V. HURWITZ, MAXXAM, AND FEDERATED VIOLATED THEIR NET WORTH MAINTENANCE OBLIGATIONS A. APPLICABLE STATUTES AND REGULATIONS 34. At all relevant times, no savings and loan holding company or other company could acquire control, directly or indirectly, of any insured institution without the prior written approval of the FSLIC or its designee. Former 12 U.S.C. § 1730a(e)(1) (repealed by FIRREA); 12 C.F.R. § 584.4(a), (b), (g)(1) (1983-85). At all relevant times, ³any company which directly or indirectly control[led] any insured institution or control[led] any other company which [was] a savings and loan holding company² was itself a savings and loan holding company. Former 12 U.S.C. § 1730a (a)(1)(D) (repealed by FIRREA). 35. At all relevant times, a person was deemed to have control of an insured institution or holding company if the person directly or indirectly or acting in concert with one or more other persons, owned, controlled, held with power to vote, or held proxies representing, more than 25 percent of the voting shares of an insured institution or its holding company. 12 C.F.R. § 583.26 (a) , (b) (1983-88) . 36. At all relevant times, ownership of rights to acquire stock were equivalent to ownership of the stock itself where the holder of the rights was subject to the preponderant economic risk of ownership of the underlying stock. FHLBB Op. Gen. Coun. at 6 (January 24, 1985); FHLBB Op. Gen. Coun. at 4 (Aug. 20, 1984) . 37. At all relevant times, the FSLIC was required to ³take into consideration the financial and managerial resources and future prospects of the [acquiring] company and the institution involved² in rendering its decision to approve or disapprove the acquisition of control of an insured institution. Former 12 U.S.C. § 1730a(e)(2) (repealed by FIRREA). Pursuant to this statutory mandate, the FSLIC was authorized to condition its approval of acquisition of control upon the acquiring company's stipulation or undertaking to maintain the net worth1 of the acquired institution as required by statute or regulation. 38. At all relevant times, each savings and loan holding company was required, within ninety (90) days of becoming a savings and loan holding company, to register with the FSLIC as a savings and loan holding company on the forms prescribed by the FSLIC. Former 12 U.S.C. § 1730a(b)(1) (1988); 12 C.F.R. § 584.1(a) (1) (1985-88). 39. At all relevant times, each savings and loan holding company was required to file an annual report with the FSLIC within one hundred twenty (120) days after the close of its fiscal year. Former 12 U.S.C. § 1730a(b)(2); 12 C.F.R. 584.1(a)(2) (1985-88). 40. At all relevant times, insured institutions were required to maintain a minimum regulatory capital ³in an amount equal to the sum of the institution's liability component and contingency component minus its maturity matching credit.² 12 C.F.R. § 563.13(b) (1987). 41. At all relevant times, insured institutions were required to maintain safe and sound management and pursue financial policies that were safe and consistent with economical home financing and the purposes of insurance of accounts. 12 C.F.R. § 563.17(a) (1983-89) . 42. At all relevant times, insured institutions and their officers and directors were prohibited from making false and misleading statements to the OTS and/or its predecessor the FHLBB. 18 U.S.C. § 1001 (1983-89). 43. At all relevant times on and after January 2, 1986, insured institutions and their directors, officers, agents, employees, affiliated persons, and other persons participating in the conduct of the affairs of such institutions, and persons filing or seeking approval of any application were prohibited from knowingly: (a) making any written or oral statement to the FHLBB or its agents, representatives, or employees that was false or misleading with respect to any material fact or omitted to state a material fact concerning and matter within the FHLBB's jurisdiction; or (b) making any such statement or omission to any person auditing or otherwise preparing or reviewing an insured institution's financial statements. 12 C.F.R. § 563.18(b) (1986-89). B. THE UFG NET WORTH MAINTENANCE OBLIGATION 44. On October 6, 1982, UFG and USAT entered into the agreements with First American Financial of Texas, Inc., Houston Texas (³First American²) and its wholly owned subsidiary, Houston First American Savings Association of Texas and (³Houston First²), respectively, that culminated in the merger of USAT and Houston First as a single insured depository institution under the control of UFG. By FHLBB Resolution No. 83-252, dated April 29, 1983, the FHLBB approved UFG's applications for approval of the First American and Houston First mergers subject to a number of written conditions. 