11971 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) 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 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 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 ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 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. ) 20 21 TRIAL PROCEEDINGS FOR JUNE 17, 1998 22 11972 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 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 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 11973 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire (Not present) of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire (Not present) of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE 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 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CS 22 11974 1 2 EXAMINATION INDEX 3 Page 4 MARY MIMS 5 Examination by Mr. Guido................11975 6 Examination by Mr. Nickens..............12118 7 Further Examination by Mr. Guido........12149 8 Further Examination by Mr. Nickens......12171 9 Further Examination by Mr. Guido........12179 10 Further Examination by Mr. Nickens......12184 11 12 13 14 15 16 17 18 19 20 21 22 11975 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:05 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. 5 Mr. Guido? 6 MR. GUIDO: Yes, Your Honor. At this 7 time, Your Honor, the OTS would like to call Mary 8 Mims. 9 10 MARY MIMS, 11 12 called as a witness and having been first duly 13 sworn, testified as follows: 14 15 EXAMINATION 16 17 Q. (BY MR. GUIDO) Would you state your 18 name for the record, please. 19 A. Mary Mims, M-I-M-S. 20 Q. And where are you presently employed? 21 A. Bank United Securities Corp. 22 Q. What is your position there? 11976 1 A. I am director of trading and 2 institutional sales manager. 3 Q. Did you say director of trading? I'm 4 sorry. 5 A. Yes. It's the broker dealer subsidiary 6 of the bank. 7 Q. What does that entail? 8 A. Basically, we have Series 7 registered 9 retail reps in all the branches that sell 10 basically page products; but they also sell 11 treasuries, agencies, corporates, municipals. 12 I've got traders that handle those functions. We 13 buy SBA loans and pull them and sell them. So, I 14 have an SBA trader and a sales force. 15 Q. Now, is bank United a successor to 16 United Savings Association of Texas? 17 A. They were the surviving entity, I mean, 18 after the recapitalization. I don't know legally 19 if that makes them the same. 20 Q. Are they a sequel or a subsequent 21 thrift that inherited the assets and liabilities 22 of United Savings Association? 11977 1 A. Yes, to the best of my knowledge. 2 Q. Tell us what college education you 3 have. 4 A. I have a BBA in Finance from Delphi 5 University in New York. 6 Q. Do you have any post-graduate degrees? 7 A. No. 8 Q. Now, can you tell us where you were 9 employed after graduation? 10 A. McGraw Hill Publishing Company in 11 New York. 12 Q. And subsequent to that? 13 A. Houston First American Savings prior to 14 the merger with United Savings. 15 Q. When were you first employed with 16 Houston? 17 A. August of 1981. 18 Q. What was your position there? 19 A. Liability manager. 20 Q. What did that entail? 21 A. At the time, there was a holding 22 company. I believe we were owned by Penn Corp., 11978 1 and I helped manage the holding company debt. And 2 we also had some bond issues that had real estate 3 behind them that had quarterly calls that you had 4 to monitor. 5 Q. And did you hold any other positions 6 there? 7 A. No. I don't think my title changed 8 until after the merger. 9 Q. Now, after the merger -- when did the 10 merger occur again? 11 A. April of 1983. 12 Q. And Houston First merged with what 13 entity? 14 A. United Savings. 15 Q. And at that point in time, did your 16 responsibilities change? 17 A. Not immediately. After they kind of 18 figured out who was going to survive and who was 19 going to do what, they ended up with double staff. 20 So, not immediately but eventually. 21 Q. What did your position become? 22 A. I don't know what my title became at 11979 1 the time; but it was more of a treasury function, 2 management of the liquidity portfolio. 3 Q. What do you mean by -- 4 A. Wire transfer of funds. 5 Q. What did you mean by "managing the 6 liquidity portfolio"? 7 A. In 1983, I mean, you had to have 8 5 percent liquidity like you do now; and it was 9 just a matter of -- most of it, we had some 10 mortgage-backed securities that existed at the 11 time and just to make sure that the cash was 12 invested. At the time, I think it was pretty much 13 in overnight funds, short-term funds. There 14 wasn't anything elaborate going on. 15 Q. Now, how long did you hold that 16 position? 17 A. I mean, I stayed in the treasury area 18 until 1987 in some capacity or another. 19 Q. What was your position in the treasury? 20 A. Eventually, assistant treasurer. 21 Q. What did your responsibilities -- were 22 you assistant treasurer in 1986? 11980 1 A. Yes. 2 Q. Were you assistant treasurer in 1985? 3 A. That may be around the time the title 4 changed. I don't remember exactly. 5 Q. Now, as the assistant treasurer, what 6 were your responsibilities with USAT? 7 A. The daily funding and home loan bank 8 borrowings, the settlement of securities. We had 9 to build a settlement and the basic management of 10 the debt at the holding company level from the 11 old -- the old debt from Houston First American 12 Savings that came with it. 13 Q. Were you responsible for the books and 14 records of USAT? 15 A. No. 16 Q. Who was responsible for those? 17 A. Accounting and corporate planning. 18 Q. So, you didn't have any authority to 19 make entries in the books of USAT? 20 A. I made daily entries to settle 21 securities and do accrued interest. But as far as 22 regulatory reporting and financial reporting, they 11981 1 took the information and did -- the other areas 2 did that. 3 Q. Did they provide you with copies of the 4 reports? 5 A. I don't recall being on a mailing list. 6 I mean, if I needed one, I could get one. 7 Q. Okay. Did you periodically review the 8 reports that were prepared and filed by USAT that 9 were generated out of its accounting system? 10 A. Not that I recall, unless, you know, 11 there was -- somebody asked me about a specific 12 point. 13 Q. Okay. Now, in your function which is 14 in the treasury department, were you responsible 15 for -- did you say settling transactions? Can you 16 tell us what you mean by that? 17 A. Well, we had portfolio managers and an 18 investment committee that would make decisions as 19 to what they were going to buy or sell. Once they 20 executed a trade, a copy of the trade ticket would 21 come to my department. If the proper signatures 22 and everything were on it per the policies and 11982 1 procedures, we would process the ticket. 2 Basically, we would call the 3 information into the settlement agent, who was 4 Citibank and then Security Pacific at various 5 points in time; and we would wire the funds to 6 settle the securities. And then, basically, we 7 would debit the asset account and credit cash. 8 Q. So that part of your function was to 9 wire funds out of USAT to settle obligations that 10 USAT had incurred? 11 A. Yes. 12 Q. Okay. And was the other part of it to 13 deposit funds that USAT would receive as funds 14 which were obligated to it? 15 A. Yes. The wire room was in the treasury 16 department. 17 Q. Now, were there other functions within 18 the treasury department besides your function? 19 A. Well, Bruce Williams was the treasurer. 20 That was -- I mean, he was on the committee and 21 had the authority to instruct us as to what to do. 22 Presumably, I had certain people who handled the 11983 1 day-to-day -- like I said, you know, liquidity 2 reporting to let people know how much cash was 3 available to be invested or what our funding needs 4 were and what home loan bank rates were for 5 borrowings. There were people who actually did 6 the settlement of the mortgage-backed securities. 7 In those days, we didn't have 8 computers; and the instruments were physical in 9 nature. So, it took a lot more people to handle 10 the settlement process than it does today. I had 11 somebody who did the accounting -- well, the 12 settlement accounting for the corporate bond 13 portfolio, high-yield portfolio; and I think we 14 had two people on equities at the time. 15 Q. Did those people report to you? 16 A. They all reported to me. 17 Q. So, the people who handled the books 18 for the high-yield bonds and transactions for 19 high-yield bonds reported to you? 20 A. The settlement of the transactions. 21 Q. And what about the equity securities, 22 what is referred to as corporate arbitrage? Did 11984 1 they report to you? 2 A. Yes. 3 Q. And the mortgage-backed securities 4 people reported to you? 5 A. Yes. 6 Q. The people who scheduled them? 7 A. Yes. 8 Q. What about the repurchase agreements? 9 A. We also booked those entries, too, as 10 far as -- I mean, it was the other side of the 11 cash going in or cash going out. 12 Q. Now, when you reviewed a request for a 13 transaction to occur and funds to be dispersed or 14 funds to be received, what did you look to to 15 determine whether or not it was an appropriately 16 authorized transaction? 17 A. The trade tickets had to have two 18 signatures, and there were two different levels of 19 authorization. Certain people co-sign on Line 1 20 and certain people on Line 2. If the proper 21 people had received the ticket and all the 22 information was correct, policy was to fill the 11985 1 transaction. 2 Q. Was your responsibility to decide 3 whether or not those transactions were filed 4 within trading limits? 5 A. No. 6 Q. Whose responsibility was it? 7 A. Within treasury? 8 Q. Uh-huh. 9 A. I mean, that would be Bruce. I mean, 10 it would have fallen to the asset and liability 11 committee or the investment committee, whatever 12 they called it at the time. 13 Q. But the asset liability committee 14 wasn't within treasury, was it? 15 A. No. 16 Q. The investment committee wasn't within 17 treasury? 18 A. No. I mean, it was made up of several 19 people. Not one person controlled when things 20 were authorized. 21 Q. So, within treasury, there was no 22 person who was there to monitor compliance with 11986 1 the policies and procedures of USAT with regard to 2 any particular transaction? 3 A. I'm not sure I understand what you're 4 asking. If the correct authorizations were on the 5 ticket, it was monitored within the policies an 6 procedures. 7 Q. What do you mean "it was monitored 8 within the policies and procedures"? 9 A. There were certain people who were 10 given the responsibility to be portfolio managers 11 and do certain transactions based on 12 recommendations from the investment committee. 13 Did Bruce have knowledge of this 14 information? Yes. So, you know, if the 15 investment committee hadn't approved it, I don't 16 believe the transaction would have been processed. 17 I don't believe it would have even gotten to my 18 desk. 19 Q. So, what your unit looked to was to see 20 whether or not the appropriate signatures were on 21 the trade tickets; and from that, you assumed that 22 the proper authorization had been given for the 11987 1 transaction? 2 A. Yes. 3 Q. Now, USAT was owned by United Financial 4 Group, the holding company; is that correct? 5 A. At the time. 6 Q. Did you hold any positions with United 7 Financial Group? 8 A. I know I was assistant treasurer of 9 some of the subsidiaries. I'm not sure if I was 10 an officer of the holding company. 11 Q. Now, you were the assistant treasurer 12 of USAT. Did you at any point in time become a 13 vice president? 14 A. I think in 1985, I was -- I mean, it 15 was basically vice president assistant treasurer. 16 Vice president was just the office title to be 17 with the functional title. 18 Q. Did you hold any positions with an 19 entity called United Financial Investment 20 Advisors? 21 A. Not that I recall. I don't know. 22 Q. Did you hold any positions with United 11988 1 Finance Investments? 2 A. Not that I recall. 3 Q. Did you hold any positions with 4 United MBS? 5 A. I believe United MBS, I was assistant 6 treasurer. 7 Q. And as assistant treasurer of 8 United MBS, what were your responsibilities? 9 A. I don't believe they were any different 10 than my responsibilities as assistant treasurer of 11 the bank. 12 Q. Did you hold any positions with United 13 Republic Reinsurance Company? 14 A. I don't believe so. 15 Q. You don't recall? 16 A. I don't recall. 17 Q. What about USAT Investment Corporation? 18 A. I don't recall. 19 Q. Okay. Do you recall that there was an 20 entity that was created in the latter part of 1985 21 and then collapsed shortly thereafter because of 22 some regulatory concerns? 11989 1 A. Yes. 2 Q. And that entity was known as United 3 Mortgage Finance? 4 A. Yes. 5 Q. And did you hold a position with United 6 Mortgage Finance? 7 A. Not that I recall, but I was probably 8 assistant treasurer. 9 Q. Okay. Now, I would like to hand you a 10 binder of documents that I'll be going through 11 with you. 12 MR. GUIDO: Your Honor, I have copies 13 of those for you and for Mr. Langdon. A number of 14 these documents, Your Honor, have been previously 15 admitted. 16 Your Honor, what I tried to do with 17 this is to have all of the documents that I 18 possibly might ask questions of the witness. In 19 the case of this witness, I think that there are 20 no duplicates. The next witness, I'll have to 21 explain to the Court the order of the binder 22 because there are duplicates in the binder for the 11990 1 next witness. 2 But this witness, there will be two 3 binders of documents. This entails various 4 subject matters that I've put into one binder. 5 The second binder -- which I will be using with 6 this witness but I will not be using all of the 7 documents in the second binder -- deals with what 8 we refer to as the guarantee issue or as 9 Mr. Nickens refers to as "what guarantee issue." 10 That binder, I will only be using a portion of the 11 documents with this witness. 12 But I felt for purposes of completeness 13 that it would be appropriate to have them all in 14 one binder. 15 Q. (BY MR. GUIDO) I would like to direct 16 your attention to the first document, which is 17 Exhibit B1741; and particularly, I would like you 18 to take a look at Bates stamp 21545, that page in 19 the document. I'm sorry. 21546. 20 That says, "USAT Mortgage Finance, 21 Inc." And then it has, under "Officers," Mary 22 Mims, vice president/assistant treasurer. 11991 1 Does that refresh your recollection 2 that you were assistant treasurer/vice president 3 of USAT Mortgage Finance? 4 A. Yes. 5 MR. GUIDO: Your Honor, I would like to 6 move the admission of Exhibit B1741, which is the 7 September 9th, 1987 directory of United Financial 8 Group and its subsidiaries. 9 MR. NICKENS: No objection. 10 THE COURT: Received. 11 Q. (BY MR. GUIDO) Now, I would like to 12 direct your attention to the next document which 13 is marked as B892. 14 MR. NICKENS: 584? 15 Q. (BY MR. GUIDO) It's Tab 584 -- 571. 16 I'm sorry. 17 A. You want me to go to 571? 18 Q. All right. Tab 584. That's it. 19 That is a memorandum -- it's a document 20 that's previously been admitted at Tab 584, and 21 it's Exhibit B892. It's a memo from Joe Phillips 22 to the file. It says, "In November 1985, USAT 11992 1 Mortgage Finance was formed and acquired 2 $500 million in mortgage-backed securities. The 3 mortgage-backed securities were financed with 4 repurchase agreements. Simultaneous with this 5 transaction, interest rate swaps totaling 6 410 million were put in place in USAT. The effect 7 of these swaps was to convert the short-term 8 variable rate financing to long-term fixed rate 9 which more closely reflected the asset acquired. 10 This subsidiary was initially formed as a finance 11 subsidiary." 12 Do you recall the formation of USAT? 13 A. Yes, in that we had to settle the 14 securities. 15 Q. USAT Mortgage Finance? 16 A. USAT Mortgage Finance. 17 Q. You recall settling those securities? 18 A. Yes. 19 Q. Do you recall that subsequent to that, 20 the securities were sold? 21 A. Yes. 22 Q. And do you recall that subsequent to 11993 1 that, it was only a portion of the securities that 2 were sold: Approximately $350 million? 3 MR. GUIDO: May I remove my coat, Your 4 Honor? 5 THE COURT: Yes, you may. 6 A. I recall we sold and settled 7 securities. I don't recall exactly how much it 8 was. 9 Q. (BY MR. GUIDO) Okay. This -- it's 10 mentioned in the third paragraph, "In order to 11 avoid violation of the growth regulation, 12 350 million of the mortgage-backed securities were 13 sold at a gain of $9 million." 14 Do you see that? 15 A. Yes. 16 Q. Do you recall that there was a gain on 17 the mortgage-backed securities that were sold? 18 A. No. I mean, I know we booked it. I 19 can't recall what the outcome was at the time. 20 Q. You don't have any reason to dispute 21 the accuracy of that document? 22 A. No. Joe was the portfolio manager. 11994 1 Q. Then it says, "At that time, it was 2 determined to leave all of the swaps in place and 3 utilize them as a blanket swap of the 4 association." 5 Do you see that? 6 A. Uh-huh. (Witness nods head 7 affirmatively.) 8 Q. Do you recall whether or not there were 9 any questions about the appropriate accounting for 10 that transaction, keeping the swaps in place? 11 A. As far as that was -- when you say 12 "accounting," as far as it was proper within the 13 regulations? 14 Q. Uh-huh? 15 A. No. I mean, the accounting we did for 16 it was just simply the accrual function. 17 Q. So, you don't recall whether or not 18 there was a question that arose with regard to 19 whether or not you needed to recognize the losses 20 on those transactions at the time? 21 A. I don't recall any specific 22 discussions. I mean, not -- anything as to 11995 1 whether losses were recorded or not recorded would 2 have been determined by accounting or, you know, 3 somebody at a higher level than I was. 4 Q. Now, the next paragraph, "Subsequent to 5 the initial determination of the blanket swap, 6 another transaction was entered into in which a 7 mirror swap was put into place," do you recall 8 that purchase of the mirror swap? 9 A. Yes. 10 Q. Do you recall why that was done? 11 A. Not specifically. Obviously, it had 12 something to do with this transaction; but -- I 13 mean, recalling whether or not things occurred is 14 fairly easy because we've booked the entries. As 15 to all the whys and reasons, I wasn't necessarily 16 privileged to that information. 17 Q. So, you don't recall -- 18 A. No. 19 Q. -- that -- that reason? 20 The transaction, did you book any 21 losses on the swaps at the time that the 22 mortgage-backed securities were sold, the 11996 1 $350 million worth of mortgage-backed securities 2 were sold? 3 A. I don't recall booking any losses on 4 those swaps. 5 Q. Do you recall whether or not you booked 6 any losses on the swaps when the mirror swap was 7 put in place? 8 A. No. 9 Q. Do you recall what was done with the 10 $150 million of mortgage-backed securities that 11 were still held by USAT Mortgage Finance after the 12 sale of the $350 million? 13 A. I believe that they were bought by 14 USAT. I believe that they moved back up to the 15 USAT level. 16 Q. So, you believe that they were 17 transferred -- they were taken off the books of 18 USAT Mortgage Finance and placed on the books of 19 USAT itself? 20 A. They were either held at -- I don't 21 recall when United MBS Corp. was formed. So, they 22 were held someplace; but the ones they had had to 11997 1 be totally, you know, wound. 2 Q. We're not talking about United MBS. 3 This is USAT Mortgage Finance. 4 A. Then the only place they would have 5 gone is United Savings. 6 Q. Were there transactions that occurred 7 between USAT and its subsidiaries? 8 A. There were a lot of subsidiaries. I 9 mean, they needed to be funded for various 10 reasons, whether it was securities or real estate. 11 Q. Well, let's take the -- your knowledge 12 of the accounting and the books and records of 13 USAT. 14 At the time that the $150 million of 15 mortgage-backed securities were still held by USAT 16 Mortgage Finance, if those were transferred, okay, 17 to USAT, would you execute the transaction to make 18 that transfer? Was it your responsibility to do 19 that? 20 A. They may have asked us to write the 21 journal. To make the decision to do it, no. I 22 mean, we probably wrote the journal entry. It was 11998 1 either us or accounting that wrote the journal 2 entry. It was an intercompany transfer. 3 Q. So, there was a method by which you 4 could make an intercompany transfer of assets 5 between USAT and USAT Mortgage Finance? 6 A. Yeah. 7 Q. Now, what -- when the $350 million of 8 mortgage-backed securities were sold, do you 9 recall what happened to the reverse repurchase 10 agreements that they collateralized? 11 A. They would have had to have been paid 12 off. 13 Q. They were sold? 14 A. You don't sell a repurchase agreement. 15 Q. Pardon? 16 A. A repurchase agreement is debt 17 basically versus an asset. You don't sell a 18 repurchase agreement. You pay it off. 19 Q. You close out the transaction? 20 A. You close out the transaction. 21 Q. Now, I would like to direct your 22 attention to the next document which I think we've 11999 1 marked as A13007, which is the document on 2 liability growth. 3 Do you recall that there were 4 limitations on the growth that USAT or any other 5 thrift could have periodically in compliance with 6 the regulations published by the Federal Home Loan 7 Bank Board? 