14366 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 JULY 14, 1998 22 14367 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 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 14368 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 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 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, CSR 22 . 14369 1 2 INDEX OF PROCEEDINGS 3 Page 4 LOIS SUDER 5 Cross-Examination by Mr. Eisenhart......14370 6 Examination by Mr. Villa................14436 7 Examination by Mr. Keeton...............14444 8 MICHAEL CROW 9 Examination by Mr. Schwartz.............14450 10 . 11 . 12 . 13 . 14 . 15 . 16 . 17 . 18 . 19 . 20 . 21 . 22 . 14370 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. I believe the 5 direct-examination of the witness is complete and 6 we're ready for cross, Mr. Eisenhart. 7 MR. EISENHART: Thank you, Your Honor. 8 9 CROSS-EXAMINATION 10 11 Q. (BY MR. EISENHART) Good morning, 12 Ms. Suder. My name is Frank Eisenhart. 13 We've met before, have we not? 14 A. We have. 15 Q. Actually, I've taken your deposition 16 twice in this case: Once, I believe, in May of 17 '97 on your initial report and again this past 18 June on your supplemental report, correct? 19 A. Yes. 20 Q. I'm going to have a few questions for 21 you here this morning. 22 Mr. Veis yesterday said that you are an 14371 1 expert on this particular database you used; is 2 that correct? 3 A. I know more about it that be anybody 4 else does. 5 Q. Okay. Would you agree with me that you 6 are not an expert on the subject of high-yield 7 bonds? 8 A. I would agree with that. 9 Q. And would you agree with me that you 10 have not made any effort in your report to really 11 analyze the complete experience that USAT had with 12 high-yield bonds? 13 A. Absolutely. 14 Q. Now, the company you work for, you 15 described it as LECG, Inc. 16 LECG is an acronym, is it not? 17 A. It's now the name of the firm. They 18 went public in December, and that is now the 19 actual name of the firm. 20 Q. Used to be Law and Economics Consulting 21 Group? 22 A. Yes, it did. 14372 1 Q. And you said that the company does a 2 lot of expert witness work; is that correct? 3 A. That's correct. 4 Q. And has one of your principal clients 5 or one of LECG's principal clients over the years 6 been the FDIC? 7 A. The FDIC has been a client. I 8 certainly would not say a principal client. 9 Q. Now, in connection with your work on 10 this case, were you originally put in touch with 11 the OTS lawyers by people at the FDIC? 12 A. Yes, I believe I was. 13 Q. And, in fact, you've kept in touch with 14 the FDIC through its lawyers in connection with 15 your work on this case, have you not? 16 A. No. Only -- no. Only -- the only 17 contact I've had was right before this last piece 18 of work when they asked me how much it would cost. 19 Q. Well, in fact, you're sending your 20 bills in this case to the FDIC, aren't you? 21 A. The accounting department does. I have 22 not spoken with them. 14373 1 Q. And the FDIC is actually paying the 2 fees for LECG for the work you've done on this 3 case, aren't they? 4 A. I believe that that's the agreement, 5 yes. 6 Q. Now, you said that in the course of 7 your normal work at LECG working with your 8 database, frequently, you are called upon to 9 support the experts. I think that was the term 10 you used; is that correct? 11 A. Those are two different things. In my 12 job, I support experts. With the database, there 13 is nobody but me who is the expert. 14 Q. Well, when you talk about supporting 15 the experts, you're talking about supporting other 16 people at LECG? 17 A. Yes. In my normal course of work, yes. 18 Q. And there are people at the -- at your 19 firm who are experts in various subjects, correct? 20 A. Correct. Mostly economics, finance. 21 Q. Do you have anybody there who is an 22 expert on high-yield bonds? 14374 1 A. We may very well. I really couldn't 2 tell you. 3 Q. Have you ever testified as an expert 4 witness before? 5 A. No, I have not. 6 Q. Now, in putting together this database, 7 you described the process you went through. As I 8 understand it, there were a number of outside 9 consultants or at least one or more outside 10 consultants that you used in that? 11 A. There was an outside consultant who 12 worked with the Drexel database. 13 Q. If I recall, the process was that 14 the -- these tapes originated at Drexel. These 15 are big old computer real tapes? 16 A. Yes. 17 Q. And they then passed into the hands of 18 an accounting firm? 19 A. Yes. My understanding is the SEC had 20 Peat Marwick go in and take the tapes off the 21 Drexel system. 22 Q. And then Peat Marwick did something 14375 1 with them? 2 A. Yes. And in the course of talking to 3 some of my ex-colleagues after my deposition, I 4 realized I was mistaken when I said that 5 Peat Marwick used the tapes, had all of the tapes. 6 Peat Marwick is who actually took off the junk 7 trades. 8 Q. So, Peat Marwick took the tapes from 9 Drexel and then separated out some of the data? 10 A. Yes. What they did is they queried it 11 presumably and created a subset which was the 12 high-yield bonds and the high-yield equities, nine 13 related high-yield equities. 14 Q. And then as I understand it, those at 15 some point were sent to a consulting firm? 16 A. They were sent to us. And the 17 consulting firm, KMV, that I mentioned in my 18 deposition is who created a front end system so 19 that we could work with it. 20 Q. So, LECG got the portion of the data 21 that Peat Marwick had separated out; is that 22 correct? 14376 1 A. Yes. 2 Q. And then -- 3 A. That's my understanding of it, yes. 4 Q. And then you sent them to a consultant 5 to do what? 6 A. Create a front end system. It's a -- 7 databases in a DBS format are very difficult to 8 work with unless you create a front end system 9 that a person can query it and say -- and write 10 the program, write the front end system of it, and 11 that's somewhat KMV did for us. 12 Q. And then when the data came back from 13 KMV, it got merged into the other databases that 14 you had gotten from Kenneth Leventhal? 15 A. No. That's not correct at all. That 16 has always been a completely separate database. 17 What we did was query it and find out the account 18 numbers through one of the related databases for 19 the various S&Ls. Then we ran the trading for 20 those S&L account numbers and then we compared the 21 trading by S&L with the information that was in 22 the Kenneth Leventhal database and compared those. 14377 1 Q. And in terms of the overall accuracy of 2 the database, I understood from your testimony 3 yesterday that you're satisfied it's accurate 4 because on the occasions when people had generated 5 similar data from other sources, it has generally 6 matched up with the data that you've got from your 7 database? 8 A. Yes. I believe it's as accurate as a 9 large transactional database can be. 10 Q. Have you ever had any outside 11 consultant come in to do any systematic audit of 12 your database simply to check it for accuracy? 13 A. No. I don't know what they would check 14 it against. 15 Q. When you -- when you began to do your 16 work on this particular case, who at OTS were you 17 dealing with? 18 A. Probably Ken Guido, I think. 19 Q. And did you discuss with Mr. Guido what 20 would be the scope and parameters of your work? 21 A. No, not really. He -- no, not really. 22 Q. What did he tell you that he wanted you 14378 1 to do in this case? 2 A. Initially -- this is well over two 3 years ago, I'm thinking. Initially, I think what 4 he said was he wanted to know what the junk bond 5 trading at USAT was. 6 Q. And did he explain to you exactly what 7 he wanted you to do to answer that question? 8 A. He wanted me to use the database that 9 existed, that had been used in the Milken/Drexel 10 settlement. 11 Q. Now, at some point, did your 12 instructions or your mission change? 13 A. Well, I've been asked to do additional 14 work. For instance, like the supplemental one. 15 Is that what you mean? 16 Q. Well, no. Let's just focus for a 17 moment on your first report. That report is the 18 result of certain assumptions or parameters that 19 you were asked to follow? 20 A. I'm sorry. Can you repeat that? 21 Q. Okay. I want to understand how it was 22 that you came to prepare the report you did on 14379 1 high-yield bonds. 2 As you described it yesterday, that 3 report contains certain specific information. It 4 first of all deals exclusively with 5 below-investment grade bond issues, correct? 6 A. Yes. 7 Q. And it deals only with those that are 8 underwritten by Drexel Burnham Lambert? 9 A. Yes. 10 Q. And it deals only with those that 11 produced a so-called trading loss when they were 12 sold? 13 A. A principal loss, yes. 14 Q. And my question to you was: Who was it 15 that gave you those specific parameters? 16 A. I presume it was probably Ken Guido. 17 Q. Now, did he explain to you why he 18 wanted your report limited to -- by those specific 19 parameters? 20 A. No, not specifically. 21 Q. Did you ask him? 22 A. Not specifically. 14380 1 Q. Did you have any concern that a report 2 produced according to those guidelines of 3 Mr. Guido's would reflect the overall 4 experience -- would or would not reflect the 5 overall experience that USAT had with high-yield 6 bonds? 7 A. No. I was only responding to a request 8 for information. 9 Q. So, he told you to put together 10 specific pieces of information according to his 11 guidelines and that's what you did? 12 A. Correct. 13 Q. And that's what came to be reflected in 14 your report? 15 A. That's correct. 16 Q. Now, did you consult any information 17 outside of your database in connection with 18 preparing your first report? 19 A. No. That's a query of an existing 20 database. 21 Q. So, you consulted only your own 22 database? 14381 1 A. Right. 2 Q. And as I recall, you had one of the 3 technicians who works for you do the actual 4 physical querying of the database? 5 A. Yes. 6 Q. And then you took the data that was 7 produced by him, and that's what became your 8 report? 9 A. Yes. 10 Q. Now, of course, in following 11 Mr. Guido's guidelines, you did not take into 12 account interest payments that were received by 13 USAT during the period of time the bonds were 14 owned; is that correct? 15 A. That is correct. 16 Q. Would you agree with me, though, that 17 if you were looking to determine what the total 18 experience of USAT was with high-yield bonds, you 19 would have to consider those interest payments? 20 A. You would need to consider lots of 21 things, that's correct. 22 Q. But certainly the interest payments 14382 1 would be one of them? 2 A. Yes. 3 Q. In fact, when people buy high-yield 4 bonds, one of the reasons they are buying them is 5 for their high-yield, i.e., the interest payments, 6 correct? 7 A. Presumably. 8 Q. Now, you said yesterday that you didn't 9 include the interest payments and that your -- the 10 fact that you didn't include the interest payments 11 was because you considered that to be a legal 12 issue. I think that was your term yesterday? 13 A. Yes. 14 Q. Well, in fact, when Mr. Guido set down 15 his guidelines or parameters with you, you were 16 told not to include interest payments; isn't that 17 correct? 18 A. I was told to provide him with the 19 principal loss on those junk bonds which were 20 underwritten by Drexel which experienced a 21 principal loss. 22 Q. So, it wasn't that you independently 14383 1 concluded this was a legal issue that you were 2 simply following the instructions that had been 3 given to you by Mr. Guido? 4 A. Yes. 5 Q. Did somebody suggest that you say in 6 the courtroom that that was a legal issue? 7 A. I was told by attorneys that it is a 8 legal issue. 9 Q. And these were the OTS attorneys who 10 were preparing you for your testimony here? 11 A. When we were having discussions, yes. 12 Q. Now, you also didn't include any 13 information in your report about things like 14 equity sweeteners or commitment fees or other 15 economic advantages that sometimes flow from the 16 purchases of a high-yield bond, did you? 17 A. That's correct. 18 Q. Are you familiar at all with such 19 things? 20 A. Generally, yes, I am. 21 Q. And would you also agree with me that 22 anybody who's considering the economic 14384 1 consequences of a high-yield bond portfolio would 2 need to consider those? 3 A. Yes. 4 Q. And I gather your -- the fact that you 5 didn't consider those was again because you were 6 following the guidelines given to you by 7 Mr. Guido? 8 A. Well, right. My report is a query of a 9 database for a very specific purpose. 10 Q. And you also, in producing your report, 11 did not include any high-yield bonds that, when 12 sold, produced a gain; is that correct? 13 A. Not in this report. 