.

2 Q. What is your understanding of the

3 distinction between those two portfolios?

4 A. My basic understanding of the

5 underlying distinction is that in one set of

6 activities, the basic objective is as close as one

7 can get to a managed -- "locked-in" is the phrase

8 that people used. I never believed that was a

9 scientific term myself. That you're managing one

10 portfolio for its yield spread income and thereby

11 bring certain accounting and regulatory

12 implications and that you're managing another kind

13 of portfolio for trading purposes or for

14 shorter-term activity purposes or because you're

15 planning to sell all or part of those pieces over

16 different periods of time and thereby bring very

17 different accounting and regulatory expectations.

18 Q. What is your understanding of the

19 purposes of the equity arbitrage portfolio that

20 was held at USAT?

21 A. My sense of the equity arbitrage

22 portfolio is that it tended to fall into the


1 latter of those two categories. That's my memory

2 of it. I could be putting it in the wrong

3 category.

4 Q. What do you mean when you say "the

5 latter"?

6 A. The latter of my two was that the

7 equity arbitrage portfolio was more likely to be

8 managed with a shorter framework which might or

9 might not be matched to other instruments but that

10 was treated by accountants and by regulators

11 differently than the portfolio that would be

12 managed for fundamentally yield and spread

13 purposes, although trades may be made there, as

14 well. Those are the two roads I was trying to

15 describe.

16 Q. Now, with regard to the high-yield bond

17 portfolio, which of the two roads did you

18 understand that to be on?

19 A. As an amateur here and against my

20 better judgment, my instinct is -- and that is in

21 answering the question -- that it's more likely to

22 be in the -- that it's closer to the equity


1 arbitrage than to the mortgage-backed securities.

2 Q. Okay.

3 A. I'm on thin ice of knowledge here.

4 Q. What about the mortgage-backed security

5 portfolio? What did you understand that to be in

6 terms of these two categories?

7 A. I think my earlier testimony was that

8 in terms of those two categories, that the

9 mortgage-backed security portfolio was much more

10 likely to be in the former of those two roads.

11 Q. Now, did there come a time at USAT

12 where its growth strategy wasn't generating

13 sufficient income to offset losses that were

14 embedded in its portfolio?

15 A. I'm not sure -- I'm not sure what "its

16 growth strategy" means.

17 Q. Well, let's go back to the wholesale

18 strategy. What was the purpose of the wholesale

19 strategy?

20 A. Well, again, I'm not -- you had

21 mentioned that earlier. I think I have a vague

22 sense of what the wholesale as against the retail


1 contrast is. I don't think we've talked about

2 that. But my answer to your question basically

3 would be to make money.

4 Q. Well, why don't we start off with, I

5 guess, the questions that I didn't ask you. And

6 that is: What was the wholesale strategy, and how

7 did it differ from what you've just referred to as

8 the so-called retail strategy?

9 A. When I was joining the board and the --

10 in that '82, '3, '4 period that I discussed

11 yesterday with Mr. Rinaldi, basically the

12 activities of most savings and loans -- I think

13 fairly clearly Texas savings and loans -- were

14 dealing with branches and single-family

15 residential lending. And for a variety of

16 economic reasons somewhat vague to me now, those

17 strategies were not all that successful. And,

18 therefore, a lot of people to whom I was listening

19 were discussing more of a wholesale strategy

20 which, as I recall, dealt with a different

21 configuration of branches, a different

22 configuration of the way you brought money in, a


1 somewhat different configuration of the way you

2 dealt with the housing market in terms of putting

3 money out, and other distinctions in business

4 strategy.

5 Q. And was one of the components of that

6 business strategy the sale of branches and to

7 depend more on wholesale deposits, the money desk,

8 to raise funds and to use the profits from the

9 branch sale to leverage up the growth of the

10 institution and invest those funds in

11 mortgage-backed securities, high-yield bonds, and

12 equity arbitrage?

13 A. Would you respectfully let me make

14 those two questions right where you paused?

15 Q. Sure.

16 A. It just might be easier for me to

17 answer your question.

18 I have a fairly clear recollection that

19 one of the strategies in that shift I was

20 describing engaged the sale or the merger or the

21 dispensation or the closing of a number of

22 branches. And as part of that, in the way money


1 was coming in, to deal more with -- not

2 exclusively. There were regular deposits but also

3 more of a money desk deposit. It was kind of

4 answering the first of the two questions. Less

5 clear to me specifically about the linkage.

6 But in my recollection, the number of

7 things that you then went through in the second

8 part of the question or what I'm making the second

9 question were, yes, part of an overall pattern. I

10 just wasn't as sure about the -- you said

11 something about leveraging up or increasing size,

12 and I was trying to piece those apart. Sorry.

13 Q. Now -- but, essentially, what the

14 institution did around November of 1984 was to

15 make a decision to dispose of the branch sales, to

16 use those profits to increase its investments so

17 that there would be new investments that would

18 generate an income to offset the negative earnings

19 of the institution that existed at that time?

20 A. I'm only questioning the linkage you

21 made in terms of "use those profits." As I

22 recall -- I was fairly much involved in the


1 aftermath of the branch sale and combination -- as

2 we were discussing yesterday, that came with the

3 merger. I was less involved with the sort of

4 arithmetic fiscal matters than I was with branches

5 and which people and what did it mean. The only

6 places I can't testify is whether one generated

7 profits and those moneys were then used for other

8 things. As to the broad shift in strategy, that's

9 consistent with what I recall.

10 Q. And that broad shift in strategy

11 included growing the institution to generate

12 additional earnings?

13 A. That's my recollection.

14 Q. And what were those additional earnings

15 to be used for?

16 A. Generating more additional earnings.

17 Q. Were they there to -- I mean, was the

18 increase -- was the growth designed to create an

19 income stream that would offset a pre-existing

20 negative income stream?

21 A. I hope so. I mean, it seems like a

22 reasonable -- yeah, I think so.


1 Q. All right. And were some of the

2 investments that were made, in mortgage-backed

3 securities, high-yield corporate bonds and equity

4 arbitrage?

5 A. Were those some of the investments

6 made? Yes.

7 Q. And were those the primary investments

8 that were made?

9 A. Well, I only remember another of -- a

10 range of other kinds of investments, as well. So,

11 I just can't comment on primary. I don't remember

12 the mix of the numbers. I do remember that there

13 were other strategies.

14 Q. Did there come a point in time when you

15 recognized that the income stream from the growth

16 in the investments in the mortgage-backed

17 securities, high-yield bonds, and equity arbitrage

18 would not offset pre-existing losses?

19 A. My memory is that of the three items

20 you mentioned there in the second half of that

21 question, their income streams over different

22 periods of time were dramatically different. But


1 I testified yesterday that all put together, at

2 some point the numbers for the entire institution

3 at the bottom line were getting worse.

4 Q. What do you mean? After the initiation

5 of the wholesale strategy?

6 A. Well, I was just talking about the time

7 period in which -- you asked me did I remember

8 what they were contributing to the revenue stream.

9 And what I was saying was at different times,

10 different of those pieces were making dramatic

11 contributions to the revenue stream. But that my

12 recollection is over that period of time of my

13 experience there, the overall revenue was going

14 down.

15 Q. I would like you to take a look at

16 Tab 867, which is A10645. I would like to direct

17 your attention to the first paragraph which

18 says -- where it talks about the non-operating

19 gains.

20 A. I haven't gotten through the whole

21 thing. It will just take too much time. Go

22 ahead.


1 Q. See the first paragraph that talks

2 about "the non-operating gains will be necessary

3 to report profits for the third and fourth

4 quarters of 1986"?

5 A. Yes.

6 Q. Does this refresh your recollection of

7 when you became aware that the growth strategy was

8 not going to generate a net income spread

9 sufficient to offset the various items that were

10 generating a negative income spread?

11 A. If you mean when I first became aware,

12 no, because it's very possible that I was becoming

13 aware of that earlier than this. I'm showed a

14 copy of this memo, and it would have been an

15 update. But I'm not sure this was news to me.

16 Q. At least as of this date, June 23rd,

17 1986, you were aware of that fact?

18 A. Yes, sir.

19 Q. And the negative figures are set out in

20 that "net income contribution net of cost of

21 carry."

22 Do you see that?


1 A. I do.

2 Q. Now, I would like to direct your

3 attention to another document which is dated

4 9/8/86. It's really two documents. Tab 335,

5 T4246, which is the strategic planning committee

6 notes of 9/8/86. And then there is the Tab 870,

7 which is the 9/15 Smith Breeden presentation at

8 A10660.

9 A. Do you want me to look at both?

10 Q. I would like you to look at both

11 documents. In fact, the first document, the

12 strategic planning committee notes which is the

13 Tab 335 document --

14 A. Okay. That one first?

15 Q. Take a look at that and flip into the

16 document to where it talks about the Smith Breeden

17 presentation.

18 A. Page?

19 Q. Let me get the page for you. Does

20 yours have the US Bates stamp numbers on the

21 right-hand --

22 A. I have underneath in the middle OW


1 numbers and a T4246 on the top page.

2 Q. I think I have a different --

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

4 MR. GUIDO: Thank you, Your Honor.


6 (Whereupon, a short break was taken

7 from 10:35 a.m. to 11:00 a.m.)


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

10 be back on the record.

11 Mr. Guido, you may continue.

12 MR. GUIDO: Thank you, Your Honor.

13 THE COURT: We were looking at T4246,

14 and the copy that I have doesn't have any imaging

15 numbers on it. So, when you're directing to a

16 particular paragraph, you'll have to use the

17 numbers on the document.

18 MR. GUIDO: Yes, Your Honor.

19 Q. (BY MR. GUIDO) I would like to direct

20 your attention to the next-to-the-last page of the

21 document.

22 A. Please tell me again, please, the


1 number.

2 Q. Tab 335, T4246. It was the two

3 documents that I gave you together.

4 A. Give me a hand here. Thank you.

5 Sorry.

6 Q. Look at the next-to-the-last page. See

7 where it makes reference to Smith Breeden senior

8 management meeting, Monday, September 15th?

9 A. Yes, sir.

10 Q. Okay. Do you see who it has listed as

11 attending: Mr. Hurwitz, Mr. Gross, you, and then

12 other people?

13 A. Yes.

14 Q. Do you recall attending a presentation

15 by Smith Breeden?

16 A. I do -- I remember at least one

17 discussion with Smith Breeden, yes.

18 Q. All right. And was that shortly before

19 Sandy Laurenson's arrival at USAT?

20 A. Well, I can't -- I think it was roughly

21 in that same period of time. I don't remember the

22 specific sequence.


1 Q. Okay. I would like to now direct your

2 attention to Tab 870, which is the second document

3 I showed you.

4 THE COURT: What number is that,

5 Mr. Guido?

6 MR. GUIDO: That is A10666, Your Honor.

7 That is the document that has been described as

8 the Smith Breeden presentation of September 15th,

9 1986, in the record, Your Honor.

10 THE COURT: Thank you.

11 A. I have the document.

12 Q. (BY MR. GUIDO) Now, I would like to

13 direct your attention to Page 20 -- Page 9 of the

14 document where it talks about recommendations.

15 A. Mr. Guido, mine is not very legible;

16 but I can make it out, I think.

17 Q. I'm sorry. I think that some of these

18 have been faxed and copied and copied and copied.

19 A. Yeah. I think we banned this

20 typewriter.

21 Q. We had a discussion about a similar

22 typewriter in your deposition, didn't we?


1 A. We did.

2 Q. Now, see under "immediate strategies,"

3 it says, "Take gains on portfolio to offset

4 operating losses"?

5 A. Yes. The first bullet, yeah.

6 Q. Now, what portfolio was Smith Breeden

7 hired to take a look at for USAT?

8 A. I'm not -- I'm not sure that I

9 remember. I don't remember.

10 Q. Was Smith Breeden a consulting firm

11 that specialized in risk-controlled arbitrages?

12 A. I don't know -- I remember them as a

13 consulting firm that talked about fixed income

14 securities, I think, from the east coast. I think

15 so. I think so.

16 Q. You think that they --

17 A. That the answer to your question is

18 "yes." I think so.

19 Q. That they were -- I think you said that

20 they were specializing in fixed income securities?

21 A. I vaguely remember that was one of

22 their areas of expertise. I don't know what else


1 they did.

2 Q. Were they hired to look at the

3 mortgage-backed securities portfolio, or were they

4 hired to look at the high-yield bond portfolio?

5 A. My only recollection was their coming

6 to talk about the overall strategy. So, I don't

7 know. I remember them only in terms of broader

8 strategy conversation.

9 Q. You don't remember them doing

10 evaluations of the mortgage-backed securities

11 portfolios?

12 A. I don't remember that.

13 Q. Okay. You don't recall them being

14 retained to provide advice on the mortgage-backed

15 security portfolios?

16 A. As I said, I recall -- I pretty clearly

17 recall them being retained to provide general

18 facilitation of strategy conversations. I just

19 don't remember the specific topics.

20 Q. Okay. So, you don't recall the

21 portfolio that they were asked to advise about?

22 A. I just don't know which specific


1 portfolio that first bullet would have been

2 referring to. I don't remember that.

3 Q. Now, I would like to direct your

4 attention to another document, which is at

5 Tab 871, which is T4250. It's dated 9/22/86.

6 9/22/86, T4250.