8 A. Yes. 9 Q. And do you recall what the growth 10 limitation was? 11 A. It was a formula based on -- I believe 12 at the time, it was the prior two quarters' 13 liabilities. I don't recall exactly what the 14 formula was. 15 Q. Let me direct your attention to the 16 middle page of that document, the second 17 paragraph. I'm sorry. The first paragraph. It 18 says, "No institution having total assets in 19 excess of $100 million may increase its total 20 liabilities within two consecutive quarters at an 21 annual rate greater than 25 percent without the 22 prior written approval of the institution's 12000 1 principal supervisory agent." 2 Do you see that? 3 A. Yes. 4 Q. Now, does that, in essence, mean that 5 it can't grow more than 12 and a half percent in 6 any six-month period of time? 7 A. Yes. 8 Q. That's your understanding? 9 A. That's my understanding. 10 MR. GUIDO: I would like to move the 11 admission, Your Honor, of A13007 which is Bates 12 stamped CN618940 through CN618941; and I think it 13 was taken from USAT's management manual of 1985 by 14 the respondents. 15 THE COURT: That was going to be my 16 question. We don't have a source as to where this 17 thing belongs. I don't know what Section 563.13-1 18 is. 19 MR. GUIDO: It's my understanding that 20 this is 12CFR563.13. 21 THE COURT: This is a CFR. 22 MR. GUIDO: Yes. This is a summary of 12001 1 the CFR taken from the manager's manual, and it 2 has the Bates stamp C618940. That refers to the 3 copying of the documents that was made by the 4 respondents out of USAT's files in the Castro 5 warehouse. 6 MR. NICKENS: If the witness can 7 identify the documents, I don't have an objection. 8 I fear that we don't really know what the document 9 is. We don't have a record at this point of what 10 the document is. 11 THE COURT: It doesn't read like a CFR. 12 MR. GUIDO: It's not a CFR, Your Honor. 13 It's an excerpt from a manager's manual. I 14 thought one of the reasons we had the Bates stamps 15 is so that people could trace where the document 16 came from. 17 MR. NICKENS: I have an objection if 18 the witness cannot identify the document. I think 19 we ought to have at least an identification other 20 than Mr. Guido's belief as to what it would be. I 21 think the witness needs to identify the document. 22 THE COURT: I would like to have some 12002 1 identification. 2 Do you know what this document is, 3 Ms. Mims? 4 THE WITNESS: It is not the regulation. 5 It is somebody's opinion of the regulation. 6 THE COURT: You don't know whose 7 opinion? 8 THE WITNESS: No. I did not prepare 9 the document. 10 Q. (BY MR. GUIDO) Do you recall there 11 being a manager's manual at USAT in 1985? 12 A. I don't recall a manager's manual. I 13 recall policies and procedures manual. I don't 14 recall anything referred to as a manager's manual. 15 MR. GUIDO: I'm willing to proceed 16 either way. 17 THE COURT: I think we need a 18 foundation. 19 MR. GUIDO: Your Honor, I would like to 20 reemphasize how I believe that this procedure is 21 not what I agreed to with opposing counsel about 22 authentication of documents when we started this 12003 1 proceeding, but I'm perfectly willing to live with 2 the rule as long as it's applied consistently. 3 MR. NICKENS: This particular document, 4 simply we don't have any foundation for. If we 5 can get together at a later time and go back and 6 make some confirmations, then I might be able to 7 withdraw my objection. At this point and this 8 status of the record, I object. 9 THE COURT: All right. Sustained. 10 Q. (BY MR. GUIDO) I would like to direct 11 your attention to the next document in the packet, 12 which is A1624, which is Tab 506, Ms. Mims. Now, 13 I want to direct your attention to the second 14 entry there. It's January 10th asset liability 15 committee meeting minutes; and the date of the 16 minutes are January 14th, 1986, for a meeting on 17 January 10th, 1985. It says, "Liquidity - Remains 18 unusually high due to the year-end sales of 19 securities and the recent sale of equity arbitrage 20 stocks. Ron and Joe are going to reinvest a 21 portion of the liquidity in liquidity investments 22 geared to the three-year treasury market. Bruce 12004 1 or Mary Mims was to notify Ron and Joe on the 2 volume of liquidity -- "Bruce or Mary Mims was to 3 notify Ron and Joe on the volume of liquidity 4 securities that would be needed to replace those 5 sold at year-end. We have paid off most of our 6 Federal Home Loan Bank borrowings so those lines 7 are now available to meet our short-term funding 8 requirements." 9 Do you see that? 10 A. Yes. 11 Q. Do you recall how the -- what the 12 liquidity portfolio consisted of at USAT at that 13 time period? 14 A. No. 15 Q. What did it generally consist of during 16 the time that you were the assistant treasurer? 17 A. Yes. I mean, it would be treasury and 18 agency securities. Liquidity is very short-term. 19 Q. What do you mean by "agency 20 securities"? 21 A. Securities issued by government 22 agencies: Fannie Mae, Freddie Mac, FICO. 12005 1 Q. How were they typically funded at USAT? 2 A. Through the normal settlement process. 3 I mean, from cash on hand. 4 Q. From cash on hand. So that they were 5 basically substitutes for cash? That's what the 6 liquidity portfolio was? 7 A. Yes. They had to be unencumbered. 8 Q. Were any of those funded with funds 9 that were drawn from the Federal Home bank 10 borrowings? 11 A. There were no borrowings that were 12 specifically tied to the liquidity portfolio. I 13 mean, either, you know, funds through the Home 14 Loan Bank Board or deposits would have funded it. 15 You know, I mean, money from deposits could have 16 funded it as easily as advances from the Home Loan 17 Bank. 18 Q. Was an effort made periodically to 19 borrow from the Federal Home Loan Bank Board in 20 order to increase the liabilities of USAT at 21 quarter end to keep up to its maximum liability 22 growth? 12006 1 A. I don't recall doing anything 2 specifically to -- I mean, we borrowed to fund 3 asset purchases. I don't recall anything being 4 done specifically at year-end. 5 Q. Or quarter end? 6 A. Or quarter end. I mean, it was done 7 throughout -- I mean, everything was done 8 throughout a quarter time frame. 9 Q. Would those decisions have been 10 decisions that were made by the asset liability 11 committee? 12 A. Yes. USAT had made those decisions. 13 Q. Now, I would like to direct your 14 attention to the next document, which is A10562. 15 A. 82? 16 Q. A10582. Excuse me. 17 THE COURT: Mr. Guido, is 18 Exhibit 10562, is that document in evidence? 19 MR. GUIDO: Yes, Your Honor. It's 20 admitted at Tab 506. What I have done is where 21 they have previously been admitted on the left 22 side of the tab, you will have a number; and that 12007 1 will be the tab number of the previously-admitted 2 document. 3 THE COURT: Okay. Thank you. 4 Q. (BY MR. GUIDO) Now, Exhibit A10582 is 5 a memo to Jim Wolfe to Mike Crow dated 6 November 8th, 1985; and the subject being 7 liability growth. And it has an attachment to it 8 so that the packet is Bates stamp CNO56098 through 9 CN056102. 10 MR. GUIDO: I move the admission, 11 Your Honor, of Exhibit A10582. 12 MR. NICKENS: No objection, Your Honor. 13 I will note for the record that the attached 14 letters appear to be incomplete, but no objection 15 to the document. 16 THE COURT: Received. 17 Q. (BY MR. GUIDO) Now, this document -- 18 and look at the Footnote No. 1. The regulation 19 for liability growth, Section 563.13-1 attached as 20 Exhibit A" -- and that's the attachment in 21 Exhibit A -- states that, "No institution shall 22 increase its total liabilities within any two 12008 1 consecutive quarters at an annual rate greater 2 than 25 percent without prior approval." 3 Do you see that? 4 A. Yes. 5 Q. Is that your understanding of what the 6 regulations required? 7 A. Yes. 8 Q. Now, then, there are a number of 9 figures. And it talks about actual growth, and 10 then it sets out the maximum allowable growth. 11 Do you see that? 12 A. Yes. 13 Q. And this is prepared by Mr. Jim Wolfe. 14 Do you know who Jim Wolfe was? 15 A. He was the comptroller. 16 Q. He was the comptroller? 17 A. Yes. 18 Q. Was it his responsibility to ascertain 19 whether or not the institution was staying within 20 its liability growth limits? 21 A. I'm not sure what Jim's specific 22 responsibilities were. I mean, he headed the 12009 1 accounting department; so, they would do the 2 reporting. Whether he was specifically 3 responsible, I can't answer. 4 Q. Was it your understanding that one of 5 their reporting obligations was to ascertain 6 whether or not the liability growth limitation had 7 been complied with? 8 A. Yes. 9 Q. And was one of their responsibilities 10 to calculate what the liability growth would be 11 for USAT? 12 A. Yes. 13 Q. Okay. That shows, does it not, that as 14 of March 31, 1986, that the maximum allowed growth 15 for USAT would be 4,752,000,000 in terms of 16 liabilities? 17 A. That would be the total liability 18 number they could reach. It appears the growth 19 was 72.9. 20 Q. Okay. Now, I would like to turn your 21 attention to the next document which is T4160, 22 which is the United Savings Association of Texas 12010 1 ideas on profit improvement/stripping of balance 2 sheet project. 3 4 (Discussion held off the record.) 5 6 MR. GUIDO: Your Honor, Mr. Nickens and 7 I both think that this document has been 8 introduced under a different number. 9 10 (Long pause.) 11 12 MR. GUIDO: Your Honor, we would like 13 to move the admission of Exhibit T4160. 14 Apparently, it's not in -- both Mr. Nickens and I 15 thought it was in under another number. That is a 16 three-page document Bates stamped 887 through, I 17 think, 889, Your Honor, although the numbers are 18 missing. It has imaging numbers OWO10881 through 19 OWO10883. It is a document behind it, but that 20 document doesn't have anything to do with it. 21 Apparently, whoever tabbed this forgot to put the 22 tab in between the two documents. 12011 1 MR. NICKENS: Your Honor, we have no 2 objection to T4160 under the understanding that 3 that is Bates numbers 887, 888, and 889, those 4 three pages. 5 THE COURT: I'm still getting the pages 6 here -- I have 87, 88 -- 7 MR. GUIDO: That's why, if you shift to 8 the left side of the document and use the imaging 9 number instead, it's those three numbers: 10 OWO10881, OOWO1O10882, and OWO1883. 11 THE COURT: Received. 12 Q. (BY MR. GUIDO) This is a document 13 dated January 16th, 1986; and it says, "Finance 14 subsidiary, ($163 million which was set up in late 15 1985) - this subsidiary will become a 16 nonqualifying sub at the first adjustment period 17 of the reverse repurchase agreement (unless some 18 lawyer figures out a miraculous way to keep this 19 from happening, which is unlikely). Therefore, 20 this subsidiary should be shoved back up into 21 United Savings Association and retained (that is 22 the assets and liabilities) since it has an 12012 1 attractive spread of 1.06 percent and is a profit 2 contributor. In essence, this will take the place 3 of our artificial buildup at year-end 1985 of the 4 $200 million of treasuries which were placed on 5 the books. Further, this will allow for the 6 issuance of a full 1.0 billion of CMOs and still 7 have a comfortable margin under 30 percent 8 financing sub limitations." 9 Now, is this making reference to USAT 10 Mortgage Finance that was established at the end 11 of 1985 and then collapsed before the end of the 12 year? 13 A. To my recollection, that's the only 14 finance sub we had at the time. 15 Q. Okay. Now, look at the sentence: "In 16 essence, this would take the place of our 17 artificial buildup at year-end 1985 of the 18 $200 million of treasuries which were placed on 19 the books. 20 Do you know what that refers to, what 21 that "artificial buildup" refers to? 22 A. Do I remember -- no, I -- I don't 12013 1 recall. As I said, I didn't make the decisions. 2 I just booked the transactions. 3 Q. Now, I would like to direct your 4 attention to the next tab, which is A13008. That 5 is a memorandum from Andy Creel -- is that how you 6 say that? 7 A. I believe so. 8 Q. -- to distribution dated April 16th, 9 1986; and it says, "Regulatory compliance review - 10 April 1st, 1988." And it has a number of people 11 mentioned as recipients including Jenard Gross, 12 Michael Crow, Ron Heubsch, and Bruce Williams. 13 Do you see that? 14 A. Yes, but did you say April 1st, 1988? 15 Mine says April 11th, 1986. 16 Q. I said the document is dated 17 April 16th, 1986. And is the subject matter of 18 the memorandum the reference regulatory compliance 19 review - April 1st, 1986? 20 A. (Witness nods head affirmatively.) 21 Q. Now, do you know who Andy Creel was? 22 A. No, I do not remember Andy. 12014 1 MR. GUIDO: Your Honor, I would like to 2 move the admission of A13008. 3 MR. NICKENS: Your Honor, we have no 4 objection to A13008, although, obviously, no 5 foundation through this witness has been provided. 6 I believe that we are satisfied that this came 7 from the books and records of the company. 8 THE COURT: Received. 9 Q. (BY MR. GUIDO) Now, this document 10 shows a number of things about the regulatory 11 compliance. It says, "The attached schedules 12 compare the results of our activities to certain 13 regulations established by federal and state 14 regulators. As presented, we are in compliance 15 with the regulation requirements" -- then it says, 16 "Better (worse) than limitation." 17 Do you see that? 18 A. Yes. 19 Q. What does that refer to? Do you know? 20 A. I see it's saying that at that point in 21 time, we were either better or worse than the 22 federal or state limitations. 12015 1 Q. Liability growth, annual growth rate, 2 9.2 percent. It says -- under "federal," it says 3 better or, paren, (worse) limitation. It says 4 38,950,018 -- 389,518,000. 5 Do you understand that to mean the 6 amount by which USAT was below the liability limit 7 that was in existence at that time for its 8 liability? 9 MR. NICKENS: Your Honor, if the 10 witness has any understanding independent of this 11 document, I don't have any objection. If we are 12 merely reading the document into the record with 13 the appearance that the witness is providing 14 testimony about the document, then I have an 15 objection. I mean, I would like to know whether 16 the witness has any independent recollection of 17 these matters. And the document is now in 18 evidence and can be read into evidence; but I 19 would like to know whether we're hearing, from the 20 witness, some independent information or whether 21 we are merely getting information from the 22 document. 12016 1 THE COURT: Well, I thought that 2 question might disclose that. 3 MR. GUIDO: I thought it might, 4 Your Honor, as well. This witness was the 5 assistant treasurer of the association. So, I 6 think she can shed some light on how to read these 7 documents. 8 MR. NICKENS: Well, let me record for 9 the record, she's indicated she does not know who 10 Andy Creel is and she is not on any of the 11 distribution lists. 12 THE COURT: All right. Ask her a 13 question as to the significance or meaning of this 14 389 million. If she knows the answer, I think she 15 can give it. 16 Q. (BY MR. GUIDO) Ms. Mims? 17 A. You're asking me to read this document. 18 That's what it says. There's also notes below it 19 that says there were other factors governing. As 20 I said previously, I didn't prepare these type of 21 regulatory documents. And I mean, I think you 22 need to read the whole memo. There are two 12017 1 pending matters to that number. 2 THE COURT: You have no knowledge 3 independent of this memo? 4 THE WITNESS: No, sir. 5 THE COURT: I think we should move on. 6 We have the document in evidence. 7 MR. GUIDO: Okay. Thank you, 8 Your Honor. 9 Q. (BY MR. GUIDO) Now, I would like to 10 direct your attention to move on to another 11 subject matter from the USAT Mortgage Finance 12 issue. This goes to the whole question of what's 13 been referred to as the thriftness test. 14 I would like to direct your attention 15 to Exhibit B1155, which is an August 1st, 1986 16 memorandum, again from Mr. Creel to distribution 17 that includes Mr. Gross, Mr. Gerald Williams, 18 Mr. Berner, Mr. Crow, Mr. Bruce Williams, and 19 Mr. Wolfe. And it says it's a 60 percent asset 20 test. 21 Do you know what the 60 percent asset 22 test -- thrift asset test was at the time? 12018 1 A. I recall that there was a test that 2 needed to be done to determine if we held enough 3 mortgage related or real estate related assets to 4 qualify as a thrift, but I did not do the tests. 5 Q. Does that -- what do you mean by 6 "qualify as a thrift"? 7 A. Well, there were certain regulations we 8 had to meet to, you know, like liability growth. 9 You could only do so much. I mean, we had to 10 own -- I don't know if it's in here -- a certain 11 percentage of what they called -- the regulators 12 defined as qualifying assets. 13 Q. That was what's referred to as the 14 60 percent thrift test? 15 A. Yes. 16 Q. And in order to operate as a savings 17 and loan or a thrift, one had to meet that test; 18 is that correct? 19 A. Yes. 20 Q. Okay. 21 MR. GUIDO: And I would like to move 22 the admission, Your Honor, of Exhibit B1155. 12019 1 MR. NICKENS: I have no objection, 2 Your Honor. 3 THE COURT: Received. 4 Q. (BY MR. GUIDO) And I would like to 5 turn your attention to the next -- it's a document 6 by Mr. Kurt Schwenkel to Jerry Williams. 7 A. Is it in the same section? 8 Q. It should be at the tab right behind 9 that one. 10 MR. VEIS: It is immediately in front 11 of it. 12 MR. GUIDO: I'm sorry. My set was out 13 of order. 14 Q. (BY MR. GUIDO) This is a memorandum 15 dated August 26th, 1986, from Kurt Schwenkel to 16 Jerry Williams referencing the 60 percent thrift 17 test pro forma maximum size at 6/30, 1986. 18 Do you see that? 19 A. Yes. 20 Q. Who was Kurt Schwenkel? 21 A. To the best of my recollection, he was 22 a vice president in the corporate planning 12020 1 department. 2 Q. What were his responsibilities? Do you 3 recall? 4 A. I don't -- he did not report to me. 5 Q. What was the corporate planning 6 department's function? 7 A. Budgeting and forecasting. And 8 obviously, at some point in time, they interacted 9 with accounting on the regulatory. 10 Q. And who headed the corporate planning 11 section? 12 A. To the best of my recollection, they 13 reported to Bruce Williams. 14 Q. So, it was within what was referred to 15 as finance/administration? 16 A. Yes. 17 Q. So, that was one of the units in 18 addition to your unit that reported to Bruce 19 Williams? 20 A. Yes. 21 Q. Now, this document has two pro formas. 22 It says "Pro forma - All growth in Mortgage-backed 12021 1 Securities" on Page 1; and then "Pro forma - 2 Growth in Junk Bonds on Mortgage-backed 3 Securities." 4 Do you see that? 5 A. Yes. 6 Q. Do you recall at the time you were at 7 USAT that the -- that the management closely 8 monitored its compliance with the 60 percent 9 thrift test? 10 A. Yes. 11 Q. And that it evaluated the impact of 12 purchases of various investments in terms of the 13 60 percent thrift test? 14 A. Yes. 15 Q. And did it evaluate the impact of 16 purchases in equity arbitrage and its impact on 17 the 60 percent thrift test? 18 A. That I don't recall because I don't 19 recall what equities had to do with the thriftness 20 test. 21 Q. Do you recall whether or not it 22 monitored the effect of any purchases of 12022 1 high-yield bonds or junk bonds in compliance with 2 the thrift test? 3 A. I don't -- junk bonds, I don't believe, 4 qualified for the thrift test. But all assets 5 would have to be monitored at the thrift in order 6 to figure out the percentages. So, we couldn't 7 have 60 percent in junk bonds; so, I assume they 8 had to monitor all the assets. 9 Q. Okay. Now, shifting to another 10 question, will you look at the -- the chart on 11 Page 1, the second chart? It has liability growth 12 there, as well; and it talks about "actual" at 13 6/30, 1986. And it says that -- 14 MR. NICKENS: Your Honor, if we're 15 going to read the document into the record, I 16 would ask that it be offered. I have no objection 17 to it but it hasn't yet been offered and we're in 18 the process of reading it into the record. I 19 would like to know that we have the document in 20 the record. 21 MR. GUIDO: Very good point, 22 Mr. Nickens. I move the admission of Exhibit 12023 1 A13009 into the record. 2 MR. NICKENS: No objection. 3 THE COURT: Received. 4 Q. (BY MR. GUIDO) It says, "Actual of -- 5 actual at 6/30, 1986, liability growth actual: 6 4,600,000,000. The limit: 5 billion 140. The 7 cushion: 539 million." 8 Do you see that? 9 A. Yes. 10 Q. Does that mean, based on your 11 understanding of the regulations and USAT's 12 operations, that it had room to grow by 13 $539 million at 6/30, 1986, and not violate the 14 liability growth limitation? 15 A. According to this memo, yes. 16 Q. Now, I would like to direct your 17 attention to the next document, which is T4290, 18 which is a memo from Art Berner to Bruce Williams, 19 Sandy Laurenson, and Gary Jacobson dated 20 October 22nd, 1986. It's regarding United policy 21 regarding mortgage-backed securities trading. 22 MR. GUIDO: I would like to move the 12024 1 admission of T4290, Your Honor. 2 MR. NICKENS: Your Honor, our records 3 indicate that this document was admitted as 4 Exhibit B1281 at Tab 389. Other than the 5 duplication, I have no objection. 6 MR. GUIDO: Your Honor, if the document 7 is admitted, I withdraw my request to move it in 8 under this number. 9 Q. (BY MR. GUIDO) I would like to direct 10 your attention to Exhibit B926, which is an 11 April 10th, 1986 memorandum from Steve Waddell to 12 Mike Crow and Bruce Williams. 13 Do you see that? 14 A. Yes. 15 Q. Who was Steve Waddell? 16 A. He was an employee, I believe, in the 17 corporate planning department. 18 Q. And the corporate planning department, 19 were they responsible for summarizing rules and 20 regulations to distribute to USAT's 21 management/employees? 