14 Q. Now, you could easily have done that, 15 could you not? 16 A. Yes. 17 Q. That would have been as easy a query as 18 the one you did? 19 A. Right. It's -- right. 20 Q. And I gather the fact that you didn't 21 pay any attention to the bonds that produced a 22 gain was as a result of your following the Guido 14385 1 guidelines? 2 A. I was responding to the request that 3 was made of me, yes. 4 Q. But you would agree with me that 5 certainly if anybody was evaluating the overall 6 results of a high-yield bond portfolio, you would 7 want to consider the bonds that were sold as a 8 gain as well as those that it were sold at a loss? 9 A. If you were considering the overall 10 results and performance of a portfolio, yes. 11 Q. Now, you said that the OTS lawyers have 12 told you that there's some legal theory that they 13 are pursuing that would mean that a report that 14 considered only this tiny little aspect of the 15 USAT high-yield bond portfolio would somehow be 16 relevant; is that correct? 17 A. Would you say the first part again? 18 I'm sorry. I missed it. 19 Q. Sure. I think it got a little fumbled. 20 The OTS lawyers have told you that they 21 have a specific legal theory in this case, 22 correct? 14386 1 A. There is one. I don't know that they 2 have told me that directly. I mean, clearly, 3 there must be one. We're here. 4 Q. Have they ever tried to explain it to 5 you? 6 A. Not in detail. 7 Q. Do you understand that the theory has 8 something to do with the relationship between 9 Drexel and United Savings Association of Texas? 10 A. Yes, I do. 11 Q. And that somehow, as a result of this 12 relationship, they think that they are going to be 13 able to consider only your report which considers 14 only the losses and not all these other things? 15 A. I think we've now moved outside of what 16 I know to be true. 17 Q. Okay. Your report looks only at Drexel 18 underwritten bonds; is that correct? 19 A. That is correct. 20 Q. Now, as I understand the way the 21 high-yield bond market works, you can buy a Drexel 22 underwritten bond from Drexel or you can buy it 14387 1 from somebody other than Drexel. 2 Is that your understanding? 3 A. In the secondary market, yes, you could 4 have. 5 Q. So that the bonds that you have listed 6 in your report, which are simply Drexel 7 underwritten bonds, may or may not have been 8 purchased from Drexel; is that correct? 9 A. That's entirely possible. 10 Q. And you would have to know whether they 11 were purchased in the primary market, in which 12 case they probably would have been purchased from 13 Drexel, or whether they were purchased in the 14 secondary market, right? 15 A. That's right. 16 Q. If they were purchased in the secondary 17 market, they could have been purchased from 18 anybody? 19 A. Well, yeah. I mean, there was a 20 smaller subset of people dealing with junk bonds; 21 but, yes, they could have been purchased from 22 other than Drexel, that's correct. 14388 1 Q. They could have been from Merrill-Lynch 2 or Bear Sterns or First Boston or Goldman Sachs or 3 any of the companies that dealt in high-yield 4 bonds, correct? 5 A. They could have been. 6 Q. So, if somebody was looking at your 7 report and was looking at this notion that there 8 was some special relationship between USAT and 9 Drexel that somehow made your report relevant, you 10 couldn't really tell whether the bonds in your 11 report were really bought from Drexel, could, 12 A. You could only tell that they were 13 Drexel underwritten bonds. 14 Q. But you can't tell from your report 15 whether they were actually purchased from Drexel 16 or whether they were purchased from someone else; 17 is that correct? 18 A. Not from the report as it stands. 19 There are ways to tell which was Drexel trading. 20 Q. But you weren't asked to do that? 21 A. It's not in that report, no. 22 Q. So, from your report, there's no way to 14389 1 tell whether those bonds were actually bought from 2 Drexel or not? 3 A. No. Just that they are Drexel 4 underwritten, that's right. 5 Q. And if the whole theory behind this is 6 that Drexel somehow got some big advantage because 7 USAT bought a particular bond or particular group 8 of bonds from Drexel, you can't tell whether 9 Drexel ever got any advantage from the bonds 10 purchased in your report, can you? 11 A. You can't tell anything about Drexel 12 from my report. 13 Q. Now, I think you mentioned yesterday 14 that you've got in your report three bonds that 15 were actually purchased after the USAT 16 receivership; is that right? 17 A. That is right. 18 Q. Now, back up for a second. There's 19 been evidence in this case to the effect that 20 United Savings Association of Texas was placed in 21 receivership on December 30, 1988. 22 Are you familiar with that? 14390 1 A. Yes. 2 Q. And once the institution was placed in 3 receivership, the respondents in this case had no 4 further role in the institution. 5 Are you aware of that? 6 A. I'm not. 7 Q. Would you expect that to be the case, 8 that if the respondents or the senior management 9 of the institution, once it's placed in 10 receivership, their role would end? 11 A. I would expect that, yes. 12 Q. Now, can you think of any reason why 13 the respondents in this case ought to be 14 responsible for the results of high-yield bonds 15 that were purchased after the receivership? 16 MR. VEIS: Your Honor, I object. I 17 think that calls for a legal conclusion and she's 18 testified earlier she's not an attorney. 19 THE COURT: Well, I don't think that's 20 a legal conclusion. 21 Can you answer? 22 THE WITNESS: I don't really have any 14391 1 opinion on that. 2 Q. (BY MR. EISENHART) Are you aware of 3 what happened to USAT after it was placed in 4 receivership? 5 A. My understanding was that the new USAT 6 failed, as well. 7 Q. Well, you're aware that there came to 8 be something called a new USAT? 9 A. I am. Yes, I am. 10 Q. And there's been testimony in this case 11 that it was a Mr. Lewis Ranieri and a group of 12 investors that put together essentially a new 13 institution and acquired the assets of the old 14 USAT. 15 Are you aware of that? 16 A. No. I'm aware of it from the point of 17 view of the work I did for the FDIC or, excuse me, 18 for the RTC. 19 Q. But you're aware that there was some 20 successor institution? 21 A. Yes. 22 Q. And that they took over the assets of 14392 1 USAT after receivership? 2 A. I don't know the details. I know that 3 there was an old USAT and a new USAT. 4 Q. Well, if, for example, you had -- which 5 is one of the bonds actually listed in your 6 report -- a purchase of an RJR Holdings bond on 7 May 12th, 1989, which is roughly five months after 8 the receivership, that bond would have been bought 9 by the new owners of USAT, correct? 10 A. Presumably, yes. 11 Q. And not by the respondents in this 12 case? 13 A. Presumably, yes. 14 Q. So that if we were going to -- would 15 you agree with me that if we were going to be 16 looking at your report and deciding what really 17 was the responsibility of the respondents in this 18 case, we should start by taking out these issues 19 that were bought after December 30, 1988? 20 A. You could do that, yes. 21 Q. Have the OTS lawyers ever offered you 22 any rationale for keeping those in? 14393 1 A. We've never discussed it at all. 2 Q. Now, also in your report, I notice that 3 there are quite a large number of bonds that were 4 sold after December 30, 1988; is that correct? 5 A. Yes. 6 Q. And the decision to sell those 7 presumably would have been made by the new owners 8 of United Savings and not by the respondents in 9 this case; is that correct? 10 A. By whomever was in charge of it, yes. 11 Q. And in the course of your work, did you 12 ever try to ascertain the reasons for the sales of 13 these post-receivership sales? 14 A. No. 15 Q. So, you don't know what factors may 16 have been driving the decisions by the new owners 17 of USAT to sell these particular bonds when they 18 did? 19 A. No. I have no idea. We were just 20 tracking the sales -- purchases and sales of 21 bonds. 22 Q. And obviously, you can have a 14394 1 substantial effect in terms of the gain or loss on 2 a bond by when you sell it, correct? 3 A. Sure. 4 Q. The market could be very different on 5 Day 1 than it could be a year from Day 1, correct? 6 A. Sure. 7 Q. And if you have somebody other than the 8 respondent making that decision to sell the bond 9 on Day 1 or Day 1 plus a year, that's not 10 something that should be chargeable to the 11 respondents in this case, is it? 12 A. I don't know the legal theory there at 13 all. I'm sorry. 14 Q. Well, were you ever asked by OTS to 15 determine what the value of this high-yield bond 16 portfolio at USAT was as of the date of 17 receivership? 18 A. No. 19 Q. Could you have done that? 20 A. Oh, it would have been a massive 21 research project. I certainly could not have done 22 it with the database we have. 14395 1 Q. But certainly with the expertise you 2 have at Law and Economics Consulting Group, you 3 could have done that? 4 A. Perhaps. 5 Q. Did you ever have any discussions with 6 the OTS lawyers about doing that? 7 A. No. 8 Q. Did you ever have any discussions with 9 them about why they wanted you to include in your 10 report sales that took place months or sometimes 11 even years after the receivership? 12 A. No. We never discussed timing of any 13 of the transactions at all. 14 Q. So, this was -- again, you just 15 followed the guidelines that were given to you by 16 Mr. Guido? 17 A. We queried the database as it stands 18 and has stood since 1993. 19 Q. Are you familiar with the term "covered 20 assets"? 21 A. No, not really. 22 Q. That's not something that ever came up 14396 1 during the course of your work with the RTC and 2 the FDIC? 3 A. No. 4 Q. I'd like you to assume that the term 5 "covered assets" means that there is an agreement 6 that the government will reimburse the new owner 7 of the asset for any loss incurred on the sale of 8 the asset. Just assume that. 9 A. Okay. 10 Q. Now, if, in fact, after the 11 receivership, these high yield bonds were covered 12 assets -- that is, the government was going to 13 indemnify the new owner for any loss that he 14 suffered on that asset -- would you agree with me 15 that that could severely affect the decision to 16 either hold or sell that asset? 17 A. Well, it certainly would enter into it, 18 yes. 19 Q. I mean, you have no downside risk at 20 that point, do you? 21 A. Uh-huh. (Witness nods head 22 affirmatively.) 14397 1 Q. You could hold on to that thing for as 2 long as you want for as long as it suits your 3 purposes. Right? 4 A. Well, within the rules of FIREA, which 5 said you had to get rid of your junk bonds. 6 Q. But it would certainly affect 7 dramatically the decision to hold or sell that 8 particular asset at any particular time? 9 A. It would have an impact on it. 10 Q. I would like you to take a look, 11 Ms. Suder, at a document which we have marked as 12 Exhibit B4249. I gave a copy of this to the OTS 13 counsel yesterday. Exhibit 4249 is a fax sent by 14 F. Thomas Hecht of the law firm of Hopkins & 15 Sutter who represents the FDIC to my partner 16 Catherine Boticelli, and it was sent in connection 17 with your deposition back in May of 1997. The fax 18 is, I think, actually dated April 28, 1997. 19 Have you ever seen this before? 20 A. No. 21 Q. I wouldn't really expect that you had. 22 I want to direct your attention specifically to 14398 1 Paragraph 6, which is on the second page of 2 Mr. Hecht's letter. That paragraph is headed 3 "Discussions regarding junk bonds as covered 4 assets under the assistance agreement." 5 It says, "The assistance agreement 6 documents have been available for your review and 7 deal with this topic. Now, in addition to 8 document requests, you have asked us to respond to 9 specific substantive questions about the 10 assistance agreement and its application to junk 11 bonds. This goes beyond our obligations under the 12 subpoena. Nonetheless, I will advise you that in 13 a letter dated February 20, 1991, from Gerald 14 Stanton, assistant director of the FDIC, to 15 Jonathan Hefron, general counsel of United Savings 16 Association of Texas, FSB." And that's quoted as 17 Bank United. "FDIC agreed that all of USAT's junk 18 bonds acquired by Bank United in the December 30, 19 1988, transaction constituted covered assets under 20 the assistance agreement because they were not 21 marketable securities as of the date of the 22 agreement. A copy of the February 20, 1991 letter 14399 1 is enclosed." In fact, there is enclosed a letter 2 from Mr. Stanton to the FDIC to Mr. Hefron, 3 general counsel of Bank United. 4 Were you ever made aware during the 5 course of your work that the high-yield bonds 6 after receivership were treated as covered assets? 