45. Among the written conditions the FHLBB imposed in connection with the granting of UFG's application was the requirement that UFG stipulate that for as long as UFG controlled USAT, UFG would ³cause the net worth of the Resulting Association, [i.e., USAT,] to be maintained at a level consistent with that required by [12 C.F.R. §] 563.13(b) . . . as [then] or [thereafter] in effect, of institutions insured 20 years or longer² (the ³UFG Net Worth Maintenance Condition²). FHLBB Resolution No. 83-252 ¶ 6. The UFG Net Worth Maintenance Condition also required UFG to stipulate that it would ³as necessaryŠ infuse additional equity capital, in a form satisfactory to the Supervisory Agent, to effect compliance with such requirement.² Id. 46. On October 31, 1983, UFG submitted to the FHLB-Dallas a written stipulation (the ³UFG Net Worth Maintenance Stipulation²), signed by its Chairman, that as long as it controlled USAT, it would comply with the terms of the UFG Net Worth Maintenance Condition. Specifically, UFG stipulated that it would ³cause the net worth of the Resulting Association, [i.e., USAT,] to be maintained at a level consistent with that required by [12 C.F.R. §] 563.13(b)Š as [then] or [thereafter] in effect, of institutions insured 20 years of longer.² UFG also stipulated that it would ³as necessaryŠ infuse additional equity capital, in a form satisfactory to the Supervisory Agent, to effect compliance with such requirement.² The obligations of UFG under the Net Worth Maintenance Condition and the Net Worth Maintenance Stipulation are collectively referred to as the ³UFG Net Worth Maintenance Obligations.² C. THE MCO/FEDERATED NET WORTH MAINTENANCE OBLIGATION 47. On June 29, 1983 MCO and Federated filed an Application H(e)1 (the ³MCO/Federated Application²) with the FHLBB for approval to acquire more than 25% of the outstanding shares of common stocks of UFG and to thereby obtain control of USAT. 48. The cover letter for the MCO/Federated Application, dated June 29, 1983, prepared by counsel, stated that Federated and related persons owned approximately 24.3% of MCO's Common Stock and approximately 92.2% of MCO's outstanding Class A Convertible Preferred Stock, or ³an aggregate of approximately 57.2% of the total voting power of MCO.² The MCO\Federated Application stated that Federated and various other persons and entities (the ³Stockholder Group²) own, in the aggregate, approximately 58% of the total voting power of MCO. By virtue of their positions as officers and/or trustees of Federated and their relationships with other members of the Stockholder Group, Charles E. Hurwitz,Š Dr. George Kozmetsky,Š and Dr. Barry A. Munitz may be deemed to share control over the shares of MCO's Common Stock and Class A Preferred Stock held by Federated. 49. The MCO/Federated Application further stated that MCO and Federated owned a total of 1,786,039 of the 8,000,634 shares of UFG then outstanding. The MCO and Federated shares represented 12.3% and 10%, respectively, of the outstanding shares of UFG, or an aggregate of 22.3% of the outstanding shares of UFG. In addition, the MCO/Federated Application stated, Dr. George Kozmetsky, who was then a director of both UFG and MCO, owned an additional 90,941 shares of UFG, or an additional 1.l% of the outstanding shares. In the aggregate, the MCO/Federated Application stated, ³MCO, Federated, their officers, directors and any associates thereof² owned 23.5% of the shares of UFG or 1,876,980 shares of the 8,000,634 then outstanding shares of UFG. 50. The MCO/Federated Application stated that MCO and Federated proposed to acquire approximately an additional 10% of the shares of UFG, thereby raising the total shares of UFG directly or indirectly owned by MCO and Federated to approximately 35% of the outstanding voting shares of UFG. MCO and Federated thus would each become a savings and loan holding company within the meaning of former 12 U.S.C. § 1730a(a)(1)(D). 51. On July 12, 1983, MCO and Federated filed a Schedule 13D with the Securities and Exchange Commission, which stated that MCO had acquired an additional 120,000 shares of UFG in the open market on June 29, 1983. In fact, these shares were acquired from Drexel in a private transaction. The additional shares reflected in the Schedule 13D increased the total shares of UFG held by MCO, Federated, and persons with whom they were acting in concert to 1,996,980 or 24.96% of the 8,000,634 UFG shares outstanding as of June 29, 1983. 52. As of March 1, 1984, respondent Hurwitz acquired an additional 500 shares of UFG stock. In May 1984, Dr. George Kozmetsky acquired an additional 20,000 shares of UFG stock. These additional purchases increased the total shares of UFG held by MCO, Federated, and persons with whom they were acting in concert to 2,017,480 or 24.50% of the 8,235,047 shares outstanding on June 30, 1984. 