7 A. Do I have that? Thank you.

8 Q. Do you see where it has you as a

9 recipient to this memorandum?

10 A. I do vaguely, yes.

11 Q. Now, this is one of the memoranda, I

12 think, that we discussed in your deposition about

13 how difficult they are to read.

14 Do you recall that?

15 A. If it wasn't, it should have been,

16 yeah.

17 Q. I think you referred to these as

18 hieroglyphics in your deposition.

19 Do you recall that?

20 A. I'll stand by that.

21 Q. Now, I would like to direct your

22 attention to the third page of the document.


1 Do you see under "earnings and growth

2 strategy"?

3 A. No. 31?

4 Q. Yes.

5 A. I see that title.

6 Q. Do you see where it saws "our actual

7 net worth"? Do you see that bullet point?

8 A. No. Which is it?

9 Q. It's -- look at the one --

10 A. Which indent?

11 Q. Look at the first five indents.

12 A. Okay.

13 Q. Can you read them?

14 A. I can't. I can read a couple of them.

15 Q. Okay. Let me read them for you.

16 A. Thank you.

17 Q. First bullet point, "Prospects for

18 positive GAAP and RAP earnings are poor in

19 something '87. Our actual net worth will be the

20 same as or below recorded net worth at the end of

21 the third and fourth quarters unless action is

22 taken."


1 A. Is it -- okay. Is that "reported" or

2 "required"? Okay. I guess it doesn't --

3 Q. "Required."

4 A. I thought mine said "required."

5 Q. "We will need earnings and good net

6 worth in the third quarter as we still will be

7 bargaining with the examiners and looking for a

8 capital note issue."

9 Do you see that?

10 A. Yes.

11 Q. Do you know what the reference to

12 bargaining with the examiners was?

13 A. No. It doesn't ring a bell.

14 Q. Do you know what the capital note issue

15 is that's being discussed here?

16 A. I know that -- I think I know that at

17 some point, there was an attempt to increase

18 capital via some sort of instrument. I don't know

19 if that's the one that he's referring to. I

20 believe at one point there was a conversation

21 about that.

22 Q. And who was the underwriter that USAT


1 was discussing that capital note issue with?

2 A. This one referred to --

3 Q. Uh-huh.

4 A. -- the one that I -- I remember a

5 conversation about a capital note issue. I don't

6 remember if they had gone that -- I simply don't

7 remember who that would have been or if they knew

8 who that was. I don't --

9 Q. Then it says, "There is a strong case

10 for taking portfolio gains in the third quarter in

11 order to shore up reserves in the capital

12 position."

13 Do you see that?

14 A. I see that.

15 Q. And it says, "Third quarter results

16 need to be close to those forecast in the

17 regulatory business plan."

18 Do you see that?

19 A. I do.

20 Q. Now -- then I would like to direct your

21 attention to the next page to various bullet

22 points there, and I would like to -- five points


1 up where it says, "Quarter end actions will be

2 considered next Monday."

3 You can't read that?

4 A. I'm having a hard time. I see it

5 basically.

6 Q. Let me read it for you.

7 A. Thank you.

8 Q. "Quarter end actions will be considered

9 next Monday. We should take all MBS and liquidity

10 portfolio gains, monitor equity arbitrage results,

11 alert Joe as to the possibility of taking junk

12 bond gains, and track the profit and capital

13 positions closely."

14 Do you see that?

15 A. With your reading that to me, yes.

16 Q. Now, do you recall that there -- you

17 had discussions in the latter part of 1986

18 regarding taking gains out of the mortgage-backed

19 security portfolio?

20 A. Well, again, having you read that to me

21 and seeing, as I had said earlier to you, the

22 strategic planning committee -- I don't know what


1 this one is called. The strategic group, by

2 whatever name they called it that day, was a group

3 that would come together. It did not have

4 operating responsibility.

5 So, the bullets you read to me sound

6 like suggestions he thought we ought to consider.

7 I would not have been able to tell you the time,

8 but I have no reason to believe this -- the date

9 looks like December 22nd, nineteen something. And

10 somewhere in nineteen something, that would have

11 been the conversation.

12 Q. Now, what you're saying is that it's

13 your reading of this that this is Doug Hansen's

14 suggestions?

15 A. For conversation. That is not

16 necessarily -- Doug Hansen would not have been in

17 a position to direct the institution. I don't

18 remember seeing this. I was copied on it, and I

19 remember conversations like this. My point simply

20 was that his role would have been to lay out an

21 agenda: Here are issues we ought to be

22 discussing.


1 Q. So, you're viewing this as an agenda

2 and not his recordation of what transpired at a

3 strategic management committee? Is that what

4 you're saying?

5 A. That's what I -- again, that's what I

6 assumed it was.

7 Q. Okay. So, that's the assumption you're

8 making?

9 A. That is my assumption.

10 Q. Do you have any basis for that other

11 than your reading of this document?

12 A. I'm not even capable of reading this

13 document. So, I'm trying my best here -- I'm just

14 going by how I normally assumed these meetings

15 would work. But no, I have no independent ability

16 to tell you specifically what this is.

17 Q. The -- I would like to direct your

18 attention to a document that is in the record at

19 567, which is T4251. It's a memo from Mike Crow

20 to Jenard Gross and Gerald Williams dated 9/23/86.

21 A. Okay.

22 Q. Now, this document is from Mike Crow,


1 who was the chief financial officer. Right?

2 A. Yeah. I mean, that was -- that was the

3 Mike Crow who was there, yes.

4 Q. And it's dated September 23rd, and it

5 goes to Jenard Gross and Gerry Williams. Right?

6 A. Yes.

7 Q. Those are decision makers in the

8 institution, are they not?

9 A. They are.

10 Q. And this memorandum sets out estimate

11 of gains that will be needed for quarterly

12 earnings. Right?

13 A. Yes. That's what it --

14 Q. Okay. It sets out where those gains

15 can come from on Page 2. Right?

16 A. That's what it looks like, yes.

17 Q. Does that document reflect that there

18 were discussions to take gains out of the

19 high-yield bond and mortgage-backed securities

20 portfolio to bolster quarterly profits?

21 MR. VILLA: Objection, Your Honor. I

22 don't understand the question. Ordinarily, you


1 ask a question to a witness about a document that

2 was sent to him. I don't know whether he's asking

3 whether these people had discussions about this

4 issue. So, I think it's deliberately an ambiguous

5 question because he knows that the document wasn't

6 sent to the witness. I object because it is

7 ambiguous.

8 MR. GUIDO: I am sorry, Your Honor. It

9 is ambiguous, and I misstated it.

10 Q. (BY MR. GUIDO) Does this refresh your

11 recollection that around September of 1986,

12 discussions were being held about taking gains out

13 of the high-yield bond and mortgage-backed

14 securities portfolio to bolster quarterly profits?

15 A. I can't comment on more than what this

16 seems to say to me. And, again, I haven't looked

17 at it carefully. I don't see -- I don't see the

18 phrase "high-yield." I see junk bonds here. I

19 see mortgage-backed securities, but I don't know

20 which -- as you pointed out earlier, or I did, we

21 had all different kinds of mortgage-backed

22 securities. I don't see anything about "bolster."


1 I mean, the cover note says, "The attached

2 schedule presents our best estimate of gains that

3 will be needed for quarterly earnings." That's

4 the kind of note I'm used to seeing on every board

5 on which I ever served. I don't know that it says

6 anything more to me than what it says.

7 Q. Fine. Take a look at two documents:

8 Tab 358, which is at A1417, and Tab 566, which is

9 at T4302.

10 A. Thank you. The first one?

11 Q. Take a look at Tab 348, A1417.

12 A. (Witness reviews the document.)

13 MR. NICKENS: 348 or 358?

14 MR. GUIDO: I think it's Tab 348.

15 MR. NICKENS: Is this it?

16 MR. GUIDO: Yeah, A1427.

17 MR. NICKENS: You're going to drive us

18 crazy.

19 MR. GUIDO: You're going to drive me

20 crazy. It's A1417.

21 A. I don't have a -- do I have --

22 Q. (BY MR. GUIDO) Hold on one second.


1 A. Okay.

2 Q. Do you have A1417?

3 A. I have now A1417.

4 Q. Now, does that show you in attendance

5 at that meeting?

6 A. It doesn't show me -- it doesn't

7 mention my name, but I'm assuming since it was --

8 which probably is not even a good assumption as I

9 mentioned to you earlier. It doesn't show me in

10 attendance, but it's prior to the note that showed

11 when I left the committee.

12 Q. Does it show all members in attendance?

13 A. Yes. They sometimes didn't keep track

14 of me because -- I have no reason to believe I

15 wasn't there.

16 Q. Did that make mention to the

17 discussions regarding the sales of high-yield

18 bonds to generate gains?

19 A. If you ask me that question, you're

20 going to have to let me read it.

21 Q. Look at the paragraphs that make

22 reference --


1 A. I don't know which paragraphs those

2 are.

3 Q. I'm sorry. Go ahead. Go ahead and

4 read the document.

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

6 I have read the two pages.

7 Q. Does it make any reference to the

8 identification of high-yield bonds to be sold to

9 generate gains?

10 A. "Mr. Huebsch and Mr. Walt Stabell

11 discussed the high-yield bond portfolio. A report

12 was prepared by Mr. Huebsch and ordered attached

13 to the minutes of the meeting."

14 Are you asking me to read that report?

15 Q. Does the report make any mention of

16 sales to generate gains?

17 A. I have no idea. Do you want me to read

18 it?

19 Q. Is it attached to the minutes?

20 A. I have about 10 pages attached to this.

21 Are you asking me to read this attachment?

22 Q. No. We'll let the attachment speak for


1 itself.

2 A. How?

3 Q. You were in attendance at this meeting?

4 A. Well, it doesn't mention my name. I

5 tended to be at investment committee meetings

6 before I specifically left the committee; so, I'm

7 assuming that I was there.

8 Q. Now, take a look at the next document

9 that I showed you, which is at Tab 566 which is

10 T4302. That makes reference to investment

11 committee meetings, does it not?

12 A. Well, hold on. (Witness reviews the

13 document.) Okay. I've looked at the single --

14 Q. I think you may have multiple copies of

15 the --

16 A. I have multiple copies of this memo.

17 It must be important.

18 Q. Does that make reference to the sale of

19 high-yield bonds to generate gains?

20 A. Yes.

21 Q. Okay.

22 A. Well, quarterly earnings, yeah.


1 Q. What is the significance of quarterly

2 earnings for gains, Dr. Munitz?

3 A. I don't see the gains. The

4 significance of quarterly earnings is that it

5 would be standard practice to talk about, in any

6 company, an earnings pattern. I'm assuming that

7 that would have -- I may be missing something. I

8 don't know what the significance of quarterly

9 earnings is other than quarterly earnings. This

10 is something you would talk about all the time.

11 Q. Quarterly earnings are earnings that

12 are reported by the company publicly if it's a

13 publicly traded company. Right?

14 A. Usually quarterly.

15 Q. And if it's an insured depository

16 institution, it's within the thrift financial

17 reports, is it not?

18 A. Again, I would have assumed quarterly

19 earnings, in my sense of quarterly earnings, are

20 discussed and reported wherever one would

21 appropriately do so.

22 Q. Well, is there any special significance


1 to quarterly profits as opposed to monthly

2 profits, for example?

3 A. Well, there are some filings at some

4 types of institutions that have a formal, legal

5 quarterly requirement.

6 Q. Okay. Thank you.

7 I would like -- does that document

8 refresh your recollection that the institution,

9 USAT, was making sales out of its high-yield bond

10 and mortgage-backed securities portfolios to

11 bolster quarterly profits?

12 A. Again, the -- in the combination of the

13 documents that you have shown to me, I've read

14 what it says, that there were -- I don't know

15 about bolster. There were discussions about

16 quarterly earnings, and different strategies were

17 used at different quarters to generate those

18 earnings. That's what I recall.

19 Q. But there were discussions to look at

20 various portfolios to ascertain whether or not

21 there were gains that could be realized to bolster

22 quarterly profits?


1 A. Yes.

2 Q. Is that fair?

3 A. Yeah.

4 Q. Now, did you ever raise any questions

5 about whether or not that was appropriate in the

6 risk-controlled arbitrage mortgage-backed

7 securities portfolios?

8 A. Did I personally?

9 Q. Uh-huh.

10 A. I don't know. I --

11 Q. Okay.

12 A. I have no memory of whether I would

13 have or not.

14 Q. Okay. Now, let's go to Tab 544 at

15 A1407, which is the investment committee minutes

16 of 9/3/1986.

17 A. Thank you.

18 Q. This document shows that all members of

19 the committee were present.

20 Do you see that?

21 A. I do.

22 Q. Now, I would like to direct your


1 attention to Page 2, the first four paragraphs on

2 Page 2 of that. The page starts, "Mr. Phillips

3 then discussed the association's mortgage-backed

4 securities portfolio."

5 A. Uh-huh. (Witness nods head

6 affirmatively.) I've read those four paragraphs.

7 Q. Now, do you know what the reference to

8 value trades was in that first paragraph?

9 A. Which paragraph?

10 Q. The first paragraph makes reference to

11 value trades.

