XII. RESPONDENTS CAUSED USAT AND UFG TO ENGAGE IN UNSAFE AND UNSOUND 
COMPENSATION PRACTICES

A. APPLICABLE STATUTES AND REGULATIONS

 	293. 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) (1983-88).
 	294. At all relevant times, directors, officers, and other affiliated 
persons of insured institutions were prohibited from practices and 
conditions, including conflicts of interest, that adversely affected the 
interests of members of insured institutions and the soundness of such 
institutions. 12 C.F.R. § 571.7(1983-88).
 	295. At all relevant times, insured institutions were prohibited from 
providing compensation to officers, directors and employees in excess of 
that which was reasonable and commensurate with their duties and 
consistent with safe and sound management. 12 C.F.R. § 563.17(a), (b) 
(1983-88).
 	296. At all relevant times, the directors of an insured institution had 
a fiduciary responsibility to ascertain the reasonableness of the total 
compensation of any employee and to ensure that such compensation was in 
compliance with 12 C.F.R. §§ 563.17(b) and 563.39 and the policy 
guidelines set forth in FHLBB Mem. R- 42.
 	297. At all relevant times, insured institutions were prohibited from 
entering into an employment contract with any of their employees if such 
contract would constitute an unsafe and unsound practice, lead to 
material financial loss or damage to such institutions, or interfere 
materially with the exercise by the members of the board of directors of 
their duty of discretion provided by law, charter, bylaw, or regulation 
as to the employment or termination of employment of an officer or 
employee of such institutions. 12 C.F.R. § 563.39(a) (1983-88).
 	298. At all relevant times, unless prior written approval had been 
obtained from the FSLIC, any employment contract entered into by an 
insured institution with any of its employees was required to provide 
that, if the institution was in default (as that term is defined in § 
401(d) of the NHA, 12 U.S.C. § 1724(d)) as a consequence of, among other 
things, having been placed into receivership, all obligations under such 
contact would terminate as of the date of default. 12 C.F.R.
563.39(b) (4) (1985-88) .
 	299. At all relevant times, savings and loan holding companies and 
their subsidiaries were prohibited from engaging in any activity for or 
on behalf of an insured institution subsidiary for the purpose or with 
the effect of evading any law or regulation applicable to such insured 
institution. Former 12 U.S.C. § 1730a(c)(1)(A)(1.989).
 

B. RELEVANT FACTS

 1. THE FINANCIAL CONDITION 0F USAT AND UFG

 	300. By the latter part of 1987, the financial condition of USAT had 
deteriorated to the point that it could no longer meet its minimum 
capital requirement. As discussed in Part IX of the Notice, in order for 
USAT to satisfy its minimum regulatory capital requirement Respondents 
caused USAT and United MBS to engage in a sham exchange of assets so that 
USAT could claim $101 million in maturity matching credits when the 
institution was only entitled to claim $32.2 million in maturity matching 
credits. Without the inclusion of the approximately $69 million in 
additional maturity matching credits generated by the sham exchange USAT 
failed to meet its required minimum regulatory net worth as of September 
30, 1987 by approximately $5 million. See ¶ 217-218.
 	301. As discussed in paragraphs 73 through 77, the examination of USAT 
commenced by the FHLB-Dallas on November 16, 1987, the results of which 
were discussed with the Board of Directors of USAT and disclosed in a 
Form 10-K filed with the Securities and Exchange Commission by UFG on 
March 29, 1988, revealed that USAT failed to meet its regulatory capital 
requirements for the quarters ending September 30, 1987, and December 31, 
1987.
 	302. As a consequence of USAT capital deficiency, as described in 
paragraphs 73 through 77, the Supervisory Agent, in a letter dated May 
13, 1988, directed the Board of Directors of UFG to infuse capital into 
USAT pursuant to its Net Worth Maintenance Obligation.
 	303. UFG was also experiencing financial difficulties by the end of 
1987 and had limited assets available to provide financial assistance to 
USAT under the UFG Net Worth Maintenance Obligation. As of March 31, 
1988, UFG advised FHLB-Dallas it had approximately $54.7 million of debt 
outstanding, exclusive of its obligation under the UFG Net Worth 
Maintenance Obligation, and approximately $34 million of cash and 
securities to meet its future debt obligations.
 	304. Although the Board of Directors of UFG acknowledged the UFG Net 
Worth Maintenance Obligation, it failed to infuse into USAT any capital, 
and on December 30, 1988, by FHLBB Order No. 88-1534P, USAT was declared 
insolvent and the FSLIC appointed as receiver. FHLBB Order No. 88-1534P 
provided in part as follows:

 RESOLVED FURTHER, that the Bank Board determines that, upon the 
appointment of the FSLIC as receiver for the Association for the purpose 
of liquidation, the Association shall be in ³default,² as such term is 
defined in § 401(d) of the NHA, 12 U.S.C. 1724(d) (1982); and

 RESOLVED FURTHER, That every employment contract between the Association 
and its officers and employees is hereby terminated by the Bank Board, 
effective upon the date of default of the Association . . .


 2. THE USAT AND UFG BONUS AGREEMENTS

	305. On or about April 27, 1985, Respondents caused USAT to initiate the 
United Savings Association of Texas 1988 Executive Bonus Plan (the ³USAT 
Bonus Plan² or ³Bonus Plan²). The Bonus Plan was drafted by Respondent 
Berner, the General Counsel for USAT. Pursuant to the Bonus Plan, on or 
before April 30, 1988, the Compensation Committee of the USAT Board of 
Directors determined those employees eligible to participate in the Bonus 
Plan and the amount of bonus payable to each participant selected by the 
Committee. The Bonus Plan provided that, prior to April 30, 1988, a 
payment was to be made to each participant in the Bonus Plan equal to 25% 
of the total bonus payable to such participant. The remaining 75% of the 
bonus was held in trust by a trustee and was to be paid to a participant 
if the participant remained employed by USAT on January 1, 1989.
 	306. In April 1988, at a time when USAT was failing to meet its minimum 
capital requirement, USAT Respondents caused USAT to pay a total of 
$293,115 to 42 employees of USAT, including Respondents Berner, Crow, 
Munitz, and Gross, pursuant to the Bonus Plan.
 	307. The principal beneficiaries of the Bonus Plan included Respondent 
Gross, who was to receive a bonus totalling $167,000; Respondent Munitz, 
who was to receive a bonus totalling $156,000; Respondent Berner, who was 
to receive a bonus totalling $114,000; and Respondent Crow, who was to 
receive a bonus totalling $109,000. In addition, USAT deposited $879,345 
in a trust account at Texas Commerce Bank in October 1988 to fund USAT's 
remaining obligation under the Bonus Plan.
 	308. On April 25, 1988, Respondents also caused UFG to enter into a 
Bonus Agreement with Respondents Gross (the ³UFG Bonus Agreement²). 
Respondent Gross had previously purchased (on June 24, 1985) 105,000 
shares of stock from UFG at $7.25 per share and had given UFG a note for 
$761,250 due on December 31, 1990 (the ³Gross Note²). The market price of 
the UFG shares had ³significantly deteriorated,² and they were worth only 
a fraction of the original purchase price at the time the UFG Bonus 
Agreement was executed. Under the terms of the UFG Bonus Agreement, UFG 
agreed to extend the Gross Note to January 10, 1994 and to award bonuses 
in installments to Gross equal to the amount due under the note (less the 
value of the shares), thereby effectively relieving Gross of his 
obligation under the note.