7 A. No. 8 Q. Would that have made any difference to 9 you in the performance of your work? 10 A. No. I was just querying my database of 11 the purchases and sales of USAT. 12 Q. Okay. So, you were just doing what 13 Mr. Guido told you to do and the fact that the 14 government may have been indemnifying against any 15 loss on these bonds would not have been relevant 16 to your work; is that correct? 17 A. Yes. 18 MR. EISENHART: Your Honor, I would 19 like to move B4249 into evidence. 20 MR. VEIS: Your Honor, Ms. Suder has 21 never seen it before. Mr. Hecht is not in the 22 courtroom. I understand it's authentic; so, I 14400 1 suppose we won't object. But I must say it's 2 somewhat irregular. 3 THE COURT: Received. 4 MR. EISENHART: Thank you, Your Honor. 5 Q. (BY MR. EISENHART) Now, I'd like you to 6 turn for a second to your report which is Exhibit 7 A14001. 8 Do you have it there in front of you? 9 A. Thank you. 10 Q. Now, this is the report you did on 11 high-yield bonds, correct? 12 A. Yes. 13 Q. And the attachment to that report is 14 your list of all the bonds that were sold at a 15 loss, at a principal loss? 16 A. No. It's the confirmed Drexel 17 underwritten bonds that were sold at a loss, a 18 principal loss. 19 Q. This was the list you produced 20 according to Mr. Guido's guidelines? 21 A. Yes. 22 Q. I'd like you to turn to the sixth page 14401 1 of the schedule attached to your report. And I'm 2 going to ask you to look particularly at an issue 3 called Memorex Telex GTB, SB. 4 A. Uh-huh. (Witness nods head 5 affirmatively.) 6 Q. Do you see that? 7 A. I do. 8 Q. Now, this was -- this was one of the 9 bonds -- one of the Drexel underwritten bonds, 10 according to your query, which produced a 11 principal loss, correct? 12 A. Yes. 13 Q. In fact, the principal loss on this 14 particular bond was said to be $10,365,950, 15 correct? 16 A. Yes. 17 Q. That's quite a sizable loss, is it not? 18 A. Yes. 19 Q. That's more than 20 percent of the 20 total loss that you found right there in that one 21 bond? 22 A. Yes. 14402 1 Q. In fact, that's the single biggest loss 2 in the entire group of bonds that you produced, 3 correct? 4 A. I haven't checked. It's a -- it's a 5 question of fact. I can tell you -- 6 Q. Well, I can tell you I have checked and 7 it's by orders of magnitude the single biggest 8 loss in there. 9 A. Okay. 10 Q. That bond was purchased, if I read your 11 report correctly, on January 20th, 1988, correct? 12 A. Uh-huh, yes. 13 Q. And the purchase price for the bond was 14 98.58? 15 A. Yes. 16 Q. So, it was bought at a discount, 17 correct? That is, a discount from par? 18 A. Slightly, yes. 19 Q. Now, when did the first sell of that 20 bond take place? 21 A. It says April 4th, 1989. 22 Q. So, that's about three months after the 14403 1 receivership? 2 A. Yes. 3 Q. And they sold out of the total of 4 $15,250,000 worth of that bond they owned, they 5 sold on that date about 3 million -- well, they 6 sold $3 million, correct? 7 A. 3 million, yes. 8 Q. What price did they get for the bombed 9 in April 1989? 10 A. 102.75. 11 Q. So, in fact, in April '89, the price 12 was considerably higher than the purchase price 13 for the bond, correct? 14 A. It was higher, yes. 15 Q. And on that 3 million-dollar sale, they 16 made a profit, did they not? 17 A. They did. 18 Q. These were the new owners of United 19 selling three months after the receivership at a 20 price that produced a profit, correct? 21 A. Yes. 22 Q. Now, if they had sold the entire issue, 14404 1 if they had sold $15,250,000 worth of that bond on 2 that date, it would have produced an even greater 3 profit, would they not? 4 A. If they could have gotten the same 102 5 for the additional 12 million. 6 Q. So, they might have gotten a slightly 7 lower price? 8 A. Perhaps. 9 Q. Chances are they would have produced a 10 significant profit, would they not? 11 A. Perhaps. 12 Q. But in fact, they sold only a portion 13 of it and they held the rest until -- well, they 14 sold another 3 million on May 21, 1991, and then 15 the rest of it in February of 1992. And by that 16 time, the price had gone way down, hadn't it? 17 A. Yes. 18 Q. And that was what produced the 19 10-million-dollar loss? 20 A. Yes. Those three transactions. 21 Q. So, what we have in this particular 22 case is the new owners of United -- not the 14405 1 respondents in this case -- the new owners of 2 United deciding three months after the 3 receivership that they wouldn't sell this issue at 4 a time when they could have realized a profit on 5 it. Instead, they held it for another two years 6 and realized it for a 2-million-dollar loss. 7 Is that what we see here? 8 A. Well, I certainly am seeing one 9 transaction in 1981, then three transactions after 10 that which produced a loss. 11 Q. But, in fact, if they had sold it all 12 at the time they sold the first $3 million of it, 13 they would have produced a profit, not a loss? 14 A. Presumably. 15 Q. But those were decisions made which the 16 new owners of United who were being indemnified by 17 the government against any loss and it had nothing 18 to do with the respondents in this case, did it? 19 A. I'll take your word for that. I mean, 20 I think that to be true, but I don't know that 21 personally. 22 Q. You don't know if two or three years 14406 1 post-receivership or almost four years 2 post-receivership it could have had anything to do 3 with the respondents in this case? 4 A. I doubt if they were making the 5 decisions on the sale. 6 Q. Those decisions were being made by the 7 new owners? 8 A. By somebody, yes. 9 Q. Now, if you were trying to focus solely 10 on decisions that were decisions made by the 11 respondents in this case and accept for purposes 12 of this my representation that they didn't have 13 anything to do with this institution after 14 receivership. 15 Would you agree that really, you ought 16 to cut all this off as of the date of the 17 receivership? 18 A. Well, that would be a completely 19 different request than I was asked to do. 20 Q. Did you ever raise this issue with 21 Mr. Guido or any of the other OTS lawyers you 22 dealt with? You know, why aren't we cutting this 14407 1 off as of the date of the receivership? 2 A. No. I was only responding to a request 3 from the attorneys. 4 Q. So, you were simply doing what they 5 told you to do and not asking any questions? 6 A. No. I was just responding to a request 7 from the attorneys. 8 Q. Okay. Fair enough. 9 Now, have you ever obtained or been 10 given any information about the profitability or 11 non-profitability of the USAT portfolio? 12 A. No. 13 Q. You said yesterday in your direct 14 testimony that you had read a report by 15 Dr. Lawrence Benveniste, did you not? 16 A. I did read it. 17 Q. And that, in fact, is a report -- it's 18 an expert witness report that's been produced for 19 the respondents in this case, correct? 20 A. I think so, yes. 21 Q. And Dr. Benveniste in that report made 22 several comments on your report? 14408 1 A. He did. 2 Q. Now, you did read his report? 3 A. I did. It's been probably a year since 4 I read it. 5 Q. Ms. Suder, I've just handed you a 6 document which has been marked Exhibit B4251. 7 MR. VEIS: Excuse me, Your Honor. I 8 was not given prior notice that Mr. Eisenhart was 9 going to be using Dr. Benveniste's report. I 10 haven't any objection to doing so, but I don't 11 have a copy of the report. 12 MR. EISENHART: I'm sorry. 13 MR. VEIS: Thank you. 14 MR. EISENHART: Sorry about that. 15 Q. (BY MR. EISENHART) Exhibit B4251 is the 16 expert report of Dr. Lawrence M. Benveniste, First 17 Bank System, professor of finance, Carlson School 18 of Management at the University of Minnesota. 19 Is this the report that you read, 20 Ms. Suder? 21 A. Uh-huh, yes, it is. 22 Q. Now, I want you to turn to Page 3 of 14409 1 Dr. Benveniste's report and, particularly to Part 2 B which is headed "profitability analysis." 3 Do you see that? 4 A. Yes. 5 Q. Now, his first point under this talks 6 about Suder's Drexel underwritten principal 7 losses. And this is referring to your report, 8 correct? 9 A. Yes. 10 Q. It says, "If Suder's purpose was to 11 list only certain principal losing 12 below-investment grade bond issues purchased by 13 USAT, she should not have included bonds purchased 14 after the receivership. Removing these bonds 15 reduces her total of Drexel-underwritten principal 16 losses from $47,096,688 to $45,918,938." 17 Do you see that? 18 A. Yes. 19 Q. Now, that's a point that you made in 20 your direct testimony, that if you eliminate those 21 three bonds that were purchased after the 22 receivership, it affects your number by that 14410 1 degree. Right? 2 A. Yes. 3 Q. So, I gather you would not disagree 4 with that observation? 5 A. I would not. 6 Q. Then he says, "In addition, since USAT 7 was not in charge of the portfolio after 8 receivership, I analyzed the Drexel principal 9 losses as of December 30, 1988. Using internal 10 USAT mark-to-market reports for December 1988, I 11 have calculated that for these select bonds" -- 12 that is, for the ones in your report -- "principal 13 losses were only $24,718,862 to this date." 14 Do you see that? 15 A. I see that. 16 Q. Now, apparently, he went back and 17 looked at where those bonds stood on December 30, 18 1988. 19 Is that how you would read that? 20 A. He had apparently an internal USAT 21 mark-to-market report for December 1988, he says. 22 Q. And these were just the bonds listed in 14411 1 your report. And he's saying that if you look at 2 them as of December 30, 1988, the loss is 3 $24.7 million, not $45.9 million. 4 Would you have any reason to disagree 5 with that conclusion? 6 A. I have no information; so, I can 7 neither agree or disagree. 8 Q. But you don't know -- if you had gone 9 back and looked at these as of December 30, 1988, 10 you might well have reached that same conclusion, 11 correct? 12 A. I might have. 13 Q. Now, I'd like to take you to the second 14 point in Dr. Benveniste's report. This is called 15 "net gains on the sale of all Drexel underwritten 16 bonds identified by Suder." 17 He says, "Based on Suder's research 18 data provided by Hopkins & Sutter on April 4th, 19 1997, I have calculated the net gains on sale for 20 all Drexel underwritten bonds in USAT high-yield 21 bond portfolio. As of December 30, 1988, the net 22 gains on sale of these were $15,156,822." 14412 1 Do you see that? 2 A. I see that. 3 Q. What he has done here is calculate the 4 net gains on the sales of all Drexel underwritten 5 bonds in the USAT portfolio priced either as of 6 the date of the sale or as of December 30, 1988, 7 if they weren't sold at the time of the 8 receivership. 9 Is that the way you would read that? 10 A. I suppose so. I don't really know. I 11 haven't -- I haven't seen what he was doing. I 12 can look at it. 13 Q. And he's concluded that looking at all 14 of these Drexel underwritten bonds, taking the 15 sales, cutting them off at December 30, 1988, if 16 they weren't sold, in fact, produces a gain of 17 $15 million, correct? 18 A. That's what his report says, yes. 19 Q. And you have no information that's 20 inconsistent with that? 21 A. I have no information on it at all. 22 Q. And you never tried to do that 14413 1 analysis? 2 A. No. 3 Q. Again, because you were told not to? 4 A. I wasn't told not to. I was asked to 5 do a specific task and did it. 6 Q. Now, his next point is headed 7 "Profitability of all Drexel underwritten bonds." 8 He says, "For all Drexel underwritten bonds 9 identified in the Suder research data, I conclude 10 that taking into account interest earned, 11 principal gains and losses, and USAT's cost of 12 funds, these bonds were profitable to USAT." He's 13 referring here to specifically the bonds in your 14 report. 15 Now, we talked earlier about taking 16 into account interest earned, correct? 17 A. We talked about it? I said I did not. 18 Q. We talked about it this morning. 19 A. I said my report does not take that 20 into account. 21 Q. But we agreed, I think, that if you 22 were going to look at the overall economic result 14414 1 of USAT owning these bonds, you ought to take into 2 account interest earned, correct? 3 A. You would need to look at lots of 4 things, including interest earned. 5 Q. You would look at principal gains and 6 losses. That is, you would look at the gains as 7 well as the losses? 8 A. Sure. 9 Q. And you would look -- you would have to 10 look at cost of funds, would you not? 11 A. You would need to look at a lot of 12 things, not only cost of funds, if what you're 13 trying to do is trying to get an overall return on 14 your portfolio, yes. 15 Q. But certainly you would want to take 16 into account what it cost the institution to 17 generate the funds that it used to buy the bond? 18 A. Yes. 19 Q. And he's looked at all of these things, 20 and he's concluded that the bonds on your list, if 21 you take into account all of those other things, 22 are profitable? 