12 A. Okay. Boy, I might have at some point;

13 but I -- I don't now know what that means. I

14 don't know.

15 Q. Do you know what the reference to the

16 committee is that's mentioned there in that

17 paragraph?

18 A. Other than what it says there, I don't

19 know anything further. I don't recall anything

20 further about that now.

21 Q. You don't recall the creation of a

22 subcommittee for trading purposes at USAT in its


1 mortgage-backed security portfolio?

2 A. There is some -- when you say that, I

3 have some vague recollection; but it probably more

4 than anything has just been formed by your having

5 me read this sentence. I don't have any separate

6 recollection of that detail.

7 Q. Let's take a look at the fourth

8 paragraph there, now, for another topic. It says,

9 "The committee then discussed at length the

10 concept of a total return versus a yield

11 portfolio."

12 A. I see that sentence.

13 Q. Do you recall having a discussion about

14 the distinction between a total return and a yield

15 portfolio?

16 A. If I was -- if I was there and if they

17 had it and if I had a sense of that distinction,

18 it's not one that I could talk thoughtfully about

19 now.

20 Q. Well, you talked about a portfolio that

21 was managed to generate a net interest spread, did

22 you not, in your testimony earlier today?


1 A. I believe earlier today I referred to

2 assuming that the underlying assumption of that

3 activity was to manage a spread.

4 Q. How does that distinguish from a total

5 return portfolio? Do you know?

6 A. I'm not sure that I do.

7 Q. Do you see the reference in the second

8 paragraph to Smith Breeden making a presentation?

9 A. Yes.

10 Q. When Smith Breeden was hired by USAT,

11 it, one, made a presentation as referred to in

12 this paragraph. And I think I showed you some

13 earlier documents. Right?

14 A. Yes.

15 Q. Here it makes reference to

16 mortgage-backed securities. Do you see that in

17 the first paragraph, "being managed by a committee

18 consisting of Mr. Phillips, Mr. Crow, Hansen, and

19 Bruce Williams with the advice and consent of

20 Smith Breeden"?

21 A. Yeah. Yeah.

22 Q. Does that refresh your recollection


1 that Smith Breeden was hired to advise USAT on its

2 mortgage-backed securities portfolio?

3 A. Only in the sense that it says that. I

4 have no reason to question whether that -- it

5 seems right. I don't know.

6 Q. You don't have any independent

7 recollection?

8 A. Not beyond what we were saying a little

9 while ago.

10 Q. Now, I would like to direct your

11 attention to Tab 379, which is B1212. This is a

12 memo from Doug Hansen to Mike Crow, Joe Phillips,

13 and Bruce Williams regarding the mortgage-backed

14 security trading committee. And at the same time,

15 I would like you to take a look at Tab 380, which

16 is A1409.

17 A. You mean you want me to do that next?

18 This one first and then this one?

19 Q. The two of them.

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

21 Q. Now --

22 A. Whoa, whoa. I haven't even gotten


1 through the first page. (Witness reviews the

2 document.) Okay. I've read the first one. Let

3 me -- (witness reviews the document.)

4 Q. Now, I've given you 3080, A1409,

5 because of your comment that there were meetings

6 that you were not in attendance at. And I'm going

7 to ask you some questions about the subcommittee,

8 the mortgage-backed security trading committee, a

9 point made there and a point that is made in the

10 investment committee minutes. And I want to probe

11 your recollection of certain matters.

12 A. Okay. Now, again, I haven't had a

13 chance to look at this. But the only thing to

14 your point, 1409 indicates that I was not there.

15 Q. That's correct. I've just given you

16 the document to make the record clear.

17 A. I'm sorry. You said probe your

18 recollection.

19 Q. I understand.

20 A. So, I've not looked at -- I have not

21 looked at this one then.

22 Q. That's fine.


1 A. Got it.

2 Q. That's fine. I'm just giving you both

3 of these documents because there's some paragraphs

4 in there that I want to direct you to to probe

5 your recollection of matters.

6 A. Not of the meeting that I wasn't --

7 Q. Not of the meeting. Certain topics

8 that were discussed at those meetings. The first

9 document that I want to direct your attention to

10 is B1212.

11 A. Okay.

12 Q. And that is to look at the last -- the

13 last two paragraphs of B1212 on Page 1.

14 A. This is -- again, this is also a

15 meeting at which I was not, so --

16 Q. That is correct.

17 A. All right. (Witness reviews the

18 document.) Okay.

19 Q. Okay.

20 A. I've looked at those two paragraphs.

21 Q. Now, do you recall that there was a

22 change in how USAT was required to account for


1 gains on sales of its mortgage-backed security

2 portfolio?

3 A. Looking at these two paragraphs, it

4 jogs a recollection; and I think it's the

5 reference in the second -- I guess the first

6 sentence of the last paragraph that with the new

7 accounting treatment, gains and losses on trades

8 are recognized immediately.

9 Q. Right.

10 A. So, I'm assuming that means that with

11 the old accounting treatment, they weren't

12 necessarily recognized immediately.

13 Q. Do you recall that there was a change

14 in the accounting treatment?

15 A. I vaguely recollect some -- and I don't

16 know whether it's attached to that one. I recall

17 some change in accounting, one of which was

18 accompanied by some complex conversation inside

19 Peat Marwick. But I don't know if this is the

20 one. So, I have a vague recollection of a change

21 in accounting treatment.

22 Q. Now, do you -- it also says that "with


1 the tradeoff, with the change," okay --

2 A. There is a tradeoff. Is that what

3 you're saying?

4 Q. See where it says there is a tradeoff?

5 A. I see that.

6 Q. Do you recall that there was a

7 discussion about the tradeoff between one-time

8 earnings gains or losses and changes in the

9 recurring net interest margin subsequent to the

10 accounting change?

11 A. I don't -- I don't have any useful

12 sense right now of that level of detail, no, sir.

13 Q. Now -- so, you don't know whether or

14 not there was a discussion about the impact of

15 taking one-time earnings gains as opposed to the

16 recurring net interest margin at USAT?

17 A. If there ever was a -- I'm sorry. Can

18 you read me that -- can somebody read me that

19 question again?

20 Q. I'll rephrase the question for you.

21 A. Okay.

22 Q. You don't recall any discussions on the


1 significance of one-time earnings gains as a

2 tradeoff to the impact on recurring net interest

3 margins?

4 A. Any discussions anywhere at any time?

5 Q. With regard to the mortgage-backed

6 securities portfolios.

7 A. Not related to these two -- I recall

8 vaguely --

9 Q. At or about September --

10 A. Between the board, the strategic

11 planning group, management people, I have a sense

12 that there were regular discussions about

13 strategic choices, interest rate implications,

14 some of the issues mentioned here.

15 Q. Well, in -- from September through

16 December of 1986, were sales made out of the

17 mortgage-backed security portfolio at USAT to

18 generate quarterly profits?

19 A. I don't know.

20 Q. You don't know? You don't have any

21 recollection?

22 A. You're asking me about a period -- I


1 don't know. I mean, those are days 12 years ago

2 on specifics that weren't my responsibility

3 directly; and so, I don't know.

4 Q. Okay. But you did participate in the

5 creation of the investment committee. You sat in

6 on the investment committee?

7 A. Well, you showed -- you just showed me

8 an item which you didn't get me through past, for

9 me, the most relevant paragraph, which is the one

10 saying that on September 18th, there was an

11 investment committee meeting at which I was not

12 present.

13 Q. All right. Let's move on to another

14 set of documents. Let's look at Tab 353, which is

15 A1422. This is the 12/15/86 investment committee

16 minutes.

17 A. (Witness reviews the document.)

18 Q. Now, the text in the first paragraph

19 says, "A joint meeting of the investment committee

20 of UFG and USAT was held on December 15th, '86,

21 and all members of the committee were present."

22 You were a member of the committee at


1 this time, were you not?

2 A. I was.

3 Q. Now, do you see further down it says,

4 "Ms. Sandy Laurenson then presented a review of

5 the mortgage-backed security portfolio"?

6 A. Yes.

7 Q. Now I would like to direct your

8 attention to a document -- mine has -- do you have

9 US Bates stamp numbers on the right-hand corner at

10 the bottom?

11 A. Yes. They are sort of vague. The top

12 one is US305150.

13 Q. Go to 5157.

14 A. Okay.

15 Q. That's the third page of what has been

16 testified to as Sandy Laurenson's report to the

17 committee.

18 A. Okay.

19 Q. Do you recall receiving such reports,

20 seeing reports like this?

21 A. Vaguely, yes.

22 Q. Where Sandy Laurenson reported on the


1 activities of the previous week in the

2 mortgage-backed security portfolios. Right?

3 A. This seems familiar.

4 Q. Now, do you know what any of those

5 columns refer to there? Do you see the column

6 that says "portfolio"?

7 A. Yes.

8 Q. See where it says "investment"?

9 A. Yes.

10 Q. Do you know what that refers to?

11 A. I'm assuming it refers to the list of

12 in the next column.

13 Q. The MBS is in the next column. Do you

14 know the significance of the characterization

15 "investment"?

16 A. No.

17 Q. Do you see the column headed "MBSs"?

18 Do those appear to be descriptions of securities?

19 A. Some of them seem familiar under the

20 column of MBSs, mortgage-backed securities; and it

21 looks to be a list of mortgage-backed securities.

22 Q. Do you know what this -- the next


1 column is referring to where it says "principal"

2 where it has parens and then it has numbers that

3 are not in parens?

4 A. No.

5 Q. Do you know what the column "swap and

6 gain" refers to?

7 A. No.

8 Q. Do you know what market yield refers to

9 in parens?

10 A. No.

11 Q. Did you ever know?

12 A. The only thing I can say with a fair

13 degree of confidence is that I probably knew more

14 than I know right now.

15 Q. Do you see the column that says

16 "accounting" and the dollar sign?

17 A. Yes.

18 Q. Do you know what that refers to?

19 A. Specifically in this context, no.

20 Q. Do you know what the turnover was in

21 the mortgage-backed security portfolio from

22 September through December of 1986?


1 A. No.

2 Q. Did you ever know?

3 A. I don't know.

4 Q. I would like to direct your attention

5 to another document which is Tab 354, which is

6 A1423. This is one of those meetings where you

7 were not in attendance again; and so, I will skip

8 this and move to another -- another meeting.

9 And that is -- I would like to direct

10 your attention to the investment committee minutes

11 of January 21, 1987, which is at A1426, Tab 357.

12 This document says all members of the committee

13 were present.

14 Do you see that?

15 A. I do. I'm assuming it's in the period

16 before I officially departed, yes.

17 Q. Now, I would like to direct your

18 attention to -- yours has US3 Bates stamp numbers

19 starting with 5220 on the first page?

20 A. Yeah, uh-huh.

21 Q. Look at 5226.

22 A. Is that this?


1 Q. Right, which is the difficult font

2 again.

3 A. Can you read this?

4 Q. I can read some of it.

5 Do you see in the left-hand corner, it

6 says, "MBS settled portfolio January 20, 1987"?

7 A. I don't, but if you -- is that in the

8 top upper left?

9 Q. Top upper left.

10 A. I see "settled portfolio." I can't --

11 well, I'll -- if you can tell me that's what it

12 says, that's fine.

13 Q. Looking at this document and looking at

14 the agency -- see the column "agencies"? Is that

15 referring to mortgage-backed securities?

16 A. I can't see it.

17 Q. The second column?

18 A. Okay. That says "agency."

19 Q. Do you see that?

20 A. I do now.

21 Q. Looking down that column, isn't that

22 describing mortgage-backed securities?


1 A. I don't know.

2 Q. Okay. You don't know.

3 Look at the next page, which is

4 US35227. Do you see the term at the very top in

5 the middle that says "sales"?

6 A. I see that word, yes.

7 Q. Look over in the left-hand column. Do

8 you see where it says "investment," under

9 "portfolio," the far left-hand column? See "INVST

10 period"?

11 A. Yes.

12 Q. Look at the dollar amounts in the third

13 column under "total investments."

14 Do you see that?

15 A. My third column over says something

16 like "premium" or "discount."

17 Q. I'm sorry. Starting -- the first

18 column being the word "investment" at the top.

19 Then you have the description of the security,

20 agency. Okay?

21 A. Whatever, yes.

22 Q. And then the third says "face." Do you


1 see that?

2 A. Yes.

3 Q. And do you see down at the bottom --

4 this is in thousands. It says 1,018,589,000.

5 Do you see that?

6 A. I do.

7 Q. That shows sales. Then look at the

8 next page. It's US352218 which at the top says

9 "purchases."

10 Do you see that?

11 A. Yes.

12 Q. Do you see under -- look at the portion

13 that deals with "INVST" again.

14 Do you see that?

15 A. Yes.

16 Q. It shows under the face amount for

17 total investments on this page 591,475,000?

18 A. I can't read the number, but I see a

19 number.

20 Q. Now -- in the period September through

21 December of 1986, do you have any idea what the

22 magnitude of the turnover was for the


1 mortgage-backed security investment portfolio at


3 A. No.

4 Q. This doesn't refresh your recollection?

5 A. No. I don't begin to understand what

6 this says.

7 Q. Okay. Let's turn to another page in

8 the document. It's 5224. See under the

9 sensitivity analysis, that paragraph?