 3. USAT'S AND UFG¹S SEVERANCE AGREEMENTS

 	309. On June 30 and July 1, 1988, Respondents also caused UFG and USAT 
to enter into employment agreements with a number of senior management 
and directors of USAT and UFG, including Respondents Gross, Munitz, 
Berner, and Crow. Each of the individuals who entered into the employment 
contracts, with the exception of one, had been employed by UFG and USAT 
prior to June 30, 1988.
 	310. The June 30, 1988 employment contracts with UFG (The ³UFG 
Employment Contracts²) obligated UFG to maintain the employment of each 
of the executives through December 31, 1991 at a minimum level of 
remuneration as set forth in each of the UFG Employment Contracts. In 
addition, the UFG Employment Contracts contained a ³golden parachute² or 
severance pay provision.
 	311. Under the golden parachute provision, each executive was entitled 
to two years' annual salary plus two times his previous year's bonus upon 
the occurrence of various events, including the ³liquidation, 
dissolution, consolidation or merger of . . . USAT.² Thus, if UFG's 
insured depository subsidiary, USAT, were to be placed in receivership, 
each of the UFG/USAT executives who had executed a UFG Employment 
contract would be entitled to two years, compensation and twice his 
previous year's bonus, regardless of whether such executive continued to 
be employed by USAT or UFG. In order to assure that assets of UFG would 
be available to pay the benefits under the golden parachute provision, 
each UFG Employment contract specified in paragraph 9 (i) that UFG:

 shall deliver or cause to be delivered to the Executive an unconditional 
irrevocable letter of credit (the ³Initial Letter of Credit²) issued by a 
national banking association. The face amount of the Initial Letter of 
Credit shall be two (2) times the Executive¹s annual salary . . . .

 	312. Several of the UFG Employment Contracts entered into by executives 
of UFG and USAT, including the contracts with Respondents Berner and 
Crow, stated that the executives had previously entered into similar 
employment agreements with UFG on September 9, 1987. One of the principal 
differences between the earlier agreements and the June 30, 1988 
employment contracts was the addition of paragraph 9(i), which provided 
for a letter of credit to secure the severance payments.
 	313. The purpose and effect of the inclusion of paragraph 9(i) in the 
UFG Employment Contracts was to provide a mechanism for UFG to set aside 
assets to fund severance payments of executives of USAT and UFG.
 	314. One day later, on July 1, 1988, USAT entered into virtually 
identical companion employment contracts with the same officers and 
directors (the ³USAT Employment Contracts²), including Respondents Gross, 
Berner, Crow, and Munitz. The USAT Employment Contracts provided for the 
identical golden parachute severance payments, but specified that these 
obligations would be secured by letters of credit obtained by USAT, 
rather than UFG.
 	315. USAT was unable to obtain letters of credit. Instead, on October 
17, 1988, Respondents caused USAT to deposit $6,612,908 into an escrow 
account at First City National Bank, Houston, Texas, to secure USAT's 
performance of its severance obligations under the USAT Employment 
Contracts.
 	316. The only material difference between the two sets of companion 
employment agreements was that the USAT Employment Contracts, paragraph 
18, identified various circumstances under which the agreements would 
automatically terminate. The USAT Employment Contracts, however, failed 
to provide that the contracts would terminate in the event USAT was in 
default (as a consequence of being placed in receivership or some other 
event of default as defined in section 401(d) of the NHA), as required 
under 12 C.F.R. § 563.39(b) (4)
 	317. Additionally, paragraph 18(e) of the USAT Employment Contracts 
provided as follows:
 
		The terms and conditions of the Agreement shall become effective if, 
but only if, [UFG] 		shall be unable to comply with all of its 
obligations and make all of its payment as set 		forth in and under the 
[UFG] Agreement.

 	318. Although USAT's obligation under paragraph 18(e) of the USAT 
Employment Contracts was conditioned upon UFG being unable to make 
required compensation payments under the UFG Employment Contracts, at all 
relevant times USAT paid the base salaries of the parties to the USAT 
Employment Contracts. As a consequence, UFG¹s only obligation under the 
UFG Employment Contracts was to provide a source of funding for the 
severance payment obligations of USAT, which by operation of law, 
pursuant to 12 C.F.R. § 563(b)(4), were otherwise subject to automatic 
termination and would become unenforceable in the event USAT was placed 
in receivership by the FHLBB.