14415 1 A. That's what his report says, yes. 2 Q. And you have no data to disagree with 3 that? 4 A. I have not studied it at all. 5 Q. Finally, he talks about profitability 6 of the USAT high-yield bond portfolio. And he 7 says, "I conclude that taking into account 8 interest earned, principal gains and losses, and 9 USAT's cost of funds, the USAT high-yield bond 10 portfolio was profitable." 11 Do you see that? 12 A. That's what it says, yes. 13 Q. And here, he's expanded his view beyond 14 simply the bonds listed in your report. He's now 15 looking at the entire portfolio doing the same 16 complete analysis and concluding that it was 17 profitable. 18 Is that how you would read that? 19 A. I would presume that to be the case. 20 Q. And I gather you have no information 21 that would be inconsistent with that? 22 A. I have no information at all on it. 14416 1 MR. EISENHART: Your Honor, I'd like to 2 move the admission of Exhibit B1451. 3 MR. VEIS: Your Honor, Ms. Suder is not 4 a proper sponsoring witness for Dr. Benveniste's 5 report. We object. 6 MR. EISENHART: Well, she's testified 7 that she read it and considered it. 8 MR. VEIS: But she can't vouch for any 9 of Dr. Benveniste's conclusions. I think that 10 this document should be put in with Dr. Benveniste 11 when he's called. 12 THE COURT: Is he going to be called? 13 MR. EISENHART: We plan to call him, 14 Your Honor. I'm not sure -- when I try to project 15 into the future when that will be, I start to 16 think of lots of events that could happen between 17 now and then. But at this point, I plan to call 18 him. 19 THE COURT: Well, I think I'm going to 20 reserve receipt of this. I think for this to be 21 in the record, we should have the sponsoring 22 witness to testify. And I'm a little hesitant to 14417 1 put it into the record and then leave it uncertain 2 as to whether the writer will be called or not. 3 So, I'm going to reserve. 4 MR. EISENHART: Thank you, Your Honor. 5 MR. VEIS: Thank you, Your Honor. 6 Q. (BY MR. EISENHART) Ms. Suder, I want to 7 have you take a look at another document. This 8 was put into evidence yesterday. It's Exhibit 9 A11052, and it's at Tab 1349. And there would 10 appear to have been a mix-up in the placement of 11 this document in the files that were here. So, 12 I'm going to give you my copy of it. 13 MR. VEIS: What document is that? 14 MR. EISENHART: It was put in yesterday 15 by Mr. Villa, and it's Document A11052, Tab 1349. 16 MR. VEIS: Do you have an extra copy, 17 Mr. Eisenhart? 18 MR. EISENHART: Yes. 19 Q. (BY MR. EISENHART) I'll represent to 20 you, Ms. Suder, that this is a document that came 21 from the work papers of the Federal Home Loan Bank 22 of Dallas in connection with their 1988 14418 1 examination of USAT. You wouldn't know that, but 2 I will represent that to you. 3 A. Okay. 4 MR. VILLA: Your Honor, in keeping with 5 my coverage of the questions, I believe this is 6 A11152, not 110. 7 MR. EISENHART: Oh, thank you. I stand 8 corrected. 9 Q. (BY MR. EISENHART) Now, I'd like you to 10 take a look at Page 9 of that document. I think 11 your copy is already opened to Page 9. 12 First of all, have you ever seen this 13 document before? 14 A. No, I have not. 15 Q. I would have been surprised if you had. 16 These are Federal Home Loan Bank 17 examiners from the Federal Home Loan Bank of 18 Dallas who are looking at USAT and specifically 19 looking at its high-yield bond program. And you 20 will see on Page 9, they say that the high-yield 21 bond program has been successful so far. 22 Do you see that? 14419 1 A. I see they say the program has been 2 financially successful thus far. I'm not quite 3 clear what they are referring to as the program. 4 Q. They say "In 45 months, it has 5 generated spread income of $36,000,607." 6 Do you see that? 7 A. I see -- yes, I see that. 8 Q. Now, do you understand what "spread 9 income" means? 10 A. I have no idea how they are using it 11 here, no. 12 Q. When you have a bond portfolio of this 13 sort, you have a cost of funds that generates the 14 portfolio. 15 Is that a concept you're familiar with? 16 A. Yes, it is. 17 Q. Then you have a return on the 18 portfolio. 19 You're familiar with that? 20 A. Yes. 21 Q. And the difference between the two is 22 sometimes referred to as the spread? 14420 1 A. Okay. 2 Q. Really, what you're earning on your 3 money? 4 A. If that's how the bank is using it 5 here, yes. 6 Q. If that's how they are using it, they 7 are talking about spread income of $36,607,000. 8 Were you ever asked in the course of 9 your work to look at spread income? 10 A. No. 11 Q. They go on to say that "USAT has 12 achieved $38,172,000 of net profits on sales or 13 redemptions of securities." 14 Do you see that? 15 A. Okay. 16 Q. You were not asked to look at profits 17 on the sales or redemptions of securities, were 18 you? 19 A. No. I was asked to query the database 20 and make a report of the query. 21 Q. They go on to say that "Deducting 22 mark-to-market losses as of September 30, 1988" -- 14421 1 that's when they are looking at this -- "and the 2 operating expenses of $600,000 a year, USAT has 3 made $61,367,000 on its high-yield bond portfolio 4 over this 45-month period." 5 Too you see that? 6 A. I see it says "Realized net cash income 7 of 61 million." 8 Q. Now, is your report inconsistent with 9 any of that? 10 A. I don't believe my report is 11 inconsistent or consistent. My report is a report 12 of the principal losses experienced on Drexel 13 underwritten below-investment grade bonds. 14 Q. That's because you were never asked to 15 look at the profitability of the portfolio, were 16 you? 17 A. I was not asked to look at anything 18 other than the principal losses on Drexel 19 underwritten bonds. 20 Q. And the losses in your report were 21 really a direct function of the guidelines you 22 were given by Mr. Guido and the focus you were 14422 1 told by him to take, correct? 2 A. The losses are a direct result of the 3 purchases and sales of the bonds. 4 Q. Of a very, very, very limited subset of 5 those bonds? 6 A. No. It's on the Drexel underwritten 7 bonds that produced a principal loss. 8 Q. Right. Not the ones that produced a 9 gain. Not the entire portfolio. Only the ones 10 that produced a loss? 11 A. Yes. That's exactly what it is. 12 Q. And if you only look at the ones that 13 produced a loss, it's not surprising you'll come 14 up with a loss, is it? 15 A. Well, no. That's -- that's by 16 definition. 17 Q. In fact, it was predestined that your 18 report would come up with a loss, wasn't it? 19 A. If you're asked to find out what the 20 losses were, yes, your answer is going to be a 21 loss. 22 Q. Okay. Did you in the course of doing 14423 1 your work ever try to take into account or 2 determine what the intent of management was with 3 respect to these bonds at the time it acquired 4 them? 5 A. No. I have no information about the 6 intent of anyone. 7 Q. So, you weren't asked to look in any 8 way at the accounting for these bonds as to 9 whether they were -- this was a trading port foam 10 or an investment portfolio? 11 A. I was asked to query the existing 12 database of purchases and sales of 13 below-investment grade bonds. 14 Q. Did you do any analysis of the length 15 of time for which these bonds were held? 16 A. No. 17 Q. Now, that would have been possible to 18 do from your database, would it not? 19 A. Yes. You could do that -- 20 Q. In fact -- 21 A. -- with some programming, yes. 22 Q. In your report, you list the dates of 14424 1 purchase and the dates of sell. So, it would have 2 been relatively easy for you to produce a column 3 that simply talked about the length of time a 4 particular bond was held before sell? 5 A. You would need to match which sell went 6 with which purchase. You would need to make 7 assumptions there, but you certainly could make 8 assumption and then do the programming. 9 Q. This would have been the LIFO/FIFO 10 assumption that you talked about yesterday? 11 A. Yes, or whatever convention you wanted 12 to use, yes. 13 Q. But once you picked one of those, it 14 would have been relatively easy for you to 15 determine how long these bonds were sold or held 16 before sell? 17 A. You can make any assumption you want 18 and then program it that way, yes. 19 Q. Now, you said that the database that 20 you're in charge of was originally created in 21 connection with the lawsuit by the RTC and the 22 FDIC against Michael Milken; is that correct? 14425 1 A. I believe it was against Milken and 2 Drexel, yes, and it was the plaintiff S&Ls. It 3 may very well have been the RTC. I don't know. 4 Q. And USAT, or at least the receivership 5 of USAT, was one of the plaintiff S&Ls in that 6 case, was it not? 7 A. Yes. 8 Q. And the purpose of your -- creating 9 your database, as I understood your testimony 10 yesterday, was to determine how the 11 900-million-dollar settlement in that case would 12 be allocated among the 53 plaintiff S&Ls, correct? 13 A. Yes. 14 Q. And I gather that as a result of your 15 work, there was some allocation made of that 16 900-million-dollar settlement? 17 A. Yes, there was. 18 Q. How much of that was allocated to USAT? 19 A. I don't know. 20 Q. Do you know the basis on which the 21 allocation was done? 22 A. Yes. The -- my understanding of -- I 14426 1 mean, I did not actually get the money in my hands 2 and allocate it. But my understanding of the way 3 the allocation was done was based on the principal 4 losses experienced on Drexel underwritten junk 5 bonds. 6 Q. So, at the -- one of the agencies, 7 whether it was the FDIC or the RTC, made an 8 analysis of the losses USAT suffered on bonds and 9 made an allocation of this 900-million-dollar 10 settlement as a result of that, correct? 11 A. We provided the agencies with the 12 listing of all 53 plaintiff savings and loans, the 13 Drexel underwritten losses on junk bonds with all 14 of them. 15 Q. And do you have any recollection as you 16 sit here today of what kinds of losses or what 17 kinds of loss figures you arrived at for USAT? 18 A. It would have been this 47 million. 19 It's the same database. It's the same query. 20 Q. Well, let me ask you: In the course of 21 arriving at the figure you used for purposes of 22 allocating this settlement, did you look only at 14427 1 losses or did you net out gains? 2 A. No. It was losses. 3 Q. So, you looked only at losses and 4 didn't take gains into account? 5 A. That's what we were asked to do for all 6 53 of those associations, yes. 7 Q. So, you submitted the -- in terms of 8 the settlement allocation, the same list that you 9 submitted in this case showing $47 million in 10 losses? 11 A. I believe so, yes. 12 Q. And that's what the settlement was 13 based on? 14 A. My understanding is that that is the 15 information that the FDIC or whomever it was was 16 using with the S&Ls. There were some other 17 relatively -- other things that were taken into 18 account, non-junk bond claims and other things, 19 but I don't know much about them. 20 Q. So, based on your conclusion that there 21 were $47 million in losses, USAT was then 22 allocated a portion of this 900-million-dollar 14428 1 settlement. 2 Is that what you're telling us? 3 A. It would have been a pro rata share. 4 So, in other words, if -- let's -- like, Centrust 5 had $500 million worth of losses and the total 6 losses were 5 billion. Then their portion of that 7 5 approximately, their pro rata share, let's say, 8 3 percent, 5 percent of the 900 would have been 9 allocated. 10 Q. Do you remember what the principal 11 losses were for all of the 53 S&Ls? 12 A. No, I really don't. It was billions, 13 but I don't -- but I wouldn't know what it was. 14 Q. I want to turn to your supplemental 15 report for a moment. This is the one that you 16 produced this past spring that dealt with Drexel's 17 ownership of MCO and Federated. 18 When were you asked to begin looking at 19 this issue of Drexel's ownership of MCO and 20 Federated? 21 A. I believe it was in November of 1997. 22 Q. And you said at the time you started to 14429 1 look at it, you were provided with some 2 information from OTS? 3 A. No. The first -- the first that I was 4 asked to do was to query the Drexel database. 5 Q. To find out what? 6 A. First of all, to find out the trading 7 and MCO -- well, first off, to find out what the 8 relevant CUSIPs were and then, once finding the 9 relevant CUSIPs, going into the Drexel database 10 and pulling the trading of those CUSIPs which 11 would be MCO Holdings and Federated Development. 12 Q. And a CUSIP, just so the record is 13 clear, is a relative number that's assigned to 14 each publicly traded security? 15 A. Yes, it is. 16 Q. And it's unique to that security? 17 A. Yes, it is. 18 Q. All right. So, you were asked 19 originally to go back to your own database and 20 reconstruct all the trading in both of these 21 stocks by Drexel; is that right? 