53. By Resolution No. 84-712, dated December 6, 1984, the FHLBB approved the MCO/Federated Application subject to a number of written conditions. Among the conditions the FHLBB imposed in connection with the approval of the MCO/Federated Application was the following condition (the ³MCO/Federated Net Worth Maintenance Condition²): 4. For as long as [MCO and Federated] directly or indirectly control [USAT], Applicants shall contribute a pro rata share based on their UFG holdings, of any additional infusion of capital, in a form satisfactory to the Supervisory Agent, that may become necessary for the Insured Institution to maintain its net worth at the level required by [FSLIC's] Net Worth Regulation. Further, if Applicants acquire additional voting shares of UFG, directly or indirectly, such that their aggregate holdings voting shares [sic] of UFG exceeds 50 percent of the outstanding voting shares of UFG, Applicants shall contribute 100 percent of any additional capital that may be required to maintain the net worth of the Insured Institution, in a form satisfactory to the Supervisory Agent, at the level required by the [FSLIC]'s Net Worth Regulations. 54. Subsequent to the approval of the MCO/Federated Application, MCO and Federated sought, for more than three years, to persuade the FHLBB to modify or eliminate the MCO/Federated Net Worth Maintenance Condition, and MCO and Federated's obligations thereunder. Nevertheless, the language of the condition was not modified. 55. The FHLBB originally granted MCO and Federated 120 days from December 6, 1984 within which to complete their acquisition of additional shares of UFG's common stock. The FHLBB, and, subsequently, the FHLB-Dallas, extended the acquisition period a number of times. On October 1, 1987, the FHLB-Dallas extended the acquisition period to December 22, 1987 and stated: ³You should be aware that we do not intend to extend the period beyond December 22, 1987 pursuant to subsequent requests. Therefore, it is incumbent [sic] upon you to take immediate action in your pursuit of the modification of the net worth maintenance provision in order to consummate the acquisition on or before December 22, 1987.² D. MCO AND FEDERATED OWNED MORE THAN 35% OF UFG STOCK WITH THOSE ACTING IN CONCERT WITH THEM 56. On December 21, 1987, MCO and Federated informed the FHLB Dallas that they would seek no more extensions of the effective date for the FHLBB conditional approval of the MCO/Federated Application. On December 21, 1987, MCO, Federated, Kozmetsky, and Hurwitz owned outright almost 25% of the outstanding shares of UFG. When the shares owned outright by MCO, Federated, Kozmetsky, and Hurwitz are aggregated with shares subject of the Drexel Option shares owned by Gross and shares owned by Drexel, MCO, Federated and persons with whom they were acting in concert owned in excess of 35% of the outstanding shares of UFG. 57. At all relevant times at least since December 24, 1985, MCO, Federated, Hurwitz, Kozmetsky, Gross, and Drexel were acting in concert and exerciser control over UFG and USAT. 1. THE UFG SHARES ACQUIRED BY RESPONDENT GROSS 58. On March 22, 1985, UFG's proxy statement reported that, as of March 12, 1985, Respondent Gross owned 2,000 shares of UFG stock. On March 31, 1986, UFG's proxy statement reported that Respondent Gross had acquired an additional 110,000 shares of UFG stock, increasing his total holdings to 112,000 shares. 59. At all relevant times, Respondents Gross and Hurwitz were directors of Weingarten Realty, Inc, making Gross a person acting in concert with Hurwitz, MAXXAM, Federated, and Kozmetsky to obtain control of UFG. 60. Respondent Gross¹ acquisition of 112,000 shares of UFG stock increased MCO, Federated, Hurwitz, and Kozmetsky's ownership and control to at least 2,129,480 (26.02%) of the 8,184,000 shares of UFG stock outstanding as of March 31, 1986. 2. THE UFG SHARES ACQUIRED BY DREXEL AND THE PUT-CALL OPTION 61. On June 29, 1983, the same day the MCO/Federated Application was submitted to the FHLBB, MCO, with the knowledge of Respondent Munitz, began to consider means by which MCO could acquire additional shares of UFG stock at some future time utilizing a ³scenario involving the participation of an outside party, referred to as EXCO.² 62. Between July 1983 and June 1984, Drexel accumulated 585,371 shares of UFG (approximately 7.2% of the outstanding shares), for MCO's benefit in an account maintained by Drexel's high yield bond department. 63. In November 1984, MCO explored with Drexel a number of structures for acquiring these additional shares of UFG through ³EXCO Corp.² One version would have utilized a convertible debenture and another would have utilized a zero coupon debenture. 64. No later than January 1985, MCO and Drexel began to negotiate the terms for the formal acquisition by MCO of all or part of the block of the 585,371 shares of UFG held by Drexel in the high yield bond department account and such other shares of UFG Drexel might acquire in the future. Initially, MCO sought to park Drexel's UFG stock by having EF Hutton & Company, Inc. (³Hutton²) purchase all 585,000 shares at $8.25 per share and simultaneously entering into a reciprocal put and call option agreement with Hutton. This proposed transaction was not consummated, however, and ultimately, MCO entered into a put-call arrangement with Drexel for the acquisition of Drexel's UFG stock. 