 4.	SUPERVISORY INTERVENTION

 	319. In about June 1988, FHLB-Dallas began a review of the USAT 
Employment Contracts and other compensation arrangements between USAT and 
its employees. On October 27, 1988 Supervisory Agent Neil Twomey wrote a 
letter to the Board of Directors of USAT that stated as follows:

 We have reviewed employment contracts that United Savings Association of 
Texas (³United²) entered with various members of senior management, 
including Jenard Gross, Lawrence Connell, Arthur S. Berner, Michael R. 
Crow, J.J. Gray, Jr., James N. Jackson, James L. Wolfe, Bruce F. Williams 
and Dominic R. Bruno. Each and every contract was found to be in 
violation of Section 563.39 of the Insurance Regulations, 12 C.F.R. § 
563.39 (1988) (³Section 563.39²) in significant respects. Further, 
because these contracts provided for excessive compensation and severance 
payments, their execution at a time when United was approaching, or had 
actually reported insolvency, represented an unsafe and unsound practice 
by the Board of Directors and senior management of United.

 	320. The letter directed the Board of Directors of USAT, pursuant to 
the authority granted under 12 C.F.R. 563.13(d), to give notice to each 
of the members of senior management that the USAT Employment Contracts 
would not be extended beyond December 31, 1988, and further instructed as 
follows:

 Make no payments, and allow no payments to be made directly or 
indirectly, pursuant to any employment contract, bonus agreement, 
retirement, pension or profit sharing plan, severance agreement, employee 
benefit plan or other similar agreement, or fund any escrow account 
related to such agreements, except for base monthly salary payments to 
employees pursuant to contracts upon which United is itself legally 
obligated, without the prior written approval of the Supervisory Agent.

 	321. On November 7, 1988, the USAT Board of Directors terminated the 
escrow account at First City National Bank and the $6,612,980 of USAT 
assets placed in escrow to secure the severance payments under the USAT 
Employment Contracts were subsequently returned to USAT.
 	322. After being advised of the FHLB-Dallas concerns regarding 
management's compensation, the USAT Board of Directors also resolved to 
terminate the Bonus Plan trust as it pertained to the eight individuals 
identified in the October 27, 1988 letter from FHLB-Dallas. On November 
9, 1988 USAT advised the Texas Commerce Bank of its resolution and 
instructed the Bank to return to USAT all funds held in trust for these 
eight participants in the Bonus Plan.
 	323. On December 15, 1988 the FHLB-Dallas further advised the USAT 
Board of Directors of the specific concerns of the FHLB-Dallas regarding 
the Bonus Plan. The letter stated the following:

 [W]e consider the contemplated payment of funds under the ³1988 
Executive Bonus Plan² to those employees who are entitled to benefits 
pursuant to employment contracts with United Savings Association of Texas 
and/or United Financial Group, Inc. to be an unsafe and unsound practice. 
We therefore take supervisory objection to the following bonus payments:

	M.	Crow	$81,750
	A.	Berner	85,500
	J.	Jackson	67,500
 	B.	Munitz	117,000
 	J.	Gray	48,750
 	B.	Williams	37,500
 	J.	Wolfe	37,500
 			$475,500

 In light of United's materially insolvent position, we also take 
objection to the payment of these bonuses pursuant to Section 563.13(d) 
of the Insurance Regulations, 12 C.F.R. § 563.13(d)(1988).

*     *     *

You are also reminded that my letter dated October 27, 1988, directed you 
to make no more payments pursuant to any bonus agreement without specific 
prior supervisory approval.
 	324. The USAT Employment Contracts as well as the Bonus Plan, pursuant 
to 12 C.F.R. § 563.39(b)(4), terminated by operation of law on December 
30, 1988, upon the appointment of FSLIC as the receiver for USAT.