22 A. I don't know specifically what 12025 1 corporate planning's functions were versus 2 accounting as to who specifically was required to 3 do what at that point in time. 4 MR. GUIDO: I move the admission of 5 B926, Your Honor. 6 MR. NICKENS: No objection, Your Honor. 7 I would, for the record, identify it by the Bates 8 number. 9 MR. GUIDO: It's CN542118, Your Honor, 10 through CN542146. It's the memorandum with a 11 number of attachments to that memorandum. 12 MR. NICKENS: No objection. 13 THE COURT: Received. 14 Q. (BY MR. GUIDO) I would like to move 15 now to the next section. But before I get into 16 the documents, I would like to ask you some 17 questions about what it is that you did when you 18 recorded sales of assets and how you recorded 19 those transactions. 20 If you have an asset, let's say a 21 mortgage-backed security, and you recorded the 22 sale of that transaction and a portion of it was a 12026 1 return on principal and a portion of that was 2 profit, did you separate out those two components 3 when you made the entries in the books and records 4 of USAT? 5 A. Yes. 6 Q. And how did you do that? 7 A. Each asset had a basis on the books. 8 It had a principal, and it even had a 9 corresponding discounted premium based on what 10 level it was purchased at and where it had been 11 amortized or accreted to. It would have accrued 12 interest payable or receivable, and anything left 13 after everything was accounted for was due to a 14 gain or a loss, which would be booked to the gain 15 or loss on mortgage-backed securities. 16 Q. So that there was a separate account 17 where you recorded the return on principal and a 18 separate account where you reported the gain or 19 loss on the sale of the security? 20 A. Yes. 21 Q. And then do you recall the sales of 22 mortgage-backed securities in the dissolution of 12027 1 USAT Mortgage Finance at the end of 1985 and how 2 you allocated the return on the sale or the cash 3 that was received on the sale of those 4 mortgage-backed securities? Did you allocate a 5 portion to profit and a portion to principal? 6 A. Yes. It would have been booked the 7 same way. 8 Q. Now, with regard to the transactions 9 that occurred in 1986, beginning of 1986, when Joe 10 Phillips made a number of sales of mortgage-backed 11 securities in the first three months of 1986, do 12 you recall those sales? 13 A. After the subsidiary was dissolved. 14 Q. This is separate from the subsidiary? 15 A. No. 16 Q. I would like to direct your 17 attention -- 18 MR. NICKENS: I didn't hear the 19 witness. Did she say, "No"? 20 MR. GUIDO: She said, "No." 21 THE WITNESS: I said, "No." I'm sorry. 22 Q. (BY MR. GUIDO) I would like to direct 12028 1 your attention to a document that is from the work 2 papers of Peat Marwick, which is the third 3 document -- the fourth document in. It's after 4 the typed -- the conversion of a handwritten 5 memorandum dated January 31, 1986, to the 6 typewritten form. And this doesn't have the 7 number on it -- the tab doesn't have the number on 8 it. It is -- I'm sorry. It does. 9 MR. GUIDO: It is Tab A13010, 10 Your Honor. And it has Bates stamped OWJ00294 11 through OWJ00298. 12 THE COURT: Mr. Guido, you've 13 completely lost me. I don't know what document 14 you're on. 15 16 (Whereupon Mr. Guido handed the Court a 17 document.) 18 19 THE COURT: All right. Thank you. 20 MR. GUIDO: I would like to move the 21 admission of A13010, which is a document that 22 says, "Savings and loan audit working papers, 12029 1 UFG/United, Binder 4 of 4." And then it has the 2 address for period ending second quarter review 3 6/30/86 by accountant. 4 And I would like to move the admission 5 of that document, Your Honor, into the record. 6 MR. NICKENS: No objection. 7 THE COURT: Received. 8 Q. (BY MR. GUIDO) Now, I would like to 9 turn your attention to the second page of the 10 document and the second paragraph which says, 11 "During 1986, United has been turning over their 12 portfolio monthly of MBSs" -- 13 MR. NICKENS: Your Honor -- Mr. Guido, 14 you're reading from Page OWJ00295? 15 MR. GUIDO: Yes. 16 MR. NICKENS: Okay. 17 Q. (BY MR. GUIDO) "During 1986, United 18 has been turning over their portfolio monthly of 19 MBSs in attempt to match the MBS estimated 20 maturities with the maturities of the interest 21 rate swaps associated with the reverse repos that 22 the MBS are collateralizing." 12030 1 Do you see that? 2 A. Yes. 3 Q. Does that refresh your recollection 4 that the sales in the beginning of 1986 that were 5 made by USAT were out of its mortgage-backed 6 securities portfolio? 7 A. I mean, obviously, there were sales. 8 As to what -- I don't remember the context. 9 Q. Right. Let me read on. Okay? "The 10 maturity of the MBSs in their original arbitrage 11 programs were 11" -- "the majority" -- excuse 12 me -- "of the MBSs in the original arbitrage 13 program were 11 to 12 percent rates. United has 14 sold these pools at gains, and these gains have 15 been deferred into the basis of the replacement 16 securities as a discount." 17 Does that refresh your recollection of 18 the transactions? 19 A. Yes. 20 Q. All right. So that in the beginning of 21 1986, USAT sold 11 to 12 percent coupon 22 mortgage-backed securities which had gains on 12031 1 them; and it -- what did you do with the gains 2 that were recorded from those transactions when 3 you entered those in the books and records of 4 USAT? 5 A. Initially, we applied them towards the 6 securities that were purchased as replacement and 7 lowered the cost basis. 8 Q. And what -- when you lowered the cost 9 base, did you realize any of that gain in 10 subsequent sales of those mortgage-backed 11 securities? 12 A. No. The gain -- we didn't actually 13 record the gains. The gains lowered the cost 14 basis of the security. We didn't take some gains 15 and, on some securities, lower the cost basis. 16 On these specific securities, it was 17 just as it said here. 18 Q. What you did was you took the gains and 19 reduced the basis of the replacement securities? 20 A. Yes. 21 Q. Then look at the next paragraph down. 22 "Per discussion with Mary Mims, assistant 12032 1 treasurer, the association has only deferred gains 2 in their Fannie Maes and Freddie Mac MBS 3 portfolios. The Ginnie Mae MBSs are not 4 affected." I think that's what that says. "Based 5 on our test work, her representations are 6 correct." 7 Do you see that? 8 A. Yes. 9 Q. Do you recall that with regard to the 10 Ginnie Maes that were sold in that time period, 11 the first quarter of 1986, that the gains were 12 recorded on the books and records of USAT as gains 13 and not as discounts in the reduction in the basis 14 of the replacement securities? 15 A. What I'm recalling from this is that 16 the Fannie Maes or Freddie Macs were tied in with 17 the previous paragraph; and they are saying we 18 deferred the gains, which is basically the same 19 thing as rolling them into the basis of the new 20 asset. It doesn't say we sold Ginnie Maes and 21 took gains. It just says that they were not 22 effective so that, obviously, they weren't a part 12033 1 of the same portfolio. 2 If Ginnie Maes were sold, I don't 3 recall it. It just says that they are not 4 affected. It just says we sold them and realized 5 gains. 6 Q. For an auditor to do test work, there 7 has to have been a transaction if they were doing 8 test work. Right? 9 MR. NICKENS: Your Honor, I think the 10 witness has explained her answer about her 11 understanding of it. For Mr. Guido to say there 12 had to have been a transaction when the auditor 13 simply says based on the information he got from 14 Ms. Mims, they weren't affected -- I guess I don't 15 understand the question. 16 MR. GUIDO: Let me ask a different set 17 of questions, and we'll get to it another way. 18 Q. (BY MR. GUIDO) Were Ginnie Maes sold 19 and gains recognized in the beginning of 1986 by 20 USAT? 21 A. Not that I recall. 22 Q. Not that you recall. 12034 1 Now, I would like to turn to the 2 document that has been marked as A13013, which is 3 eight tabs from the end of the binder. It's a 4 memorandum from Steve Waddell to accounting file 5 dated July 9th, 1986. It is at A13013. 6 Who is Mister -- or was Mr. Waddell 7 again? 8 A. I believe he was in the corporate 9 planning department. 10 Q. Is that the department that was 11 responsible for summarizing applicable regulations 12 as they affected USAT? 13 A. There was shared responsibilities 14 between planning and accounting, and I don't know 15 who specifically was responsible for which aspect. 16 Q. Now, this says "to accounting file." 17 What does that refer to? 18 A. I have no knowledge of that. 19 Q. Did USAT have files of memoranda that 20 people could go to to ascertain what the 21 applicable regulations were affecting particular 22 transactions? 12035 1 A. The legal department and various 2 individual departments had their own copies of the 3 regulations that they could refer to, the actual 4 regulations. I mean, are you asking me if there 5 were various memos written that people would refer 6 to? 7 Q. Yeah. Were memoranda files, subject 8 files available for people to go refer to? 9 A. Not to my recollection. 10 Q. Okay. Now, this talks about dollar 11 repurchase agreements and how they -- and how 12 they -- how they operate and what the regulations 13 are that are applicable to them. 14 Were you familiar with the concept of a 15 dollar roll when you were at USAT? 16 A. Yes. 17 Q. And were you familiar with the 18 regulatory requirements for dollar rolls when you 19 were at USAT? 20 A. Yes. 21 MR. GUIDO: I would like to move the 22 admission of A13013, Your Honor. 12036 1 MR. NICKENS: No objection. 2 THE COURT: Received. 3 Q. (BY MR. NICKENS) Now, can you tell us 4 what a dollar roll is in the context of 5 mortgage-backed securities and their financing? 6 A. It's a financing vehicle that's 7 different than a reverse repurchase agreement in 8 that you get back similar collateral instead of 9 the exact same collateral. 10 Q. Is that the basic difference between 11 the two? 12 A. Yes. 13 Q. And what is the assumed advantage of a 14 dollar roll over a reverse repo agreement? 15 A. It was a cheaper cost of financing. 16 Q. Was the cost of financing obtained by 17 the same entities that also would engage in dollar 18 roll financing? 19 A. I'm sorry. I don't understand. 20 Q. Who were the people that did dollar 21 rolls with USAT? 22 A. Wall Street firms. 12037 1 Q. Who were the people that did reverse 2 repos with USAT? 3 A. Wall Street firms. 4 Q. Why would they do one as opposed to the 5 other when they were getting less money for the 6 transaction? 7 A. In a reverse repurchase transaction, 8 you never lose ownership of your securities. When 9 you pay off the borrowing, you will get back your 10 same securities. So, the Wall Street firm could 11 pledge those securities against the borrowings. 12 In case it did not have the funds to repay the 13 borrowing, they could liquidate the securities. 14 In a dollar roll transaction, you 15 actually sell the securities you own and agree to 16 buy back the same securities at a forward date. 17 So, they actually took ownership of those 18 securities. 19 Q. So, the advantage to the Wall Street 20 firm is that they took ownership of the security? 21 A. Yes. 22 Q. And was it -- was it to their advantage 12038 1 to be able to return substantially similar 2 securities as opposed to the identical securities? 3 A. I can only assume it was advantageous 4 for them to do it that way. 5 Q. Now, I would like to direct your 6 attention to a document that -- going back into 7 the book a few documents. It's B2339; and it's a 8 memorandum from you and Richea Powell to Dominic 9 Bruno dated July 28, 1988. Subject: Dollar 10 rolls. Who was Richea Powell? 11 A. It's Richea. She was -- I don't 12 remember what her exact title was. She was, like, 13 the mortgage portfolio analyst at the time, 14 assistant analyst who did reporting. 15 Q. Did she report to you? 16 A. I believe we both reported directly to 17 Dominic at that point in time. 18 Q. Now, this is July of 1988. You 19 indicated that you were vice president and 20 assistant treasurer, and you reported to Bruce 21 Williams for a period of time. 22 When did your position change? 12039 1 A. I believe it was February of 1988. 2 Q. Okay. And you no longer reported to 3 Bruce Williams? 4 A. No. I moved from the treasury area to 5 the investment area after Sandy and Jack left and 6 reported to Dominic. Dominic was hired after 7 Sandy left to return the mortgage-backed 8 securities portfolio. 9 Q. Sandy Laurenson? 10 A. Yes. 11 Q. Who was Jack? 12 A. Calcony. 13 Q. They both left at the same time? 14 A. I would say probably within six months 15 of each other. 16 Q. Why did you move over to work for 17 Dominic Bruno at that time? 18 A. There was an opening, and it was a 19 promotion. 20 Q. What was it a promotion to? What was 21 the position? 22 A. As far as title, I believe I was still 12040 1 a vice president. But as far as grade level, it 2 was a higher grade level, more money; and it was 3 something new to learn. 4 MR. GUIDO: Now, I would like to move 5 the admission, Your Honor, of B2339. 6 MR. NICKENS: Your Honor, B2339 appears 7 to consist of three pages, the first three pages 8 that I believe Mr. Guido is referencing, a page 9 that appears to be not related to those first 10 three, and then a better copy of the first three 11 again. If the offer is the first three pages, I 12 have no objection; but the last four pages don't 13 appear to be -- 14 MR. GUIDO: Mr. Nickens just pointed 15 that out; and I just noticed that, Your Honor. 16 For some reason, someone has included other 17 documents here. It's only the first three pages 18 that are Exhibit B2339. 19 THE COURT: It looks like the last 20 three are the same document, and they are more 21 legible. So, let's put that in. 22 MR. GUIDO: Okay, Your Honor. 12041 1 THE COURT: Received. 2 MR. GUIDO: What I think happened, 3 Your Honor, is that people were getting documents 4 from different sources and -- but the one document 5 that is B2339 is the Art Berner to Barry Munitz -- 6 it's July 29th, 1988, a one-page document. 7 THE COURT: I'm receiving, as 8 Exhibit B2339, Page No. CN530910 through CN530912. 9 MR. GUIDO: Thank you, Your Honor. 10 Q. (BY MR. GUIDO) Now, this says, "The 11 attached report details our dollar roll activities 12 since the beginning of March and the net financing 13 savings we have derived through our dollar roll 14 program versus reverse repo financing. From 15 3/13/88 through 7/18/88, we have implemented close 16 to $2 billion of dollar rolls, generating a 17 savings in our cost of funds of almost $3 18 million." 19 Now, who was it that initiated these 20 dollar rolls? Was it you -- 21 A. Myself and Dominic. 22 Q. So, you worked with Dominic jointly 12042 1 deciding which transactions should be initiated as 2 dollar rolls? 3 A. Correct. 4 Q. Now, how did you calculate the savings, 5 the cost of -- of -- "generating a savings in our 6 cost of funds of almost $3 million," what does 7 that refer to? 8 A. What we did is we tracked on a given 9 date what the reverse repurchase cost would have 10 been as what the cost was we were quoted on doing 11 it as a dollar roll transaction, and then we just 12 took the cheaper route and determined the 13 difference in what we had saved by going that way. 14 Q. So, you took actual cost versus 15 whatever the quoted cost was to determine the 16 savings? 17 A. Right. 18 Q. Now, look at the chart: CN530911 and 19 530912. 20 Where would we find the cost of funds, 21 the actual cost of funds, and the quoted cost of 22 funds? 12043 1 A. The financing rate appears to be the 2 dollar roll rate, and the cost of funds appears to 3 be the reverse repurchase agreement rate or 4 whatever alternate financing would have been 5 available at the time. So, I believe the schedule 6 was probably done by Richea; and cost of funds 7 would refer to either reverse repurchase 8 agreements or whatever the alternate funding 9 source was at the time. 10 Q. Let's take the first entry, 3/3, trade 11 date, and sell date of 14 March '88. Moving over, 12 it says "financing rate." That's 5.81? 13 A. That was the effective financing cost 14 of the dollar roll. 15 Q. Then it says, "Cost of funds: 6.75." 16 Do you see that? 17 A. Yes. 18 Q. And then it says, "Actual savings: 19 29." 20 A. 29,000. That's dollars. 21 Q. So, that's not -- that's actual 22 savings. That's not basis points? 12044 1 A. No. That's the actual savings column 2 which totals almost $3 million cash. 3 Q. So, that's how the calculation was 4 done. Each of those actual savings figures was 5 then totaled up; and on Page CN530912, you get 6 2,987,000 savings. 7 Now, I would like to direct your 8 attention to the next document in the packet which 9 is A13012, which is a memorandum from Dominic 10 Bruno -- 11 MR. GUIDO: Your Honor, this might be a 12 good time to take our morning break. 13 THE COURT: All right. We'll take a 14 short recess. 15 16 (Short break.) 17 18 THE COURT: Be seated, please. 19 Mr. Guido? 20 MR. GUIDO: Thank you, Your Honor. 21 Q. (BY MR. GUIDO) Just before we broke, 22 we had moved to another tab, which is Tab -- 12045 1 Exhibit A13012, which is a memorandum from Dominic 2 Bruno to Mike Crow and Bruce Williams with copies 3 to Mary Mims and Ted Grove dated April 22nd, 1988. 4 And attached to that is a memorandum from Mary 5 Mims to Dominic Bruno regarding dollar rolls. 6 Do you recall receiving a copy of the 7 memorandum, Ms. Mims? 8 A. Do I recall receiving it in 1988? 9 Q. Uh-huh. 10 A. No, but -- 11 Q. Let's take a look at the attachment to 12 the memorandum. It's a two-page memorandum. The 13 whole packet is Bates stamped CN530925 through 14 CN530927, and the attachment is from you to 15 Dominic Bruno. And it's criteria that must be met 16 for dollar roll transactions. 17 Do you see that? 18 A. Yes. 19 Q. And do you recall preparing that 20 memorandum? 21 A. Yes. 22 Q. Okay. And where did you get the 12046 1 information to develop the criteria that must be 2 met for dollar roll transactions? 3 A. From the treasury department and from 4 my past knowledge of the cost for settling 5 securities. 6 MR. GUIDO: I would like to move the 7 admission of Exhibit A13012, Your Honor. 8 MR. NICKENS: No objection. 9 THE COURT: Received. 10 Q. (BY MR. GUIDO) Now, let's look under 11 Item 1: Ginnie Maes. It says "minimum of 12 75 basis point savings"? 13 A. Yes. 14 Q. Did you calculate that based on the 15 transaction costs that USAT would incur to do the 16 dollar roll? 17 A. Yes. It says right here Ginnie Maes 18 were still physical in nature at that point in 19 time, and they carried pretty steep clearing costs 20 on calls going in and out. 21 Q. Turn to the second page under 22 Fannie Maes and Freddie Macs. It says, Item 1, 12047 1 minimum of 50 basis point savings when pools are 2 moving from one brokerage firm to another. 3 Minimum of 25 basis point savings when pools are 4 being dollar rolled with the same brokerage firm 5 that they are currently on reverse with." 6 Do you see that? 7 A. Yes. 8 Q. Now, did you also do those calculations 9 based on the costs of doing those transactions? 10 A. Yes. 11 Q. Now, go back to Page 1 and Item No. 2. 12 Under Ginnie Maes, "Brokers must agree to put 13 pools being delivered in on our buy side on 14 reverse repo, while the broker gets the pools 15 reregistered into our name." 16 Could you explain to us what that 17 means? 18 A. As I said, the certificates were 19 physical; and if you didn't get them reregistered 20 into the thrift's name prior to the last date of 21 the month, then you had huge receivable collection 22 problems with trying to find out who the prior 12048 1 owner was and collecting the P&I. In order to 2 make it more efficient, if we did dollar roll with 3 Ginnie Mae, we required that the brokerage firm, 4 if they couldn't get it transferred into our name 5 prior to the end of the month so that we wouldn't 6 have any problem with receivables, that they 7 dollar roll it for us so that they would be the 8 owner of the security and we would only have one 9 party to claim for the receivable. 10 Q. Now -- and is that the same as Item 11 No. 3 on Page 2 under Fannie Maes and 12 Freddie Macs, or is that something different? 13 A. That is something different. That's a 14 breakage calculation. 15 Q. And then Item No. 3 on Page 1, is that 16 the same as Item No. 3 on the second page? 17 A. Item No. 3 under Ginnie Maes and Item 18 No. 3 on Fannie Maes and Freddie Macs are the 19 same. 20 Q. And what does that mean: "Brokers must 21 deliver back on the buy side a principal balance 22 that is great or greater than the principal 12049 1 balance on the sell side"? 2 A. Which was referred to as positive 3 breakage. I don't recall that -- whether it was 4 an internal guideline or whether it was a 5 regulatory guideline that we required that because 6 it was more beneficial to the thrift. 7 Q. What does it mean? 8 A. It means that you -- you have at least 9 the same principal amount or greater; so, you 10 don't lose the prepayments. If it was out for 11 30 days or 60 days, prepayments of principal would 12 have occurred. And this basically assumes that we 13 would have a zero per CPR because we would be 14 getting back exactly the same principal dollars we 15 sold or more. 16 So, we would never lose -- our 17 securities were at a premium. If we got back 18 less, we would have lost money. 19 Q. So, I mean, what does principal balance 20 refer to? Face value or cost basis? 21 A. Face value. 22 Q. Okay. Now, turning to the Item No. 3 12050 1 under this set of criteria, it talks about quality 2 pools. 3 Do you see that? 4 A. Yes. 5 Q. These are additional criteria that you 6 were advocating being adopted. Right? 