10 A. I see that, uh-huh.

11 Q. See where it says the MBS portfolio

12 when combined with the interest rate swaps are

13 favorably positioned for further rate declines?

14 A. I see that sentence.

15 Q. Now, do you know what the phrase

16 "favorably positioned for further rate declines"

17 refers to?

18 A. No.

19 Q. Do you know what it means to have a

20 portfolio that's favorably positioned for interest

21 rate declines?

22 A. I don't know -- I've heard different


1 conversations about interest rate impact on

2 portfolios, but I don't know what the phrase

3 "favorably positioned" means.

4 Q. I would like to direct your attention

5 to the Bates stamp 5225, which is the second page,

6 the page following the one that has the "favorably

7 positioned for interest rate declines."

8 Do you see where it says "liquidation

9 value, MBS portfolio"?

10 A. Yes.

11 Q. Now, see where it has the column

12 "yields unchanged"?

13 A. "Yields unchanged."

14 Q. And yields up 100 basis points and

15 yields down 100 basis points?

16 A. Yes.

17 Q. Do you know what this chart is

18 referring to?

19 A. Other than what it -- I don't know

20 anything more than what it says.

21 Q. Well, what does it say to you?

22 A. It seems to be a description of the


1 liquidation value of some mortgage-backed security

2 portfolio as of -- or dated January 1 --

3 January 21, 1987. It shows different kinds of

4 mortgage-backed securities, residuals, and

5 something above residuals. I don't know what that

6 is.

7 Q. Well, do you know what the column

8 "yields unchanged, yields up 100 basis points,

9 yields down 100 basis points" refers to?

10 A. I'm assuming it refers to interest

11 rates.

12 Q. Changes in interest rates, Mr. Munitz?

13 A. I don't know that. I mean, they are

14 all -- I mean, yields -- I don't know whether it

15 means changes in interest rates or changes in

16 yields. That is, if the yield -- that column says

17 what happens if yields are down 100 basis points.

18 I don't see any reference to interest rates.

19 Maybe I made a bad assumption. Maybe it's more

20 about what happens if yields go up and down 100

21 basis points, not interest rates.

22 Q. You mean yield on the portfolio, the


1 mortgage-backed security portfolio? Is that what

2 you're saying?

3 A. Well, I don't know because there's -- I

4 mean, as I said, I don't know what these bottom

5 pieces are. So, I don't know whether that

6 includes all the pieces or whether this is an

7 analysis of changing yield patterns for some

8 mortgage-backed security portfolio.

9 Q. Did you ever know?

10 A. As I said earlier, I probably knew more

11 about this sitting there and hearing people

12 describe and explain it 11 and a half years ago

13 than I know about it right now.

14 Q. So, we would have to rely on the

15 testimony of the people who have testified who

16 managed that portfolio for the meaning of that

17 chart that says "liquidation analysis"?

18 A. I don't know how to -- I don't know

19 what you would rely on. If I were -- I relied on

20 the people who were hired to be the thoughtful

21 people in this functional area.

22 Q. And who was that at the time?


1 A. January 21, 1987, for a mortgage-backed

2 security portfolio would have been Ms. Laurenson.

3 I don't know where Mr. Phillips was then.

4 Mr. Crow, Mr. Gross certainly, Bruce Williams.

5 People -- people like that, I suppose.

6 Q. Now, was -- let me rephrase that.

7 Is a decision to have a portfolio that

8 would make money if interest rates moved in one

9 direction as opposed to the other a policy

10 decision, from your perspective?

11 A. In some settings, it is. In some

12 settings, it isn't. It depends upon the --

13 Q. Let's take an insured depository

14 institution. If you make a decision in that

15 institution that you are going to be more

16 favorably positioned if interest rates decline

17 than if they increase, is that a policy decision?

18 A. I'm just not sure. It's a -- it seems

19 to me the sort of decision that is somewhere

20 between investment committee, management team,

21 board, auditors, examiners, regulators,

22 disclosures, that at some level and at some


1 context, general issues about investment process

2 would have been discussed, disclosed, examined.

3 Q. You were on the investment committee.

4 Right?

5 A. I think we've established that I was a

6 member of the investment committee for a period of

7 time.

8 Q. And you were there to provide policy

9 direction to that committee, were you not?

10 A. No. I think what I said was I was

11 there to try to be sure that as it was getting

12 started, that there were people there who were

13 capable of providing policy discussion.

14 Q. Let's take a look at another document,

15 which is B1580, which is at Tab 1659, and T4266

16 (sic), which is at Tab 1660.

17 A. (Witness reviews the document.)

18 THE COURT: Would you state that second

19 number again, Mr. Guido?

20 MR. GUIDO: Yes, Your Honor. T4366,

21 which is at Tab 1660.

22 A. Is that the first one? I have two


1 here.

2 Q. (BY MR. GUIDO) The first one was B1580,

3 and the second one was T4366.

4 A. Which one do I start with?

5 Q. Start with B1580.

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

7 Okay.

8 Q. B1580 is a memorandum from Art Berner

9 directed to Charles Hurwitz, you, Mr. Gross, and

10 Mike Crow dated April 22, 1987.

11 Do you see that?

12 A. Yes.

13 Q. And do you see the point -- Point 3 on

14 the memo?

15 A. On the first page?

16 Q. On the first page about tactics and

17 strategies that were based on perceptions of

18 interest rate movements.

19 A. I do.

20 Q. And now take a look at T4366, which is

21 the Jenard Gross memo to the members of the

22 strategic planning committee dated April 27th,


1 1987.

2 Do you see the first paragraph that

3 says, "What keeps evolving at investment committee

4 meetings is the obvious point that we do not have

5 any strategic plan or policy with regard to

6 interest rates"?

7 A. Yes, I see that.

8 Q. Then I would like to direct your

9 attention to T4364, which is at Tab 877. This is

10 a memorandum from Mike Crow to Charles Hurwitz,

11 Jenard Gross, Barry Munitz, and Art Berner. If

12 you look at Page 2 of the document, it's dated

13 5/1/87. It says "United Financial Group

14 restatement and overview of the problem."

15 Do you see that?

16 A. Yes.

17 Q. I would like to direct your attention

18 to the very last page where it talks about

19 alternatives.

20 A. I haven't read this, but --

21 Q. It talks about "an alternative is a

22 possible further expansion of United MBS." Do you


1 see that in the top paragraph on the last page?

2 A. "The alternative that is possible is

3 further expansion of the United MBS."

4 Q. It says, "Among others, the following

5 issues have to be addressed before expansion can

6 take place."

7 Do you see that?

8 A. Uh-huh. (Witness nods head

9 affirmatively.)

10 Q. See the Point 2? It says, "An almost

11 black box lack of understanding of these

12 securities. This area is very complex and is

13 obviously not mastered by the Wall Street firms.

14 It is naive to think UFG is on a parity level of

15 understanding with Wall Street."

16 Do you see that?

17 A. I do.

18 Q. After reading those three memorandum,

19 do you believe that you had the -- established the

20 initial framework for mortgage-backed security

21 activities at USAT and had the right people in

22 place?


1 A. At the time of the initial framing, the

2 right people in place?

3 Q. At the time that you wrote the memo on

4 May 19, 1987, having read these three memorandum

5 together --

6 MR. KEETON: Your Honor, I couldn't

7 hear a word of that mumble.

8 MR. GUIDO: Sorry, Your Honor. I'll

9 rephrase it.

10 THE COURT: Speak a little louder.

11 Q. (BY MR. GUIDO) At the time you wrote

12 this memorandum, B1626, which is your resignation

13 letter -- do you remember that?

14 A. Okay.

15 Q. -- which was May 19, 1987, which you

16 testified about, you resigned because you had the

17 right people in place, you had the right framework

18 in place, and you didn't think you were needed any

19 longer.

20 Do you recall that?

21 A. I recall the memo, sure.

22 Q. Having read these three memoranda,


1 including Mike Crow's memorandum that there's a

2 black box lack of understanding of the

3 mortgage-backed securities portfolio, do you think

4 that your description of why you resigned is

5 accurate?

6 A. Well, I can only reflect -- I wrote the

7 memo. I believe what I wrote is the reason for

8 why I was not any longer a key, useful person to

9 that committee in terms of getting it started. I

10 think in looking at particularly the Berner --

11 well, all three of the memos.

12 I mean, clearly there were now people

13 who were thinking, who were examining, who were

14 asking hard questions, who were seeking advice,

15 who were talking with auditors, with accountants.

16 That was what I had been asked to do, get that

17 conversation started and provide a framework, not

18 to provide all the answers or certainly not for me

19 to provide clarity and understanding.

20 So, for me, many of these comments

21 reflect very clearly that we had thoughtful,

22 caring people who kept asking and kept examining


1 and kept seeking advice.

2 Q. And you concluded that they had a black

3 box lack of understanding?

4 A. This is -- I'm not going to comment on

5 a memo from Mike Crow. I see this as nothing more

6 or less than a statement from Mike Crow. I don't

7 know that it's right or wrong.

8 Q. Okay. Let's move to another topic --

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

10 you have?

11 MR. GUIDO: I probably have half an

12 hour, maybe 45 minutes.

13 THE COURT: All right. We'll adjourn

14 until 1:30.


16 (Whereupon, a lunch break was taken

17 from 12:07 p.m. to 1:35 p.m.)


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

20 be back on the record.

21 Mr. Guido.

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


1 just moving into the area of the accountants. And

2 I would like to -- the first paragraph I was

3 showing you was a document which was the 10K for

4 December 31, 1986, which is A3022. It's Tab 719.

5 Now, you were a director of United

6 Financial Group, were you not, Dr. Munitz?

7 A. Yes, sir.

8 Q. And you signed the 10Ks that were filed

9 by United Financial Group, did you not?

10 A. I believe so.

11 Q. Take a look at the Bates stamp OFD12913

12 on the document that you have before you.

13 MR. EISENHART: Your Honor, may we have

14 a page reference for that? I think some of our

15 copies don't have the Bates stamp numbers on them.

16 MR. GUIDO: It's the last page, 67, of

17 the document before the exhibits. I think it says

18 Page 67. It's one of the signature pages.

19 A. I've got it.

20 MR. GUIDO: Mr. Eisenhart?

21 MR. EISENHART: I have it. Thank you.

22 Q. (BY MR. GUIDO) That shows that you


1 signed the document on March 17, 1987?

2 A. Yes, sir.

3 Q. Now I would like to direct your

4 attention to Page 29 --

5 A. Of the --

6 Q. Of the document itself, which is

7 OFD12875. I'm sorry. Some people don't have that

8 number; and others of us can't read the fine

9 print, Dr. Munitz.

10 A. Okay.

11 Q. Look at the second paragraph -- the

12 first full paragraph at the top of the page of

13 Page OFD12875 which talks about the growth of the

14 institution in recent years.

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

16 Q. Have you had a chance to read that

17 paragraph?

18 A. I've read that paragraph, yes.

19 Q. Now, when you signed the 10K, what was

20 your practice in terms of reviewing the document

21 itself?

22 A. I would have looked at either a draft


1 that was close to a final or the final version. I

2 would have listened to whatever presentation was

3 made by the -- I would not have been a drafter of

4 it. I would have listened to a presentation about

5 it when it was made, assumed then that the -- that

6 the proper disclosure was made, that it was sent

7 where it was supposed to go. And, basically, that

8 was it.

9 Q. And what was your understanding of what

10 the requirements were under the Securities and

11 Exchange Act when you signed that document? What

12 were you vouching for?

13 A. I'm not sure I can -- I'm not sure I

14 can comment legally on what the requirement was.

15 Q. What was your understanding as to the

16 requirement why you were required to sign the

17 document?

18 A. As a member of the board, I had

19 ultimate responsibility for what was being said in

20 it.

21 Q. Now, I would like to direct your

22 attention to Tab 569, which is T4320. This is a


1 set of the Doug Hansen -- do you only have one

2 page?

3 A. I have a single page.

4 Q. Okay.

5 A. 4320?

6 Q. Right.

7 A. Yeah, I have a single page.

8 Q. Now, this is another one of those

9 Doug Hansen memoranda regarding the strategic

10 planning committee meeting notes. This is

11 December 17th, 1986; and it's addressed to you,

12 Mr. Hurwitz, Mr. Gross, and others who sat in on

13 the strategic planning committee.

14 Do you see that?

15 A. I see that, yes.

16 Q. Now, look at Item No. 8. I know it's

17 difficult to read these. I have had the advantage

18 that respondents' counsel have typed up the

19 rendition and also having witnesses who had better

20 eyesight. If you can't read that, I'll be happy

21 to read that to you.

22 A. I would appreciate your reading it.


1 Q. Item No. 8 says, "High-yield bonds. In

2 quarter 1987, we should grow with BB bonds

3 250 million phased in. Need to look at bond and

4 CD zeros. Need to decide duration of funding."

5 Then it says, "Economic spread to date has been

6 360 basis points; this has been reduced to 220 on

7 an accounting basis due to profit taking."

8 Then look at Item No. 9. Can you read

9 that one?

10 A. No. You'll have to read that one.

11 Q. "MBS: Should grow up to an additional

12 500 million in the sub in 1987 with minimum 100

13 basis point real spread. Economic spread to date

14 is 45 basis points. This will give an accounting

15 spread of minus 108 basis points in 1987 due to

16 profit taking."