22 A. Well, reconstruct, I wouldn't use that 14430 1 word. I would just say run -- query the database 2 and look at the trading in those CUSIPs, yes. 3 Q. See how much information you can find 4 in the trading of this those two stocks? 5 A. That would have shown the buys and 6 sells in those two companies. 7 Q. And you said at some point, at least 8 with respect to MCO, you were also given the SEC 9 Forms 13F filed by Drexel? 10 A. Yes. 11 Q. Now, focusing for the moment on MCO for 12 your report in this case, I gather you eventually 13 used only the 13Fs; is that correct? 14 A. Yes. That's what's presented with the 15 report. 16 Q. Now, when you compared the information 17 that you had gotten from your database about 18 trading in MCO stock with the information on the 19 13Fs about how much MCO stock Drexel owned each 20 quarter, were you able to reconcile that data? 21 A. I can't reconcile it because what I 22 have is transactional information as opposed to 14431 1 balances. 2 Q. So, you really couldn't reconcile the 3 material from your database with what you saw on 4 the 13Fs? 5 A. The 13Fs are balances, and the database 6 are transactions. 7 Q. And when you tried to put the two 8 together, you really couldn't get them to match? 9 A. You would need to make any number of 10 assumptions to get a balance. 11 Q. So, in the end, you went simply the 12 information from the 13Fs, correct? 13 A. Yes. 14 Q. Now, you were also provided some MCO 15 shareholder lists by OTS, were you not? 16 A. No, I wasn't. 17 Q. So, they never have given you the MCO 18 shareholder list? 19 A. No. I had Federated Development 20 shareholder lists. 21 Q. So, for MCO, your two sources of 22 information were the 13Fs, which are public 14432 1 filings, and the information you got from your 2 database, correct? 3 A. Right. 4 Q. And you weren't even given the 5 shareholder lists? 6 A. I have not seen MCO shareholder lists. 7 Q. And the public data you used for your 8 report, you could have gotten that at any time. 9 Right? You could have got even that years ago? 10 A. Had I -- I suppose. It's publicly 11 available. 12 Q. Now, for the Federated shareholders, 13 the list that's attached to your report is the 14 information is that you got out of your data base, 15 correct? 16 A. Yes. 17 Q. So, in the case of Federated, there was 18 no 13F information available to you that you could 19 produce in your own database. Right? 20 A. Yes. 21 Q. Now, for Federated, you were given 22 shareholders lists, correct? 14433 1 A. Yes. 2 Q. These were lists provided to you by 3 OTS? 4 A. Yes. 5 Q. And as I understand it, you made 6 attempts to compare the information you got from 7 your database with the information that was on the 8 shareholder list? 9 A. Yes, but you need to back up one step. 10 To even be in a position to do that, I had to make 11 a certain assumption as to the stream of 12 transactions. I had to assume that the last 13 transaction zeroed out the Drexel and the -- which 14 was buying and selling these shares. And, 15 therefore, if you make that assumption, then you 16 can work backwards and create a balancing account. 17 But without that assumption you can't because it's 18 transactions only. 19 Q. And that initial assumption was one 20 that you were told to make by the OTS lawyers? 21 A. Yes. 22 Q. Now, making that initial assumption, 14434 1 you worked back and produced a theoretical holding 2 by Drexel of Federated Development shares on 3 specific dates, correct? 4 A. Yes. 5 Q. And if I remember your testimony 6 yesterday, I think you said at some point in time 7 you compared those to the corresponding dates on 8 the shareholder lists? 9 A. Yes, I did. 10 Q. And they never quite matched up? 11 A. No. The Drexel account showed a lower 12 balance than the shareholder list up until 13 November of '86, at which point then the 14 shareholder accounts showed a lower balance than 15 the Drexel assumed balance or theoretical balance. 16 Q. So, there was never any point in time 17 at which you could get the two to match up? 18 A. They were within a few hundred shares 19 at certain points, but they were not exactly the 20 same amount. 21 Q. And you were never really able to 22 account for any of the differences and figure out 14435 1 why they were? 2 A. No. 3 Q. So, you decided in the end that you 4 would go with your -- with the term you were 5 generated from your database? 6 A. I presented the material from the 7 database, yeah. 8 Q. Okay. So, what's in your report then 9 with respect to the shareholdings of Federated 10 Development Company does not use in any way the 11 shareholder lists? 12 A. Only as a reality check that they 13 clearly held shares and that they were similar 14 amounts. 15 MR. EISENHART: Thank you, Ms. Suder. 16 I don't have any further questions. 17 THE COURT: Mr. Veis, how much redirect 18 do you have? 19 MR. VEIS: May I consult with my 20 colleagues for a moment? 21 THE COURT: Do any of the respondents 22 have any -- 14436 1 MR. VILLA: Yes, Your Honor. I just 2 have a couple of questions. 3 4 EXAMINATION 5 6 Q. (BY MR. VILLA) Good morning, Ms. Suder. 7 I'm John Villa, and I represent several of the 8 other thrift officers. 9 You were the chief financial officer of 10 a thrift, weren't you, ma'am? 11 A. Yes, I was. 12 Q. What were the names of those thrifts? 13 A. The one that I was the CFO was for 14 Security Savings. 15 Q. And when were you the chief financial 16 officer of First Security? 17 A. I was at First Security from '87 18 through '89. 19 Q. So, you were there when it merged into 20 San Rafael; is that right? 21 A. Not exactly. I was certainly there 22 when it was taken over, and I stayed until the 14437 1 merger. And it was with Home Savings of 2 San Diego, which is no longer around. 3 Q. And -- 4 A. There were actually three associations: 5 San Rafael, CalAmerica, and First Security were 6 merged into one and sold as a package or sold as a 7 package to Home Savings of San Diego. 8 Q. And you had worked for both First 9 Security and CalAmerica; is that right? 10 A. That's right. 11 Q. At the time of the merger, both of them 12 had negative net worth; is that right? 13 A. Yes. I'm sure they did. 14 Q. Did you, in the course of your work 15 there, work on any junk bond matters? 16 A. No. Neither one of them had junk 17 bonds. 18 Q. Now, as I said, I represent former 19 thrift officers and I'm going to ask you, ma'am: 20 When you made a decision with respect to a 21 particular investment as a thrift officer, did you 22 use the kind of analysis that you have provided in 14438 1 the Court today? That is to say, disregarding all 2 gains on associated transactions and disregarding 3 the net interest spread? Is that the kind of 4 analysis that you would use as a thrift officer? 5 MR. VEIS: Your Honor, we would object. 6 This is well outside the scope of direct 7 examination. It also is outside the scope of the 8 expertise for which she has been so called to 9 testify. I don't see that Mr. Villa has any basis 10 to be asking these questions. 11 THE COURT: I'll deny the objection. 12 You may answer. 13 Q. (BY MR. VILLA) Would you use this kind 14 of analysis that Mr. Guido has asked you to give 15 to this Court in analyzing whether or not to make 16 an investment decision? 17 A. This is not an analysis. This is a 18 query of a database. 19 Q. Can you answer my question? 20 A. That is my answer to your question. 21 This is not an analysis. It's a query of a 22 database. 14439 1 Q. Would you use the type of analysis -- 2 whether we call it a database or an analysis, 3 would you use this framework in assessing whether 4 or not to make an investment decisions when you 5 were a thrift officer, regardless of whether you 6 call it a query or an analysis? 7 A. I can't answer your question, 8 Mr. Villa. This is not an analysis. So, how 9 could I possibly use it to make an investment 10 decision? This is going to an existing set of 11 transactions and pulling the information off a 12 database. That's completely different than making 13 an investment decision going forward. 14 Q. It is completely different, isn't it, 15 ma'am? 16 A. It's completely different. 17 Q. And you have never used anything like 18 this in making analysis as a thrift officer, did 19 you, ma'am? 20 A. Anything like what? 21 Q. The query of a database in which you 22 look at transactions and disregard all associated 14440 1 gains and disregarded the net interest income. 2 You never used that kind of logical framework in 3 deciding whether or not to make an investment 4 decision as a thrift officer, did you, ma'am? 5 A. I see no relationship between this and 6 an investment decision. 7 Q. Well, we're on the same wavelength 8 there, ma'am. 9 You would have looked at the net 10 interest income in making a decision as a thrift 11 officer, wouldn't you? 12 A. I would look at a number of different 13 parameters in making decisions on investments. 14 Q. Net interest income is one of the most 15 important. Wouldn't you agree? 16 A. Risk somebody a very important one. 17 Net interest income is important. How it fits 18 with the overall asset and liability management of 19 the entire institution is important. There are a 20 lot of different things you would need to look at. 21 Q. And in looking at the value of an 22 investment to an association, would you dispute 14441 1 that the most important thing would be the net 2 cash return to the association, the same words 3 that the examiners used in assessing the USAT junk 4 bond portfolio: Realized cash net income. 5 Isn't that what you would look at? 6 A. It is one of the factors I would look 7 at. 8 Q. Would you ever look at a query? 9 MR. RINALDI: Excuse me. I don't mean 10 to interrupt. I think there's a witness in the 11 courtroom that may be listening to the examination 12 testimony. 13 MR. VILLA: He's a respondent. 14 MR. RINALDI: I'm sorry. I apologize. 15 Q. (BY MR. VILLA) Did you ever use a query 16 of the sort that Mr. Guido has asked you to use 17 and has given you in this courtroom to analyze any 18 investment that any thrift that you worked for 19 engaged in? 20 A. That question to me doesn't make sense 21 because querying a database of purchases and sales 22 of a debt institution versus making an investment 14442 1 decision, they are not related. 2 Q. Now, you told us that the decision to 3 have the junk bonds as a covered asset would 4 affect the subsequent owners' decision on resell. 5 Right? 6 A. I would assume so. 7 Q. And do you know -- 8 A. It could affect it. 9 Q. Could affect it? 10 A. Uh-huh. (Witness nods head 11 affirmatively.) 12 Q. Well, if the subsequent owners could 13 reap the net interest income from the transactions 14 and get any gain on any sale but could put the 15 loss on any sale back to the federal government 16 who would then stick it on our respondents, don't 17 you think that the new owners would have the 18 incentive to simply flip a coin. It's heads, I 19 win. Tails, the respondents lose? 20 A. I don't know how to answer that. 21 Certainly, if you're assuming that they are 22 actually getting interest income, then yes. 14443 1 Q. Do you know why the Federal Home Loan 2 Bank of Dallas decided to cover the junk bond 3 assets in this case as covered assets under the 4 contract? 5 A. No. I have no information regarding 6 that. 7 Q. So, if I were to show you an exhibit 8 from the executive vice president of the Federal 9 Home Loan Bank of Dallas saying that the reason 10 that they want to cover these assets is to avoid a 11 public relations catastrophe for the Federal Home 12 Loan Bank of Dallas, you couldn't dispute that. 13 Right? 14 A. I could only tell you what was written 15 on that piece of paper. 16 MR. VILLA: No further questions. 17 THE COURT: Any other questions by the 18 respondents? 19 MR. BLANKENSTEIN: No questions, Your 20 Honor. 21 MR. KEETON: Your Honor, I have two 22 brief ones and, if I might, I'll just ask them 14444 1 here. 2 THE COURT: Mr. Keeton. 3 4 EXAMINATION 5 6 Q. (BY MR. KEETON) The work you did on the 7 Drexel settlement formula, when you said you 8 believed USAT's figures would have been the same 9 figures as are in your report here; is that 10 correct, Ms. Suder? 11 A. That is correct. 12 Q. And you said you believed the total 13 amount of losses that went into the pot was in the 14 billions? 15 A. I said that, and I shouldn't have 16 because I don't really remember what it was. I'm 17 thinking that it was, like, 1 point something, in 18 the high billions. Under 2 billion, over 1 19 billion, but I'm really not sure. 20 MR. KEETON: Thank you. 21 THE COURT: Are you going to have 22 redirect? 14445 1 MR. VEIS: Your Honor, may I consult 2 with my colleagues for a moment? 3 4 (Discussion held off the record.) 5 6 MR. VEIS: Your Honor, we have no 7 questions. 