7 A. Yes. 8 Q. Now, it says, "Slow-paying premiums 9 will not be rolled, those generally with tight 10 spreads between WAC and coupons." 11 Do you see that? 12 A. Yes. 13 Q. What does that refer to? 14 A. When you securitize a mortgage, there 15 are different rolls -- and there were at that 16 time -- as to whether or not -- when you put them 17 in a pool. I believe Ginnie Maes are still 18 strictly 50 basis point. On Freddie Mac, you 19 could have collateral ranging from 9 percent to 9 20 and three quarters. So, it could have an average 21 WAC of 9 and 3/8s. So, that was a tight WAC. If 22 it had a WAC of 9.75, the under -- 12051 1 Q. That really talks about the 2 characteristics of that pool against some norm? 3 A. Yes. 4 Q. And that some are slower paying? 5 A. Right. The tightness in the spread -- 6 if they are between the pass-through coupon and 7 the underlying WAC, the slower they are going to 8 prepay. 9 Q. Now, then, 2, it says, "Fast-paying 10 discounts will not be rolled. Those generally 11 with large spreads between WAC and coupon rates." 12 What's that referring to? 13 A. When you have a discount or, at the 14 time, a lower coupon pass-through coupon, the 15 larger the WAC was, the faster it prepaid. If you 16 had it on your books as a discount, you were being 17 prepaid at par; so, you didn't want to dollar roll 18 those securities and lose the advantage of being 19 paid back your principal at discount. 20 Q. So, you wouldn't roll those securities? 21 A. No. 22 Q. Then it says, "Therefore, portfolio 12052 1 yields are not compromised. We try to roll low 2 quality pools." 3 What does that refer to? 4 A. It's just basically a summary of the 5 first two. Basically -- I mean, quality there has 6 nothing to do with credit. It just has to do with 7 the difference between the pass-through coupon and 8 the underlying WAC. 9 Q. So that 1 and 2 are essentially high 10 quality pools? 11 A. We would have referred to them as high 12 quality in definitions of whether or not we wanted 13 to finance them as dollar rolls. As far as 14 quality, their agency security is the same. 15 Q. In terms of high quality, they will 16 have a higher yield and a lesser quality because 17 of these characteristics? 18 A. Not necessarily. 19 Q. No? 20 A. It depends upon the point in time that 21 you purchase them as far as what their yield is. 22 Q. So, what are you referring to when 12053 1 you're saying that they are high quality as 2 opposed to lesser quality? 3 A. When you took the securities in the 4 portfolio and you put them out on reverse 5 repurchase agreement, you didn't need to be 6 concerned with these things because you always 7 maintained the exact pools. 8 When you did a dollar roll, you were 9 going to get back something that was similar but 10 not necessarily the same. It had to be similar in 11 nature of a pass-through coupon and not in WAC. 12 You wanted to make sure you watched the WAC on 13 what was going in and out -- these pools we were 14 calling -- we were saying they were higher 15 quality; but we would reverse them because we did 16 not want to risk giving anything up on them, any 17 possible gains due to prepays. 18 Q. Okay. So, what you want to look to, 19 then, is this thing called the WAC -- 20 A. Yes. 21 Q. -- to ascertain whether or not the 22 dollar roll was beneficial or not beneficial? 12054 1 THE COURT: Excuse me. Is WAC an 2 acronym for something? 3 THE WITNESS: Weighted average coupon. 4 Q. (BY MR. GUIDO) So, as opposed to the 5 value of the coupon, it's the weighted average of 6 the underlying pool? 7 A. Of the underlying -- 8 Q. Okay. Now, the cover memo has this 9 handwritten note on it to Bruce Williams and 10 Dominic Bruno. It says, "The analysis looks fine, 11 but what about the factor that the Wall Street 12 houses give us back worse pools than we gave them? 13 Do we really think we are more sophisticated than 14 the WS firms," which I assume means Wall Street 15 firms. "This may be an argument to keep the 16 criteria at a 100-point savings." 17 Do you see that? 18 A. Yes. 19 Q. What is he referring to? Do you know? 20 A. He was referring to when the 21 collateral -- once we determined what we were 22 going to sell into a dollar roll, what we -- 12055 1 actually analyzing the collateral that came back 2 in and making sure we were getting similar enough 3 to what we had given up and that they weren't 4 giving us back their lowest quality pools as far 5 as prepayments were concerned. 6 Q. Well, had they been giving back worse 7 pools than you had given them at that point in 8 time? 9 A. I don't believe so. I believe we did 10 an analysis that proved in the most part that that 11 was not the case. And if I remember correctly, we 12 established -- and I don't know whether it was 13 prior to that point or after that point -- 14 stricter guidelines as to what could be delivered 15 in or delivered out. 16 Q. What do you mean by "stricter 17 guidelines"? 18 A. An example would be in normal mortgage 19 settlement, they were allowed to deliver three 20 pools per million. Well, if I delivered them one 21 pool of 30 million, I required that they deliver 22 me one pool back. If I delivered them pools of a 12056 1 WAC that was only 35 basis points over the 2 pass-through, we required that they give us back, 3 you know, within a tighter range. I can't 4 remember what it was. 5 Q. So, in other words, you drafted into 6 your contract provisions that may -- that required 7 the counterparty to give you back something that 8 is comparable? 9 A. We did it at the time of the trade, and 10 the requirements were noted on the trade ticket. 11 There was no specific contract. 12 Q. When were those policies adopted? 13 A. Sometime in 1988. I don't have a copy 14 of them. 15 Q. Prior to 1988, were there such 16 policies? 17 A. I don't recall. 18 Q. Okay. Now, you indicated that you had 19 done a report. I would like to now have you take 20 a look at Exhibit B -- excuse me. It's T6080. 21 This is a memorandum from Dominic Bruno 22 to you. And how do you say Ms. Powell's name? 12057 1 A. Richea. 2 Q. From Richea Powell to Michael Crow. I 3 think it's two documents or three documents back 4 into the binder. My binder -- I don't know -- 5 A. It's forward in mine. 6 Q. This is the document that says -- one 7 rendition says, "Jenard Gross, for your 8 information, I asked them to evaluate our dollar 9 roll activity so far. It looks beneficial to me. 10 Michael Crow." 11 I think that there's another copy 12 without the handwriting on it. 13 MR. GUIDO: I would like to move in 14 T6080, which is the rendition of the document 15 which has Bates stamp US3012844 through 012855. 16 MR. NICKENS: No objection. 17 THE COURT: Received. 18 Q. (BY MR. GUIDO) Now, this analyzes the 19 impact on the part yield of dollar rolls, does it 20 not? 21 A. Yes. 22 Q. And it analyzes the dollar rolls by 12058 1 looking at what? 2 A. We would have been looking at the WAC, 3 the overall change in the CPR of the portfolio. 4 We have very limited work papers here. We 5 analyzed the cost, the WAC, and the CPR given up 6 for the CPR received back. 7 Q. Okay. Now, this says -- if you look at 8 the -- back to the first page, the third 9 paragraph, it says, "17 dollar rolls were examined 10 totaling approximately 504,000,000 and included 11 Fannie Mae, Freddie Macs, and Ginnie Mae issues 12 with coupons ranging from 8s to 10 and a halfs." 13 Do you see that? 14 A. Yes. 15 Q. And then on Exhibit 1, it has dollar 16 roll activity. 17 Do you see that? 18 A. Yes. 19 Q. And that -- is Exhibit 1 the total 20 dollar roll activity during the time period that 21 you were reviewing it? 22 A. I don't recall whether it was all of 12059 1 the activity or whether it was a sample. 2 Q. Take a look at Paragraph 2 of the first 3 page, and it's the third sentence. "Exhibit 1 4 lists all the dollar rolls we have transacted over 5 this time frame." 6 A. Then it was all. 7 Q. Okay. Now -- then there are some 8 comments on these dollar rolls for this time 9 period. 10 Do you see that? 11 A. I was just reading further in the 12 sentence. It does say that there were some 13 exclusions. 14 Q. Okay. It says, "Please note the 15 excluded rolls which were relatively small in 16 size. We also excluded rolls in this period which 17 were subsequently rerolled"; is that correct? 18 A. Yes. 19 Q. Does that explain the right-hand 20 entry -- column on Exhibit 1 where it describes 21 certain transactions as rerolled, others, as too 22 small? 12060 1 A. Correct. 2 Q. So, those that have the comments were 3 not included in this analysis? 4 A. Correct. 5 Q. Now, why was -- did you not include 6 dollar rolls that had been rerolled? 7 A. To the best of my knowledge, we 8 probably didn't have the buy-back size. We didn't 9 have the accurate information. When you extended 10 a roll on something, you actually didn't receive 11 anything. 12 Q. What about "too small"? 13 A. I'm sure we assumed that anything at 14 that -- you know, that there probably wasn't any 15 significant benefit or -- or harm, you know, in 16 doing anything that was that small; so, it was not 17 included. 18 Q. Now -- so, you looked at historic 19 prepayment rates? 20 A. Yes. 21 Q. You looked at the weighted average 22 coupon, and you looked at the costs? 12061 1 A. Yes. 2 Q. Now, let's turn to the transactions. 3 Okay? The first transaction is March 23rd, 1988. 4 It has a handwritten comment that says "neutral." 5 Do you see that? This is at Bates 6 stamp US301285. 7 A. This is beyond -- this is past the 8 first exhibit? (Witness reviews the document.) 9 Okay. Yes. 10 Q. Do you see that? Now, those -- that 11 entry that says "neutral," who did those 12 classifications? 13 A. Dominic Bruno. 14 Q. Is that his handwriting? 15 A. Yes. 16 Q. Pardon? 17 A. Yes. 18 Q. Now, the -- these have certain pieces 19 of information on the sell side and the buy side. 20 Let's take the March 23rd, 1988 example where it 21 says "neutral." This says you sell for 22 49,790,000? 12062 1 A. Yes. 2 Q. And it has a WAC of 10.17. That's the 3 weighted average coupon. Right? 4 A. Yes. 5 Q. The number of pools that are in there: 6 39. And the average prepayment since issue of 7 1.8. Is that the CPR? 8 A. Yes. 9 Q. And average one month prepay: 5.0? 10 A. Yes. 11 Q. Now -- then you get back par value 12 50,758,000. WAC of 10.16. Number of pools: 27. 13 Average prepay since issue: 3.2. And average one 14 month prepay: 0.1. 15 Do you see that? 16 A. Yes. 17 Q. What is it about that transaction that 18 makes it neutral? 19 A. Well, from the standpoint of a benefit, 20 we got back, as we required, more par or principal 21 than what we gave up. We got back basically the 22 same underlying WAC. We got back less pools which 12063 1 would lower our clearing costs. The only thing 2 that is not good is that prepay since issue of the 3 underlying securities was a little bit higher, but 4 it looked like it was slowing down when you looked 5 at just the monthly average. 6 So, based on that information, Dominic 7 rated it neutral. 8 Q. Now, it has the average prepay since 9 issue of 1.8 for the sell and 3.2 for the buy and 10 an average one month prepay of 5.0 for the sell 11 and 0.1 for the buy. 12 Doesn't that seem to indicate that 13 there's a change in the prepayment rates that are 14 happening in those recent months? 15 A. It can indicate a lot of things. I 16 mean, you would have to look at the underlying 17 collateral on each of the pools, at what area of 18 the country they were in, what area of the 19 environment, how seasoned they were. 20 Q. Were any of those analyzed when this 21 study was done? 22 A. Not in this particular study that 12064 1 there's any information on. 2 Q. So, this study doesn't include those 3 factors? 4 A. No. 5 Q. Was -- does this study include an 6 analysis of the duration-adjusted value or the 7 duration-adjusted yield of the pools? 8 A. Duration adjusted, no. 9 Q. Now, I would like to turn your 10 attention back to Page 1. It says, "The results: 11 All of the issues rolled, with the exception of 12 Freddie Macs 8s, are on our books at a premium. 13 At the time of the roll, however, their market 14 prices in general were at a discount. As a result 15 of this discount, investors have had an incentive 16 to redeliver in slower paying securities to us, 17 Since we own these in general at a premium, our 18 accounting income is in good hands." 19 Do you see that? 20 A. Yes. 21 Q. What does that refer to? 22 A. Basically, what it says, we own the 12065 1 securities at a premium. The current market price 2 was at a discount from the Wall Street firm who 3 was delivering -- from their standpoint, they 4 owned it at a discount. They would want 5 faster-paying collateral. Since we owned it at a 6 premium, we would want slower-paying collateral. 7 It was advantageous for them to deliver us 8 slower-paying collateral. 9 Q. Let's go back to Exhibit A13012, that 10 set of criteria that you had which is Bates 11 stamped CN530927. 12 There are two categories of quality 13 pools there? 14 A. Yes. 15 Q. Are the pools that you get back any one 16 of those two pools? 17 A. We were getting back -- no. 18 Q. Pardon? 19 A. One does not relate to the other. 20 Q. Okay. Now, of the pool -- let's go 21 back to the pool of 3/23/88. That was -- it says 22 book price of 103.9843 (sic)? 12066 1 A. Yes. 2 Q. Do you see that? 3 A. Yes. 4 Q. Which is Exhibit T6080 at Bates stamp 5 012850. It says book price 103.9843 (sic). 6 That's a premium, isn't it? 7 A. Correct. 8 Q. And it says, "Those will not be -- 9 slow-paying premiums will not be rolled." How 10 could you tell whether or not that was a 11 slow-paying or a fast-paying premium? 12 A. Based on this example, you can't 13 because you don't have a study of what prepayments 14 were in general at the time. You just have the 15 prepayments on the specific issue. 16 Q. Okay. Let's take a look, then, at 17 Bates stamp US 3012851. That has a "bad" notation 18 next to the transaction 3/30/88. 19 Do you see that? 20 A. Yes. 21 Q. That has a book price of 96.3072. Is 22 that a discount? 12067 1 A. Yes. 2 Q. Now, can you tell whether or not that's 3 a fast-paying discount? 4 A. I could assume based on the underlying 5 WAC that it would prepay faster than what was 6 received back. 7 Q. And why is it that you can tell by the 8 underlying WAC? 9 A. Well, the pass-through on the security 10 is Freddie Mac 8 percent, which was 100 basis 11 points higher. What we gave up was a 9.8 12 underlying WAC, and we only got back 79 basis 13 points higher than the pass-through. 14 Q. Was the effort made, when you did this 15 analysis, to ascertain whether or not the criteria 16 of the quality pools had been complied with? 17 A. I don't remember what exhibit it was, 18 but Mike Crow's initial question and his asking us 19 to give him an evaluation was why we did the study 20 and why we developed the criteria. I'm not sure 21 that -- I'm not sure when the criteria was 22 established. 12068 1 Q. But the criteria, A13012, says it was 2 adopted on April 22nd, 1988? 3 A. Then there was some attempt to follow 4 the criteria but -- 5 Q. The analysis doesn't apply to the 6 criteria, does it? 7 A. The criteria were adopted in April of 8 '88. Some of these were rolled prior to April of 9 '88. 10 Q. Okay. But the evaluation doesn't 11 attempt to apply the criteria to determine whether 12 or not the rolls fell within the criteria, do 13 they? 14 A. No. What the evaluation says is 15 whether what was done resulted in what was 16 returned being good or bad based on the criteria. 17 Q. Based on the criteria that you used for 18 the study? 19 A. Yes. 20 Q. You indicated, at least with one of the 21 transactions, that you didn't have the information 22 in the study to determine whether or not 12069 1 slow-paying premiums were being given up in 2 exchange for something else? 3 A. No, because basically you have the same 4 underlying WAC; and I don't have a study of where 5 everything else within that WAC range was 6 pre-paying at that time. In the case we're 7 talking about here, we have 100 basis points 8 different in underlying WAC. 9 Q. Did the criteria that you set out on 10 April 22nd, 1988, include doing a 11 duration-adjusted analysis of the yield? 12 A. I don't recall doing any 13 duration-adjusted analysis. 14 Q. Now, on the first page of T6080, it 15 says -- the very last sentence, it says, "Since we 16 own these in general at a premium, our accounting 17 income is enhanced." 18 What is the significance of accounting 19 income from these transactions? 20 A. I believe it's referring to our return 21 on the asset. Since we owned them at a premium 22 and what we were being delivered back prepaid more 12070 1 slowly, we were getting -- if we owned it at 103, 2 we didn't want to have a payment at par. 3 Q. You didn't want to have to recognize 4 that additional cost, that percentage additional 5 cost of the premium? 6 A. Right. 7 Q. And is that because the premiums were 8 being amortized out over the expected life of the 9 transaction? 10 A. The premiums were always amortized over 11 the expected life of the transaction, but this is 12 a specific -- if you received -- no matter how you 13 were amortizing your premium, if you received a 14 payment, you still had to account for it upon 15 receipt. 16 Q. How did it affect the accounting 17 aspect? 18 A. If you own something at 103 and you get 19 paid back at par, you've lost three points on that 20 percentage of the pool. 21 Q. Whatever percentage repays at that 22 point in time. Right? 12071 1 A. Right. 2 Q. So, if you get a slower prepay -- I 3 presume you're talking about prepaying of 4 principal? 5 A. Right. 6 Q. If you get a slower one, then you 7 stretch out the amortization of that 3 point 8 premium over a longer period of time? 9 A. No. We did not extend the 10 amortization. The actual receipt of cash has to 11 be accounted for when it comes in. It doesn't 12 affect the amortization. 13 Q. So, the fact that the cash was coming 14 back at a slower rate -- 15 A. We were earning whatever the 16 outstanding coupon was on a higher principal 17 balance because it was paying down slower. 18 Q. Okay. Now, I would like to switch to 19 another topic; and that pertains to the last five 20 documents in this binder. 21 Before we do that, you indicated when 22 you switched over and went to work for Dominic 12072 1 Bruno, your responsibilities changed. 2 Did you have the authority to initiate 3 any trades when you were transferred over to Mike 4 Bruno (sic)? 5 A. Dominic was the portfolio manager and 6 had the authority. Now, he could instruct me to 7 pick up the phone and place a trade; but I 8 couldn't pick up the phone and place a trade 9 without -- 10 Q. You didn't have the authority to 11 initiate a trade on your own? 12 A. (Witness shakes head negatively.) 13 THE COURT: Speak up, please. You 14 shook your head. 15 THE WITNESS: Sorry. 16 A. No. 17 Q. (BY MR. GUIDO) I would like to direct 18 your attention to Exhibit T5120, which is at 19 Tab 297. This is already in the record. It's a 20 memo from Bruce Williams to the investment 21 committee dated February 18, 1987. The subject: 22 Maturity matching credit. I want to direct your 12073 1 attention to the underlying portion of the 2 document which is the third paragraph where it 3 says, "Because our near-term earnings outlook is 4 not extremely favorable and the capital note 5 issuance is unlikely, the matching credit is our 6 most accessible source of capital. Therefore, 7 prior to the quarter end, we may have to 8 restructure our assets and liabilities to increase 9 our matching credit to maintain minimum regulatory 10 net worth." 11 Do you see that? 12 A. Yes. 13 Q. Can you tell us what your understanding 14 of the maturity matching credit is? 15 A. I recall the term. I don't recall what 16 the requirement was or what the calculation was to 17 determine it. It wasn't something that I did. 18 Q. Let me ask you some specific questions, 19 and it may help for our purposes. 20 Was the maturity matching credit a 21 reduction in the capital percentage requirement 22 that the thrift had if its assets and liabilities 12074 1 were more closely matched in terms of duration? 2 A. I don't know. 3 Q. You don't know. 4 You know it was some sort of a credit 5 that was given to the capital, correct? 6 A. Yes. 7 Q. It was given for certain purposes? 8 A. Yes. 9 Q. But you don't know what those purposes 10 were? 11 A. No. It wasn't something that I did or 12 I calculated; so, I don't -- 13 Q. Okay. 14 A. -- know what the real purpose was. 15 Q. Now, let me direct your attention to 16 Tab 302, T5125. That document has also been 17 introduced into the record, and it's a memo from 18 Bruce Williams to Jenard Gross and Mike Crow dated 19 June 17, 1987, entitled Disclosure/Exposure of 20 United MBS Accounting." 21 Do you see that? 22 A. Yes. 12075 1 Q. Look at the first paragraph. "By 2 management approval, 320 million of variable rate 3 mortgage-backed securities and 710 million of 4 interest rate caps were transferred from 5 United MBS to USAT for maturity matching credit 6 purposes." 7 Do you see that? 8 A. I see that. 9 Q. Do you recall that transaction? 10 A. I'm sure we made the transfer on the 11 books. 12 Q. Do you remember making the entries in 13 the books? 14 A. Specifically, no. 15 Q. Okay. Generally, do you remember? 16 A. Yes. That was my area of 17 responsibility. 18 Q. So, you remember making the 19 transactions. I mean, whether or not it was in 20 these exact dollar numbers, you do remember making 21 a transfer of caps from the books of United MBS to 22 the books of USAT? 12076 1 MR. NICKENS: Your Honor, I object. 2 There are two questions there, and it's purporting 3 to summarize the testimony which I heard as being 4 "I generally remember making transactions." And 5 now, Mr. Guido has said, "You generally remember 6 making this transaction?" which is sort of 7 inconsistent with generally -- 8 THE COURT: Well, it is my recollection 9 that she stated she did not remember these 10 transactions. 