17 Do you see that?

18 A. Yes.

19 Q. Does that refresh your recollection

20 that in between December and September of 1986,

21 sales were made out of the high-yield bond

22 portfolios and mortgage-backed securities


1 portfolio to generate gains to bolster quarter

2 profits?

3 A. First of all, again, as I said before,

4 that was a very long question. Some of the

5 phrases you've just used I don't see in here.

6 And secondly, it refreshes my memory

7 only to the extent that you just read it to me.

8 Third, I never know with -- some of

9 these are notes going into a meeting. Some of

10 these are notes that look like minutes from a

11 meeting. So, I don't know what was then decided.

12 The strategic planning committee was not an

13 operating committee that had responsibility for

14 making decisions.

15 So, on all of those grounds, I have to

16 answer your question "no."

17 Q. Did the strategic planning committee

18 have oversight over the investment committee?

19 A. No.

20 Q. Okay. Now -- but whether or not these

21 are minutes of a meeting that occurred, what was

22 discussed at a meeting, or Doug Hansen reporting


1 facts to you and the other members, it does point

2 out that with regard to the high-yield bonds, that

3 the spread has been reduced to 220 on an

4 accounting basis due to profit taking, does it

5 not?

6 A. All I know is what you just read to me.

7 Q. You don't know anything -- that doesn't

8 refresh your recollection with regard to these two

9 memos?

10 A. No, sir.

11 Q. Did the accountants raise any questions

12 with you during this 1986-1987 time period

13 regarding the proper accounting for the

14 mortgage-backed security portfolio and

15 documentation of transactions in that portfolio?

16 A. The in-house accountants or the out --

17 Q. Peat Marwick accountants.

18 A. Peat Marwick?

19 Q. Yeah.

20 A. I don't -- in the time frame which

21 you've stated in the topic, I don't remember a

22 particular conversation with them defined by that


1 period.

2 Q. Do you recall any questions being

3 raised by Peat Marwick with USAT with regard to

4 the turnover in its mortgage-backed security

5 portfolio?

6 A. The only specific conversation I recall

7 is the one I think we talked a little bit about

8 this morning where it related to one set of

9 transactions. I'm not sure I remember which ones.

10 I remember a pretty strong disagreement between

11 the Peat Marwick accountants who had been giving

12 us guidance about the accounting for certain

13 transactions and their superiors in Washington or

14 New York who reversed the decision of the local

15 Peat Marwick people.

16 Q. Didn't that involve the June 1986

17 financials and the restatement of the

18 March 31st -- March 30th financials?

19 A. As I said earlier, I'm just not sure.

20 I remember the strangeness of that difference of

21 opinion. I just don't remember specifically what

22 transaction or set of transactions that dealt


1 with. That is a time I remember questions coming

2 from Peat Marwick both to their colleagues and to

3 us about the accounting transactions like this or

4 I think like this.

5 Q. Was one of the accountants' concerns

6 that was raised with you was the portfolio being

7 managed for its intended purposes?

8 A. Again, at this point, having said just

9 now that I don't remember specific conversations

10 with them, much less the period of time they would

11 have occurred, we were in such ongoing regular

12 exchange with our accountants, I just don't know

13 when, what issue would have been addressed, or

14 what the particular issue was.

15 Q. Well, did the accountants raise with

16 you questions about whether or not you were

17 managing the portfolio to maintain a spread as

18 opposed to managing it like the equity arbitrage

19 portfolio to generate gains?

20 A. Well, again, I vaguely remember

21 conversations with them about the nature of

22 different transactions and how one would account


1 for them. If by "raised questions with me," do

2 you mean -- or "with us," I wouldn't have been the

3 one they would have been talking to, other than as

4 a member of the board -- if you mean did they

5 raise questions in the sense of "tell us now what

6 you're doing and how this works and we'll tell you

7 what we think the proper accounting is" or if you

8 mean "we've seen what you've done and we have a

9 question about them" --

10 Q. We've seen what you've done, and we

11 have a question about them.

12 Do you recall that --

13 A. That, I do not recall.

14 Q. I would like to show you Exhibit B1410

15 which is at Tab 910, which is the Joe Parsons memo

16 of January 5, 1987. It's Exhibit B1410, Tab 910.

17 Do you see the second paragraph in the

18 document? It says --

19 A. You need to go slower here. I've never

20 seen this. It doesn't show that I ever did see

21 it. If you're going to ask me questions about it,

22 let me look at it for a minute, please. (Witness


1 reviews the document.) Okay. I've had sort of an

2 overview.

3 Q. Do you see the audit concern there?

4 A. In the first page?

5 Q. Yeah, the first page, the second

6 paragraph.

7 A. Yes.

8 Q. Do you see where it says that

9 Peat Marwick has noted a considerable amount of

10 activity in the high-yield bond and

11 mortgage-backed securities portfolio that raises

12 concerns?

13 A. Well, I see the paragraph, yeah.

14 Q. Okay. Was that raised with you?

15 A. I don't ever remember seeing this

16 document.

17 Q. Did Mr. Crow ever discuss with you or

18 members of the investment committee that

19 Peat Marwick had raised questions about the proper

20 accounting for the mortgage-backed security

21 portfolio?

22 A. Well, in a very quick reading of a


1 document I've never seen, on Page 3, those four

2 indented bullets sound something like comments

3 that Mike Crow made or would have made to us; but

4 I have no earthly idea whether it related to this

5 memo. It sounds vaguely familiar as to sorts of

6 things he would have said to us were sound

7 practice. And, again, I assume -- since it at

8 some point must have been resolved.

9 Q. Now, when you say he would have raised

10 with you as sound practice, are you testifying

11 that he did raise those with you; or are you just

12 assuming that your knowledge of Mike Crow, he must

13 have raised those things with you?

14 A. I wouldn't even say "must." I cannot

15 testify at this point that I know he did.

16 Q. So, you don't know if it was raised

17 with you?

18 A. Right.

19 Q. Now, did you have any discussions with

20 either Art Berner or Jenard Gross in which they

21 discussed with you that there was not enough

22 detail and clarity about the nature of the MBS


1 portfolio and particular decisions that were being

2 made with regard to that portfolio?

3 A. Well, I could be confused about a

4 couple of dates. But I think sometime earlier

5 today, you showed me a memo or two, one from

6 Mr. Gross and one from Mr. Berner. I hope I'm not

7 confusing that with something we looked at

8 yesterday, but I thought two of the exhibits you

9 showed me were memos from Mr. Crow or Mr. Gross to

10 a group that included me making some of the points

11 it sounds like you just made.

12 Q. I'm not asking you about the memos that

13 I showed you. I'm asking you whether or not you

14 had conversations with them in which they

15 indicated to you that there wasn't enough detail

16 and clarity about the nature of particular

17 decisions being made with regard to

18 mortgage-backed securities or on the overall MBS

19 pattern?

20 A. They would have been triggered in

21 some -- yes. The reason why I linked them was

22 that some of them I'm almost certain at this point


1 were either triggered by or led to the memos that

2 you showed me this morning.

3 Q. And do you recall that there -- Jenard

4 Gross in particular had raised questions about the

5 1986 time period, early 1987 time period, with you

6 that the reports that were being given to the

7 investment committee by Sandy Laurenson didn't

8 describe sufficiently the nature and the purposes

9 of the transactions that she was engaged in in the

10 mortgage-backed security portfolio?

11 A. But for my inability to say

12 specifically the date, yes. I just can't say -- I

13 very much recall conversations like that. I'm

14 just not sure at this point precisely when the

15 date was.

16 Q. Sandy Laurenson was hired in October of

17 1986. Right?

18 A. Sounds about right.

19 Q. And she was let go in February of 1988.

20 Right?

21 A. That, I don't remember either, exactly

22 how she left or the date; but that sounds roughly


1 in that period.

2 Q. Do you know why she left?

3 A. Well, I'm not sure at this point why

4 exactly she was let go or left. I remember there

5 was a day she was no longer there.

6 Q. Now, you indicated that Mr. Gross and

7 Mr. Berner had questions about the completeness of

8 her report or the specificity and detail of her

9 report to ascertain what the purposes of the

10 nature of the transactions were. Right?

11 A. And the clarity.

12 Q. Right. Okay. Now, who was the

13 secretary of the investment committee?

14 A. I think the answer to that is Art

15 Berner, but I'm not sure.

16 Q. Okay. Art Berner raises questions

17 about the clarity of Sandy Laurenson's report with

18 you. Right?

19 A. Yes.

20 Q. Why didn't he, when he drafted the

21 minutes, make the minutes contain the clarity that

22 he thought was required?


1 MR. VILLA: Objection. I can't imagine

2 how any person --

3 THE COURT: Sustained.

4 MR. VILLA: -- could answer that

5 question.

6 Q. (BY MR. GUIDO) Did Mr. Berner attempt

7 to summarize the purposes and the nature of the

8 transactions because he felt that Sandy

9 Laurenson's reports were not clear with regard to

10 the nature and the purposes of the transactions?

11 MR. VILLA: Objection. Again, we're

12 asking why Mr. Berner -- we had Mr. Berner. If he

13 wanted the answer to those questions, he should

14 have asked Mr. Berner.

15 MR. GUIDO: I didn't ask him why. I

16 asked him whether or not he did and whether this

17 witness knows.

18 THE COURT: All right. Denied. Can

19 you answer that?

20 A. I believe one of the memoranda that I

21 was shown earlier has Mr. Berner attaching the

22 full Sandy Laurenson report. And my sense was --


1 or maybe it was reflected in one of the

2 memoranda -- that one of the reasons why he was

3 doing that was to say, "I'm not sure I understand

4 all the details."

5 So, for the sake of completeness of the

6 minutes for those rest of you who are looking at

7 it or, indeed, for examiners, for accountants,

8 others who will look at the minutes, I'm going to

9 put the whole report in. That's my best memory of

10 what was happening there.

11 Q. (BY MR. GUIDO) I thought you just

12 testified that Art Berner told you there wasn't

13 enough detail and clarity in those reports.

14 A. I think what I just said was what he

15 was doing, to my sense, was the best that he

16 could. He summarized the details. He would ask

17 questions. I don't remember, as a board member,

18 being in conversations with our own auditors or,

19 indeed, with Bank Board regulators who were

20 looking at these minutes and these reports and

21 being asked as a board member about this level of

22 detail. So, I assumed that those people who were


1 charged with this responsibility were carrying

2 them out.

3 Q. My question for you was: Did Art

4 Berner tell you that there wasn't enough clarity

5 to ascertain the nature and purposes of the

6 transactions in Sandy Laurenson's report? And I

7 think you testified "yes." Right?

8 MR. VILLA: I'll object. Why don't you

9 ask him the question. You've recharacterized his

10 testimony three times. Ask the question and let

11 him answer it instead of telling him what his

12 testimony was.

13 A. I don't know. What is the question at

14 this point?

15 Q. (BY MR. GUIDO) The question is: Did

16 Art Berner tell you that there wasn't sufficient

17 clarity in Sandy Laurenson's reports to ascertain

18 the nature and purposes of the transactions?

19 A. At a certain point in time. He

20 didn't -- it wasn't a longitudinal issue

21 necessarily. What I said was I remember at least

22 one exchange with Mr. Berner where he expressed to


1 me a concern about the clarity of the reports.

2 Q. You don't know whether the nature of

3 the reports have changed subsequent to his

4 expression of concern?

5 A. That, I don't know.

6 Q. Now, I would like to ask you some

7 questions about Mr. Williams' and Sandy

8 Laurenson's testimony.

9 Gerald Williams testified at Page 6390

10 of the transcript that --

11 A. I'm sorry. Is that something I have?

12 Q. No. Would you like a copy of that?

13 A. I guess it depends on what you're going

14 to ask me. I just didn't know if you had given it

15 to me.

16 Q. I'll give you a copy of the transcript.

17 A. Thank you.

18 Q. Mr. Williams was asked a series of

19 questions about --

20 MR. VILLA: Your Honor, if we had known

21 these pages were going to be brought up, we would

22 have brought it. Do you have an extra copy for us


1 to see?

2 MR. GUIDO: Yes.

3 MR. VILLA: Thank you.

4 THE COURT: What's your question,

5 Mr. Guido?

6 Q. (BY MR. GUIDO) My question is -- would

7 you take a look at the last -- Page 6390 after

8 Mr. Williams was shown a number of documents, he

9 was asked the question of whether or not -- "Does

10 this refresh your recollection that sales were

11 made out of the mortgage-backed security

12 risk-controlled arbitrage portfolio to generate

13 quarterly earnings?"

14 ANSWER: "Mortgage-backs?"

15 QUESTION: "Yes."

16 ANSWER: "Yes."

17 Now, do you have any information that

18 this Court should have to contradict Mr. Williams'

19 testimony.

20 MR. KEETON: Your Honor, I'm going to

21 object and maybe cut short a whole lot of other

22 things. He's been asked this question. He told


1 what he knew. Now we're going to read excerpts

2 from Mr. Guido's favorite parts of the testimony

3 in this case. There will be a time for it, but

4 it's not now.

5 THE COURT: I'm not sure any value is

6 served by asking one witness to comment on

7 another's testimony.