8 THE COURT: Thank you, Ms. Suder. We 9 may step down. 10 MR. RINALDI: Your Honor -- 11 THE COURT: Mr. Rinaldi. 12 MR. RINALDI: We're about to embark 13 upon a new witness, Mr. Crow, Michael Crow, who is 14 one of the respondents in this proceeding. And 15 I'd suggest perhaps we should take a break at this 16 point in time to move documents up and prepare 17 ourselves. 18 As a kind of preview of coming 19 attractions, what you should know is -- you may 20 recall that the Court has ruled that we have 21 multiple examiners with respect to respondents. 22 In an effort to avoid any duplication 14446 1 of testimony or at least limit it to the maximum 2 extent possible. Mr. Schwartz, who is 3 knowledgeable about the real estate transactions, 4 will begin. He will start out by trying to go 5 through, sort of briefly, the background of 6 Mr. Crow and then into the real estate. I will 7 then pick up some of the stuff on compensation and 8 then Mr. Guido will be back again with questioning 9 regarding the investments. 10 So, that will be the order of events 11 that will be coming up. But once we come back 12 from the break, I anticipate that Mr. Schwartz 13 will be examining Mr. Crow. 14 THE COURT: All right. Thank you. I 15 think that at this time maybe we should raise the 16 question generally of scheduling. 17 Has the OTS determined how many more 18 witnesses they will call and the time to be 19 allotted to those witnesses? 20 MR. RINALDI: I would at this point 21 suggest that because Mr. Guido plays such an 22 integral part in that process, that perhaps that's 14447 1 an issue that we ought to take up when he's 2 present because I think much of what is going to 3 come in the future is largely related to the 4 presentation and the issues that he's more 5 knowledgeable about. 6 I think at this point, what we're 7 looking at is finishing up the respondents. There 8 are two third-party -- well, there's Mr. Stodart 9 who we have not reached and then we have several 10 examination people. There's the examiner, Vivian 11 Carlton, who we'll hear from. There's the 12 supervisory agent, Mr. Twomey, that you'll hear 13 from. Then as I say, the respondents. We still 14 have Mr. Berner, Mr. Gross, and Mr. Munitz and 15 Mr. Hurwitz after Mr. Crow, of course. And then 16 there are one or two very cameo witnesses that I 17 think you'll hear from. 18 I think at this point, it's hard -- I 19 can sit down with Mr. Guido and try to give you a 20 projection. I know that J.C. and Ken have talked 21 about this subject at length. There is a 22 tentative schedule for this second portion that 14448 1 we've mapped out. I don't think it's been shared 2 with the Court, has it, J.C.? 3 MR. NICKENS: Your Honor, we prepared a 4 calendar which was our best estimate which we 5 have. We've been reluctant to give that to the 6 Court for fear that our estimates were wrong. We 7 might be getting ourselves into a situation where 8 we would be uncomfortable -- give you expectations 9 that we couldn't fulfill. But we do have a 10 calendar. We don't have any reason not to provide 11 it to you other than the fact that I don't think 12 either Mr. Guido or I would want for the Court to 13 take it as written in stone as to how that was 14 going to occur. For example, we have eight days 15 allocated for Mr. Crow. We are hopeful that it 16 won't take that long, but that's what we have on 17 our calendar with regard to that. And I will 18 provide the Court, assuming Mr. Guido has no 19 objection to that, that calendar. 20 THE COURT: Well, does your calendar 21 assume we can conclude the entire proceeding by 22 October? 14449 1 MR. NICKENS: Your Honor, the calendar 2 presumes that we would get through the OTS' case 3 by that point in time. It does not allocate any 4 time for the respondents' case. 5 THE COURT: We'll take a short recess. 6 7 (Whereupon a short break was taken.) 8 9 THE COURT: Be seated, please. We'll 10 be back on the record. 11 Mr. Schwartz? 12 MR. SCHWARTZ: Good morning, Your 13 Honor. The Office of Thrift Supervision calls 14 Michael Crow. 15 THE COURT: Would you take the oath, 16 please? 17 . 18 . 19 . 20 . 21 . 22 . 14450 1 MICHAEL CROW, 2 was called as a witness and, having been first 3 duly sworn, testified as follows: 4 EXAMINATION 5 6 Q. (BY MR. SCHWARTZ) Good morning, 7 Mr. Crow. 8 A. Good morning. 9 Q. My name is Scott Schwartz representing 10 the Office of Thrift Supervision enforcement 11 division. Would you state your name for the 12 record. 13 A. My name is Michael R. Crow. 14 Q. Before just now, we have never met; is 15 that correct? 16 A. That's correct. 17 Q. I would like to start out by talking a 18 little bit about your background. 19 When were you born? 20 A. March 15th, 1947. 21 Q. So, in the 1985-'86 time frame, you 22 were about 38 years old; is that correct? 14451 1 A. Yes. 2 Q. Now, would you describe for us your 3 educational background after graduating from high 4 school? 5 A. Okay. Associate of Arts from South 6 Plains Junior College in 1968. 1969, I graduated 7 from Texas Tech University with a BBA in 8 Economics. In 1970, I graduated from Texas Tech 9 University with an MBA. I'm not sure this is 10 educational, but it's -- in 1971, roughly, I 11 became certified as a certified public accountant. 12 And then I believe it was 1978 -- '78, '79 time 13 frame, a graduate of the Southwest Graduate School 14 of Banking at SMU. 15 Q. And would you describe for us what the 16 Southwest Graduate School of Banking at SMU is, 17 what the program is? 18 A. Yes, sir. It is primarily a commercial 19 banking school. It's a three-year program, 20 largely correspondence in nature. 21 Q. What does that mean? 22 A. There were three summers, three summer 14452 1 sessions, I believe of three weeks in length. So, 2 you physically would go to SMU on campus and 3 attend classes and that sort of thing during -- 4 and then during the year between summers, you 5 would typically have five to six fairly lengthy 6 problems to submit to the professors; and they 7 would grade them. 8 Q. And this focused on commercial banking 9 as opposed to thrift work? 10 A. That is correct. 11 Q. Would you describe for us your 12 employment history starting from your earliest 13 employment? 14 A. My earliest employment? 15 Q. Well, your earliest employment I have 16 written down was a Texas Tech research assistant? 17 A. Yes, sir. I've had various jobs in 18 high school and things like that. Starting as the 19 Texas Tech research assistant, that was in the 20 graduate school; and that was the typical research 21 assistant type job. I believe I was doing time 22 and motion studies on a hog breeding type 14453 1 operation. 2 Q. I'm sorry. Does that have anything to 3 do with any kind of economics or banking? 4 A. Well, it was in the agricultural 5 economics section that I was assigned. So, it 6 was, you know, looking at -- the project was a hog 7 breeding farm, and -- 8 MR. NICKENS: That's hog, H-O-G. 9 Q. (BY MR. SCHWARTZ) I apologize. I 10 didn't catch the accent. 11 A. Southern accent. 12 Q. If I say anything that you can't 13 understand through my accent, let me know. 14 A. Then after graduating from college, I 15 went to work for Arthur Anderson & Company, which 16 is a national CPA firm, was a staff accountant 17 person there, a CPA type auditor. In 1973, I went 18 to First City Bank -- 19 Q. You said you had gotten your CPA in 20 1971. So, when you started at Arthur Anderson, 21 did you not have your CPA? 22 A. I did not. 14454 1 Q. Okay. Continue, please. 2 A. In 1972, I left Arthur Anderson and 3 went to First City Bank Corporation, which was a 4 bank holding company in Houston and stayed there 5 from 1972 through 1983. And then in, I believe, 6 effectively January 1st 1984, I went to United 7 Financial Group and United Savings. 8 Q. And how long were you there? 9 A. Five years. 10 Q. Through the receivership? 11 A. December 30th of '88, right. 12 Q. Now, what position did you hold or 13 positions did you hold at United Financial Group 14 and USAT? 15 A. I was chief financial officer for both 16 organizations the entire time of my stay there, 17 and I believe my original title was executive 18 vice president. And at some point, it was changed 19 to senior executive vice president after 20 December 30, 1988. 21 Q. What employment did you hold? 22 A. In 1989, I looked for a job and became 14455 1 a CFO at Property Company of America in Tulsa, 2 Oklahoma; stayed there for roughly six to nine 3 months. The exact timing escapes me. After that 4 job, went to the Westcap Corporation. 5 Q. Why did you leave the first company? 6 A. The company went into bankruptcy. It 7 was a real estate company. To make a long story 8 short, the partners started arguing with each 9 other, much to my dismay; and the company was 10 placed into bankruptcy. 11 So, my last three or four months on 12 that job, I was effectively reporting to the 13 bankruptcy trustee. So, that was -- you know, 14 that certainly didn't turn out like I had 15 envisioned it. 16 Q. As CFO, did you have any 17 responsibilities in real estate at Property 18 Company of America? 19 A. Not -- well, related to the accounting 20 for real estate certainly. 21 Q. But they were strictly accounting 22 issues? 14456 1 A. Yes, sir. 2 Q. Not real estate issues? 3 A. No, no. 4 Q. After that, you said Westcap? 5 A. Yes, Westcap Corporation, which is an 6 investment banking firm, a broker-dealer 7 operation, and was there roughly five years. 8 Q. And what position did you hold there? 9 A. I started out as vice president; and I 10 think when I left, senior vice president. 11 Q. And what did you do in that capacity? 12 A. Fundamentally, that's a bond salesman 13 or it's a bond sales organization. 14 Q. And were you -- was it your job to sell 15 bonds? 16 A. That is correct. 17 Q. And the next? 18 A. And then after that -- 19 Q. How long were you at Westcap? 20 A. Five years. 21 Q. Okay. 22 A. Then I went for a short period of time 14457 1 to another bond firm, Morgan, Kegan & Company. 2 Q. Also as a bond salesman? 3 A. That is correct. 4 Q. And how long were you there? 5 A. A year to -- one to two years. I get 6 the dates kind of mixed up, but one to two years. 7 Q. Do you recall your deposition in this 8 case on June 5th, 1995? 9 A. I remember having a deposition, sir. 10 Q. I don't know if this may refresh your 11 recollection; but as I recall from your 12 deposition, you said you had worked at Morgan, 13 Kegan for six months. 14 Does that refresh your recollection? 15 A. No, it really doesn't. I really, you 16 know, it seemed to me about a year; but whatever 17 it is, it is. I could check the dates. 18 Q. After Morgan, Kegan, where did you 19 work? 20 A. At Interstate Johnson Lane, which is 21 another bond firm. 22 Q. And were you a bond salesman there, as 14458 1 well? 2 A. I was. 3 Q. How long were you there? 4 A. About a year. 5 Q. And after that -- what year are we 6 through now? 7 A. We would be through 1996. 8 Q. Okay. 9 A. So, then I left Interstate Johnson 10 Lane. They closed their office in Houston. I 11 left that employer and went to Amhurst Securities 12 Group. And Amhurst is, again, another 13 broker-dealer bond operation. 14 Q. And you were there as a bond salesman, 15 as well? 16 A. I'm presently there, yes. 17 Q. As a bond salesman? 18 A. That is correct. 19 Q. Why did you leave Westcap Corporation? 20 A. The company was having financial 21 difficulty; and, basically, I became unhappy. And 22 an opportunity presented itself. I had known the 14459 1 branch manager that was at Morgan, Kegan for some 2 time, and he recruited me. 3 Q. And why did you leave Morgan, Kegan? 4 A. That same branch manager opened an 5 office for Interstate Johnson Lane and offered me 6 a financial inducement to come with him. 7 Basically, it was a -- a higher payout. As a bond 8 salesman, you're paid strictly on total 9 commissions, and your payout determines your -- 10 what you put in your pocket. 11 Q. Now, going to the period when you 12 worked for United Financial Group and United 13 Savings, did you hold any positions with any 14 subsidiaries of United Savings? 15 A. Yes, I did. 16 Q. What was that? 17 A. I really can't remember them all. I 18 recall that I was an officer of various 19 subsidiaries. Things that come to mind are USAT 20 Mortgage Securities, having to do with mortgage 21 securities transactions. I believe I was an 22 officer of something called UFC. 14460 1 Q. United Financial Corporation? 2 A. Yes. 3 Q. Anything else? 4 A. Nothing comes to mind, but I'm aware 5 that there were more than those subsidiaries. 6 Q. What about with Federated? Did you 7 hold any positions with Federated? 8 A. No, sir. 9 Q. Did you hold any positions with MAXXAM 10 or MCO Corporation? 11 A. No, sir. 12 Q. Any other entities related to Charles 13 Hurwitz? 14 A. No. My -- all of my employment was 15 under the umbrella of United Financial Group on 16 down. 17 Q. At First City Bank of Houston, what 18 were your duties? 