11 MR. GUIDO: Let me rephrase the 12 question. 13 Q. (BY MR. GUIDO) Do you remember making 14 a transfer of caps from United MBS to USAT for 15 purposes of taking advantage of the maturity 16 matching credit? 17 A. The answer to that is "no." 18 Q. What do you remember? 19 A. There were many purchases and sales and 20 many transfers. Why they were being done 21 specifically was determined by other people. 22 Q. Okay. 12077 1 A. Okay? So, from a basic accounting 2 transfer standpoint, did I do this if this was 3 approved? Yes. Do I remember it was specifically 4 for this reason? No. 5 Q. Okay. But if this memorandum 6 accurately reflects that, by management approval, 7 $320 million of variable rate mortgages and 8 710 million of interest rate caps were transferred 9 from United MBS to USAT, do you remember that? 10 MR. NICKENS: Your Honor, I object. 11 First of all, he's asking her to assume the thing 12 that he knows is in heavy dispute between us. 13 Then he asked her to remember that. He's asked 14 her to assume a fact, and then he's asked her to 15 remember it. 16 MR. GUIDO: Let me ask another 17 question, Your Honor. 18 Q. (BY MR. GUIDO) Do you remember 19 discussing this matter with me, Ms. Mims? 20 A. Yeah, but I don't remember discussing 21 it in saying that it was done for any specific 22 purpose. I remember discussing with you that I 12078 1 booked transactions based on instructions, but 2 they didn't necessarily always inform me of what 3 the reasons were. 4 Q. Do you remember booking the transaction 5 transferring $320 million of variable rate 6 mortgage-backed securities from United MBS to 7 USAT? 8 A. Yes. 9 Q. Do you remember booking a transaction 10 of $710 million of interest rate caps that were on 11 the books of United MBS to the books of USAT? 12 A. Yes. 13 Q. Now, I would like to direct your 14 attention to Tab 320, which I think was Exhibit 15 B1797. 16 MR. NICKENS: Tab 320, Exhibit 1797, 17 that's correct. 18 Q. (BY MR. GUIDO) Now, that's a 19 memorandum from Jenny Whyte to Sandy Laurenson 20 dated October 19th, 1987. It says "UMBS cap 21 agreements." 22 Do you see that? 12079 1 A. Yes. 2 Q. Who was Jenny White? 3 A. Jenny White was one of the employees in 4 the treasury department. 5 Q. And who did she report to? 6 A. Me. 7 Q. She reported to you? 8 A. (Witness nods head affirmatively.) 9 Q. And this says it's regarding UMBS cap 10 agreements. It has a copy to you. Why -- why 11 would Jenny Whyte need a copy of the, quote, 12 "summary of terms," end quote, for the caps 13 indicated in the attached sheet? 14 A. In order -- part of Jenny's 15 responsibility at the time was to book the 16 accruals on the caps or any entries that were to 17 be made on the caps; and in order to do that 18 accurately, she needed a summary of the terms and 19 the actual contract to make sure it was being 20 tracked correctly. 21 Q. So, it was her responsibility to track 22 those terms? 12080 1 A. Yes. 2 Q. What's your understanding of what 3 "UMBS" refers to? 4 A. It's changed many times over the years. 5 United mortgage-backed securities. 6 Q. Is that the portfolio that Sandy 7 Laurenson set up -- that was set up for Sandy 8 Laurenson shortly before she arrived at USAT? 9 A. United MBS was a subsidiary that was 10 set up for Sandy. 11 Q. I would like to move to the next issue. 12 THE COURT: Mr. Guido, is T5125 in 13 evidence? 14 MR. GUIDO: T -- 15 MR. NICKENS: Your Honor, that is in 16 evidence at Tab 302. It was in discussion with 17 Mr. Hargett, one of the expert witnesses. 18 THE COURT: Okay. 19 MR. GUIDO: Your Honor, this is a 20 binder that I've labeled "guarantee." It includes 21 more than the documents that I'm going to be 22 questioning this -- this witness about, but it 12081 1 includes basically the universe of documents that 2 we've pulled together on the so-called guarantee 3 issue. And we will be using the binder 4 periodically with different witnesses; and I 5 thought, for convenience purposes, I would include 6 all of the documents. 7 Q. (BY MR. GUIDO) I would like now to 8 direct your attention, Ms. Mims, to the first tab 9 in the document which is A13014, which is a 10 memorandum -- looks like it's what's referred to 11 as Jenard-o-grams -- notes from Jenard M. Gross, 12 January 15th, 1986. And it has attached to it a 13 memorandum from Chuck Dolittle to Jenard Gross 14 dated December 18th, 1985. And then it has 15 various people who received copies of it, 16 including Mike Crow, Ron Huebsch, Charles Hurwitz, 17 Barry Munitz, and Bruce Williams. It is Bates 18 stamped CN619775 through CN619784. 19 MR. GUIDO: I move the admission, 20 Your Honor, of Exhibit A1314. A13014, excuse me. 21 MR. NICKENS: No objection. 22 THE COURT: Received. 12082 1 MR. GUIDO: The second document is a 2 memo from Andy Creel to Mike Crow on United 3 Savings Association stationery dated August 1st, 4 1986, with a reference of interpretation of 5 certain regulatory issues. 6 I also move the admission of A13015, 7 Your Honor. 8 MR. NICKENS: A13015, no objection. 9 THE COURT: Received. 10 Q. (BY MR. GUIDO) Now, Ms. Mims, who was 11 Chuck Dolittle? 12 A. He was an employee in the accounting 13 department. 14 Q. Was one of his responsibilities or one 15 of the responsibilities -- 16 A. I cannot -- I don't know what his 17 responsibilities were. 18 Q. Was one of the responsibilities of the 19 accounting department to ascertain whether or not 20 the transactions that had been entered into by 21 USAT were in compliance with federal and state 22 regulations? 12083 1 A. It was either the responsibility of the 2 accounting department or the corporate planning 3 department. 4 Q. I'm sorry? 5 A. It was either the responsibility of 6 accounting or corporate planning. I think we've 7 gone over this. I don't know whose job it was. 8 Q. Okay. Now, I would like to direct your 9 attention into the binder to Exhibit T4277. This 10 has previously been admitted, Your Honor; and it's 11 at Tab 333. I asked you earlier what UMBS meant, 12 and you indicated it meant United MBS as far as 13 you understood. 14 Does this document say that, "United 15 Savings Association of Texas has sustained a new 16 wholly-owned subsidiary for the purpose of 17 managing a mortgage-backed security arbitrage 18 portfolio. United MBS was approved by the 19 executive committee by the board of directors on 20 August 7th, 1986, and is anticipated to initially 21 expand to a portfolio size of about $1 billion. 22 Sandy Laurenson is vice president and manager of 12084 1 MBS trading and will be responsible for managing 2 the trading of United MBS"? 3 A. Yes. 4 Q. "The subsidiary will be capitalized at 5 10 percent to contributions and advances from USAT 6 which will be subordinated to other debt such as 7 reverse repos. The primary activities of the 8 subsidiary will involve investments in 9 mortgage-backed securities funded with reverse 10 repurchase agreements. It is planned that the 11 arbitrage portfolio will be substantially hedged 12 utilizing a combination of futures, options, and 13 interest rate swaps." 14 Do you see that? 15 A. Yes. 16 Q. Is that your understanding of what 17 United MBS was established to do and how it was to 18 be capitalized? 19 MR. NICKENS: Your Honor, he hasn't 20 asked her whether she has any understanding. She 21 does not appear on this document in any manner 22 that I'm aware of. 12085 1 Q. (BY MR. GUIDO) Do you -- 2 THE COURT: Restate your question. 3 MR. GUIDO: I'll rephrase the question, 4 Your Honor. 5 Q. (BY MR. GUIDO) Are you aware of 6 United MBS? 7 A. Yes. 8 Q. Are you aware of how it was 9 capitalized? 10 A. No. 11 Q. Are you aware of the purposes that it 12 was established for? 13 A. Based on documents you gave me last 14 week, it refreshed my memory; but I wasn't -- I 15 didn't have anything to do with the determination 16 of those reasons. All I did was settle the 17 transactions. 18 Q. Now, you indicated, I think, previously 19 that one of your functions was to initiate 20 transfers, transactions between the subsidiaries 21 of USAT and USAT; is that correct? 22 A. Correct. 12086 1 Q. Okay. Do you recall making any 2 transfers of funds from USAT to United MBS? 3 A. Yes. 4 Q. Okay. Do you recall making transfers 5 in the hundred-million-dollar range at the time 6 United MBS was established? 7 A. I believe that there was -- there was a 8 dead issuance about that size that was done at the 9 time. 10 Q. What do you mean -- what kind of 11 issuance? 12 A. A subordinated -- I think there were 13 other documents. Is this the sub that there was 14 the note, the subordinated note? 15 Q. There was a subordinated note between 16 United MBS and USAT which resulted in a cash 17 transfer from USAT to United MBS of approximately 18 $100 million? 19 A. It was a book entry. I mean, money 20 never actually moved. 21 Q. Okay. Do you recall making other book 22 entries transferring funds from USAT to United MBS 12087 1 after United MBS was formed? 2 A. I don't recall any specific entry. 3 Q. Were transfers of funds made between 4 United MBS and USAT after the initial transfer of 5 $100 million? 6 A. It's possible that transfers were made. 7 I wouldn't be the only person responsible for 8 making the transfers. 9 Q. Okay. Now, I would like to direct your 10 attention to a document that was marked as A13016, 11 which is a letter to Bill Coster, Salomon 12 Brothers, and Michael Crow dated February 12th, 13 1987. 14 15 (Discussion held off the record.) 16 17 MR. GUIDO: Your Honor, this 18 document -- my associates couldn't find the 19 original exhibit number. But it is Tab 388, and 20 it is A1487. 21 MR. NICKENS: Right. 22 MR. GUIDO: It's previously been 12088 1 admitted. 2 MR. NICKENS: It's a one-page document. 3 There are seven copies of it here, Your Honor; but 4 it's a one-page document. 5 6 (Discussion held off the record.) 7 8 THE COURT: Mr. Guido, what exhibit 9 number did you say it was? 10 MR. GUIDO: I had gotten the number 11 from Mr. Nickens, as well, because I thought -- 12 THE COURT: We have A1487 as minutes, a 13 totally different exhibit. 14 MR. GUIDO: That information I gave the 15 Court was incorrect, Your Honor. 16 17 (Discussion held off the record.) 18 19 MR. NICKENS: On our exhibit list, that 20 exhibit appears as B1487. Is it still Tab -- what 21 tab? Does that help? 22 MR. GUIDO: Your Honor, I have probably 12089 1 about 45 minutes with this witness. This might be 2 a good time to break for lunch, and then we can 3 resolve this issue with this exhibit. 4 THE COURT: We can't find it, but I 5 have in my own memory that I've seen this document 6 before. Perhaps we should put it in as what you 7 have it marked as here. 8 Do you have an objection, Mr. Nickens? 9 MR. NICKENS: No, Your Honor. I 10 believe this document has been introduced. We can 11 label it A13016, and I have no objection. 12 THE COURT: Received. We'll adjourn 13 until 1:30. 14 15 (Lunch break.) 16 17 THE COURT: Be seated, please. 18 We'll be back on the record. 19 Mr. Guido? 20 MR. GUIDO: Thank you, Your Honor. 21 THE COURT: You may continue. 22 MR. GUIDO: I think where we left off 12090 1 was the document that we marked as 13016. I think 2 that has been admitted without objection. 3 MR. NICKENS: That's correct. 4 Q. (BY MR. GUIDO) And I want to direct 5 your attention now to a document which, I think, 6 is Tab 878 which is A10741; and that is a letter 7 of April 30th, 1987, to Herbert L. Jacobson. And 8 that says, "This letter will serve as verification 9 of United Savings' commitment to maintain" -- and 10 then there is something written in -- "a capital." 11 And it says, "Total stockholder's equity plus 12 subordinated debts payable to parent and United 13 MBS Corporation equivalent to at least 10 percent 14 of total assets." 15 MR. NICKENS: I think that -- Your 16 Honor, I think that's "note payable" -- 17 MR. GUIDO: Note payable. 18 MR. NICKENS: -- "to parent." 19 MR. GUIDO: Okay. "Note payable to 20 parent." I can't read the insert before "capital" 21 on my copy. 22 THE WITNESS: "Total." 12091 1 Q. (BY MR. GUIDO) Total capital? 2 A. That's what it looks like. 3 Q. Then I'd like to direct your attention 4 to Tab 879, A10742, a letter to Mr. Randy Hoffman. 5 It says, "This letter will serve as verification 6 of United Savings' commitment to maintain capital, 7 United MBS Corporation equivalent to at least 8 10 percent of total assets." 9 And then the third document, which I 10 don't think is in the record, is T4443 which is a 11 letter to Michael Criscito. It says, "This letter 12 will serve as verification of United Savings' 13 commitment to maintain total capital (total 14 stockholder's equity plus subordinated note 15 payable to parent) in United MBS Corporation 16 equivalent to at least 10 percent of total 17 assets." 18 And that has, attached to it, a 19 subordinated debenture. Is that the -- 20 MR. GUIDO: I'd like to move, Your 21 Honor, the admission of T4443 with its attachment 22 which is -- which doesn't have any Bates stamps, 12092 1 Your Honor. It's a four-page document. The first 2 page is the commitment letter, and then the three 3 pages are three pages of the subordinated 4 debenture. 5 THE COURT: It may be already in. 6 MR. NICKENS: Your Honor, I believe 7 it's been admitted at Tab 881; but my copy just 8 has two pages other than the first page. 9 THE COURT: Well, that's what my -- the 10 one in the folder is, has the cover letter and 11 then two pages of the agreement. 12 MR. GUIDO: Oh, I'm sorry, Your Honor. 13 I thought there was a third page. There's a blank 14 page in my binder. And that's previously been 15 admitted at Tab 881? 16 MR. NICKENS: Yes. 17 Q. (BY MR. GUIDO) I'd like to direct 18 your attention to the subordinated debenture 19 that's there. 20 Is that the subordinated note that you 21 were referring to earlier with regard to the 22 capitalization of United MBS when it was formed? 12093 1 A. Yes. 2 Q. Now, each of these letters talks about 3 a commitment to maintain 10 percent total capital 4 to asset ratio within the subsidiary. 5 Were you aware that USAT had made that 6 commitment in 1987 and 1988 to these individuals? 7 A. Not that I recall. 8 Q. And did you have any responsibility for 9 accounting for that commitment? 10 A. No. 11 Q. Did you make any entries in the books 12 and records of United MBS or USAT in furtherance 13 of satisfaction of that commitment? 14 A. No. 15 Q. No, or you don't know? 16 A. I don't know. I don't think -- I mean, 17 I just booked the entries that happened. I 18 didn't -- they never had anything directly to do 19 related with maintaining this requirement, to my 20 knowledge. 21 Q. But do you know whether or not you made 22 any transfers between USAT and UMBS after the 12094 1 $125 million in the subordinated note? 2 A. Not that I recall. 3 Q. So, you don't recall -- 4 A. No. 5 Q. -- one way or the other? 6 A. No. 7 Q. Did anyone explain it to you at the 8 time that such a commitment had been made? 9 A. No. 10 Q. Was the first time you had heard of 11 such a commitment when I raised that issue with 12 you when I sent you the materials and discussed -- 13 A. Yes, I had never seen those before. 14 Q. No one had ever raised that with you 15 before? 16 A. During this time frame, no. I mean, 17 since then in various discussions with lawyers 18 over the years, it's -- people have asked where 19 the letters are on commitments and guaranties; but 20 that was never in any information that I had. 21 Q. Which lawyers? 22 A. I -- 12095 1 Q. Do you know who they represented? 2 A. I would say, initially, it was the 3 FSLIC lawyers that came in to take the records. 4 Q. Okay. When the place was first -- USAT 5 was first placed in receivership? 6 A. Right. And over a period of time after 7 that, people still kept coming back to accumulate 8 any records that were in storage or were left 9 there. 10 Q. And those -- were those always lawyers 11 from the FSLIC or the FDIC? 12 A. Yes, to my knowledge. 13 Q. All right. Any lawyers from the OTS? 14 A. I don't remember when the OTS came in. 15 Q. Any lawyers representing the 16 respondents in this case? 17 A. No. 18 Q. So, the only contact you've had with 19 lawyers other than your conversations with me have 20 been with the FSLIC? 21 A. (Witness nods head affirmatively.) 22 Q. Did the -- 12096 1 THE COURT: Would you speak up, please? 2 THE WITNESS: Yes, to the best of my 3 recollection. 4 Q. (BY MR. GUIDO) Did the respondents' 5 lawyers make an effort to contact you and 6 interview you? 7 A. I don't believe so. 8 Q. If they had made the request through 9 counsel for Bank United, would you necessarily 10 know about that? 11 A. No. 12 Q. But you don't recall them making any 13 direct requests to you? 14 A. No. 15 Q. Now, I'd like to -- have you, in the 16 time that you represented USAT and worked for 17 USAT, ever encountered a situation where an 18 investment banking firm or Wall Street firm had 19 requested a commitment from a parent in order to 20 extend credit to its subsidiary? 21 A. Not in the capacity I was in at this 22 point. After -- in later years in different 12097 1 capacities, I've worked in -- I've had people 2 request that but not at this time frame at that 3 level. 4 Q. In what capacities did you have such a 5 request? 6 A. When I became a portfolio manager, you 7 know, after 1989, you know, people have requested 8 information from us in regards to, you know, 9 whether the parent company's guaranteed debt or 10 anything like that. In my current position, since 11 we are a subsidiary of the current bank, people 12 ask if the parent guarantees the debt or the 13 transactions of the subsidiary. I mean, it's a 14 question that people have asked; but I wasn't in a 15 position at this point in time to be asked that 16 question. 17 Q. When you worked with Dominic Bruno, did 18 the issue ever come up? 19 A. Not to my recollection, no. 20 Q. Now, I'd like to ask you a few 21 questions about the individuals. 22 Do you know who Bill Coster was at 12098 1 Salomon Brothers? 2 A. No. 3 Q. Pardon? 4 A. No. 5 Q. Do you know who Herbert Jacobson was at 6 Security Pacific Clearing Corporation? 7 A. Yes. 8 Q. And who was he? 9 A. He was an officer at the corporation. 10 The reason I know his name is because he was -- I 11 dealt with the people who worked for him in 12 settling securities. 13 Q. What -- 14 A. That was our clearing agent at the 15 time: Security Pacific. 16 Q. Let me direct your attention to the 17 document that we've marked as Exhibit A13016-2. 18 It's a clearing custody and financing agreement 19 with Security Pacific. 20 A. A -- is it forward or back? 21 Q. Forward. 22 MR. NICKENS: In my book, it's marked 12099 1 by date, 7/17/87. 2 THE WITNESS: Here it is. 3 Q. (BY MR. GUIDO) That document is Bates 4 stamped CN262865 through 262870. Do you have that 5 document? 6 A. I have it right here. 7 MR. GUIDO: I move the admission of 8 Exhibit A13016-2, Your Honor. 9 MR. NICKENS: No objection, Your Honor, 10 to 13016-2. 11 THE COURT: Received. 12 Q. (BY MR. GUIDO) Now -- and is that 13 your signature on the last page? 14 A. Yes. 15 Q. And on the next-to-the-last page, is 16 that also your signature? 17 A. Yes. 18 Q. Now, what did Security Pacific do for 19 United MBS? What kind of services did they 20 provide? 21 A. They provided securities settlement 22 services. When somebody would deliver securities 12100 1 into our account there, they would pay for the 2 securities upon delivery. 3 Q. Were they your clearing agent? Is 4 that -- 5 A. Yes. 6 Q. And did they extend credit in the 7 course of the USAT/United MBS's clearing agent? 8 A. Yes, on a daily basis. Within a day. 9 In other words, sometimes securities were 10 delivered before payment, before they received our 11 wire. So, in a daylight overdraft situation, 12 there were times when credit was being extended. 13 Q. So that there were constant -- 14 A. But they would not lend us money. 15 Q. Pardon? 16 A. They did not lend us money. 17 Q. But they paid out money on your behalf 18 before they received it from you? 19 A. Yes. 20 Q. Is that a fair characterization? 21 A. Yes. 22 Q. And what does that refer to? 12101 1 A. We used to refer to it as daylight 2 overdraft. 3 Q. Were they the person that settled the 4 securities on behalf of USAT? 5 A. Yes. 6 Q. Now, let's look at the next letter 7 after that which is a letter to Randy Hoffman at 8 Morgan & Stanley. Do you know who Randy Hoffman 9 was at Morgan & Stanley? 10 A. No. 11 THE COURT: Where are you now, 12 Mr. Guido? 13 MR. GUIDO: Your Honor, that's 14 Exhibit -- Tab 879, A10742. 15 Q. (BY MR. GUIDO) You never had any 16 dealings with Mr. Hoffman? 17 A. No. 18 Q. And the Tab 881, T4443, the letter to 19 Michael Criscito, did you have any dealings with 20 him? 21 A. No. 22 Q. Now, I'd like to go through a packet of 12102 1 materials that have been numbered various 2 T exhibit numbers and ask you about those. And 3 starting right after the A13016-2, this packet of 4 material starts. 5 A. Okay. T4536? 6 Q. Yeah. Let's do T4536 to start with. 7 Can you tell us what that document is? 8 A. It's a repo maturity schedule. 9 Q. Is that something that was prepared by 10 you or your staff? 11 A. In December of '88, this would have 12 been prepared in the treasury department. And I 13 was no longer in the treasury department; so, it 14 wouldn't have been prepared by my staff in the 15 treasury department. 16 Q. Look at T4398. That is a United MBS 17 Corporation reverse repo collateralization 18 maturity schedule dated 9/30/87. Was that 19 something that would have been prepared by you or 20 someone in your -- 21 A. Somebody in my department. At that 22 time, I was still assistant treasurer. 12103 1 Q. And T4428 which is the reverse repo 2 collateralization analysis, USAT and UMBS, 3 12/31/87, is that something that was prepared by 4 you or someone on your staff? 