8 MR. GUIDO: Your Honor, this is a

9 respondent in the case; and I'm giving him an

10 opportunity to respond to what other people have

11 said about these matters.

12 MR. KEETON: I've never heard of a rule

13 that said because you're a respondent, the Rules

14 of Evidence just go out the window. He was asked

15 this specific question two or three times and

16 answered two or three ways. I'm saying to bring

17 up another witness' testimony just because he's a

18 respondent and saying "Now you're going to get a

19 chance to comment on it" is improper.

20 THE COURT: All right. I'll sustain

21 it.

22 Q. (BY MR. GUIDO) Let me ask you another


1 question. Do you know of any fact that would

2 explain why the comptroller of USAT did not know

3 that sales were being made out of the

4 risk-controlled arbitrage mortgage-backed security

5 portfolio to bolster quarterly profits?

6 MR. KEETON: I object to the form of

7 the question. Who is, quote, "the controller"?

8 It sounds like we have some CIA operation now.

9 MR. VILLA: I object. Why don't we ask

10 the witness what he knows instead of asking what

11 Mr. Berner was thinking or what the comptroller

12 knew or didn't know. I mean, this has been --

13 I've refrained from commenting on this

14 examination, but it's really extraordinary. If he

15 asks this person what he knows about underlying

16 events as opposed to trying to charge other

17 testimony from other witnesses in the case, maybe

18 we could make some headway instead of falling

19 backwards.

20 MR. KEETON: I apologize, Your Honor.

21 My colleague said he said comptroller. Again, the

22 light speech or the mumble, I didn't hear it


1 right.

2 MR. GUIDO: I thought I said

3 comptroller, Your Honor. Let me rephrase the

4 question, Your Honor.

5 THE COURT: All right.

6 Q. (BY MR. GUIDO) Was Jim Wolfe the

7 comptroller of USAT during the period of time that

8 you were at USAT?

9 A. First of all, I don't remember the

10 time -- Jim Wolfe worked at USAT. I don't

11 remember the time frame, and I don't remember --

12 he was in the financial area. I don't remember

13 his title.

14 Q. Okay. Was he in the accounting

15 department?

16 A. He was in the broad financial area. I

17 can't tell you exactly when and doing precisely

18 what.

19 Q. Okay. So, you don't know whether he

20 was the comptroller of USAT?

21 A. I think -- right. I just said I do not

22 know what his title was when.


1 Q. Do you know what the role of a

2 comptroller is in an organization?

3 A. I think I have a fair sense of the

4 financial responsibilities that go with being the

5 comptroller.

6 Q. What is that?

7 A. They are involved generally with the

8 monitoring and the oversight of a range of

9 financial activities within a broader portfolio of

10 financial responsibilities at an organization.

11 Q. And would you expect the comptroller to

12 know whether or not transactions are being

13 properly accounted for?

14 A. I think, by and large, depending upon

15 the organization and the nature of the

16 transaction, I would expect the comptroller to

17 have a fair sense of what was going on.

18 Q. Now, I would like to shift to another

19 topic, if I may; and that is that the -- did you

20 ever have any discussions with Jenard Gross

21 regarding his view of what the benefits would be

22 to the shareholders of UFG if USAT were to survive


1 the economic downturn in the Texas economy?

2 A. I remember a lot of conversations with

3 Mr. Gross about USAT's surviving the Texas

4 economy. I don't at this point recall a specific

5 conversation -- if I understand your question --

6 that was limited necessarily to the shareholders

7 of UFGI, but I know Mr. Gross felt strongly about

8 surviving.

9 Q. And do you recall that in those

10 conversations, that you discussed the question of

11 being the last thrift to be left standing?

12 A. Well, I recall Mr. Gross feeling

13 strongly that the problems facing the state of

14 Texas and the Texas economy and financial

15 institutions were ultimately cyclical in nature

16 and that if we could keep a strong group together

17 and act as wisely and as accountably as possible,

18 that he would like us to be -- if there were only

19 one left standing, that it ought to be United.

20 Q. And what would be the benefits of being

21 the one left standing?

22 A. Why would you not want to be the one


1 left standing?

2 Q. I'm just asking you what the benefits

3 would be.

4 A. Well, if the choice was either to

5 survive and prosper or not, people would stay

6 employed. The economy of the local area would

7 benefit from the fact that they were employed.

8 The shareholders of the entity that was

9 responsible for it would achieve value. Those

10 customers and clients who engaged the institution

11 would continue to benefit from it. I'm sure there

12 are others.

13 Q. Did you discuss -- let me show you a

14 document that we've marked as T9025. T9025 is a

15 memo from Jenard Gross to Art Berner, Charles

16 Hurwitz, Barry Munitz, and Gerry Williams dated

17 May 6th, 1986. Now, I'm going to particularly

18 address your attention to the next-to-the-last

19 paragraph of the memorandum, but --

20 A. On the second page?

21 Q. -- I would like you to read it because

22 I'm going to ask you whether or not you recall it.


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

2 Okay.

3 Q. Okay. Do you remember that Jenard

4 Gross raised questions with you with regard to

5 issues that came up regarding the supervisory

6 people at the Federal Home Loan Bank in 1986?

7 A. I don't remember this specific memo and

8 timing; but I remember general conversations with

9 Mr. Gross of this tone, yes.

10 Q. Okay.

11 MR. GUIDO: I move the admission of

12 T9025, Your Honor.

13 MR. VILLA: No objection.

14 THE COURT: Received.

15 Q. (BY MR. GUIDO) I would like to direct

16 your attention now, Mr. Munitz, to the last

17 sentence on the second-to-the-last paragraph on

18 the last page. It says, "I thought that Rick

19 Milinor did an excellent job and Dave Kirkpatrick

20 came up with a great idea suggesting that we give

21 them some resumes of the people who have come on

22 board in the last two years since we had an


1 examination so they would know where we are coming

2 from or maybe even since we acquired the

3 institution."

4 Do you see that?

5 A. Yeah, I see that.

6 Q. Okay. Were the four of the addressees

7 shareholders of UFG?

8 A. You mean Berner, Hurwitz, Munitz,

9 Williams?

10 Q. Yeah.

11 A. And Gross -- you're including Gross?

12 Q. "We can include Gross since we acquired

13 the institution." So, it's the addressees and the

14 person sending the memo?

15 A. Again, I can't tell you who owned

16 shares in what. The other reason for my

17 hesitation is I took the institution -- I assumed

18 that that was referring to the merger.

19 Q. So, you take that as referring to what

20 merger?

21 A. The Houston First/United merger, the

22 "ever since we acquired the institution." Just in


1 my reading of it quickly, I thought he meant in

2 the last couple of years.

3 Q. My question for you is: Are any of

4 those five people shareholders at the time, to

5 your knowledge?

6 A. Of?

7 Q. Of UFG.

8 A. Well, I know that Mr. Gross was a

9 shareholder at some point. I don't know about

10 Mr. Berner and Mr. Williams. I believe I had

11 options at one point. And Mr. Hurwitz was the

12 chief executive officer of two institutions that

13 were shareholders.

14 Q. Pardon? Two?

15 A. Yes.

16 Q. And which institutions were those?

17 A. Federated and MCO.

18 Q. Okay. Now, do you know where

19 Mr. Gross' shares came from that you referred to?

20 A. Where they came from?

21 Q. How he acquired them. Excuse me.

22 A. I know at some point he had a loan to


1 buy shares, but I don't know if those were the

2 only shares he owned or when he might have had

3 other shares. I don't know --

4 Q. Okay.

5 A. -- if that's what you mean by "where

6 they came from."

7 Q. So, you don't know how he acquired the


9 A. Other than I know that he -- I believe

10 that he bought some shares or had the right to buy

11 some shares that was linked in some way to a loan

12 that he had from the institution. It's a memory.

13 Q. And Gerald Williams, did he also have


15 A. I don't know.

16 Q. Okay. And was Charles Hurwitz an owner

17 of Federated, one of the shareholders of UFG?

18 A. Well, I think -- again, depending upon

19 this timing, as I said to Mr. Rinaldi yesterday,

20 Charles Hurwitz was the chairman and the chief

21 executive officer of Federated Development; and I

22 think we walked through in some detail yesterday


1 that Federated Development owned a block of stock

2 in United Financial Group.

3 Q. Okay. And did Charles Hurwitz own a

4 block of stock of Federated?

5 A. Yes.

6 Q. In fact, at some point in time, he

7 owned 100 percent of it, did he not?

8 A. Well, that's why I looked at the date.

9 At some point in time, he and his family --

10 Federated went from being a publicly-held company

11 to a privately-held company, and he and his family

12 would have owned all the shares of Federated.

13 MR. GUIDO: Your Honor, I have no

14 further questions at this time.

15 One second, Your Honor. Let me consult

16 with co-counsel.

17 THE COURT: Do you want to recess

18 before we go?

19 MR. VILLA: Yes. Thank you,

20 Your Honor.

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



1 (Whereupon, a short break was taken

2 from 2:13 p.m. to 2:30 p.m.)


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

5 be back on the record.

6 I believe the direct-examination is

7 complete.

8 MR. NICKENS: Yes, Your Honor. At the

9 conclusion of Mr. Munitz' testimony, the OTS and

10 respondents would request a very brief bench

11 conference with the Court.

12 THE COURT: At the conclusion of --

13 MR. NICKENS: Mr. Munitz' testimony.

14 THE COURT: All right.

15 Mr. Villa, you may cross-examine.




19 Q. (BY MR. VILLA) Dr. Munitz, are you

20 married?

21 A. Yes, sir.

22 Q. What does your wife do?


1 A. She was the deputy director, society

2 director of the Houston Grand Opera when we lived

3 here in Houston. She now directs, pro bono, a

4 project between a number of academic campuses and

5 Warner Brothers to train inner high school and

6 college students to become digital animators.

7 Q. You now live in California; is that

8 right?

9 A. We do.

10 Q. You mentioned the Getty Trust?

11 A. Yes, the J. Paul Getty Trust.

12 Q. I thought you might take a couple

13 minutes and tell us what it is and what your

14 position is there.

15 A. I'm the president and chief executive

16 officer of the trust, which is the holding

17 company, in effect. I report directly to the

18 board. Underneath it, there's a museum that's

19 just opened. The older museum has been now closed

20 for three years to remodel. There's a little

21 academic university, a conservation group which

22 works with people around the world to preserve


1 cultural and artistic heritage and an education

2 institute that for these past 17 years has been

3 working on reintroducing the arts to public

4 schools who are often under budget cuts. The arts

5 are the first things to go to help them bring back

6 an arts curriculum for young people, particularly

7 in inner city schools. Each of those has a

8 director. Those directors report to me, and I

9 report to the board.

10 Q. What is the Getty Trust best known for?

11 A. I suspect most people know it for the

12 museum. There's only been one person in my job

13 for 17 years before me; and when he retired, there

14 was a lengthy search. When I came, it was just

15 about the time the new museum was opening; and

16 there's been an enormous amount of publicity about

17 this facility.

18 Q. How long have you held the position as

19 the chief executive officer of the Getty Trust?

20 A. I was appointed in July of 1997; and I

21 technically began in office at the end of

22 December, early January of '98.


1 Q. And if you would tell us just very

2 briefly, what is the museum, the size and scope of

3 the museum? I think many of us may have seen the

4 publicity when it opened in December of 1997.

5 A. There are about 1200 employees overall.

6 That includes all the pieces that I mentioned.

7 Many of those are museum people and security for

8 the museum. This is the new site that's gotten

9 all the publicity was a ranch of some 700 acres.

10 590 have been preserved as greenbelt. 110 acres

11 have the buildings that house these different

12 entities, and the bulk of the footage is for the

13 museum. It's a collection started by Mr. Getty

14 and then carried forward: Classical, antiquities,

15 European furniture, and 18th and 19th century art

16 and a wonderful collection of photographs.

17 Q. How does the Getty Trust compare in

18 size to other charitable institutions devoted to

19 the arts?

20 A. If you limit it to charitable

21 institutions devoted to the arts, it's by far the

22 largest.


1 Q. In the world?

2 A. Depending upon the currency rate of

3 exchange on any given day.

4 Q. Who do you report to at the Getty?

5 A. I report to the board. I am a board

6 member, but I report to them.

7 Q. Now, we know that you haven't been in

8 the courtroom or even in Houston for the trial;

9 and you told us that you flew in the night before

10 your testimony.

11 Perhaps you can tell us what other

12 activities you're involved in besides your

13 activities directly for the Getty.

14 A. Well, a number of them -- I talked a

15 little bit about them yesterday morning -- relate

16 really to the academic side of my history so that

17 I just try to keep doing a fair amount of work in

18 the educational sector. One of these pieces of

19 ours is an education institute that's easy to do.

20 I am chairing now for the mayor of Los Angeles a

21 special task force to look at the question of

22 bilingual education. This is a monstrously


1 complicated question. The recent June legislation

2 in California passed a complex proposition which

3 dramatically transforms bilingual education. The

4 Los Angeles School District has children speaking

5 over a hundred different languages and the mayor

6 has asked me to put a task force together to help

7 the teachers and school children and teachers and

8 parents, many of whom are not English speakers,

9 confront these new guidelines that no one clearly

10 understands without disrupting the lives of

11 students in the process. I'm spending more and

12 more time on that task force.

