X. RESPONDENTS CAUSED UNITED MBS TO VIOLATE APPLICABLE SERVICE 
CORPORATION REGULATIONS


A. APPLICABLE REGULATIONS

 	229. At all relevant times, service corporations were to be operated in 
a manner which demonstrated to the public the separate corporate 
existence of the service corporation and the insured institution. 12 
C.F.R. § 563.37(a) (1983-89). Instruments evidencing borrowing by a 
service corporation were required to indicate that the parent insured 
institution was not liable for the debts of the service corporation 
unless the parent insured institution had guaranteed the service 
corporation's debt. Id. § 563.37(b) (1983-89). The amount of any 
guarantee of service corporation debt by a parent was to be aggregated 
with other guarantees of loans to service corporations, direct loans to 
service corporations, and direct (later, "equity risk") investments in 
service corporations by the parent insured institution for purposes of 
determining compliance with applicable limitations on investments. Id. § 
563.37(b) (1983-87), amended, id. § 563.37(b) (1988-89).
	230. At all relevant times, insured institutions and service 
corporations were required to ³[e]mploy such specific principles or 
procedures or particular accounting or reporting matters as the [FSLIC] 
[might] require by regulation or otherwise 12 C.F.R. § 
563.23-3(a)(1983-88).
 	231. At all relevant times, insured institutions were authorized to 
invest in service corporations subject to limitations on the aggregate 
amount of direct investments by an institution and on the activities of 
such service corporations. 12 C.F.R. § 563.9-8(a) (1986-88); id. § 
563.9-8(c) (1986-87), amended, id. § 563.9-8(c) (1988); see id. § 561.26 
(1986-88) (definition of service corporation; incorporates list of 
permissible activities from id. § 545.74(1986-88)). Direct investments in 
service corporations in amounts that exceeded the prescribed threshold or 
of a type other than generally permitted required the filing of an 
application with, and prior approval by the Principal Supervisory Agent. 
Id. § 563.9-8(g)(1), (3) (1986-88). Qualifying investments in service 
corporations or operating subsidiaries were not to be included in the 
calculation of the contingency component for purposes of determining an 
insured institution's compliance with the minimum regulatory capital 
requirement.12 C. F.R. § 563-13 (b) (4) (E) (ii) (D) (2) (iv) (1987) 
recodified, id.§ 563.13 (b) (4) (E) (ii) (D) (2) (v) (1988) .
	232. At all relevant times on and after February 19, 1985, investments 
in a service corporation included investments in debt and equity 
securities issued by service corporations and the underwriting of 
extensions of credit to, or the guaranteeing of the debt of, such a 
service corporation. 12 C.F.R. § 563.9-8(b)(7) (1986-88).
 	233. At all relevant times, insured institutions were prohibited from 
making, without prior FHLBB approval, any contribution, loan, or 
guarantee to, investment in, or assumption of liabilities of, a service 
corporation that would exceed the maximum direct investment limit. 12 
C.F.R. §§ 563.9-8 (g) , 563.38 (1984-88).
	234. At all relevant times on or after February 19, 1986, direct 
investments by insured institutions that had satisfied the minimum 
regulatory capital requirement and a "special-purpose regulatory capital 
requirement" were limited to "(A) the greater of 10 percent of the 
institution's assets or (B) twice the institution's 'regulatory capitalı 
[or Œregulatory net worth'] (as defined in [12 C.F.R.] § 561.13)". 12 
C.F.R. § 563.9-8(c)(2)(i) (1985-87). The "special-purpose regulatory 
capital requirement" was "an amount at least equal to three percent of 
Œtotal liabilitiesı as defined in [12 C.F.R.] § 563.13(g)(1)." Id. § 
563.9-8(c)(2)(ii). Direct investments by an institution that met the 
minimum regulatory capital requirement, but not the special purpose 
regulatory capital requirement, were limited to an amount equal to twice 
the institution's regulatory capital at the end of the preceding calendar 
quarter. Id. Institutions that failed to satisfy the minimum regulatory 
capital requirement were prohibited from making direct investments 
without prior approval. Id. § 563.9-8(c)(2)(iii).
 	235. At all relevant times, insured institutions and their service 
corporations were required to make periodic or other reports of their 
affairs to the FHLBB in the manner and on the forms prescribed by the 
FHLBB. 12 C.F.R. § 563.18(a) (1983-88). At all relevant times, the 
required reports included Semiannual Financial Reports (prior to 1984), 
and Quarterly Financial Reports (1984 through 1988).
 	236. 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).
 	237. 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 (1995).
 	238. At all relevant times, insured institutions with total assets in 
excess of $100 million were required to seek prior regulatory approval in 
order to increase their liabilities at a rate greater than 12.5 percent 
in a six-month period. 12 C.F.R. § 563-13-1(a)(1) (1986-89). To obtain 
such approval, an institution was required to submit a written growth 
plan to its principal supervisory agent. Id. § 563.13-1(b) (1986-89). No 
institution could alter an approved growth plan or materially diverge 
from it without prior written approval of the FHLBB. 12 C.F.R. § 
563.13-1(c) (1986-88).