19 A. I started out -- in 1972, my first 20 position was -- started out as senior acquisitions 21 analyst, which was basically an entry level 22 position doing financial analysis for prospective 14461 1 merger candidates -- 2 Q. So, acquisitions dealt with -- 3 A. With banks. 4 Q. With acquisitions of what? 5 A. Of banks. 6 Q. Acquisitions of banks? 7 A. Yes. First City Bank Corporation was a 8 bank holding company. And basically, during the 9 1972, '73 time frame, they were acquiring other 10 banks for both stock and cash. And my job was 11 basically to crunch numbers for -- used by the 12 executives in negotiating the transaction. 13 Q. Okay. 14 A. And then thereafter -- really, it's 15 hard for me to remember them all. I remember that 16 I was manager of financial planning for First City 17 Bank Corporation, which involved financial 18 planning and budgeting for the holding company. 19 Then for a six-month period of time, I was sent to 20 a big acquisition in Dallas. First City Bank in 21 Dallas was basically a temporary comptroller. 22 So -- until they could find somebody permanent, 14462 1 their accounting was a bit botched up. 2 Q. Was that one of those subsidiaries of 3 the holding company? 4 A. Yes, sir. 5 Q. Okay. 6 A. Yes, yes. It was a newly acquired 7 organization; and the management, for whatever 8 reason, wasn't happy with the financial numbers 9 they were getting to -- from Dallas. Excuse me. 10 And so, my boss, I believe at the time, was Gerald 11 Williams. And he said, "I've got this great 12 opportunity to go to Dallas." So, I did. 13 Q. All right. Then -- 14 A. And then I came back from that 15 temporary comptroller's job and became head of 16 financial planning for First City National Bank, 17 which was the lead bank in the holding company in 18 downtown Houston, roughly -- I believe it was 19 seven to 8 billion in size at that time. And I 20 continued in that position and kind of tacked on 21 other duties as manager of cost accounting, became 22 manager of something called data processing 14463 1 liaison to -- 2 Q. What's that? 3 A. Well, we had a large computer 4 department; and there was difficulty in 5 communication between the users, like the loan 6 officers and the data processing people. And so, 7 they had the idea that -- for the financial area 8 to act as an interpreter somewhat between those 9 two. 10 Q. All right. 11 A. Then I became chief financial officer 12 of First City National Bank, I believe, in 1981 -- 13 Q. All right. 14 A. -- and executive vice president and 15 held that through the time that I left. 16 Q. Were there any committees at First 17 City -- I'm calling it First City Bank of Houston. 18 A. Well, First City National Bank was the 19 lead bank in Houston; and First City Bank 20 Corporation was the holding company. 21 Q. Did you hold any positions on any 22 committees of First City Bank? 14464 1 A. Yes, sir. 2 Q. What committees? 3 A. The ones I can remember, we had a -- I 4 forget -- it was either the investment committee 5 or the asset/liability management committee which 6 basically is the senior executives and then the 7 portfolio managers and then the funding people 8 talking about investments and funding, that sort 9 of thing. Then I was on the asset/liability 10 planning strategy committee. I was on a data 11 processing liaison committee. 12 Those are the ones that come to mind. 13 I know there were others because I was always in 14 committee meetings. I know that. 15 Q. Did you serve on any -- any real estate 16 or similar type committees at First City? 17 A. No, I did not. 18 Q. What about a major loans committee, 19 anything like that? 20 A. No, sir. 21 Q. Now, moving to United, how did you come 22 to start working at United? 14465 1 A. Gerald Williams, who I had worked 2 either for or with at First City for roughly 3 12 years, called me on the phone and said, "I've 4 got another great opportunity for you." And so, I 5 went out and talked to Mr. Williams. 6 Q. And take us through that. 7 A. Okay. And Mr. Williams expressed to me 8 that there was a great opportunity here, that the 9 organization had had a material weakness in 10 internal control. I don't know if he knew that at 11 that time or knew it was coming -- which basically 12 means, in layman's language, that your accounting 13 is pretty badly botched up. And I had been 14 somewhat successful at that at First City, and 15 Mr. Williams knew that. 16 Then I had the opportunity to get 17 involved in other things. And the things that I 18 remember is that I would, you know, be right 19 next-door to Jerry Williams and the chairman at 20 that time, Sonny Bentley, and get involved in 21 strategic planning and activities as they came 22 along. 14466 1 Q. All right. Well -- 2 A. That's what I recall. 3 Q. When you first started, what position 4 did you hold? 5 A. Chief financial officer for both the 6 savings and loan and the holding company, and I 7 think my -- well, my title was executive 8 vice president. 9 Q. And you started to describe that over 10 the course of time -- correct me if I'm wrong. 11 Over the course of time, additional duties were 12 tacked on to those -- to your job description? 13 A. That is correct. 14 Q. What committees did you serve on when 15 you started? 16 A. When I started, I was on the -- well, 17 when I started, I was on the real estate 18 committee, the senior loan committee. There was a 19 group managers type committee. There was a data 20 processing conversion committee. There was an 21 accounting -- I forget the name of it, but an 22 accounting "fix it" type committee. 14467 1 Our systems had -- were under distress 2 in that United had been -- resulting from the 3 merger of Houston First American Savings and what 4 I would call old United Savings. And when those 5 were put together in roughly early to mid-1983, 6 there were overlapping systems and inconsistent 7 systems. So, it created great difficulty in just 8 getting basic information out on a timely basis. 9 Q. Are you talking about computer systems 10 or accounting systems or both? 11 A. Both. 12 Q. All right. Any other committees that 13 you can recall after the accounting "fix it" 14 committee. 15 A. Initially, there was -- well, yes. I 16 know I'm leaving out some; but -- I know there 17 were committees formed after the early years. 18 But in the early years, there was 19 something called the general services committee, 20 which was, again, an attempt to -- to address 21 operational type problems. There was -- it was 22 pretty basic in that we had incompatible systems, 14468 1 but they all had United Savings' name on them. 2 So, if you happened to be a customer of the old 3 Houston First American Savings and you went into 4 an old United branch, you could not make your 5 deposit or get your withdrawal on an automated 6 basis. The teller had to pick up the phone, call 7 the home office, and say, "Does Mr. Schwartz have, 8 in fact, $300 in his account; and can we give it 9 to him?" That was extremely cumbersome, and we 10 were doing all we could to make that as painless 11 as possible. 12 Q. And you mentioned earlier that you were 13 involved in strategic planning. Was there a 14 strategic planning committee? 15 A. There was a strategic planning 16 committee formed. It wasn't the day I walked in. 17 It escapes me when it started. 18 Q. But eventually, did you become a member 19 of that? 20 A. I think I was a member. I know I 21 attended the meetings and participated. Whether I 22 was a technical member -- I think I was, but I'm 14469 1 not sure. 2 Q. Was there an executive committee 3 formed? 4 A. There was an executive committee of the 5 board, and I was not a member of that. 6 Q. Were you a member of the board of 7 directors? 8 A. Of United Savings, no, at no time. And 9 of United Financial Group, I was a member from 10 February of '88 through early December of '88. 11 Q. Did you -- you've identified some 12 committees that you were either a member of or 13 that you attended the meetings of. 14 Are there any other that you regularly 15 attended meetings of -- 16 MR. VILLA: Did you mean in the early 17 time period or in this -- 18 MR. SCHWARTZ: In the time that he was 19 at United Financial Group, the whole time. 20 MR. VILLA: The whole five-year time 21 frame? 22 MR. SCHWARTZ: That's correct. 14470 1 A. If we expand it to that, there's a -- I 2 may get some of the names wrong, but there was 3 something called an REO committee. Again, I don't 4 know whether I was a member of that committee, but 5 I attended the meetings from time to time. There 6 was a -- something called a "work out" committee. 7 And again, I doubt I was a member of that 8 committee; but I attended the meetings from time 9 to time primarily for accounting purposes. There 10 was the asset/liability planning committee that 11 was formed at some point in time. 12 Then we had the -- there were the 13 various applications -- there was the consumer 14 loan conversion committee, the commercial loan 15 conversion committee, the deposit conversion 16 committee, the general ledger conversion 17 committee. So, it was -- and I'm leaving out 18 some, but that's kind of what I remember. There 19 were a lot of committees. 20 Q. (BY MR. SCHWARTZ) And when you attended 21 these meetings, these committee meetings for the 22 various committees that you identified, did you 14471 1 attend it solely in an accounting capacity? 2 MR. VILLA: I'll object. It's pretty 3 hard to answer a question like that about 16 4 committees. If he wants to ask him one at a time, 5 I'm sure he can answer. 6 MR. SCHWARTZ: I'll rephrase. 7 Q. (BY MR. SCHWARTZ) If you can identify 8 any committees that you attended other than in an 9 accounting capacity, would you do that, please? 10 A. Well, "accounting" is a pretty broad 11 term. But I wouldn't include all of those 12 conversion committees as necessarily accounting. 13 That's more of a systems and data processing 14 affair. The investment committee, I had -- you 15 know, I attended that for dual purposes and the 16 same with -- with the asset/liability committee. 17 Certainly, the group managers type committee 18 was -- frankly, it's hard for me to characterize 19 my purpose for attending each committee. I mean, 20 I was always -- since that was more my background, 21 I tried to be alert and aware to accounting type 22 issues; but there were a lot of issues that, 14472 1 frankly, had nothing to do with accounting. 2 Q. When Mr. Williams called you -- was it 3 Mr. Williams who spoke to you about coming to 4 United? 5 A. Gerald Williams, yes. 6 Q. Did he offer you a higher pay or 7 broader responsibilities or anything like that 8 when you started? 9 A. I believe that, yes, my pay increased 10 somewhat. It wasn't -- wasn't huge. And I did 11 receive, I believe, a commitment for stock 12 options; and I had a commitment for more 13 responsibility. I think Day 1, I had 14 responsibility for the general services area, 15 which, back at that time, was, you know, kind of a 16 non-accounting thing. So, I thought that would be 17 a great opportunity to broaden myself. 18 Q. What is that? 19 A. That is basically the management of the 20 physical facilities, the branches, and the bricks 21 and mortar, equipment type stuff. 22 Q. On your first day when you reported to 14473 1 United, who did you meet with to tell you what 2 your responsibilities would be, your major 3 responsibilities in particular? 4 A. I can't remember specifically. It's 5 been so long ago. I'm sure it was Gerald 6 Williams. 7 Q. And what were you told -- 8 A. It could have been Mr. Bentley to some 9 extent. 10 Q. And what were you told would be your 11 primary areas of responsibility? 12 A. My primary responsibility was the 13 accounting and financial reporting type. And it 14 was made very clear both during the interview 15 process and after I accepted the position that 16 that was the area that I was to focus on. 17 Q. And you mentioned early a computer 18 problem, computer conversion. 19 Is that something else you were 20 focusing on when you started? 21 A. Yes, sir, it is. Let me be clear. 22 Q. Please. 14474 1 A. That was a focus, but it became more of 2 a focus five or six months later because I gained 3 direct responsibility for that area. 4 Q. What other areas did you -- did you -- 5 let me rephrase that. 6 Were there additional areas that -- 7 were there additional broad areas that you had 8 responsibility for subsequent to your first 9 starting at United? 10 A. Yes, sir. During the entire time 11 period? 12 Q. Yes, sir. 13 A. Yes, sir. Okay. When I started, I had 14 responsibility for the accounting and treasury 15 area and then the general services area. 16 Subsequent to that start date, I 17 acquired responsibility for the computer 18 department. I acquired responsibility for the 19 human resources department, acquired 20 responsibility for the operations department, 21 acquired responsibility for the mortgage-backed 22 securities department. They reported to me 14475 1 administratively. The same with high yield bonds. 