13 Q. Do you get paid to work on that task

14 force?

15 A. No, no. Those things I'm mentioning

16 now are really things I don't get paid to do.

17 I've been the co-chair for some time of the

18 strategic planning committee of the public

19 television station in Los Angeles, KCET, which is

20 the biggest public television station by member in

21 the country and is going through dramatic

22 rethinking as the government has reduced its


1 support for public television and public radio. I

2 have just finished several months ago -- I was a

3 member -- really, the vice chair of an 11-person

4 commission established by Congress, 10 appointees

5 from the Congress, one appointee from the White

6 House. The last seat was the seat that I had.

7 Its task was to study why colleges and

8 universities were becoming so expensive. I don't

9 know if you had a chance to read the paper this

10 morning. In several of the newspapers was a

11 report of the aftermath as the President signed

12 the education bill. A number of the

13 recommendations in there were developed by our

14 task force to try to strengthen student lending,

15 reduce costs, reduce overhead. We held hearings

16 around the country, several in Washington,

17 interviewed hundreds of people over the course of

18 about a year's work. I got to that in part

19 because two years ago as I was beginning the

20 transition -- probably before the formal search

21 started at the Getty, I was the chair of the

22 American Education Council in Washington. That's


1 the ultimate group which does all of the policy

2 exchange with Congressional committees, the White

3 House, and others on interests that effect

4 colleges and universities. I was the chair of

5 that board. I served on that board for many

6 years. I probably ought to stop there.

7 Q. Besides these established commissions

8 and boards to which you devote your time, do you

9 also devote some portion of your time to public

10 speaking and ad hoc groups that have asked you to

11 speak or to work on educational projects in

12 America?

13 A. Well, yes. Again, I'll -- maybe I'll

14 separate -- obviously, there's some public

15 speaking that goes with the responsibility of the

16 Getty. I would literally tomorrow have a number

17 of those. I do a fair amount of public speaking.

18 For example, after the Cost Commission was

19 finished, there were endless invitations to come

20 and meet with different colleges and universities,

21 boards and trustees, families and communities to

22 talk about the impact of the recommendations on


1 getting them through college. I think -- I may

2 have mentioned earlier that I'm a Brooklyn College

3 graduate. When I went to Brooklyn College, it was

4 free. I lived at home. It was the only college I

5 could have afforded to go to. The University of

6 California, Illinois, Chicago -- the story of my

7 academic life is trying to recreate the story of

8 my life, in effect. This may be a bad day to say

9 what I am and what I'm not.

10 If it was not for the Brooklyn College

11 and the chances of an inner city child of a very

12 bizarre family to be able to get through, that was

13 my access to the world. My dedication since being

14 a professional has been to try to provide it for

15 others.

16 Q. And what was the goal of the Cost

17 Commission?

18 A. The fundamental charge to the

19 commission from the Congress was to reduce the

20 increased costs and then to make suggestions for

21 literally reducing the cost of colleges and

22 universities for the next generation of students


1 so that -- the way I approached it as the

2 vice chair of the commission was to be sure that

3 the next generation of America's youngsters and

4 part-time and older people have the privilege that

5 I had. I don't know whether Speaker Gingrich, who

6 was ultimately responsible to this commission,

7 would have said it the same way; but interestingly

8 enough, I think it wouldn't have been that far

9 removed.

10 Q. How many days a week do you devote to

11 very -- activities both at the Getty and these

12 other public service activities?

13 A. Well, if you'll grant me too many weeks

14 that are seven-day work weeks of one sort or

15 another, boy, probably one and a half to two days

16 a week, not necessarily the Saturdays and Sundays.

17 But I would say on an average -- it changes

18 dramatically: What's meeting, what isn't. If you

19 looked across a year, in the last year, one to two

20 days a week were on the non -- whether it was

21 non-CSU or non-Getty directly activities.

22 Q. And does that take into account your


1 work for the Getty -- how many days a week do you

2 work if you add everything together?

3 A. If my spouse were on the stand and

4 under oath, as many days as you gave her in the

5 week, I'm afraid she would claim I was working.

6 Most of those are six- or seven-day weeks.

7 Q. And, again, are you paid for these

8 other activities that you've gone into?

9 A. The ones that I mentioned are my sort

10 of gift. Maybe that's not the right word. That's

11 my commitment.

12 Q. Do they pay -- do they pay your

13 expenses in all circumstances?

14 A. Not all. Some. Cost Commission

15 covered expenses. Some others, basically part of

16 the commitment is that that's what I give to it.

17 Q. So, you would pay your expenses to fly

18 across country for various activities?

19 A. Yeah.

20 Q. Prior to taking your position at the

21 Getty and after leaving MAXXAM and UFG, what was

22 your job? We're talking about the '90-'91 time


1 period up to '97.

2 A. In April of '91, I was appointed to the

3 chancellorship of the California State University

4 system. I began that job on the 1st of August

5 1991. I was not familiar with California --

6 there's a very strict hierarchy to the public

7 higher education system in California. Everything

8 on the public side falls into three categories.

9 There are 106 two-year colleges. There are eight

10 campuses in the medical center at the University

11 of California. That's pretty much the University

12 of Texas, Texas A&M, Rice level. All the other

13 colleges are the state university system which is

14 where I was. That's the second chance, older

15 student, part-time student, nontraditional

16 student, first generation student, struggling

17 student out of high school, people going at night,

18 people commuting by technology from literally the

19 Oregon border to the Mexico board. 23 campuses by

20 the time I left. 345,000 students.

21 Q. Now, I'm sure you've noted the

22 suggestion in some of the questioning yesterday


1 that you proposed and approved employment

2 contracts that would enrich you. So, I would like

3 to ask you, Dr. Munitz: Have you had

4 opportunities to join the public sector, the

5 private sector since 1990 --

6 A. Well --

7 Q. -- as a CEO or --

8 A. Or even before 1990. Have other people

9 approached me about going into corporate life?

10 Q. Yes, sir.

11 A. Yeah. I mean, that would have happened

12 by -- by the time I was at MAXXAM and Federated

13 for four or five years, I was an interesting kind

14 of person nationally because not that many people

15 have both corporate and academic experience.

16 There were lots of corporations that were getting

17 much more involved in educational issues, some of

18 them literally totally in education. And the

19 executive recruiting firms or corporations would

20 approach me directly. If you're asking me could I

21 have gone into private industry, that would have

22 been, I think, relatively simple.


1 Q. Did you take any of those positions?

2 A. No.

3 Q. Why didn't you, sir?

4 A. Well, my sense -- I hope it comes out

5 the right way. I always saw my life in higher

6 education in the public sector. I think I

7 mentioned some exchange yesterday. When I came to

8 MAXXAM, then MCO and Federated, I was very lucky

9 in that I had been in administration very early.

10 I was convinced that to run a complex institution

11 like a California State university system in this

12 day and age, you would be a lot better off if you

13 knew how the private side worked, as well. When I

14 went to MAXXAM and Federated, whenever it was that

15 I would have gone at that stage, my sense was that

16 at some point, doing as well as I could do for

17 whatever that company was, I was going to wind up

18 back in the public sector giving back. So, it

19 wouldn't have made any sense for me to leave

20 MAXXAM and Federated and go to another

21 corporation.

22 Q. Do you have a sense, sir, as to whether


1 you would have enriched yourself more had you left

2 MAXXAM and Federated to go into another private

3 company as opposed to going to the California

4 State University system?

5 A. California State University was a

6 public institution governed by all the public

7 regulations of California. I was treated very

8 well there, as I am here. The grocery bills are

9 paid and life is reasonably fine, but there's

10 no -- the offers that were coming to me at the end

11 of the Eighties were from companies like the ones

12 you see in Arizona that now run the University of

13 Phoenix and others. If you follow any of their

14 stock performance -- I don't know if this is good

15 or bad. But the California State University

16 really didn't have a thriving stock option plan.

17 So, it's not just what you were making

18 each year. It's whether you had a growth in value

19 or any sense of equity. So, clearly, it would

20 have been a difference. It was a different life.

21 It wasn't the life I wanted. It would have been a

22 different life.


1 Q. Do you think it would have been a more

2 lucrative life financially?

3 A. It's hard to imagine that it would not

4 have been a financially more --

5 Q. Looking back over your life and career,

6 is there any one area to which you have devoted

7 your attentions over the years?

8 A. Well, if -- I probably referred to it

9 in a way, Mr. Villa. The common thing for me has

10 been opportunity. I was very lucky. I was very

11 very lucky. And so, it's an opportunity I would

12 just like to provide for others.

13 Q. Now, putting aside any MAXXAM-related

14 companies, have you been a member of the board of

15 directors -- a member of a board of directors of

16 any other public company over the last, say, 10

17 years?

18 A. I'm currently a board member of two

19 New York Stock Exchange companies. I was a member

20 of a third in California before I took the second

21 one. So, there would have still been two; but

22 there was a third publicly-held company in


1 California as I was arriving at California State

2 University. I was, obviously, a member of several

3 publicly-held companies as they related to MAXXAM

4 and Federated; and I think I mentioned yesterday I

5 was a member of the Charter Bank board which was a

6 publicly-held company before that.

7 Q. Apart from these companies, sir, have

8 you been approached to become a member of the

9 board of any other companies?

10 A. When I was hired both at the California

11 State University system and the Getty, the board

12 and I agreed together that we would restrict -- I

13 had really a choice. I could do the sorts of

14 things I was describing to you or I could serve on

15 a number of corporate boards. Again, because I

16 had been in both worlds, I get approached a lot

17 about going on corporate boards. I get approached

18 a lot about going on corporate boards, less lately

19 because I think I've finally gotten the signal

20 clear up to executive recruiters that do this sort

21 of thing that they just need to talk to other

22 people.


1 Q. Can you give me an estimate over the

2 last five years of how many corporate boards

3 you've been asked to serve on?

4 A. Over the last five years?

5 Q. Right.

6 A. 10, 12.

7 Q. What corporate boards are you currently

8 on?

9 A. I serve on the California New York

10 Stock Exchange company called Sun America, and

11 Sally Mae, which is the student loan group. But

12 now it's gone through a legal transformation. It

13 was a government-sponsored entity, and I went on

14 its board when it was transformed into a full

15 New York Stock Exchange publicly-held entity now

16 called Sally Mae. Like Fannie Mae, except in the

17 student lending business.

18 Q. Why did you choose Sally Mae out of the

19 dozen or so for which you had been approached?

20 A. It probably goes back to the same

21 thing. Sally Mae is as if you cared a great deal

22 about people owning a home. It may have been a


1 naive connection, but Sally Mae is a very

2 intriguing institution because it's a

3 publicly-held business but it's in the business of

4 providing that same opportunity about which I was

5 talking earlier. So, for me, it seemed a good

6 priority.

7 Q. Now, let's focus -- let me ask you,

8 sir: Do you serve on any committees, or have you

9 served on any committees of these publicly-held

10 corporations where you were on the board?

11 A. I do the current ones, I guess. On the

12 Sally Mae board, I serve on two committees: The

13 compensation committee and the operations

14 committee, which is basically the strategic

15 planning and in-house operations. And at Sun

16 America, I serve currently on the nominating

17 committee, the leadership development nominating

18 committee, and the audit committee.

19 Q. Let's focus very briefly on your -- the

20 decisions to join MAXXAM or MCO and the

21 decision -- ultimate decision to leave it.

22 In 1982, were you looking to leave


1 academic life?

2 A. I wasn't at that point anxious

3 specifically to leave the University of Houston.

4 But as I talked a bit yesterday, I had been

5 spending some time doing work both with academic

6 boards and with corporate boards. And I had in my

7 mind that there was coming a chapter to put that

8 profit side building block in place.

9 Q. Did you believe, then, it was a

10 permanent -- you didn't believe it was a permanent

11 shift over to the private sector when you joined

12 MCO; is that right?

13 A. No, I didn't.

14 Q. At some point, did you come to the

15 conclusion that you would prefer to return to

16 academic life?

17 A. Well, I mean, I always had the sense,

18 Mr. Villa, that that return was inevitable. There

19 was a time when I began to feel or realize that

20 opportunities were emerging. My own age in the

21 search process in academic life is a very

22 complicated one, very different than a corporate


1 search, review committees, screening committees.

2 I began to worry a little about being sure I

3 wasn't losing the opportunity. I was still

4 working at that time with some colleges and

5 universities trying to help when I could, and it

6 was tasty. Yes, there came a time when I began to

7 think more seriously about time to get back.

8 Q. Did this alarm clock go off before USAT

9 closed or was put into receivership on

10 December 30, 1988?

11 A. Oh, that would have started in '82 -- I

12 don't know what the -- the snooze alarm started

13 ringing about '85 or '86.

14 Q. You didn't go back into not-for-profit

15 or educational activities at that time, though,

16 did you, sir?

17 A. No, no. I really couldn't do that.

18 Q. Why not? Why did you stay?

19 A. Well, I think we were talking about

20 this a bit these past couple of days. First of

21 all, I really did believe in the institution. I

22 really did believe that it was going to turn


1 around and that we had the right people to make it

2 turn around and that there were people there who

3 were there because of me. Not exclusively, but I

4 participated in trying to recruit them. I

5 believed in them. They talked to me. I would

6 have had a hard time walking out on them.