B. USATıS GUARANTEE OF UNITED MBSıS DEBT

 	239. United MBS, as described above, was created to invest in MBS's 
funded with reverse repurchase agreements. USAT's direct investment in 
United MBS varied significantly depending on the level of interest rates. 
Initially, USAT invested $100 million in United MBS. As of June 30, 1987, 
United .MBS held $1.78 billion in MBS's and USAT's investment had 
increased to $180 million. USAT's investment peaked at $309 million in 
November 1987.
 	240. At the request of one or more of United MBS's reverse repurchase 
creditors in 1985 and 1986, Respondents caused USAT to commit to maintain 
United MBS's capital at 10% of its total assets. USAT's written 
unconditional commitment to maintain the capital of United MBS at 10% of 
total assets was an open-ended commitment to provide unlimited support 
for United MBS's reverse repurchase financing. In making that commitment, 
USAT effectively guaranteed all of the debt of United MBS. Without 
maintaining the value of USAT's assets, Respondents would not be able to 
maintain USAT's capital at 10% of USAT's total assets.
 	241. The guarantees constituted investments in United MBS within the 
meaning of 12 C.F.R. § 563.9-8(b)(7) that should have been included in 
USAT's calculation of its aggregate direct investment for purposes of 12 
C.F.R. § 563.9-8(c)(2).


C. NINTH CLAIM FOR RELIEF: RESPONDENTS CAUSED USAT TO GUARANTEE THE 
LIABILITIES OF UNITED MBS, THEREBY CAUSING USAT TO VIOLATE APPLICABLE 
REGULATIONS (MAXXAM, Federated, Hurwitz, Munitz, Gross. Crow, and Berner)


 	242. OTS repeats and incorporates the allegations set forth in 
paragraphs 1 to 241 above.
 	243. The Respondents' actions that caused USAT to improperly guarantee 
the liabilities of United MBS violated 12 C.F.R. § 563.37(b) (1983-88).
 	244. By guaranteeing the debt of United MBS, USAT became obligated to 
include the assets and liabilities of United MBS in its balance sheet in 
its Thrift Financial Reports. By failing to cause USAT to do so, 
Respondents caused USAT to violate 12 C.F.R.,§ 563.23-3 (1983-88).


D. TENTH CLAIM FOR RELIEF: RESPONDENTS CAUSED USAT TO VIOLATE THE 
LIABILITY GROWTH REGULATION (MAXXAM, Federated, Hurwitz, Munitz, Gross, 
Crow, and Berner)

 	245. OTS repeats and incorporates the allegations set forth in 
paragraphs 1 to 244 above.
 	246. The Respondents' actions that caused USAT to guarantee the 
liabilities of United MBS required the liabilities of United MBS to be 
included in USAT's financial statements in 1986 and 1987. During that 
period, United MBS's separate liabilities grew to as much as $2.8 billion 
and, when consolidated with the assets and liabilities of USAT, caused 
USAT to exceed limitations placed on USAT's liability growth by 12 C.F.R. 
§ 563.13(a), (b) (1986-89). Respondentsı failure to cause USAT to seek 
prior approval of USAT's Principal Supervisory Agent for this additional 
growth in USAT's liabilities violated 12 C.F.R. § 563.13-1(a), (b) 
(1986-89).


E. ELEVENTH CLAIM FOR RELIEF: RESPONDENTS CAUSED USAT TO VIOLATE THE 
DIRECT INVESTMENT LIMITATIONS (MAXXAM, Federated, Hurwitz, Munitz, Gross, 
Crow, and Berner)

 	247. OTS repeats and incorporates the allegations set forth in 
paragraphs 1 to 246 above.
 	248. Because of USAT's guarantee of the liabilities of United MBS, 
those liabilities were required by regulation to be included in USAT's 
calculation of its direct investment limits. When such liabilities were 
added to other USAT direct investments, USAT violated 12 C.F.R. 
563.9-8(c)(2) (1986-88).