65. Initial drafts of an agreement beginning in February 1985, which were negotiated by a compliance attorney in Drexel's high yield bond department, stated that MCO proposed to acquire 585,371 shares of UFG from Drexel. Drexel, however, continued to accumulate shares of UFG in the high yield bond department account throughout 1985. By August 1985, drafts of proposed agreement between Drexel and MCO indicated that the number of shares of UFG that would be subject to the agreement would increase. 66. As of December 1985, Drexel had acquired 790,459 shares of UFG (approximately 9.7% of the outstanding shares) in the high yield bond department account. Drexel had agreed to option the entire block of 790,459 shares to MCO utilizing a reciprocal put and call option agreement similar to that proposed to Hutton. The transaction could not be consummated for the full 790,459 shares, however, because of rules of the National Association of Securities Dealers (the ³NASD²) that operated to limit the number of shares Drexel could option to MCO. Although Drexel applied to the NASD for a waiver of or exemption from such rules, the NASD denied its request. 67. On or about December 24, 1985, Drexel and MCO entered into a ³Stock Option Agreement² (the ³Drexel Option²) with respect to 300,000 shares (approximately 3.6% of the common stock of UFG), purportedly the maximum amount allowed by the NASD rules. The Drexel Option was executed by a Drexel attorney employed in Drexel's high yield bond department. Under the terms of the Drexel Option, in return for the payment of a premium of $683,147 and an agreement to grant Drexel a put option after the expiration of the call option, MCO obtained a call option on 300,000 shares of Drexel's UFG common stock, exercisable during the 30-day period beginning July 1, 1988, at an aggregate price of $2,577,000, or $8.59 per share. In the event that MCO did not exercise its call option, MCO agreed to grant Drexel an option to put the 300,000 UFG shares to MCO at the same price, exercisable during a 30-day period commencing immediately after the expiration of MCO's call option. The NASD rules would have prohibited a simultaneous put and call agreement involving more than 150,000 shares. The deferred grant of the put was intended to double the number of shares that could be the subject of the option. On the day MCO and Drexel entered into the Drexel Option, shares of UFG stock were publicly traded at between $6.25 and $6.50 per share, and closed at $6.25 per share. Drexel paid no premium to MCO for the put option. The reasonable value of the put premium foregone by MCO was not less than $2.09 per share, or $702,000. 68. On August 2, 1988, MCO and Drexel extended the Drexel Option for a period of two years in return for the payment by MCO to Drexel of an additional non-refundable premium in the amount of $524,664 or approximately $1.75 per share. On that date UFG stock closed at 13/16. On July 30, 1990, (well after USAT had been placed in receivership) Drexel exercised the put option, and MCO took delivery of the 300,000 shares of UFG from Drexel and paid the exercise price of $2,577,000, or $8.59 per share. The total cost to MCO of the shares delivered pursuant to the Drexel put was $3,784,811 or $12.61 per share. By the time MCO took delivery of the 300,000 shares of UFG, however, the stock was virtually worthless, having been deleted from NASDAQ on December 27, 1988 after the bid price had fallen to 1/32. 69. Pursuant to the Drexel Option, Drexel deposited the 300,000 shares of UFG in a separate account at Drexel in the name of an escrow agent and listed the call option among the securities in an MCO account with Drexel that was managed by a bond salesman in Drexel's high yield bond department. In order to secure performance by MCO under both the put and call provisions of the Drexel Option, MCO delivered to Drexel an irrevocable letter of credit in favor of Drexel in the amount of $2,577,000. To further protect Drexel from any loss with respect to the transaction, MCO agreed to indemnify and hold Drexel harmless for any loss based upon or relating to the Drexel Option. 70. MCO's purchase of an out-of-the-money call option at a premium of $683,147 (26.5% of the aggregate purchase price) and simultaneous agreement to write on demand an in-the-money put worth $702,000 (27.24% of the aggregate purchase price) at no premium was in economic reality a purchase of the call option for an aggregate consideration of $1,385,147 (53.75% of the purchase price). Moreover, the simultaneous purchase of a call and agreement to write a put at the same strike price assured that MCO, willingly or not, would take delivery of the stock in the future. By agreeing, under the terms of the Drexel Option: (a) to purchase the UFG shares from Drexel pursuant to a put option in the event MCO did not exercise the call option; (b) to secure performance of the put option by obtaining an irrevocable letter of credit; and (c) to fully indemnify Drexel for all losses associated with the Option Agreement, MCO became subject to the preponderant economic risk of ownership of the optioned shares of UFG. (In fact, MCO suffered a substantial economic loss as result of the exercise of the put option. See ¶ 66, supra.) Accordingly, the economic risks and benefits that were the incidents of ownership of the 300,000 shares of UFG that were the subject of the Drexel option passed to MCO by contract and in practical reality on December 24, 1985. 