7 Q. Now, sir, you were asked, I think,

8 about the employment contract that you and

9 Mr. Gross received, the USAT employment contract

10 that you and Mr. Gross received in mid-1988.

11 Do you remember that?

12 A. Yes, sir.

13 Q. Would you have left if they hadn't

14 offered you that employment contract?

15 A. Left the institution?

16 Q. Yes, sir.

17 A. No.

18 Q. Now, we talked a little bit about that

19 USAT employment contract. To your knowledge, did

20 you receive any money, either salary or bonus,

21 executive bonus plan, or severance money where

22 USAT bore the financial cost?


1 A. USAT?

2 Q. Yes, sir.

3 A. No, not to my knowledge.

4 Q. We talked very briefly -- I think you

5 were questioned briefly about the time period from

6 1987 into 1988.

7 Sir, do you recall during that time

8 period having any discussions with any USAT

9 officers about them leaving the association for

10 other jobs?

11 A. Not about me. Not about my leaving.

12 Q. Now we're shifting to the -- to the

13 Bruce Williams/Jim Wolfes of the world generally.

14 A. Yes.

15 Q. Why don't you tell the Court about

16 those discussions.

17 A. Again, as I said earlier, pretty much

18 part of my job -- several people at that time have

19 referred to me as the house shrink. I don't know

20 if that was good or bad. Certainly one of the

21 compensation consulting firms said I was playing a

22 role that usually companies paid outside


1 consultants to play. I would have been the one

2 that someone worried about their future would have

3 come to. Did they come to say, "If you don't do

4 this, I'm out of here"? No, that's usually not

5 the way it worked. A lot of the key senior people

6 would knock on the door, ask for a cup of coffee,

7 or want to have a drink at the end of the day and

8 get some sense from me as to why stay, to say

9 where were we headed, what were we doing, how did

10 I feel their situation was, how were they doing,

11 did we believe in them, was it worth their

12 staying.

13 It was at a time when we were being

14 told by others that we had a good, strong

15 leadership team. And so, basically, it was just

16 an awful lot in the years that you mentioned, a

17 great deal of hand-holding conversation.

18 Q. In your experience as administrator,

19 sir, if you failed to respond to those kinds of

20 warnings from your staff, what happens?

21 A. Well, you know, you don't -- it's not

22 like you get threatened and you get blackmailed.


1 What happens is you come in one morning and

2 somebody tells you they have great news for you

3 but not necessarily wonderful news for you and for

4 the sake of their family and kids and profession,

5 they have taken another offer. It's not -- what

6 you do is you realize that they are gone.

7 Q. Now, sir, this case and its predecessor

8 have been around for a long time. I would like to

9 ask you as my last question: How has this case

10 affected your life and your career?

11 A. Well, on the career, I've been blessed

12 with two wonderful jobs since MAXXAM and

13 Federated. So, you're not going to get from me

14 that this case has stood in the way of being

15 successful. Could I have done without all the

16 newspapers articles every time I was appointed to

17 a new job about the allegations of ripping off the

18 federal government, could I have done without

19 having to extract my wife with security, campus

20 security from people holding S&L criminal signs,

21 yeah. Would life have been somewhat better

22 without that harassment? I think that's fair to


1 say.

2 MR. VILLA: Thank you, Dr. Munitz. I

3 have no other questions.

4 THE COURT: Do any of the other

5 respondents have questions for the --

6 MR. BLANKENSTEIN: No questions,

7 Your Honor.

8 MR. EISENHART: I have no questions,

9 Your Honor.

10 THE COURT: Does OTS have any redirect?


12 (Discussion held off the record.)


14 MR. RINALDI: Mr. Munitz, I just

15 have --




19 Q. (BY MR. RINALDI) I have just a few

20 follow-up questions, sir.

21 After the receivership, when USAT went

22 into receivership, did you immediately leave UFG?


1 A. No. I was -- I think Mr. Berner and I

2 became the two -- really, I guess the only two

3 people trying to see -- just to see if we could

4 handle the transition and the aftermath.

5 Q. But there was really nothing left of

6 UFG because its principal subsidiary, which was

7 USAT, had been taken away, correct?

8 A. That certainly wasn't what I was being

9 told by the regulators and our lawyers. There

10 was -- there were lawsuits filed. There were

11 issues about net worth maintenance. There were

12 regulatory questions. There were accounting

13 questions. There were receivership interpretation

14 questions. There were ongoing relationships with

15 UFGI. My sense was that there was a great deal to

16 do. And I -- as a matter of fact, I remember some

17 conversations with the regulatory representatives

18 where Mr. Berner and/or I would say, "We're going

19 to continue to do this and this is what we're

20 getting paid to do and are you sure you're

21 comfortable?" And repeatedly, the signal back was

22 absolutely, yes.


1 Q. I wasn't asking you was there anything

2 to do. I was asking you whether the entity UFG

3 had lost its principal subsidiary so where it had

4 been a 7-billion-dollar or 6-billion-dollar

5 institution, it now was a relatively tiny

6 corporation with a relatively small amount of

7 assets, was it not?

8 A. It was a very different organization.

9 Q. Okay. Did you remain on there for some

10 period of time?

11 A. I began -- I stayed through the '89

12 year pretty intensely, began then to phase down in

13 the '90 year, and then basically --

14 Q. Now, at that point in time, were you

15 also continuing to be an employee of UFG and --

16 I'm sorry -- of MCO and Federated?

17 A. I was --

18 Q. Did you continue to have a relationship

19 with those two entities?

20 A. Yes, a relationship.

21 Q. How would you characterize that

22 relationship?


1 A. I was a trustee of Federated. I had

2 basically the vice chair of the board

3 responsibility at then MAXXAM, no longer MCO

4 Holdings. MAXXAM.

5 Q. Over time, did your obligations at UFG

6 begin to wind down?

7 A. Yes.

8 Q. As they wound down, did you then become

9 more involved with Federated than MCO again?

10 A. Not all that much. Somewhat with a

11 couple of projects, but it was pretty clear by

12 then that I was moving on.

13 Q. And I think when I spoke to you the

14 other day, you had indicated that one of the

15 principal reasons that you had been hired by MCO

16 was to help out Mr. Hurwitz with at least UFG; and

17 once UFG was winding down, you didn't feel that

18 there was much left for you to do at MCO?

19 A. I don't know whether it was to help out

20 Mr. Hurwitz. It was that by then, the nature of

21 MCO-MAXXAM had changed very dramatically right

22 around the receivership time or before that.


1 MAXXAM had made a very, very large and complicated

2 acquisition in which I was not much involved with:

3 Kaiser Aluminum. I had been spending so much of

4 my time, relatively speaking, at United that

5 basically a space had been created. And there was

6 a -- there came a time when the key operating

7 person at MAXXAM retired, and that was

8 basically -- whether I had been offered that job

9 was basically the signal to me as to whether or

10 not they were interested.

11 As I said to Mr. Villa, by then, I was

12 already beginning to talk to people about if

13 opportunities come up back in the public sector,

14 count on me now. I would like to be considered.

15 And so, Mr. Hurwitz concluded on his side and I

16 concluded on my side that it didn't make sense to

17 suddenly come back in a major way at MAXXAM.

18 Q. And when you went back into the

19 academic side and indicated to people that you

20 were interested in coming back into academia, did

21 the fact that you had served on the boards of UFG

22 and USAT, did that prevent you from -- from


1 seeking new employment?

2 A. Yes. Absolutely, yes.

3 Q. So, you were unable to obtain a

4 position as a result of the fact that USAT had

5 failed?

6 A. Well, I don't know that it was as a

7 result of the fact that USAT had failed. There

8 were several positions in which I was very much

9 interested that I was excluded from.

10 Q. Excluded by whom?

11 A. By the search committee.

12 Q. But the federal -- I mean, the FDIC did

13 not take some direct action to intervene, did

14 they?

15 A. Is filing a lawsuit direct action?

16 Q. I don't know. When did the FDIC file a

17 lawsuit?

18 A. Well, I don't know exactly when it was;

19 but it was during the course of all the early

20 negotiation in the '89 and '90 period when

21 conversations were going back and forth and there

22 was a lot of publicity about savings and loans.


1 The introductory conversation and then finally the

2 lawsuit -- I don't know whether that was pre- or

3 post-California State University. But during that

4 period in the '89-'90 period when I would begin to

5 talk to search committees, I'm not at all saying

6 directly did the FDIC do something; but to your

7 question, did service at a savings and loan and

8 its holding company make a difference, yes.

9 Q. But you were able to become the

10 chancellor of probably the largest educational

11 system in the United States, were you not?

12 A. Oh, yeah, yeah, happily.

13 Q. And now, in the aftermath of all that,

14 while that litigation is still pending, I believe,

15 and, indeed, this litigation is still pending, you

16 were able to obtain probably I believe, from what

17 you say, the highest position at probably the

18 largest eleemosynary institution of the United

19 States for preservation of the arts. Right?

20 A. A wonderful job, yes.

21 Q. After -- at or about the time USAT was

22 going through its -- going through the 1988


1 period, were there other thrifts in Houston that

2 were failing?

3 A. I think so.

4 Q. And as a result of that, were there a

5 number of unemployed thrift executives available

6 in the Houston area?

7 A. Of the caliber that we felt we had at

8 United, I didn't think very many.

9 Q. Were you familiar with the pool of

10 available people in the Houston area?

11 A. Very.

12 Q. And were there a number of people

13 available, sir?

14 A. Were there a number of people available

15 theoretically? Yes.

16 Q. Who had experience running a

17 traditional thrift?

18 A. Not very many of them of the caliber

19 and experience for which we were looking.

20 Q. Sir, I just have one final question.

21 And that is: As a result of your service with

22 MCO, Mr. Villa had made some reference of the fact


1 of how you had flown across country without -- on

2 voluntary missions for people for -- on your own

3 expense.

4 With respect to this proceeding, is

5 there any agreement between you and MCO or MAXXAM,

6 its successor, regarding the expenses associated

7 with this matter?

8 A. My expenses have been covered for this

9 matter.

10 Q. And in the event that any kind of

11 adverse action is taken from a monetary

12 standpoint, what is the nature of the relationship

13 between you and MCO? Is there an indemnification

14 provision that would provide for MCO to indemnify

15 you if there were any monetary allegations or

16 findings?

17 A. I'm not sure of the detailed

18 relationship, but I think I remember -- and by my

19 service now -- that all indemnification is limited

20 by the definition of whatever regulatory entity

21 covers it. So, I don't know. I don't know what

22 my exposure is.


1 Q. Well, when you went on the board of UFG

2 and you went on the board of USAT, isn't it, in

3 fact, true that MAXXAM had a policy where officers

4 and directors of MCO -- had a policy that officers

5 and directors of MCO who served on boards of

6 entities in which they had an interest, that they

7 would indemnify those individuals against

8 potential liability that they might incur as a

9 result of their service on behalf of MCO?

10 A. I just assumed that -- having talked to

11 other boards members, as I said earlier -- that

12 every indemnification policy with which I've ever

13 had any experience on these boards is governed by

14 the jurisdiction in which they serve. As I

15 remember, therefore, they have -- depending upon

16 what the jurisdiction is -- all kinds of

17 limitations and restrictions.

18 Q. In connection with this litigation,

19 you've never discussed this with your counsel as

20 to whether you have a right to seek

21 indemnification back against MCO in the event that

22 some adverse financial conclusion is reached in


1 this or other litigation?

2 MR. VILLA: I'll object.

3 THE COURT: Sustained.

4 Q. (BY MR. RINALDI) Sir, do you have an

5 agreement with MCO regarding indemnification?

6 A. I believe that I have some agreement.

7 Q. It's just that you're not familiar with

8 all of the details of what's included in the

9 agreement. Is that a fair statement?

10 A. Yes. I don't know about the "just";

11 that is, it's a fair statement to say I don't know

12 all the details. I don't know what the "just"

13 refers to.

14 MR. RINALDI: Thank you very much.

15 MR. VILLA: No questions.

16 THE COURT: Thank you, Dr. Munitz. You

17 may step down.

18 MR. GUIDO: Your Honor, I think

19 Mr. Nickens made a request for a conference.

20 THE COURT: Do you want this on the

21 record?

22 MR. NICKENS: No, Your Honor.


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


3 (Whereupon, a short break was taken

4 from 3:09 p.m. to 3:11 p.m.)


6 THE COURT: Back on the record. We'll

7 be back on the record.

8 MR. GUIDO: Your Honor, we would like

9 to -- our next witness is not available until

10 tomorrow morning. And so, what we would like to

11 suggest to the Court is that we break for the

12 evening now; and we will bring our next witness on

13 tomorrow morning, if that meets with your

14 approval, Your Honor.

15 THE COURT: All right. We'll adjourn

16 until tomorrow at 9:00.


18 (Whereupon at 3:11 p.m.

19 the proceedings were recessed.)

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 8th day of October,

17 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 8th day of October,

18 1998.

19 _____________________________
20 Certified Shorthand Reporter
In and for the State of Texas
21 Certification No. 3786
Expiration Date: 12-31-98

Continue To Charles Hurwitz's Testimony, Oct. 13, 1998
OTS vs MAXXAM Trial Testimonies

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