5 A. Someone on my staff. 6 Q. And T4436 which is a reverse repo 7 collateralization maturity schedule 1/31/88, 8 United MBS Corporation, is that something you or 9 your staff would have prepared? 10 A. I don't remember the exact date I 11 changed, but it was sometime around then. So, it 12 was always prepared in the treasury department; 13 and it was my staff up until the time that I 14 changed which was either January or February of 15 1988. 16 Q. And whose staff was it after that? 17 A. Ted Grove. 18 Q. Okay. Then T4448 is a United MBS 19 reverse repo collateralization maturity schedule, 20 2/29/88? 21 A. Yes. Same. 22 Q. Would that have been Mr. Groves' staff 12104 1 at that time? 2 A. I believe so. 3 Q. And then T4449 which is another United 4 MBS Corporation reverse repo collateralization 5 analysis of 2/29/88, would that also have been 6 Mr. Grove or his staff? 7 A. Yes. 8 Q. Then T4464 is United MBS Corporation 9 reverse repo collateralization analysis, 4/30/88. 10 Would that have been prepared by Mr. Grove or his 11 staff? 12 A. Yes. 13 Q. And then T4478, it says United MBS 14 Corporation reverse repo collateralization 15 analysis as of May 31, 1988. Would that have been 16 done by Mr. Grove or his staff? 17 A. Yes. 18 Q. And then T4501, it says United MBS 19 Corporation reverse repo collateralization 20 analysis as of July 31, 1988. Would that have 21 been prepared by Mr. Grove or his staff? 22 A. Yes. 12105 1 Q. And then T4512 says United MBS 2 Corporation reverse repo collateralization 3 maturity schedule as of August 31, 1988. Would 4 that have been prepared by Mr. Grove or his staff? 5 A. Yes. 6 Q. And then T4514 says United MBS 7 Corporation reverse repo collateralization 8 analysis as of September 30, 1988. Would that 9 have been prepared by Mr. Grove or his staff? 10 A. Yes. 11 Q. During -- 12 MR. GUIDO: Your Honor, I'd like to 13 move the admission of T4536, T4398 -- 14 THE COURT: What was that last one? 15 T4536? 16 MR. GUIDO: The very last one that I 17 asked the witness about? 18 THE COURT: The first exhibit that you 19 just mentioned. 20 MR. GUIDO: Oh, that I just mentioned? 21 4536, Your Honor. It was the beginning when I 22 went through this packet of materials with the 12106 1 witness. That's the reverse repo 2 collateralization analysis for United MBS 3 Corporation maturity schedule as of December 31, 4 1988. 5 MR. NICKENS: No objection. 6 THE COURT: Received. 7 MR. GUIDO: I move the admission of 8 T4398, Your Honor. 9 MR. NICKENS: No objection. 10 THE COURT: Received. 11 MR. GUIDO: I move the admission of 12 T4428, Your Honor. 13 MR. NICKENS: No objection. 14 THE COURT: Received. 15 MR. GUIDO: I move the admission of 16 T4436, Your Honor. 17 MR. NICKENS: No objection. 18 THE COURT: Received. 19 MR. GUIDO: I move the admission of 20 T4448, Your Honor. 21 MR. NICKENS: Objection. 22 THE COURT: Received. 12107 1 MR. GUIDO: I move the admission of 2 T4449, Your Honor. 3 MR. NICKENS: No objection. 4 THE COURT: Received. 5 MR. GUIDO: I move the admission of 6 T4464, Your Honor. 7 MR. NICKENS: No objection. 8 THE COURT: Received. 9 MR. GUIDO: I move the admission of 10 T4478, Your Honor. 11 MR. NICKENS: No objection. 12 THE COURT: Received. 13 MR. GUIDO: I move the admission of 14 T4501, Your Honor. 15 MR. NICKENS: No objection. 16 THE COURT: Received. 17 MR. GUIDO: I move the admission of 18 T4512, Your Honor. 19 MR. NICKENS: No objection. 20 THE COURT: Received. 21 MR. GUIDO: I move the admission of 22 T4514, Your Honor. 12108 1 MR. NICKENS: No objection. 2 THE COURT: Received. 3 Q. (BY MR. GUIDO) And I'd like to direct 4 your attention, Ms. Mims, to T4536, the first one 5 in this packet of materials, and ask you some 6 questions about the format of the document. 7 On the document, reading the columns 8 from left to right, it says "reverse repo 9 something." Do you see that? 10 A. Yes. 11 Q. Is that the counter-party with the MBS? 12 Is that what that refers to? 13 A. Yes. 14 Q. And is that the party that extends 15 credit -- 16 A. Yes. 17 Q. -- to USAT or United MBS? 18 A. United MBS. 19 Q. And then it says "reverse repo 20 something." What does that refer to? 21 A. The second column, reverse repo number? 22 Q. Is that "number"? Okay. 12109 1 A. That was just an internal number to 2 help identify the tracking of the repo and the 3 collateral. 4 Q. And then the next column says "reverse 5 repo amount." Was that the amount that was 6 borrowed or the face amount of the mortgage-backed 7 securities that were collateralized? 8 A. That was the face amount that was 9 borrowed. 10 Q. And then the next column says "rate." 11 Is that the reverse repo rerate? 12 A. Yes. 13 Q. Now, take the first entry under -- see 14 where it says "Bear"? 15 A. Yes. 16 Q. Reverse repo party. It says "reverse 17 repo number." What does that refer to for that 18 entry? 19 A. It says "pledged." 20 Q. What does that mean? Is this -- 21 A. It's collateral that was pledged to 22 Bear Sterns, and I don't recall where it was 12110 1 pledged. 2 Q. Now, turn to the third page on that 3 packet. 4 A. Okay. 5 Q. You see the second-to-the-last entry 6 from the bottom? It says "Morgan." 7 Do you see that? 8 A. Yes. 9 Q. What does that refer to? 10 A. Morgan Stanley. 11 Q. Okay. And then it has PaineWebber. 12 What does that refer to? 13 A. PaineWebber. 14 Q. Are both of those Wall Street 15 investment banking houses? 16 A. Yes. 17 Q. I'd like to direct your attention now 18 to Exhibit 4398. Do you have that one? 19 A. Yes. 20 Q. Okay. Look at the third page. Do you 21 see the column for reverse repo party that says 22 "Salomon"? 12111 1 A. Yes. 2 Q. Is that Salomon Brothers? 3 A. Yes. 4 Q. Now I'd like to turn your attention to 5 the document that we've marked as Exhibit T4296 6 which is the -- I think it's the fifth tab from 7 the back of the book. 8 But before I do that, on these 9 schedules, on these reverse repo expense accrual 10 reports that we've been looking at -- I'm sorry -- 11 these reverse repo collateralization maturity 12 schedule reports that we've been looking at -- 13 A. Yes. 14 Q. -- are those essentially the reverse 15 repos that are outstanding as of the dates of the 16 preparation of those documents? 17 A. Yes. 18 Q. Now I'd like to move to T4295. 19 MR. GUIDO: 4295 is a document that was 20 one page in the exhibits that were identified by 21 the OTS, in its exhibit list, Your Honor. 22 Included in this packet that I have prepared is a 12112 1 more complete rendition of that letter that 2 includes the instructions that are referred to in 3 the letter that are referred to in that cover 4 letter. 5 I would like at this point in time to 6 move the admission of T4295 which is Bates stamped 7 6613 and the more complete rendition of that 8 document which is part of the exhibit as CN619635 9 through CN619641. 10 MR. NICKENS: Your Honor, I don't have 11 a copy of the attachment. 12 13 (Whereupon Mr. Guido handed Mr. Nickens 14 the document.) 15 16 MR. NICKENS: Well, Your Honor, I 17 haven't had an opportunity to review the document. 18 I'm -- in order to move things along, I'm willing 19 to allow Mr. Guido to ask the questions. If we 20 should have an objection at a later time, I will 21 notify the Court. I don't anticipate that. 22 THE COURT: All right. Received. 12113 1 Q. (BY MR. GUIDO) Now, this is a letter 2 dated November 5th, 1986, from Ginger Baugh to 3 Gerald Williams, the president of United Savings 4 Association? 5 THE COURT: Mr. Guido, I'm having 6 trouble finding that document. Is this supposed 7 to be in this folder? 8 MR. GUIDO: It's in this packet, Your 9 Honor. It's the fifth tab from the back of the 10 binder. 11 THE COURT: Thank you. 12 Q. (BY MR. GUIDO) This letter -- do you 13 know who Ginger Baugh was? 14 A. No. 15 Q. Did you have any contact with the 16 supervisory people at the Federal Home Loan Bank 17 of Dallas during the time that you were at USAT? 18 A. My contact with the Home Loan Bank of 19 Dallas was from borrowings; but as far as the 20 supervision of the regulations, no. 21 Q. Now, this -- look at the second 22 paragraph of the letter. It says, "However, 12114 1 service corporations or other subsidiaries other 2 than finance subsidiaries should be reported on an 3 equity basis." 4 Do you see that? 5 A. Yes. 6 Q. Is that your understanding of what the 7 regulations were at the time? 8 MR. NICKENS: What regulations are we 9 referring to, Your Honor? There's a dispute in 10 the case, Your Honor, about various regulations 11 and whether there was to be reporting on a 12 consolidated basis or for direct investment 13 purposes. 14 And so, the question of what 15 regulations are being referenced here, 16 particularly since the witness obviously hadn't 17 seen this letter before, is important. 18 MR. GUIDO: Let me review the whole -- 19 THE COURT: Can you be more specific? 20 MR. GUIDO: It may turn out, Your 21 Honor, that this isn't the witness to ask this 22 question of. 12115 1 Q. (BY MR. GUIDO) "According to the 2 Federal Home Loan Bank Board's instructions for 3 the quarterly financial report, the assets, 4 liabilities, and net-worth of finance subsidiaries 5 should be consolidated into the reports of the 6 parent corporation." 7 Do you see that? 8 A. Yes. 9 Q. Was it your understanding that that was 10 the policy of the Federal Home Loan Bank Board in 11 its instructions for the quarterly financial 12 reports? 13 A. I was not responsible for regulatory 14 reporting; so, I had nothing to do with this. 15 Q. I'd like to move to the next document 16 which is the next-to-the-last document which is 17 A10602. And that is a letter from Michael Crow to 18 Joe Selby with an attachment, a two-page 19 attachment to it. And it is Image No. OWO03878 20 through OWO03880. It's dated January 27th, 1988. 21 Prior to me sending you this document 22 to review, Ms. Mims, have you ever seen this 12116 1 document before? 2 A. No. 3 Q. Do you know what it means to 4 consolidate the -- a subsidiary with the parent 5 corporation for purposes of reporting? 6 A. I know what it means to consolidate. I 7 don't know what the regulatory requirements were 8 for reporting at that time. 9 Q. What's your general understanding of 10 the term "consolidate"? 11 A. That you add the two together. That 12 you add the two entities together. 13 Q. So, you just combine them? 14 A. You combine them. 15 Q. It's a combined reporting. 16 And if that understanding is the 17 understanding as applicable to the instructions to 18 report under -- in the quarterly reports filed 19 with the Federal Home Loan Bank Board, what would 20 have been the effect of not consolidating United 21 MBS with the USAT for purposes of reporting? 22 MR. NICKENS: Your Honor, what would 12117 1 have been the effect in what regard? Plus, we're 2 asking this person to make an assumption about 3 regs that she said that she's not familiar with 4 and didn't work with in her regular daily work. 5 So, I don't know what evidence it would be worth, 6 whatever the answer may be. 7 THE COURT: I'm not sure this is the 8 witness to pursue this with. 9 MR. GUIDO: Your Honor, I'd like to 10 just read into the record the paragraph at the top 11 of Bates stamp OWO03880. Before I do so, I'd like 12 to move the admission of A10602. 13 MR. NICKENS: No objection, Your Honor. 14 My -- our records indicate that this is in as a 15 part of Tab 320A, but we have no objection to its 16 admission in this form. 17 THE COURT: I think it's marked as 18 Exhibit T5127, and it's in -- 19 MR. GUIDO: T517, Your Honor? 20 MR. NICKENS: 127. 21 THE COURT: I'm not sure what purpose 22 this serves by reading the paragraph. 12118 1 MR. GUIDO: Your Honor, I can forego 2 that to a later point in time. 3 Ms. Mims, thank you very much. Your 4 Honor, I am finished with my questions of this 5 witness. 6 THE COURT: Okay. 7 MR. NICKENS: May I proceed, Your 8 Honor? 9 THE COURT: Mr. Nickens, yes, you may 10 cross-examine. 11 12 EXAMINATION 13 14 Q. (BY MR. NICKENS) Ms. Mims, for the 15 record, my name is J.C. Nickens. I introduced 16 myself to you for the first time this morning; is 17 that correct? 18 A. That's correct. 19 Q. And you indicated in your testimony 20 to -- in the questions From Mr. Guido that you had 21 not spoken to any of the counsel for the 22 respondents since you -- well, at any point in 12119 1 time, have you? 2 A. No. 3 Q. And Mr. Guido has sent you some 4 documents in recent days; is that correct? 5 A. That's correct. 6 Q. And you've reviewed those documents? 7 A. To some extent, yes. 8 Q. And that has helped to refresh your 9 recollection as to certain events that occurred a 10 very long time ago? 11 A. Yes. 12 Q. And you're relying on those documents 13 for purposes of refreshing your recollection as to 14 what those events were? 15 A. Yes. 16 Q. And you've had no -- basically no 17 communications with the lawyers for the 18 respondents as to what their positions might be as 19 to those issues? 20 A. No. 21 Q. Now, let me ask you a few questions. 22 You had worked at what institution prior to its 12120 1 merger with United? 2 A. Houston First American Savings. 3 Q. And so, you've been in the savings and 4 loan business for a fairly lengthy period of time 5 at this point. Right? 6 A. 17 years. 7 Q. What -- explain to the Court what the 8 situation was with regard to savings and loans in 9 the Houston and Texas area in the mid-Eighties. 10 A. In the mid-Eighties, to the best of my 11 recollection, the oil market kind of went bust. 12 The bottom dropped out of the real estate market, 13 and thrifts were having a hard time maintaining 14 capital based on the devaluation of real estate. 15 Q. And what measures were being taken, in 16 your experience, to deal with those problems? 17 A. At United Savings, we had the -- I was 18 more involved on the securities side of things 19 than I was as to what they were specifically doing 20 in real estate, whether or not they were 21 continuing to lend. They had securities 22 portfolios or securities arbitrage portfolios 12121 1 where they were trying to lock in some sort of 2 spread to produce a consistent income stream so 3 that we could continue to pay interest to the 4 depositors. 5 Q. As a result of the merger, did you have 6 goodwill that had to be amortized? 7 A. I recall that there was goodwill at 8 that time. Again, I didn't do that type of 9 accounting. 10 Q. Was the institution operating on a 11 profitable or an unprofitable basis on a daily 12 operating basis? 13 A. It was my understanding we were 14 profitable until close to the end. 15 Q. Till close to the end. All right. 16 And you mentioned to me earlier today 17 while we -- before court started about people 18 turning in their keys? 19 A. Yes. 20 Q. What was that? Explain that to the 21 Court. 22 A. When the -- in the initial stages of 12122 1 when the values on real estate went down, people 2 were actually mailing their keys back into the 3 bank, just saying, "Forget it. I don't want it," 4 and walking away from their debt because that was 5 prior to the thrifts having enough time to report 6 it as -- I believe it's a capital gain to the IRS 7 to where the people would actually have to assume 8 a gain from walking away from their debt. So, 9 they just walked away from their debt on the house 10 free and clear. 11 Q. And the market described in Houston and 12 elsewhere was perhaps that they simply mailed in 13 their keys to their homes? 14 A. Yes. 15 Q. And what effect did that have on the 16 thrift? 17 A. Well, we had lent a lot of money to 18 individuals who weren't going to pay it back; and 19 so, therefore, the thrift was left with a lot of 20 real estate that wasn't worth what they lent on 21 it. So, there was really no way for the thrift to 22 recover the full value of the debt. 12123 1 Q. And were these economic conditions 2 applicable to all the thrifts in -- at least as 3 far as you knew in the Houston area? 4 A. In Houston, yes. 5 Q. And in -- what were your observations 6 as to how the management of USAT tried to deal 7 with those problems? 8 A. Like I said, I don't really know 9 specifically what they did on the real estate side 10 of it. But on the securities side of it, they 11 tried to maintain securities portfolios that were 12 profitable and could generate profits to offset 13 the losses in the real estate market. 14 Q. Were you trying to work as hard as you 15 could to keep the institution alive? 16 A. Yes. 17 Q. Was is it your observation that others 18 were doing the same? 19 A. Yes. 20 Q. Was it your observation that they did 21 so, as far as you could tell, conscientiously? 22 A. Yes. 12124 1 Q. Were people, to your observation, 2 stealing from the institution? 3 A. No. 4 Q. What was your observation with regard 5 to the competence of the people that you worked 6 with at United Savings? 7 A. I thought that they were extremely 8 competent. You know, at that time, that was the 9 nature of the business and what was being done. 10 It was before Bloomberg and computers and a lot of 11 the other things that we have now. But I mean, 12 everybody pretty much seemed -- 13 Q. To know what they were doing? 14 A. -- to know what they were doing. 15 Q. And did you feel like you had the tools 16 available at the time -- I'm not saying they 17 were -- I'm not asking you whether you had the 18 stuff that's available now. But at least what was 19 available then, did you have the state-of-the-art 20 to try to do your job? 21 A. Yes. 22 Q. Now, I want to ask you a few questions 12125 1 about the mortgage-backed securities portfolios. 2 As I understand it, your job was to 3 do -- to keep track of those portfolios, to record 4 the trades, and to make sure that the books were 5 in the proper order; is that right? 6 A. Yes. 7 Q. The trading function itself, at least 8 until later in your career, was separate from your 9 responsibilities? 10 A. Correct. 11 Q. And -- now, have you continued to work 12 with mortgage-backed securities in your job since 13 United Savings? 14 A. Yes. 15 Q. Does Bank United have mortgage-backed 16 securities? 17 A. Yes. 18 Q. And do you manage a portfolio, or you 19 did that at one time? 20 A. I did that at one time. I don't do 21 that anymore. 22 Q. And is that a structured arbitrage or a 12126 1 hedged portfolio? 2 A. No. 3 Q. Is it unhedged? 4 A. The hedges are no longer tied to the 5 portfolio. 6 Q. Now, with regard to the mortgage-backed 7 securities that United owned -- first of all, did 8 First American own some mortgage-backed 9 securities? 10 A. Yes. 11 Q. And did you carry mortgage-backed 12 securities at USAT in your liquidity portfolio? 13 A. They don't qualify for liquidity 14 because they are too long in maturity, but they 15 did hold them as an investment. 16 Q. And in an unhedged arbitrage apart from 17 the arbitrage activities that they took on? What 18 I'm asking you, Ms. Mims, is whether United 19 Savings owned mortgage-backed securities outside 20 of its arbitrage activities. 21 A. Yes. 22 Q. And what were the portfolios in which 12127 1 it owned such securities? 2 A. I don't recall that they had -- 3 Q. Did they have a CMO program? 4 A. Yes. 5 Q. And was that collateralized with 6 mortgage-backed securities? 7 A. Yes. 8 Q. Did they have a program of preferred 9 stocks called AMPs and DARTs? 10 A. Yes. 11 Q. And was that -- did that -- was that 12 collateralized by mortgage-backed securities? 13 A. Yes. 14 Q. And did they have a cash flow bond? 15 A. Yes. 16 Q. And were there mortgage-backed 17 securities associated with that portfolio? 18 A. Yes. 19 Q. Now, how did you keep all of these 20 things separate at USAT? I mean, you were doing 21 the bookkeeping function. How did you separate 22 those various activities? 12128 1 A. From a general ledger standpoint or -- 2 Q. Yes, ma'am. 3 A. You may have noted on the reports, 4 there's something called an RC number which is 5 what we called the responsibility center; and they 6 could break the general ledger up into various 7 responsibility centers that had to do with all the 8 various issuances. 9 Q. And in those -- in those portfolios 10 that were risk-controlled arbitrage or structured 11 arbitrage, did you own swaps? 12 A. We owned swaps. I don't remember 13 exactly how everything went together, but we owned 14 swaps. 15 Q. That was my question. Were those swaps 16 assigned to specific RC numbers? 17 A. Yes. 18 Q. And they were associated with specific 19 ownership of mortgage-backed securities? 20 A. Yes. 21 Q. Now, why did you do that? 22 A. I did it because I was told to. 12129 1 Q. Well, okay. Let me ask it this way: 2 What was your understanding of the advantages of 3 doing it? 4 A. To lock in a spread. 5 Q. Would it also be to keep track of the 6 performance of those portfolios? 7 A. Definitely. 8 Q. Now, you weren't a member of the 9 asset/liability committee -- 10 A. No. 11 Q. -- or the investment committee until 12 perhaps later -- 13 A. Later, I was; but I don't remember 14 exactly when that happened. 15 Q. Now, I want to ask you some questions 16 about the transfer that Mr. Guido asked you about; 17 and you recall there was a document from Mr. Bruce 18 Williams referencing a transfer of some 19 adjustable-rate securities and some caps. 20 Do you recall that document? 21 A. Yes. 22 Q. And is that a document that you 12130 1 reviewed recently to refresh your recollection? 2 A. Yes. 3 Q. Can you recall ever having seen that 4 document before? 5 A. No. 6 Q. Prior to having your recollection 7 refreshed, did you have any memory of any such 8 transfer? I'm talking about the transfer of the 9 caps. 10 A. Yes. 11 Q. Okay. Now, if -- that was a transfer, 12 you say, that occurred from USAT to United MBS -- 13 MR. GUIDO: That's a misstatement of 14 the witness' testimony. I think she testified to 15 reverse, Mr. Nickens. 