71. Drexel continued to hold the remaining 490,459 shares or approximately 4.l% of the outstanding shares of UFG in furtherance of Hurwitz, MCO, Federated, and Kozmetsky's effort to obtain control of UFG. Drexel purchased additional shares as well. As of August 1, 1986, Drexel held 499,167 shares. Thereafter, Drexel gradually decreased its holdings of UFG stock, but Drexel's holdings remained above 400,000 shares until November 1987. By June 1988, however, Drexel had disposed of all UFG stock not subject to the Drexel option. 72. Following the execution of the Drexel option, the total number of shares of UFG owned or controlled by Hurwitz, MCO, Federated, and Kozmetsky, and those acting in concert with them, including the 300,000 shares of UFG subject to the Drexel Option and the other 490,459 shares held by Drexel, was approximately 35% of the outstanding shares of UFG. Therefore, at all relevant times after the execution of the Drexel Option, Hurwitz, MCO, Federated, and Kozmetsky controlled UFG and directly or indirectly controlled UFG's wholly-owned insured depository subsidiary, USAT, with the assistance of Drexel, which acted in concert with Hurwitz, MCO, Federated, and Kozmetsky. Accordingly, after December 24, 1985, pursuant to the condition imposed by FHLBB Resolution No. 84-712, MCO, Federated, Drexel and Kozmetsky were jointly obligated to contribute a pro rata share, based on their percentage of holdings of UFG common stock, of any additional infusion of capital that became necessary for USAT to maintain its net worth at the level required by applicable regulation. E. USAT'S FAILURE TO MEET REGULATORY CAPITAL REQUIREMENTS 73. As of December 31, 1987, USAT failed to meet the applicable regulatory minimum capital requirements by at least $45.6 million. USAT's regulatory capital was $196.9 million and the regulatory minimum capital required was $242.5 million. Accordingly, on or about February 17, 1988, USAT, acknowledging its failure to meet its minimum capital requirements, made an application for capital forbearance to the FHLB-Dallas. 74. On or about March 16, 1988, the FHLB-Dallas informed USAT that its application for capital forbearance would be deemed incomplete until the completion of an ongoing regulatory examination. The FHLB-Dallas had concerns regarding USAT's ability to meet projected levels of regulatory capital as presented by USAT in its capital plan and determined that the results of a then-ongoing FHLB examination could impact the institution's regulatory capital. On July 29, 1988, the FHLB-Dallas returned the forbearance application to USAT for revision in light of examination findings and the further deterioration of USAT's regulatory capital. USAT ultimately withdrew its request for capital forbearance in or about August 1988 as a result of its continued financial deterioration. 75. In the interim, based upon information received from USAT during an examination conducted as of November 16, 1987, FHLB-Dallas determined that as of December 31, 1987, USAT had failed to meet its minimum regulatory capital requirement. 76. On December 30, 1988, the FHLBB declared USAT insolvent and appointed the FSLIC as receiver. The FSLIC accepted its appointment as receiver on December 30, 1988. Immediately thereafter, USAT's deposits and liabilities were assumed by, and substantially all of its assets were transferred to, a new federally chartered savings bank organized by an unaffiliated third party. 77. As of December 30, 1988, the date of receivership, USAT failed to meet its regulatory capital minimum by an amount in excess of $500 million. F. FIRST CLAIM FOR RELIEF: FAILURE TO COMPLY WITH MCO AND FEDERATED'S NET WORTH MAINTENANCE OBLIGATIONS (Respondents MAXXAM, Federated, Hurwitz, and Munitz) 78. OTS repeats and incorporates the allegations set forth in paragraphs 1 to 77 above. 79. As of December 31, 1987 and thereafter, USAT failed to meet the applicable minimum regulatory capital requirements. As of December 30, 1988, the date USAT was placed in receivership, USAT failed to meet its regulatory capital by an amount in excess of $500 million. 80. As of December 31, 1987, pursuant to the condition imposed by Resolution No. 84-712, MAXXAM (as successor to MCO) and Federated were, and continue to be, obligated to contribute a pro rata share, based upon their percentage of holdings of UFG common stock, necessary to maintain USAT's net worth. As of December 30, 1988, the amount of MAXXAM's (as successor to MCO) and Federated's obligation to make a capital contribution then exceeded $138 million. 81. From on or about December 31, 1987 through the present, neither MAXXAM (as successor to MCO) nor Federated has contributed any assets to maintain the net worth of USAT in accordance with the requirements of the MCO/Federated Net Worth Condition imposed upon MCO and Federated by FHLBB Resolution No. 84-712. 