 5. UFG'S PAYMENT OF SEVERANCE CLAIMS

 	325. Thereafter, former executives separated from USAT by the 
receivership asserted claims for severance payments against UFG under the 
golden parachute provisions in the UFG Employment Contracts as well as 
claims for bonuses under the Bonus Plan.
 	326. Representatives of the FSLIC advised Respondents in about May 
1989, that the FSLIC believed utilizing the assets of UFG to fund the 
severance payments of former USAT employees under the UFG Employment 
Contracts was an unsafe and unsound practice. Specifically, the FSLIC 
advised Respondents that, in light of USAT's insolvency, UFG had an 
obligation to utilize whatever capital it had available to satisfy the 
UFG Net Worth Maintenance Agreement.
 	327. Additionally, FSLIC advised Respondents that the UFG Employment 
Contracts were illegal, were no longer enforceable, and violated 12 
C.F.R. § 563.39(b)(5), in that they permitted UFG, as a holding company, 
to pay severance obligations of USAT, its insured subsidiary, which had 
automatically terminated upon the appointment of the receiver and were 
unenforceable against USAT. FSLIC also advised Respondents that 
permitting UFG to make severance payments that its insured depository 
subsidiary, USAT, was not permitted to pay would violate 12 U.S.C. § 
1730a(c)(1)(A), which prohibited a savings and loan holding company from 
engaging in any activity or rendering any service on behalf of an insured 
depository institution for the purpose or effect of evading any law or 
regulation applicable to an insured institution.
 	328. Notwithstanding the advice of the FSLIC, on July 31, 1989, the 
directors of UFG, including Respondents Berner and Munitz, approved the 
settlement of severance claims asserted against UFG arising under the UFG 
Employment Contracts. Through its Corporate Counsel, Berner, UFG agreed 
to compromise $3,040,278 in severance claims asserted by six former 
executives of USAT for $666,884. Among others, Crow received $142,528. 
The directors of UFG also agreed to indemnify the settling executives for 
any claims that might be asserted against such executives arising out of 
their association with USAT or UFG.
 	329. After USAT was placed in receivership, Respondent Berner continued 
to be employed as Executive Vice President, General Counsel and Secretary 
of UFG. In these capacities, he continued to be paid at the same salary 
rate at which he was previously compensated by USAT. Over the next three 
years, Respondent Berner received total compensation of $381,000 in 1989, 
$328,000 in 1990 and $250,376 in 1991. Notwithstanding the fact that 
Respondent Berner continued to be employed by UFG, on October 13, 1989, 
the directors of UFG agreed to pay Respondent Berner, in addition to his 
agreed upon compensation by UFG, an additional $147,000 to settle any 
severance claims Respondent Berner might assert against UFG under the 
golden parachute provisions of his UFG Employment Contract and the Bonus 
Plan.
 	330. After USAT was placed in receivership, Respondent Munitz continued 
to be employed as Chairman of the Board and Chief Executive Officer of 
UFG. In these capacities, he received total compensation of $337,937 in 
1989, $116,866 in 1990 and $23,000 in 1991. Notwithstanding the fact that 
Respondent Munitz continued to be employed by UFG, the directors of UFG, 
agreed on December 1, 1989 to pay Respondent Munitz, in addition to his 
agreed upon compensation by UFG, an additional $98,000 to settle his 
claims under the Bonus Plan and any severance claims Respondent Munitz 
might assert against UFG under the golden parachute provisions of his UFG 
Employment Contract.
 	331. In total, UFG utilized over $900,000 of UFG assets to compromise 
bonus and severance claims asserted by executives of UFG and USAT, 
including Respondents Berner, Munitz, and Crow, arising out of the USAT 
Employment Contracts as well as the Bonus Plan, which by applicable 
regulations and order of the FHLBB, such executives would not have 
otherwise been able to recover from USAT under the USAT Employment 
Contracts.
 	332. In November 1988, Respondent Gross voluntarily resigned as officer 
and member of the Boards of Directors of USAT and UFG. In return for 
Gross relinquishing his rights to severance payments and other benefits 
under the UFG Employment Contract and the conveyance of 105,000 shares of 
UFG stock, which were then virtually worthless, Respondents discharged 
Respondents Gross from his obligation to repay the principal and interest 
on the loan in the amount of approximately $835,000.