16 Q. (BY MR. NICKENS) Well, what was the 17 transfer that you recall and have been refreshed 18 on? 19 A. I recall that there was a transfer of 20 assets. I did not recall that it was due to -- 21 the reason that it was done which, I believe, was 22 maturity matching credits. 12131 1 Q. And some of those assets were 2 adjustable rate mortgages? 3 A. Yes. 4 Q. And then the others were caps or 5 hedges? 6 A. Yes. 7 Q. Now -- and if Mr. Guido is correct, 8 this was from United MBS to USAT? 9 A. Yeah. I'd have to look at the document 10 again, but I believe that was -- 11 Q. Now, would that -- if you owned caps, 12 if United MBS owned caps, would they appear on the 13 general ledger of United MBS? 14 A. Yes. 15 Q. And transactions involving those caps 16 would be things such as payments of premiums? 17 A. Yes. 18 Q. And would those run through the general 19 ledger? 20 A. Of United MBS, yes. 21 Q. And if I were to show you documents 22 that indicated that they were recorded on the 12132 1 books of -- those transactions were recorded on 2 the books meaning the general ledger of USAT, what 3 conclusion would you make? 4 A. That they had been transferred from one 5 company to the other. 6 Q. Or -- if I -- well, let me show you 7 some documents. 8 A. Or that they had been consolidated in 9 some way. 10 Q. Let me ask you to look at Exhibit T5084 11 which has been admitted at Tab 314, T5086 which 12 has been admitted at Tab 317, T5087 which has been 13 admitted at Tab 317A, T5088 which has been 14 admitted at Tab 318, T5089 which has been admitted 15 at Tab 319, and T5106 which has been admitted at 16 Tab 303. 17 A. I'm missing 87. 18 MR. NICKENS: These are the cap 19 agreements. 20 THE WITNESS: Here it is. 21 THE COURT: We'll be off the record for 22 a minute. 12133 1 (Discussion off the record.) 2 3 THE COURT: Back on the record. 4 MR. NICKENS: Thank you, Your Honor. 5 Q. (BY MR. NICKENS) Now, let's start 6 with 5084. Let me ask you first: Are these among 7 the documents that Mr. Guido provided to you in 8 refreshing your recollection? 9 A. No. 10 Q. Do you recognize the documents as being 11 the cap agreements? 12 A. Yes. 13 Q. And if you look at 5084 over to Page 14 Bates No. 210212 -- do you see that? 15 A. Yes. 16 Q. Who are the parties to the cap 17 agreement? 18 A. Drexel Burnham and United Savings. 19 Q. Not United MBS? 20 A. No. 21 Q. And if you look at the other 22 documents -- 5086, 5087, 5088, 5089, 5106 -- who 12134 1 are the parties to those agreements? 2 A. Merrill-Lynch and United Savings. 3 Q. Not United MBS? 4 A. No. None of them say "United MBS." I 5 looked at them. 6 Q. Right. 7 A. They all say "United Savings." 8 Q. And that would indicate that those cap 9 agreements were owned by United Savings? 10 A. Yes. 11 Q. And if we looked at the general ledger, 12 would we find -- should we find those cap 13 agreements on the general ledger during this time 14 frame of United Savings? 15 A. Yes. 16 Q. Now, how would a -- if these -- so, in 17 order for this transfer that you've indicated to 18 have occurred, they would have had to have been 19 transferred to -- from United Savings to United 20 MBS and then back to United Savings? 21 A. I would have to look at the date, time 22 frame -- 12135 1 Q. Yes. 2 A. -- because I believe I said to 3 Mr. Guido we would have had to have different 4 agreements. It would have had to have said United 5 MBS. There would have to have been a transfer in 6 order for it to be a different counter-party. 7 Q. Now, if these are, in fact, the caps, 8 the only way this could have occurred the way it 9 has been postulated is if there were two 10 transfers. Right? 11 A. What you're saying is they started at 12 United Savings, went to United MBS, and then came 13 back? 14 Q. Frankly, what I'm saying is that they 15 were never transferred; but, you know, I don't get 16 to testify here. 17 A. Yes. It would have to be two 18 transfers. 19 Q. Do you recall two transfers? 20 A. No. 21 Q. Now, for internal purposes -- that is, 22 for accounting for the performance of United 12136 1 MBS -- did you assign, for those purposes, the cap 2 agreements to United MBS regardless of who owned 3 them? 4 A. I don't recall exactly how it was done, 5 but that makes more sense. 6 Q. And could there have been a transfer 7 for that purpose that did not transfer the 8 ownership of the caps? 9 A. Yes. 10 Q. Now, Ms. Mims, I want to show you some 11 general ledger documents. And specifically, would 12 you take a look at Exhibit B3776. 13 Could you identify that as the general 14 ledger for United Savings Association of Texas, 15 process date 3/4/87? 16 A. Yes. 17 Q. And -- 18 MR. NICKENS: Your Honor, we offer 19 B3776. 20 21 (Discussion off the record.) 22 12137 1 THE COURT: You have no objection, 2 Mr. Guido? 3 MR. GUIDO: No objection, Your Honor. 4 THE COURT: Received. 5 Q. (BY MR. NICKENS) Now, can you go over 6 to Tab 1 -- 7 MR. GUIDO: Mr. Nickens, could you have 8 the witness describe the document first? 9 MR. NICKENS: I asked her if she could 10 identify it. 11 THE COURT: I think it's been described 12 by Mr. Nickens, and she agreed that's what it was. 13 Q. (BY MR. NICKENS) Do you see at 14 Table 1 the premium amortization for Account 15 No. 5018? 16 MR. GUIDO: Which page are you on? 17 MR. NICKENS: It's the -- let's see. 18 It's up there in the corner. It's CN3777. And 19 then we probably lose a number but -- 20 THE WITNESS: Are you -- 21 Q. (BY MR. NICKENS) Let's do it this 22 way. It's the fifth page over. That's the 12138 1 consolidated transaction list? 2 A. Yes. 3 Q. And does it show a transaction for an 4 interest rate collar for 5018? 5 A. Yes. 6 Q. And then if we go over to -- 7 8 (Discussion off the record.) 9 10 MR. NICKENS: I apologize, Your Honor. 11 If you give me a moment, I think I can find the 12 reference. 13 Q. (BY MR. NICKENS) At the front page, 14 do you see Account 5018, "interest expense, 15 interest rate collar"? 16 A. Yes. 17 Q. Okay. And what -- is that -- and then 18 below it, it says "GS cap discount, January"? 19 A. Yes. 20 Q. Now, is that related to these interest 21 rate caps? 22 A. Yes. 12139 1 Q. And on whose general ledger are those 2 expenses being reported? 3 A. They were reported under RC No. 7200 4 which was USAT. 5 Q. And that would indicate who owned the 6 caps? 7 A. USAT. 8 Q. And if you turn over to Page 1712, 9 that's a process date of July of '87? 10 A. Yes. 11 Q. And does it have a reference to 12 interest expense for the caps? 13 A. Yes. 14 Q. And this, again, is United Savings' 15 general ledger? 16 A. It's the consolidated general ledger. 17 Q. Now -- 18 A. It gives reference to the -- what I 19 told you, the RC numbers. 20 Q. Right. And so, the RC numbers identify 21 this as a USAT transaction, correct? 22 A. Under 5018, the first three were USAT. 12140 1 And I can't remember the 7412, 15, 17 which -- 2 whether that referred to a separate subsidiary or 3 just a separate section of the portfolio. 4 Q. But the cap amortizations that are 5 indicated there are under the RC number 7200. 6 Right? 7 A. Are United Savings'. 8 Q. And this is in July of '87? 9 A. Yes. 10 Q. Okay. Now, what would that indicate to 11 you as to who owned the caps? What entity? 12 A. United Savings. 13 Q. Now, did United MBS have a separate 14 general ledger? 15 A. It was the same general ledger system, 16 but there was a separate subsidiary GL for the 17 subs. 18 Q. They had the same system, but we should 19 be able to find a general ledger that is specific 20 to United MBS? 21 A. Correct. 22 Q. And if they owned those caps at any 12141 1 point in time, we ought to be able to find them 2 there? 3 A. Correct. 4 Q. Now, if there were a transfer, how 5 would that get recorded on the general ledgers of 6 these two entities? 7 A. If they were physically on the general 8 ledger of one, they would be transferred through 9 an intercompany transaction to the general ledger 10 of the other entity. 11 Q. And so, we should find that under the 12 general ledgers of both -- 13 A. Yes. 14 Q. -- if it occurred? 15 A. Yes. 16 Q. Now, in terms of whether or not there 17 was a transfer of ownership, there couldn't be a 18 transfer of ownership without there being a 19 transfer on these two general ledgers, could 20 there? 21 A. No. 22 Q. Now, let me ask you a few additional 12142 1 questions about some documents Mr. Guido asked you 2 about. 3 You identified for us -- and let's just 4 look at one, T4536. 5 A. Is that in the guarantee? 6 Q. The repo schedule. It is -- I'm the 7 "no transfer, no guarantee person." 8 A. 4536? 9 Q. Yes, ma'am. That's as good as any. 10 A. Okay. 11 Q. Now, you identified for Mr. Guido the 12 persons making the loans. Now, the letters that 13 you were shown were from whom or to whom? 14 A. United Savings. 15 Q. From Morgan Stanley, Salomon, Security 16 Pacific, and PaineWebber? 17 A. Oh, these letters or the cap 18 agreements? 19 Q. The letters -- the so-called commitment 20 letters. 21 A. I believe it was Salomon, PaineWebber, 22 and Merrill-Lynch. 12143 1 Q. Okay. Let's go back. 2 A. Let's go back and look at who they 3 were. Okay. We have Salomon Brothers, Security 4 Pacific, Morgan Stanley, and PaineWebber. 5 Q. Now -- and let's look over -- 6 PaineWebber appears in this first listing, does it 7 not? 8 A. Yes, on the bottom of the third page. 9 Q. And Morgan is just above it? 10 A. Yes. 11 Q. And we don't have anything for Salomon 12 or for Security Pacific? 13 A. No. You'd never have anything on a 14 repo schedule for Security Pacific. 15 Q. So, we have a letter; but we don't -- 16 they never made any repo lendings? 17 A. No. 18 Q. Now, with regard to this document, if 19 we look at it under "Morgan" -- well, for ease, 20 let's go back to the first page so that we can 21 read the columns. 22 A. Okay. 12144 1 Q. Now, you've got something called a net 2 value number. What does that represent? 3 A. Market value, you mean? 4 Q. Yes. That is -- I believe that is 5 correct. 6 A. Is it third column in from the right? 7 Q. Yes. 8 A. Market value? 9 Q. Right. What does that represent? 10 A. That is the market value of the 11 underlying securities. 12 Q. And was it less than or more than the 13 amount of the repo obligation? 14 A. More than. 15 Q. Is that consistently the case in all of 16 these documents? 17 A. It should be. Usually, you have at 18 least a 5 percent haircut; and it can be anywhere 19 from 3 percent to 10 percent given -- if you -- 20 Q. If you go to the "total" page, you'd 21 see, on a weighted average basis, it was 22 1.0274 percent. Were you aware of any time in 12145 1 USAT's existence where the amount of the market 2 value of the securities held was less than the 3 repo amount? 4 A. No. 5 Q. What would happen if that -- if the 6 market value should go down below the repo amount? 7 A. We would get a call to put up more 8 collateral or cash. 9 Q. And what is your understanding if you 10 didn't meet the call? 11 A. That the firm -- the lending entity 12 could then sell the underlying collateral to pay 13 off the debt. 14 Q. Did that ever happen? 15 A. No. 16 Q. Are you aware of USAT ever having 17 received any such call on its mortgage-backed 18 securities? 19 A. No. 20 Q. Now, Ms. Mims, you were asked by 21 Mr. Guido about the thriftness test; and I 22 understand you were not involved in the regulatory 12146 1 process. Is that correct? 2 A. That's correct. 3 Q. And other people had that 4 responsibility for -- at USAT? 5 A. Yes. 6 Q. And you were asked a question about 7 whether USAT management closely monitored the 8 thriftness test requirements. 9 Do you recall that? 10 A. Yes. 11 Q. Now, did USAT management closely 12 monitor all regulatory requirements as far as you 13 knew? 14 A. Yes. 15 Q. They didn't single out the thriftness 16 test for special attention? 17 A. No. 18 Q. You were asked a question about whether 19 you had performed in connection with these dollar 20 rolls, a duration-adjusted analysis. Right? 21 A. Yes. 22 Q. Did you think it was necessary to 12147 1 conduct a duration-adjusted analysis to do what 2 you've been asked to do? 3 A. No. I still don't understand what it 4 would do but -- 5 Q. In connection with the dollar rolls, 6 you were responding to a question from 7 management -- in this case, specifically 8 Mike Crow -- as to whether or not the dollar rolls 9 were beneficial to the institution? 10 A. Correct. 11 Q. He was going below the surface of the 12 fact that you had reported that you were making 13 $3 million in the dollar rolls. Right? 14 A. Yes. 15 Q. Did you regard that as poor or good 16 management? 17 A. Good management. 18 Q. And what was the result of that 19 question in your work to try to answer that 20 question? 21 A. The result was that the dollar rolls 22 were good for the institution and that there were 12148 1 additional controls that could be put in place 2 that would make the -- that would assure us that 3 they would stay good or neutral rather than a bad 4 effect. 5 Q. All right. Was that a result of poor 6 management or good management? 7 A. Good management. 8 Q. Do you know of any instance, Ms. Mims, 9 of the people that you were working with managing 10 the institution for their personal benefit? 11 A. No. 12 Q. Or for the benefit of anyone other than 13 the institution itself? 14 A. No. 15 MR. NICKENS: That's all I have, Your 16 Honor. 17 THE COURT: Are you going to have some 18 recross? 19 MR. GUIDO: Yes, Your Honor. 20 THE COURT: How much? 21 MR. GUIDO: About maybe 10 or 20 22 minutes, Your Honor. 12149 1 THE COURT: Let's take a short recess. 2 3 (A short break was taken.) 4 5 THE COURT: Be seated, please. We'll 6 be back on the record. 7 Mr. Guido, you may redirect. 8 MR. GUIDO: Thank you, Your Honor. 9 10 FURTHER EXAMINATION 11 12 Q. (BY MR. GUIDO) You were asked a 13 number of questions by Mr. Nickens at the outset 14 of his cross-examination about what was done to 15 evaluate the dollar rolls. 16 Do you recall those questions? 17 A. Yes. 18 Q. And you were asked a number of 19 questions about what generally was done within the 20 institution to evaluate the various activities 21 that it was doing. 22 Do you recall those questions? 12150 1 A. Yes. 2 Q. And you testified on direct that you 3 were primarily involved in the -- keeping track of 4 the flow of funds and recording or transferring 5 funds between entities and to third parties and 6 receiving funds from third parties primarily; is 7 that correct? 8 A. That's correct. 9 Q. And you testified on direct that you 10 didn't really know much about the purposes of the 11 transactions, that you were more focused on making 12 sure that the transactions were accurately 13 recorded on the books and records and that funds 14 were accurately transferred back and forth; is 15 that correct? 16 A. That's correct. 17 Q. So, those were your primary 18 responsibilities. Right? 19 A. Yes. 20 Q. You did not serve on the 21 asset/liability committee, did you? 22 A. I don't believe so. 12151 1 Q. Did you attend any of the 2 asset/liability committee meetings? 3 A. From time to time, I would attend; but 4 I don't believe I was ever a member at that point 5 in time. 6 Q. Were you a member of the investment 7 committee? 8 A. No. 9 Q. Were you a member of the strategic 10 planning committee? 11 A. No. 12 Q. Did you sit in on any meetings of the 13 strategic planning committee? 14 A. No. 15 Q. Did you sit in on any meetings of the 16 investment committee? 17 A. Occasionally. 18 Q. Pardon? 19 A. Occasionally. 20 Q. Occasionally. 21 Now, do you know what Joe Phillips did 22 to evaluate the mortgage-backed securities that he 12152 1 purchased for USAT? 2 A. Do I know what steps he took in his 3 evaluation process? 4 Q. Yeah. Do you know what his evaluation 5 process was? 6 A. No. 7 Q. Do you know what he did to evaluate the 8 performance of the portfolio? 9 A. No. 10 Q. Do you know who the outside consultants 11 were that USAT used to evaluate the performance of 12 its mortgage-backed securities portfolios? 13 A. We used Smith Breeden. I believe 14 Peat Marwick were our auditors at the time. And 15 Wall Street firms -- 16 Q. Do you know what they did to evaluate 17 the portfolios? I'm talking in the '86 time 18 period. 19 A. Specifically, no. 20 Q. Do you know what Joe Phillips or Sandy 21 Lorenson did to evaluate the effectiveness of the 22 hedges that they placed on the portfolios? 12153 1 A. No. 2 Q. Mr. Nickens asked you questions about 3 the CMOs, the DARTs, the AMPs, and the cash flow 4 bonds and the mortgage-backed securities 5 underlying those. 6 A. Right. 7 Q. Is it your understanding that those 8 portfolios of mortgage-backed securities were 9 unhedged portfolios? 10 A. Yes. I mean, they were pledged to a 11 specific debt issuance. 12 Q. But do you know whether or not the 13 interest rate risk on those portfolios -- 14 A. Was specifically -- 15 Q. -- was protected by some hedging 16 instrument? 17 A. Not specifically. 18 Q. Do you know whether or not the 19 prepayment risks of those portfolios was protected 20 by the purchase of any hedging instruments? 21 A. Not that I recall. 22 Q. You don't know, or you just -- 12154 1 A. I don't know. I don't recall anything 2 being tied specifically to those. 3 Q. What do you mean, "tied specifically"? 4 A. If it was the DARTs issue in that 5 collateral, that they put a specific hedge on for 6 that issue. You're speaking -- 7 Q. The hedge to qualify for accounting 8 purposes? Is that what you mean? 9 A. Well, you're asking if any of those 10 were hedged for prepayment risk or interest rate 11 risk. 12 Q. Right. 13 A. What I'm saying is if they were, it 14 wasn't done on a specific issue basis, to the best 15 of my recollection. 16 Q. Do you know whether or not it was done 17 on a general pool basis? 18 A. Not that I recall. 19 Q. But you don't know, or you just 20 don't -- 21 A. I don't know. 22 Q. You don't know? 12155 1 A. I don't know. 2 Q. Were there swaps that were purchased at 3 the time that reverse repurchase agreements were 4 entered into that were not specifically assigned 5 as a hedge to those repurchase agreements? 6 A. Yeah. I believe -- I don't recall the 7 swaps being tied specifically to a reverse 8 repurchase agreement. 9 Q. And my question was: Do you recall 10 swaps being purchased at the same time that 11 reverse repurchase agreements were entered into 12 and that the swaps were not specifically assigned 13 to them for accounting purposes? 14 A. Yes. 15 Q. Were there any swaps purchased at any 16 time other than the time that USAT entered into 17 reverse repurchase agreements? 18 A. I'm not really understanding where 19 you -- they are two unrelated -- a reverse 20 repurchase agreement is a borrowing against 21 mortgage collateral already owned, and a swap is a 22 hedging vehicle. 12156 1 Q. Right. They are different 2 transactions. There's no doubt about that. 3 A. So, I don't understand why you're tying 4 reverse repurchase agreements and swaps. It 5 doesn't make sense to me. 6 Q. I'm not tying them together. What I'm 7 asking you is: Were there any swaps that were -- 8 agreements that were entered into by USAT at any 9 time other than at the time that it was placing 10 reverse repurchase agreements on its books? 11 A. I have no idea. 12 Q. Now, I'd like to direct your attention 13 to the documents that Mr. Nickens showed you that 14 were the interest rate protection agreements. And 15 I'd also like to direct your attention to the 16 document that I showed you which was Tab 302, 17 5125. 18 A. I'm sorry. Which book? 19 Q. 5125. It's in this book here. Exhibit 20 5125. That's the document dated June 17th, 1987 21 from Bruce Williams to Jenard Gross and Michael 22 Crow. Do you see that? 12157 1 A. Yes. 2 Q. And that talks about the transaction 3 having occurred. Right? 4 A. Yes. 5 Q. All right. Now, let's take a look at 6 these documents that Mr. Nickens showed you. 7 Starting with the document Tab 303, which I think 8 is the first one in this stack, Tab 303. It's 9 Exhibit T5106. Take a look at the second page of 10 the document. 11 Does that have a signature on that 12 document for United Savings Association of Texas? 13 A. No. It doesn't have any signature 14 except for Merrill-Lynch. 15 Q. I'd like you to go all the way through 16 the packet up to the November 20th document on the 17 Chase Manhattan stationery. 18 A. Okay. 19 Q. Are there any signatures for United on 20 any of those documents? 21 A. No, not on these copies. 22 Q. Now, look at the document that says 12158 1 "Chase." 2 Do you see that? 3 A. The document that says what? 4 Q. The document I asked you stop at that 5 was on the Chase letterhead. 6 A. Yes. 7 Q. What's the date of that document? 8 A. November 20th, 1987. 9 Q. Is that after the date of Exhibit T5125 10 that Bruce Williams wrote regarding the maturity 11 matching credit? 12 A. Yes. 13 Q. Now, I'd like to show you -- have you 14 take a look at Exhibit T5059, Tab 536. 15 Do you see the date on that? 5059. 16 Well, here. Let me show you my copy. It's a 17 letter to you dated February 2nd, 1989. And it 18 talks about United Savings Association of Texas, 19 FSB. 20 Is that the present entity that you 21 work for? 22 A. Yes. 12159 1 Q. Okay. That's not United Savings 2 Association of Texas, is it? 3 A. No. 4 Q. And it says "The successor in interest 5 to United MBS Corporation"; is that right? 6 A. Yes. 7 Q. I'd like to have you take a look at 8 T5086, Tab 307. 9 What's the contract date on that 10 document? 11 A. December 7th, 1987. 12 Q. Okay. That's after the transfer that 13 Bruce Williams is referring to on June 17th, 1987, 14 isn't it? 15 A. Yes. 16 Q. Okay. Let's look at T5087, which is 17 Tab 317-A. 18 What's the contract date on that 19 document? 20 A. Also December 7th, 1987. 21 Q. Look at T5088, Tab 318. What's the 22 contract date on that document? 12160 1 A. December 7th, 1987. 2 Q. Okay. And T5089, Tab 319. 3 What's the contract date on that one? 4 A. December 7th, 1987. 5 Q. And T5084, 314, what's the contract 6 date on that document? 