82. The MCO/Federated Net Worth Maintenance Condition, contained in FHLBB Resolution No. 84-712, is a ³condition imposed in writing by the agency in connection with the granting of any application or other request by the depository institution² within the meaning of 12 U.S.C. § 1818(b)(1) (1988 & Supp. IV 1992). 83. By failing to cause the net worth of USAT to be maintained at the levels required by the applicable capital requirements, MAXXAM (as successor to MCO) and Federated engaged in an unsafe and unsound practice and violated a condition imposed in writing by the agency in connection with the granting of an application, within the meaning of 12 U.S.C. § 1818(b) (1988 & Supp. IV 1992). 84. MAXXAM's (as successor to MCO) and Federated's violations involved a reckless disregard for the law or applicable regulations or prior order of the FHLBB or the OTS. 85. As directors of UFG or USAT and trustees of Federated or directors of MAXXAM (as successor to MCO), Individual Respondents Hurwitz and Munitz, and each of them, knew or should have known that USAT had failed to meet its regulatory capital requirements as of December 31, 1987. 86. As directors of UFG or USAT and trustees of Federated or directors of MAXXAM (as successor to MCO), Individual Respondents Hurwitz and Munitz, and each of them, had an affirmative obligation to see that MAXXAM (as successor to MCO) and Federated complied with the MCO/Federated Net Worth Maintenance Condition. 87. By failing to direct Federated and MAXXAM (as successor to MCO) to make their required pro rata contributions to cause the net worth of USAT to be maintained at the levels required by the applicable capital requirements, Individual Respondents Hurwitz and Munitz, and each of them, violated a condition imposed in writing by the agency in connection with the granting of an application and engaged in an unsafe and unsound act within the meaning of 12 U.S.C. § 1818(b) (1988 & Supp. IV 1992). See 12 U.S.C. § 1813(v) (1988 & Supp. IV 1992). 88. MAXXAM (as successor to MCO) and Federated have been and continue to be unjustly enriched in, and USAT has been damaged by, an amount in excess of $138 million by virtue of the failure of Individual Respondents Hurwitz and Munitz, and each of them, to direct MAXXAM (as successor to MCO) and Federated to comply with the MCO/Federated Net Worth Maintenance Condition and by virtue of MAXXAM (as successor to MCO) and Federated's retention of assets that they were and continue to be obligated to infuse into USAT under the MCO/Federated Net Worth Maintenance Condition. G. SECOND CLAIM FOR RELIEF: FAILURE TO COMPLY WITH UFG'S NET WORTH MAINTENANCE OBLIGATION (Respondents MAXXAM, Federated, Hurwitz, Munitz, Berner, and Gross) 89. OTS repeats and incorporates the allegations set forth in paragraphs 1 to 88 above. 90. In a letter dated May 13, 1988, the FHLB-Dallas Supervisory Agent directed the Board of Directors of UFG to advise the Supervisory Agent not later than May 31, 1988 of ³the steps that [would] be taken to infuse capital into [USAT].² By letter from Respondent Berner dated June 3, 1988, the Board of Directors of UFG acknowledged receipt of the Supervisory Agent's May 13, 1988 letter, but made no proposal to address the need for additional capital. By letter dated December 8, 1988, the Supervisory Agent directed the Board of Directors ³in conformance with . . . Resolution No. 83-252,² ³to infuse additional equity capital into [USAT].² The December 8, 1988 letter required ³immediate² compliance with the directive to infuse additional capital. 91. UFG acknowledged USAT's continuing failure to comply with the applicable minimum capital requirements on and after December 31, 1987 in filings with the Securities and Exchange Commission (³SEC²) in 1988, including its 1987 annual report and Form 10-K for the fiscal year ended December 31, 1987, as well as quarterly reports on Forms 10-Q for the quarters ended March 31, June 30, and September 30, 1988. In those Forms 10-Q UFG also acknowledged that it might be required to contribute additional capital to USAT. UFG acknowledged that, as of September 30, 1988, USAT had a negative capital of $165 million, $380 million less than the regulatory capital requirements of $215 million. Notwithstanding its acknowledgement of the UFG Net Worth Maintenance Obligations, UFG failed to infuse any capital into, or to propose a plan to the FHLBB to infuse capital into, USAT at any time. 92. Rather than complying with their obligation to maintain the regulatory capital of USAT, the Respondents actively attempted to evade that obligation by engaging in a wide variety of practices designed to conceal the true financial condition of USAT or to move assets beyond the reach of regulatory authorities. For example, the Respondents proposed to restructure USAT's debt by redeeming certain subordinated debentures. On March 29, 1988, in a memorandum relating to the proposed debt restructuring Respondent Berner stated to Respondents Hurwitz, Munitz, and Gross: ³[O]ur fiduciary duty is to the UFGI stockholders . . . . ³ Further, ³it would be best for the UFGI stockholders to eliminate all of the prior debt and preferred stock. This would at least provide a clean institution to the stockholders² Berner also stated: ³I believe that we will have to do something within the next 30 days or be prevented by the FSLIC who may require the UFGI capital to be placed down in USAT.