C. THIRTEENTH CLAIM FOR RELIEF: RESPONDENTS CAUSED UNSAFE AND UNSOUND 
BONUSES, SETTLEMENT, AND SEVERANCE PACKAGES TO BE AUTHORIZED AND PAID TO 
OFFICERS AND DIRECTORS (Respondents Munitz, Berner, Gross, and Crow)

 	333. OTS repeats and incorporates the allegations set forth in 
paragraphs I to 332 above.
 	334. Respondents Berner, Munitz, Gross, and Crow caused USAT to 
establish the Bonus Plan and distributed assets of USAT to executives of 
USAT and UFG pursuant to the Bonus Plan at a time when USAT failed to 
meet applicable minimum capital requirements. By causing USAT to 
establish the Bonus Plan and accepting bonuses pursuant to the Bonus 
Plan, at a time when the financial condition of USAT did not justify such 
compensation and when they posed a risk of material loss or damage to 
USAT, Respondents Berner, Munitz, Gross, and Crow engaged in an unsafe 
and unsound practice and provided unreasonable compensation to themselves 
and others in violation 12 C.F.R. §§ 563.17(b) and 563.39(a).
 	335. The USAT Employment Contracts did not comply with applicable 
regulatory requirements under 12 C.F.R § 563.39 in significant respects. 
Among other things, the contracts did not provide that they would 
automatically terminate in the event USAT was in default as required 
under 12 U.S.C. § 563.39(b)(5). Additionally, the USAT Employment 
Contracts: (a) provided for excessive compensation and severance payments 
to executives of USAT and UFG; (b) were executed at time when USAT failed 
to meet applicable capital requirements and, therefore, the financial 
condition of USAT did not justify such contracts; and (c) posed an 
unreasonable risk of material financial loss or damage to USAT. 
Respondents Munitz, Berner, Gross, and Crow, by causing USAT to enter 
into the USAT Employment Contracts, knowingly and recklessly engaged in 
unsafe and unsound practices and approved unreasonable compensation for 
themselves and others, in the form of salary, severance payments, and 
other benefits, in violation of 12 C.F.R. 563.17(b) and 12 C.F.R. § 
563.39.
 	336. The UFG Employment Contracts provided an indirect means by which 
executives of USAT and UFG could receive bonus and severance benefits 
authorized by the Board of Directors of USAT, which, by operation of 12 
C.F.R. § 563.39(b)(5), automatically terminated upon the receivership of 
USAT on December 30, 1988. Respondents Berner, Munitz, Gross, and Crow's 
actions to cause UFG to enter into the Employment Contracts and the 
provision of severance benefits and bonuses to executives of USAT that 
such executives would not have otherwise been able to recover from USAT 
resulted in UFG engaging in activity for or rendering a service on behalf 
of USAT, UFG's insured depository subsidiary, for the purpose or with the 
effect of evading 12 C.F.R. § 563.39(b)(5), a regulation applicable to 
USAT, in violation of 12 U.S.C. § 1730a (c) (1) (A) .
 	337. Respondents Berner, Munitz, Gross, and Crow, by their actions to 
cause UFG to enter into the UFG Employment Contracts and their acceptance 
of payments from UFG in the compromise of claims arising out of the UFG 
Employment Contracts, participated in the above described violation of 12 
U.S.C. § 1730a(c)(1)(A).
 	338. Respondents Berner and Munitz compromised the UFG severance and 
bonus claims asserted by former executives of USAT and UFG arising out of 
such executives' employment at USAT and forgave Gross for his $835,000 
liability under the Gross Note at a point in time when UFG had 
insufficient assets to comply, even partially, with its obligation to 
maintain the net worth of USAT and had failed to infuse any capital into 
USAT under the UFG Net Worth Maintenance obligation. Respondents Berner 
and Munitz engaged in an unsafe and unsound practice by paying the 
severance and bonus claims of former executives of USAT and thereby 
dissipating assets which otherwise should have been used to infuse 
capital into USAT in compliance with the UFG Net Worth Maintenance 
Obligation.
 	339. Respondents Berner, Munitz, Gross, and Crow, by causing UFG to 
make the severance and bonus payments and/or accepting severance and 
bonus payments from UFG, knowingly and recklessly participated in the 
unsafe and unsound practices, violations, and breaches of fiduciary duty 
described above.