7 A. December 7th, 1987. 8 Q. All of those occurred after the 9 transfer that Bruce Williams is referring to, did 10 they not? 11 A. Yes. 12 Q. Okay. So that these documents don't 13 contradict the Bruce Williams memo, do they? 14 A. Not to my knowledge, no. 15 Q. Okay. Now I'd like for you to take a 16 look at the consolidated transaction list that 17 Mr. Nickens showed you. 18 Is the consolidated transaction list 19 essentially a consolidated general ledger that 20 records all of the transactions for all of the 21 USAT-related entities? 22 A. To the best of my knowledge, yes. 12161 1 Q. Pardon? 2 A. To the best of my knowledge, yes. 3 Q. And that you can ascertain what entity 4 is being affected by a transaction by looking at 5 various coding numbers that are on the document? 6 A. Correct. 7 Q. Now, let's take a look at that document 8 and some of the entries that Mr. Nickens showed 9 you, starting with the one on the first page. 10 See the entry for the interest expense 11 RT collar, the 5018-00, the 1/1/87 to 1/31/87 12 entry? 13 A. Yes. 14 Q. Okay. Can you tell what caps that 15 applies to or what instrument that applies to? 16 A. "GS" is Goldman Sachs, and the other 17 two appear to be PaineWebber. 18 Q. Okay. 19 A. I mean, I would have to tie them back 20 to a schedule. 21 Q. Did USAT, prior to this transaction 22 that's referred to in the June 17th Bruce Williams 12162 1 memo in Exhibit T15 -- T5125, did USAT own such 2 instruments or was it a counter-party to such 3 instruments? 4 A. USAT owned caps. 5 Q. Okay. And USAT owned caps at the same 6 time United MBS owned the $720 million worth of 7 caps that are referred to in the Bruce Williams 8 memorandum? 9 A. I don't see that here. Do I have a 10 June? 11 Q. Do you have a recollection independent 12 of this document? I'll take you through the 13 document. 14 A. Whether they owned caps at the same 15 time? 16 Q. Yeah. 17 A. I don't recall if they owned them at 18 the same time frame or not. 19 Q. Now, do you recall what the RC number 20 was for -- or range of numbers were for United 21 MBS? 22 A. No. We discussed it earlier. It's 12163 1 7412 is United MBS. I did remember 7200 was USAT. 2 Q. So, the 7400s are the United MBS? 3 A. No. 7412 specifically, not the 7400 4 series. 5 Q. Okay. 6 A. Because like a 7415, 7411, those are 7 entities other than United MBS. 8 MR. GUIDO: Your Honor, I'd like the 9 witness to take a look at Tab 304, which is T5047. 10 I thought we could avoid doing this by doing it 11 off the record. 12 13 (Discussion off the record.) 14 15 MR. GUIDO: Your Honor, I think I 16 misspoke. I think it's Tab 304. It's a packet of 17 trade tickets. 18 Q. (BY MR. GUIDO) I'd like you to take a 19 look at Exhibit T57047 and, starting with the 20 first one, you see the -- it says a trade ticket 21 for United MBS sub? 22 A. Yes. 12164 1 Q. And it says RC No. 7412? 2 A. Correct. 3 Q. The second one, it says United MBS sub. 4 Does it have an RC number? 5 A. This one says 7415. Some of them don't 6 have numbers. Some of them have various numbers. 7 Q. There is 7415, 7417. 8 Do you see that one? 9 A. Yes. 10 Q. There's a 7418. Do you see that? 11 A. I have 17, 15, 12, 14. There is an 18 12 at the end, yes. 13 Q. Now, were ranges assigned to different 14 entities at USAT? 15 A. Cost centers were assigned not 16 necessarily in ranges -- or responsibility 17 centers -- not necessarily in ranges but to 18 account for the various portfolios within an 19 entity. So, there could have had -- so, United 20 Savings could have had more than one RC and so 21 could have United MBS. But every 7400 does not 22 have to be United MBS. 12165 1 Q. Oh, it does not? 2 A. No. 3 Q. Okay. So, we would have to find a 4 document that would tie them together? 5 A. Right. 6 Q. But the 7415 and 7412, based on these 7 trade tickets -- 8 A. They were all a part of the same 9 entity. 10 Q. Okay. Now, take a look at Page 777 11 that Mr. Nickens had you take a look at in 12 Exhibit No. 3776. 13 Do you see that entry, that 5018 14 interest expense? What does 5018 refer to? 15 A. That's the general ledger number. 16 Q. For what? For interest? 17 A. For interest expense on interest rate 18 caps and collars. 19 Q. Okay. So, it was a general account? 20 A. Yes. 21 Q. Then it has RC numbers. Do you see 22 those numbers? 12166 1 A. Yes. 2 Q. Okay. And it says 7412. Do you see 3 that one? 4 A. Yes. 5 Q. MBS cap amortization? 6 A. Yes. 7 Q. Okay. And that indicates that it's a 8 cap that was owned by United MBS, does it not? 9 A. It doesn't have any name reference with 10 it; so, it doesn't indicate specifically that a 11 cap was owned but it indicates that a cap or -- 12 was somehow at least assigned to the entity. 13 Q. 7412 was a number for United MBS, 14 wasn't it? 15 A. Right. 16 Q. Okay. 17 A. But it does not say -- it doesn't list 18 any counter-parties here as it does for USAT. 19 Q. Okay. And it has a number 15 20 afterwards. Is that the cap number? Do you see 21 that? 22 A. 7412. Then I have sequence 1872. And 12167 1 the source is 73, and it says 7200 MBS cap 2 amortization. I don't see a 15. 3 Q. Do you see the 7412 account number, RC 4 number? 5 A. Yes. 6 Q. Okay. That's United MBS, isn't? 7 A. Yes. 8 Q. That's its account. 7415 is also 9 United MBS, isn't it? 10 A. Yes. 11 Q. That's the next one. 7418, I think we 12 also saw that in that packet. Right? 13 A. Yes. 14 Q. That's also one. Those transactions 15 pertain to caps that were assigned an RC number to 16 United MBS, were they not? 17 A. They were either assigned to or owned 18 by United MBS. 19 Q. Okay. 20 A. It's not clear which it was. 21 Q. Now, let's go to the next page, which 22 it doesn't -- I can't find the Bates stamp -- oh, 12168 1 here it is. Bates stamp CN873950. It then also 2 has amortizations and caps expenses. Right? It 3 says 7412. 4 Do you see that under the entry that 5 Mr. Nickens showed you? 6 A. Okay. I'm sorry. I was on a different 7 page earlier. You were on the page before I was. 8 Okay. Yeah. It shows the same thing. But, 9 again, it actually identifies them as 7200, which 10 is USAT. 11 Q. Now, they have as the account number 12 the RC number. Right? And then -- okay. 13 A. (Witness nods head affirmatively.) 14 Q. Under the description, it says 7200 MBS 15 cap amortization. 16 Do you see that? 17 A. Correct. 18 Q. Did USAT, for GAAP purposes, 19 generally-accepted accounting principles, account 20 for all of its subs on a consolidated basis? 21 A. I don't know the answer to that. 22 Q. Did it account for United MBS on a 12169 1 consolidated basis? 2 A. To the best of my recollection, yes. 3 Q. Okay. So, could that explain why the 4 RC numbers, account numbers, are here on the left 5 and the interest income or expense is assigned to 6 USAT? 7 A. You'd have to ask one of the 8 accountants that question. 9 Q. Okay. 10 A. I don't know how they did it. 11 Q. But you don't know from looking at this 12 document? 13 A. From looking at this document, no. 14 Q. So, this document wouldn't help you 15 ascertain whether or not these instruments were 16 actually owned by United MBS or USAT? 17 A. No. 18 Q. Now, I'd like to ask you a question 19 about whether or not any of the -- I think 20 Mr. Nickens asked you whether or not any of the 21 investment banking firms had executed on the 22 collateral that was collateralizing any reverse 12170 1 repurchase agreements; and you said, "No." 2 A. "No." 3 Q. All right. Do you know whether or not 4 any additional securities had ever been 5 transferred to any of those entities to support 6 any potential borrowings from reverse repurchase 7 agreements? 8 A. Reverse repurchase agreements were 9 usually extended on a monthly basis. So, they 10 were reevaluated at that time and a new one put 11 on. So, if additional collateral was needed or 12 not needed at that time, it would have been done 13 in the course of the new issue. I don't ever 14 recall it happening as a call. 15 Q. Okay. But it could have happened at 16 the time that the reverse repo was rolled over on 17 the 30- or 60-day basis period of time? 18 A. Yeah. It was totally reaccounted for 19 at that time. 20 Q. Now, Mr. Nickens asked you whether or 21 not you knew of whether or not anybody had stolen 22 from USAT. 12171 1 Do you recall that question? 2 A. Yes. 3 Q. Do you know any -- have you ever heard 4 about bonuses that were paid to Mr. Heubsch, 5 Mr. Crow, Mr. Berner, and Mr. Gross in 1988 after 6 they ascertained that the institution was 7 insolvent? 8 A. I was aware that there were bonus 9 programs. I don't know anything about any of 10 those people and specific bonuses. 11 Q. Do you know that those people were paid 12 bonuses upwards of 65 percent at that time? 13 A. No. I wouldn't have any knowledge of 14 what they got paid in a bonus. 15 MR. GUIDO: No further questions. 16 Thank you, Your Honor. 17 18 FURTHER EXAMINATION 19 20 21 Q. (BY MR. NICKENS) Ms. Mims, let me see 22 if we can straighten this out a little bit. I 12172 1 want to hand you a document that's marked Exhibit 2 B4216. B4217. And I'm going to reference a 3 document that's already in the record at Tab 587 4 that's Exhibit B3713. 5 Now, I'd like for you to look through 6 those documents. Let's start with 37713, if we 7 might. Let me give a chance for the judge to get 8 his copy. 9 MR. GUIDO: What's the tab number? 10 MR. NICKENS: 587. 11 Q. (BY MR. NICKENS) Now, Ms. Mims, 12 Mr. Guido showed you a document that was a trade 13 ticket that had an Account No. 7412 on it and it 14 also had written on it "United MBS," correct? 15 A. Correct. 16 Q. And you inferred from that that the 17 Account No. 7412 related to United MBS, correct? 18 A. Correct. 19 Q. Now, if you look at Exhibit B3713, it 20 has been previously identified as a series of 21 transactions occurring in the first quarter and 22 into the second quarter of 1986 in what we've 12173 1 called Joe's portfolio. 2 A. Uh-huh. (Witness nods head 3 affirmatively.) 4 Q. Now, United MBS was created in the 5 latter part of 1986, correct, after Sandy Lorenson 6 came -- 7 A. Came on board, yes. 8 Q. Which I believe the record will show 9 was October 6th, 1986. 10 Now, do you see the references to 11 Account No. 7412 in regards to transactions that 12 occurred in the first quarter of 1986? 13 A. Yes. 14 Q. And the other account numbers that 15 we've mentioned, as well? 16 A. Yes. 17 Q. And would that indicate to you that 18 7412 was a USAT account number? 19 A. At this point in time, yes. 20 Q. And because you saw it on the same 21 sheet that Mr. Guido gave you -- and it's been 12 22 years ago -- you inferred that it was a United MBS 12174 1 number. Right? 2 A. Yes, but it -- just because it was once 3 a USAT number doesn't mean it always stayed a USAT 4 number. 5 Q. Look at the other documents that I 6 handed you and see whether, similarly there, the 7 7400 series numbers are accounted for as USAT 8 numbers, all in the first quarter of 1986? 9 A. Yes. They are all there. 10 Q. Okay. Now, Mr. Guido asked you about 11 the caps and pointed out that some of the 12 agreements that I showed you were dated in 13 nineteen -- December of 1987. 14 I would like for you to look at T5106, 15 which is at Tab 303 -- 16 MR. GUIDO: 510 -- 17 MR. NICKENS: 5106, Tab 303. It's in 18 the package of documents that I gave you there. 19 Q. (BY MR. NICKENS) Please indicate to 20 the Court what the date of these caps are, the 21 effective date as you go through there. 22 A. Okay. Between Merrill-Lynch and United 12175 1 Savings, March 16th, 1987. 2 Q. That's before this memorandum? 3 A. Correct. 4 Q. And what are the dates of these -- 5 A. They are all March 16th, 1987. 6 Q. Go on through. I think you'll see 7 some -- 8 A. Here's some, March 23rd, 1987. 9 Q. Involving Goldman Sachs? 10 A. Yes. Oh, Goldman Sachs and United 11 Savings. Again March 23rd, 1987, another Goldman 12 Sachs. Merrill-Lynch again as of March 1986, 13 still with United Savings. 14 Q. '86 or '87? 15 A. I'm sorry. '87. And they all continue 16 March 16th, 1987. United Savings and 17 Merrill-Lynch, April 16th, 1987. 18 Q. There's Chase in November of '87? 19 A. There's Chase in November -- 20 November 20th of 1987. 21 Q. Do you have -- so, the caps -- the 22 evidence we have is that the caps are owned by 12176 1 USAT in March of '87, and they are owned by 2 USAT -- 3 MR. GUIDO: Objection, Your Honor. 4 There is no evidence about ownership. There is a 5 document that has no signature by USAT on it that 6 Mr. Nickens has shown this witness. And it's not 7 a contract, Mr. Nickens. 8 MR. NICKENS: Well -- 9 MR. GUIDO: So, you've misstated the 10 testimony. 11 MR. NICKENS: Your Honor, I believe -- 12 may I? 13 MR. GUIDO: Objection. 14 THE COURT: Are you through, Mr. Guido? 15 MR. GUIDO: I am, Your Honor. 16 THE COURT: All right. 17 MR. NICKENS: I believe there will be 18 ample evidence of the purchase of the caps in 19 March of 1987 and where they were on the books of 20 the institution. This is what we have available 21 here. 22 Q. (BY MR. NICKENS) I stand by my 12177 1 question about: Do you have a recollection that 2 the caps were purchased in March of 1987. 3 A. Do I have a recollection that it 4 happened at that time? No. But obviously, we 5 purchased caps at that point in time as evidenced 6 here. 7 Q. And Mr. Guido would point out that 8 there were additional contracts entered in by USAT 9 in December of 1987. Those are the ones he asked 10 you about -- 11 A. Yes. 12 Q. -- that I had given you. 13 A. December 1987. 14 Q. And so, what we have, if that's 15 accurate, is we have USAT owning them in March and 16 owning them in December? 17 A. Owning caps, not the same ones. 18 Q. Owning caps. Now, do you recall that 19 in October of 1987 -- and it's the subject of one 20 of the claims in this case -- that USAT sold the 21 caps and repurchased them in December of '87? 22 A. I recall something like that happening. 12178 1 I don't remember why it happened. 2 Q. But if we take these two dates and for 3 there to have been a transfer to United MBS in the 4 middle, there would have had to have been not only 5 two transfers but three transfers, correct? If 6 these were all the same caps? 7 A. If they were all the same caps, that is 8 correct. 9 Q. Do you recall -- I asked you earlier 10 whether you recalled two transfers. 11 Do you recall three transfers? 12 A. No. 13 Q. Mr. Guido asked you some questions 14 about bonuses. You said you didn't know anything 15 about it. 16 Did I understand that correctly, that 17 there were bonuses but you didn't know specific -- 18 A. There was a bonus program, but as to 19 what anybody else's bonus was or what they 20 received or what percentage it was, I had no 21 knowledge of that. 22 Q. Was there ever any discussion at USAT 12179 1 that you were a party to that there were excessive 2 bonuses or compensation at any point in time? 3 A. No. 4 MR. NICKENS: That's all I have, Your 5 Honor. 6 MR. GUIDO: Your Honor, two questions. 7 MR. NICKENS: Your Honor, I'd like to 8 offer 4216 and 4217 which I referenced. 9 MR. GUIDO: Are those the two documents 10 that -- 11 MR. NICKENS: Yes. 12 MR. GUIDO: No objection, Your Honor. 13 14 FURTHER EXAMINATION 15 16 17 Q. (BY MR. GUIDO) 4216 and 4217 had RC 18 numbers with the 4200 categories on them. 19 Do you recall that? 20 A. Yes. 21 Q. And Mr. Nickens correctly pointed out 22 to you at that point that United MBS didn't exist. 12180 1 Those numbers were -- had to have been a USAT 2 number or United Mortgage Finance number; is that 3 correct? 4 A. Yeah. They had to apply to something 5 else. 6 Q. Okay. And could those numbers have 7 been subsequently transferred to United MBS when 8 United MBS was created? 9 A. Yes, they could have. 10 Q. And, in fact, weren't mortgage-backed 11 securities transferred to United MBS at the time 12 it was created from USAT? 13 A. Yes. 14 Q. Then with regard -- I think I made the 15 point with my objection, but going back to 16 Exhibit 5106, the March so-called contracts that 17 Mr. Nickens showed you -- 18 THE WITNESS: Did you take that back? 19 MR. GUIDO: Mr. Nickens, did you take 20 the packet back from her: 5106? 21 MR. NICKENS: Here. This is my copy, 22 not -- 12181 1 MR. GUIDO: Okay. 2 Q. (BY MR. GUIDO) Mr. Nickens, when he 3 asked you questions about it, made reference to 4 contracts, those being contracts. 5 Are any of those documents, prior to 6 the June 17th -- any of the documents in T5106, 7 were any of those signed by anybody on behalf of 8 USAT or United MBS? 9 A. There is one that's signed by Sandy 10 Lorenson in April of -- 11 Q. What's -- 12 A. April 13th, 1987. 13 Q. So, there is one document that's signed 14 by Sandy Lorenson, and she does sign that on 15 behalf of United Savings Association of Texas. 16 Any others in that packet of documents 17 that he showed you? 18 A. These copies are not executed. 19 Q. Pardon? 20 A. These copies are not executed. 21 Q. Okay. Do you know whether -- is there 22 any way of ascertaining whether the swap that's 12182 1 made reference to in the document that is signed 2 by Sandy Lorenson was a swap that was on the list 3 of Jenny Whyte's caps that I showed you earlier 4 today? 5 MR. NICKENS: Your Honor, I think 6 Mr. Guido misspoke when he referred to "swap." 7 THE WITNESS: It's a cap. 8 Q. (BY MR. GUIDO) Cap. Excuse me. 9 A. I would have -- where was Jenny's list? 10 Do you remember what tab that is? 11 Q. It is -- it's tab -- it's Exhibit 12 B1797, Tab 320. It's, I think, a couple after the 13 Bruce Williams -- here it is -- after the Bruce 14 Williams document. 15 Is there any way of telling whether or 16 not any of the cap agreements that are on the 17 October 19th, '87 list of Jenny Whyte are that 18 transaction? 19 A. (Witness reviews the document.) I have 20 it recorded as April -- 21 Q. Pardon? 22 A. I have it recorded over here on her 12183 1 schedule as April 19th, '87. 2 Q. Okay. So, what is the -- you believe 3 the cap number? 4 A. Cap number is 15 -- the dates don't 5 match up. That's the closest there is to this. 6 There is no date on this reporter either. 7 Q. This report is October 19th, 1987. And 8 it does or doesn't match any of these caps on this 9 report? 10 A. It matches No. 15 except it's off by 11 two days. 12 Q. So, it's off by a time period? 13 A. It's tied to this schedule here which 14 is No. 15. 15 Q. Okay. 16 A. 413 through 415. It's Cap No. 15. 17 Q. So, you believe that it's likely Cap 15 18 on her schedule? 19 A. Yes. 20 Q. Okay. 21 MR. GUIDO: No further questions, Your 22 Honor. 12184 1 MR. NICKENS: Just a couple of 2 questions, Your Honor. I'll put an end to this, I 3 hope. 4 5 EXAMINATION 6 7 8 Q. (BY MR. NICKENS) I want to refer 9 you -- and I don't have copies. I'll provide 10 copies -- to Exhibit B3776. 11 Can you identify that as a compilation 12 of a general ledger from United Savings' 13 consolidated transaction list? 14 A. Yes. 15 Q. And over on the process date 4/25/87 16 are the caps listed under Account 7200 for the 17 transactions from March of '87 to March 31 of '87? 18 MR. GUIDO: Objection, Your Honor. 19 Mr. Nickens just misstated the document. The 20 document under "account number" says 7415 and 21 7416. 22 Q. (BY MR. NICKENS) Here's the RC 12185 1 number, correct? 2 A. The RC number is right here. 3 MR. GUIDO: The RC number is the far 4 left-hand column, Mr. Nickens. 5 A. And what I said before is based on the 6 fact that the reference to this RC number was 7 7200, it appears that they could have been 8 internally assigned. 9 Q. (BY MR. NICKENS) To what account? 10 A. 7415, which I believe we said, as of 11 April 7, I don't know if it was United MBS Corp. 12 or not because -- 13 Q. United MBS Corp. hadn't been created 14 yet? 15 A. Hadn't been created yet. 16 Q. So, it had to be a USAT account? 17 A. It was 1987. It had been created in 18 1987. 19 Q. Okay. This is in -- you point out in 20 April of '87? Okay. 21 A. In April of '87. But he -- he 22 references the RCs not until November of 1987 and 12186 1 the RCs did change between entities. I don't have 2 a -- I would need a schedule point in time as to 3 what they represented, and I don't have that. 4 MR. NICKENS: I'm sure that this issue 5 can be settled, Your Honor, through the 6 documentation. I apologize for not being able to 7 do it today. That's all I have. 8 THE COURT: All right. Thank you, 9 Ms. Mims. You may step down. 10 Is the OTS going to call another 11 witness? 12 MR. GUIDO: Your Honor, I think that at 13 this point in time I would rather break until 14 tomorrow to start tomorrow. 15 THE COURT: All right. We'll adjourn 16 until 9:00 o'clock tomorrow morning. 17 MR. NICKENS: Your Honor, we don't 18 object to that; but we do have an agreement that 19 we will get equal time with Mr. Claiborne tomorrow 20 because he has been here all day today and is very 21 eager to leave and we would not be agreeable to a 22 situation in which Mr. Guido started at 9:00 and 12187 1 went to 3:30 or so. And so, we have a agreement, 2 as I understand, it that we'll both get 3 approximately a half a day if that's -- I believe 4 that's the agreement. 5 MR. GUIDO: We will divide the time, 6 Your Honor. Mr. Claiborne, I think, is the 7 witness who had to leave once before because we 8 weren't able to get to him. And I feel that we 9 have an obligation to get him in and out tomorrow. 10 THE COURT: Very good. We'll adjourn 11 until 9:00 o'clock tomorrow morning. 12 MR. GUIDO: Thank you, Your Honor. 13 14 (Whereupon at 4:52 p.m. 15 the proceedings were recessed.) 16 17 18 19 20 21 22 12188 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 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 17th day of June, 17 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 12189 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 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 17th day of June, 18 1997. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22