² Subsequently, in a memorandum dated July 20, 1988, Berner stated to Hurwitz, Munitz, Gross, and a nonrespondent: ³We should take steps to repurchase this debt at par as soon as possible.² ³There is always the fear that . . . some monies might have to be pushed down from UFGI into USAT.² 93. UFG publicly disclosed that as of December 31, 1988, it had approximately $25 million in total assets. As of December 31, 1993 UFG reported that it had approximately $12 million in total assets, which represents a decrease in UFG's total assets of approximately $13 million. 94. UFG continues to retain and benefit from assets that it was otherwise obligated to pay to USAT under its net worth maintenance obligation. 95. From on or about December 31, 1987 through the present, despite the FHLB-Dallas letters directing UFG to comply with its capital maintenance obligation, UFG has failed to maintain the net worth of USAT in accordance with the Capital Maintenance Condition and the Capital Maintenance Stipulation and has failed to make any capital infusion as required by both the Capital Maintenance Obligation and the Capital Maintenance Agreement. 96. The UFG Net Worth Maintenance Condition, contained in FHLBB Resolution No. 83-252, is a ³condition imposed in writing by the agency in connection with the granting of any application or other request by the depository institution² as that phrase is used in 12 U.S.C. § 1818(b)(1) (1988 & Supp. IV 1992). 97. The UFG Net Worth Maintenance Stipulation is a ³written agreement entered into with the agency² as that phrase is used in 12 U.S. C. § 1818 (b) (1) (1988 & Supp. IV 1992) . 98. By failing to cause the net worth of USAT to be maintained at the levels required by the applicable capital requirements, UFG engaged in an unsafe or unsound practice, violated a written agreement entered into with the agency, and violated a condition imposed in writing by the agency in connection with the granting of an application, within the meaning of 12 U.S.C. § 1818(b) (1988 & Supp. IV 1992). 99. UFG's violations involved a reckless disregard for the law or applicable regulations or prior order of the FHLBB or the OTS. 100. As directors of UFG or USAT, Individual Respondents Hurwitz, Munitz, Gross, and Berner, and each of them, knew or should have known that USAT had failed to meet its regulatory capital requirements as of December 31, 1987. 101. As directors of UFG, Individual Respondents Hurwitz, Munitz, Gross, and Berner, and each of them, had an affirmative obligation to see that UFG complied with the UFG Net Worth Maintenance Obligation. 102. By failing to direct UFG to make the required contributions to cause the net worth of USAT to be maintained at the levels required by the applicable capital requirements, Individual Respondents Hurwitz, Munitz, Gross, and Berner, and each of them, violated a written agreement entered into with the agency, violated a condition imposed in writing by the agency in connection with the granting of an application, and engaged in an unsafe and unsound act within the meaning of 12 U.S.C. § 1818(b) (1988 & Supp. IV 1992). See 12 U.S.C. § 1813(v) (1988 & Supp. IV 1992). 103. Individual Respondents Hurwitz, Munitz, Gross, and Berner's violations involved reckless disregard for the law or applicable regulations or prior order of the FHLBB or the OTS. 104. UFG has been and continues to be unjustly enriched in, and USAT has been damaged by, an amount in excess of $500 million by virtue of the failure of Individual Respondents Hurwitz, Munitz, Berner, and Gross, and each of them, to direct UFG to comply with the UFG Net Worth Maintenance Obligation and by virtue of UFG's retention of assets that it was and continues to be obligated to infuse into USAT under the UFG Net Worth Maintenance Obligation. H. THIRD CLAIM FOR RELIEF: RESPONDENTS CAUSED FALSE AND MISLEADING STATEMENTS TO BE MADE REGARDING MCO/FEDERATED¹S CONTROL OF UFG (Respondents MAXXAM, Federated, Munitz, and Berner) 105. OTS repeats and incorporates the allegations set forth in paragraphs 1 to 104 above. 106. Respondents Munitz and Berner falsely represented to the FHLBB, in letters sent to the FHLBB, the identity of those acting in concert with MCO and Federated to obtain control of UFG and USAT. 107. On March 4, 1987, after the acquisition by MCO/Federated of control of UFG on or after December 24, 1985, Respondent Berner wrote a letter to Julie L. Williams, Esquire, Deputy General Counsel, Director, Corporate Securities Division, Office of the General Counsel, FHLBB requesting an opinion letter regarding the proposed exchange by MCO/Federated of shares of Series C Convertible Preferred Stock of UFG for Series D Convertible Preferred Stock of UFG. In the March 4, 1987 letter to Williams, Berner stated that: Federated and MCO together hold an aggregate of approximately 23.3% of the common stock of UFGŠ. The letter further stated: Under Section 574.3(c)(3) of the Control Regulations, Federated and MCO are not now subject to section 574.3(a) nor deemed to have acquired control of UFGI. 108. Respondent Berner's March 4, 1987 letter was materially misleading and omitted to state material facts. It failed to disclose the Drexel Option or to include the 300,000 shares subject to the Drexel Option in the description of shares of UFG held by the, MCO and Federated control group, omitted to mention the 490,459 shares held by Drexel (which was acting in concert with the MCO and Federated control group), and falsely represented that MCO and Federated were not in control of UFG when in fact they controlled approximately 35% of the outstanding shares of UFG with those acting in concert with them. 109. Later, on November 17, 1987, Respondent Munitz wrote a letter to Darrell Dochow, Executive Director, Office of Regulatory Policy, Oversight and Supervision, FHLBB, which stated as follows: [MCO Holdings Inc. and Federated Development Company] ha[ve] not taken action to acquire control of UFG and United due to the fact that it was engaged in ongoing discussions with the prior administration at the FHLBB regarding some modification of the net worth maintenance provision contained in [Resolution No. 84-172]. 110. Respondent Munitz's November 17, 1987 letter was materially misleading and omitted to disclose material facts in that it failed to disclose that MCO and Federated had acquired control of UFG by the acquisition of 300,000 shares of UFG under the Drexel Option, that Drexel had acted in concert with them in acquiring the additional 490,459 shares of UFG and therefore was part of their control group. 111. The failure to disclose in the March 4, 1987 letter to the FHLBB (i) the Drexel Option, (ii) the 300,000 shares subject to the Drexel Option in the description of shares of UFG controlled by MCO and Federated, and (iii) the 490,459 shares held by Drexel, which was acting in concert with MCO and Federated to acquire control of UFG, and the false representation in the March 4, 1987 letter that MCO and Federated were not in control of UFG, when in fact, they controlled over 25% of the outstanding shares of UFG, made the statements therein false and misleading in violation of 12 C.F.R. § 563.18(b)(1986-88). 112. The statements in the November 17, 1987 letter to the FHLB that MCO and Federated had not taken action to acquire control of UFG, and the omissions that MCO and Federated had obtained an interest in additional shares of UFG by entering into the Drexel Option, and that Drexel had acquired an addition 490,459 UFG shares to assist them to obtain control of UFG, made the November 17, 1987 letter false and misleading in violation of 12 C.F.R. § 563.18(b)(1986-88). I. FOURTH CLAIM FOR RELIEF: CONTROL ACT VIOLATIONS (Respondents MAXXAM, Federated, Hurwitz, and Gross) 113. OTS repeats and incorporates the allegations set forth in paragraphs 1 to 112 above. 114. At all relevant times after December 24, 1985, Respondents MAXXAM, Federated, Hurwitz and Gross, acting in concert among themselves and with Kozmetsky and Drexel, owned in excess of 25% of the outstanding shares of UFG, and thereby exercised control over UFG and USAT. Former 12 U.S.C. § 1730a(a)(2) (1988). 115. Respondents MAXXAM and Federated failed to register with the FSLIC, pursuant to former 12 U.S.C. § 1730a(b) (1) (1988) and 12 C.F.R. § 584.1(a) (1) (1985-88), as savings and loan holding companies within ninety (90) days following December 24, 1985, and Individual Respondents Hurwitz and Gross failed to cause MAXXAM and Federated to so register. After December 24, 1985, Respondents MAXXAM and Federated failed to file annual reports with the FSLIC, pursuant to former 12 U.S.C. § 1730a(b)(2) (1988) and 12 C.F.R. § 584.1(a)(2) (1985-88), which were required to be filed by savings and loan holding companies within one hundred twenty (120) days after the close of each fiscal year, and Individual Respondents Hurwitz and Gross failed to cause MAXXAM and Federated to so file. 116. By failing to register as savings and loan holding companies within ninety (90) days of becoming savings and loan holding companies, Respondents MAXXAM and Federated violated, and Individual Respondents Hurwitz and Gross participated in violations of, former 12 U.S.C. § 1730a(b)(1) (1988) and 12 C.F.R. § 584.1(a) (1) (1985-88). 117. By failing to file the annual reports required from savings and loan holding companies, Respondents MAXXAM and Federated violated, and Individual Respondents Hurwitz and Gross participated in violations of 12 U.S.C. § 1730a(b)(2) (1988) and 12 C.F.R. § 584.1 (1985-88). ___________ Footnotes: 1 Prior to 1987, 12 C.F.R. § 563.13(b) imposed a ³net worth requirement.² Effective in 1987, the terminology was changed to ³regulatory capital requirement² and the method of calculating the minimum required amount was changed. Compare 12 C.F.R. § 563.13(b) (1984-85) with 12 C.F.R. § 563.13(b) (1987).