2 They reported to me administratively. For a short 3 time period there, the internal audit department 4 reported to me. That was an interim "fix it" type 5 of exercise. Eventually, they reported to the 6 board and Mr. Gross. 7 For a time period, the loan operations 8 department reported to me and maybe for the 9 entire -- maybe until I left. I don't remember. 10 Those are the things that come to mind. 11 Q. Now, when you said that Mr. Williams 12 contacted you and told you that there were 13 problems with the accounting at United, what was 14 he referring to? 15 A. I believe he was talking about the 16 accounting systems, accounting procedures, 17 accounting personnel. 18 Q. Would those be considered internal 19 controls? 20 A. Yes, sir. Well, the accounting 21 certainly had a big effect on internal controls. 22 And as I said -- as of year-end 1983 or when 14476 1 Peat Marwick issued their management letter for 2 1983, they said the association had a material 3 weakness in internal controls which, to an 4 accountant, is -- that's a big deal, real big 5 deal. 6 Q. And so, was it your responsibility, 7 then, to fix that? 8 A. Yes, sir. That was my number one 9 focus. So, that involved hiring a new -- hiring a 10 bunch of new people, getting deeply involved in 11 the computer conversion, hiring Arthur Anderson to 12 come in and help us with the computer conversion, 13 redoing the way we did things. 14 Q. And the internal controls, is that the 15 audit function that's referred to? 16 A. Well, the audit function would check 17 internal controls. It really wouldn't be the 18 internal audit area's responsible to maintain 19 internal controls. 20 Q. Was the audit function your 21 responsibility? 22 A. The internal audit function became my 14477 1 responsibility at some point for a period of about 2 six months. And I may have the dates off, but it 3 was something like mid-1985 or so. The internal 4 audit department reported to me. 5 And then after we got a new internal 6 auditor and got some new people in there -- 7 everybody recognized that the internal audit area, 8 you know, you shouldn't have it reporting to the 9 CFO. 10 Q. Did any of your responsibilities at 11 United -- strike that. 12 Did you have any expertise whatsoever 13 in any particular facet of real estate? 14 A. Other than real estate accounting, I 15 would not say that I had any expertise. 16 Q. Did you have any expertise or 17 experience in underwriting real estate loans? 18 A. No, sir. And let me be clear on that 19 prior answer. In terms of real estate accounting, 20 since we didn't do much of that at First City, 21 that was not my strong point; and that was one of 22 the major reasons we hired Mr. Wolfe who had been 14478 1 a senior audit manager for Peat Marwick and was 2 very well-versed in real estate accounting. 3 Q. You mentioned when you started, you 4 were put on the real estate committee and the 5 senior loan committee? 6 A. Yes, sir. 7 Q. Why were you put on these committees if 8 you had no background in real estate? 9 A. I really don't know. It wasn't much of 10 a discussion. Gerald Williams was a pretty 11 plain-spoken guy; and he basically said, "Here are 12 the committees you're going to be on and go fix 13 the accounting areas." 14 I mean, it wasn't -- I don't recall a 15 philosophical discussion of me being on it. I 16 think we discussed at some point that, you know, I 17 was there to -- I had a background somewhat 18 similar to Mr. Williams, Gerald Williams, and that 19 our role was to be kind of general business 20 quantitative type people. 21 Q. So, what was your role to be on the 22 senior loan committee and the real estate 14479 1 committee, as you understood it? 2 A. As I understood it -- you know, as I 3 understood it, thinking back, it was to review the 4 proposals, realizing that certainly I didn't have 5 a background in those areas, wasn't an expert in 6 any shape, form, or fashion in those areas, but to 7 review the proposals, look for reasonableness, 8 bring a different perspective. Many of our 9 committees had numerous disciplines on them; and, 10 you know, sometimes a different background can 11 bring a different perspective. 12 Q. After joining the senior loan committee 13 or the real estate committee, did you take any 14 courses in real estate? 15 A. No, I did not. 16 Q. Were you given any responsibilities 17 other than being a member of the committees 18 involving real estate other than the accounting 19 issues? 20 A. Other than the accounting issues, not 21 that I recall. 22 Q. Was real estate an area of interest to 14480 1 you? 2 A. It was an area of interest because it 3 was a large part of our balance sheets certainly. 4 Q. And so, what did you do to educate 5 yourself regarding real estate issues? 6 A. I tried to read periodicals, talk to 7 the real estate guys. I was fairly close to them 8 physically. But in terms of any -- I don't want 9 to mislead the Court. I didn't go to real estate 10 school and try to become a real estate expert at 11 all. 12 Q. You said you talked to the real estate 13 guys. What does that mean? 14 A. That would be primarily Mr. Graham and 15 Childress; Raymond Chilton later on. Then I 16 talked to, I believe, Mel Blum a lot. 17 Q. I'm sorry. Mel Blum, Raymond -- 18 A. Chilton, David Graham, and Gem 19 Childress. 20 Q. And these are people you considered to 21 be more knowledgeable about real estate than you? 22 A. Absolutely. 14481 1 Q. Now, were there members of the senior 2 loan committee who you considered to be more 3 knowledgeable than you about real estate? 4 A. Yes. 5 Q. Who were those -- who were the members 6 of the senior loan committee as you can recall 7 over the course of time? 8 A. Over the course of time -- I'm just 9 going to use the latter or midpoint because it's 10 hard for me to determine, for example, when 11 Mr. Gross came. Certainly, Mr. Jenard Gross, 12 David Graham, Gem Childress, Charles Patterson, 13 Phillip Breland, Delores Jackson. And I'm sure 14 I've left one or more people off. 15 And Gerald Williams and I were -- you 16 know, I can't characterize Gerald Williams' 17 expertise in real estate, but my observation was 18 that that he would have a lesser knowledge than 19 the people that I just mentioned. 20 Q. Of the people that you just mentioned, 21 who did you rely on the most or that had the most 22 knowledge about real estate? 14482 1 A. I would -- I really didn't think of it 2 in those terms. I looked to -- as best I can 3 answer it is I looked to Jenard Gross, David 4 Graham, and Gem Childress as having a great deal 5 of knowledge and expertise in real estate. As to 6 who was the most knowledgeable, I don't know. 7 Q. Did Mr. Hurwitz ever attend the senior 8 loan committee meetings? 9 A. I think he did. 10 Q. And about how often do you recall him 11 attending senior loan committee meetings? 12 A. I really don't recall him attending. I 13 probably ought to back up from that answer. 14 I remember Mr. Hurwitz attending 15 committee meetings or meetings; and to peg it to a 16 number of loan committee meetings, I really can't. 17 Q. You can't identify half of them or give 18 us any assessment as to the number of meetings he 19 attended? 20 A. No, sir, I really cannot because, you 21 know, as we've discussed, I was on a lot of 22 committees; and that's a number of years ago. 14483 1 And, quite frankly, I could easily get the one 2 committee mixed up with another committee. 3 Q. What about the real estate investment 4 committee? Who were the members that you recall 5 of that committee? 6 A. That, I believe, was Gem Childress, 7 David Graham, Jenard Gross, myself, Gerald 8 Williams. I believe Phillip Breland was a member 9 of that committee, but I'm not positive. I 10 believe while he was there, Mr. Sonny Bentley was 11 on that committee. But again, I'm not positive. 12 By the way, Mr. Bentley was on the senior loan 13 committee, as well. I think I left him out. 14 Those are the ones that come to mind. 15 Q. Do you recall Mr. Hurwitz ever 16 attending the real estate investment committee 17 meetings? 18 A. No, I really don't. And let me be 19 clear that -- going some years back, I get the 20 loan committee and the real estate committee 21 confused as to, you know -- I knew the difference 22 of the committee meetings; but as to who attended, 14484 1 when they -- you know, when they were there, et 2 cetera, I don't know. 3 Q. What were the functions of the two 4 committees or the mission of the two committees? 5 A. The real estate committee, as best I 6 recall, was to look at real estate projects that 7 would be where United was more of an investor, 8 more of an investor. And in my words, the senior 9 loan committee was a committee designed to look at 10 real estate loans. And being an old accountant, I 11 looked at, well, if it went to the loan committee, 12 it's booked as a loan. If it goes to the real 13 estate committee, it's probably going to be booked 14 as a real estate investment. 15 Q. I realize you can't pin a number on the 16 amount of times you saw Mr. Hurwitz at a real 17 estate investment committee meeting or a senior 18 loan committee meetings. But those times he did 19 attend that that you do recall, did he participate 20 in the meetings? 21 A. I want to be specific. I don't 22 really -- you know, I don't recall Mr. Hurwitz -- 14485 1 you know, it's hard for me to visualize any 2 particular meetings. I can say that it wasn't 3 unusual to see Mr. Hurwitz at a -- at a meeting 4 and I'm sure the loan committee and the real 5 estate committee. But, you know, I don't think he 6 attended all of them or many of them. I just 7 don't know. 8 Q. Did you consider Mr. Hurwitz to have 9 any particular expertise in real estate? 10 A. I really didn't know what his expertise 11 was. Just my observation, you know -- again, we 12 have a time line. As time went on toward the end 13 of my tenure at United, I became aware that 14 Mr. Hurwitz had been involved in real estate 15 projects unrelated to United. So, that certainly 16 indicated to me he knew a lot more about real 17 estate than myself or Gerald Williams. 18 Q. Well, you say toward the end of your 19 tenure. You mean toward the end of 1988? 20 A. Yeah. '87, '88. 21 Q. Was there an office within USAT that 22 handled real estate matters? You mentioned REO 14486 1 and the work-out committee. Were those headed by 2 an office? 3 A. In terms of an office, that would have 4 been the real estate department during most of the 5 time period I was there which was headed jointly 6 by David Graham and Gem Childress. And then they 7 had a staff; and so, their offices were kind of 8 clustered together, if that answers the question. 9 Q. And how many people were there in that 10 office that handled real estate matters, the real 11 estate department, I think you called it? 12 A. I don't know. 13 Q. Can you give us an approximation? 14 A. It was -- I remember there were quite a 15 few people, but I just really don't remember how 16 many. 17 Q. Did -- I have a note to remind myself. 18 You mentioned the committees that you had served 19 on. 20 Was the investment committee another 21 committee that you served on? 22 A. Yes. 14487 1 Q. Did you serve on the investment 2 committee during your entire tenure? 3 A. It's my recollection I started 4 attending investment committees sometime after I 5 started. As to the exact date, I don't remember. 6 Q. Do you recall what the period of time 7 was that you sat on the senior loan committee? 8 A. Well, I believe that I was on the -- 9 I'm fuzzy on this; but I had thought in terms of 10 real estate and the real estate committee and the 11 senior loan committee, that I was on those 12 committees pretty much for the entire five-year 13 period. 14 Q. From the day you started? 15 A. That's my memory. The record is 16 whatever it is. That's my memory, though. 17 Q. Okay. 18 A. I could be mistaken there. I guess to 19 be more precise, Mr. Schwartz, you know, it easily 20 could have been that I started work; and five or 21 six months later, Gerald Williams came in and 22 said, "you're on these committees." That easily 14488 1 could have happened. 2 Q. I'm going to show you a document. It's 3 Exhibit A1098 at Tab 792, which is the 4 August 29th, 1984 board of directors minutes. And 5 if you look down at the bottom of the first page 6 under "resolved." 7 Does that refresh your recollection 8 that you became a member of the senior loan 9 committee at United at the end of August of '84? 10 MR. VILLA: Objection, Your Honor. You 11 know, these don't indicate when people were 12 appointed. It simply says their annual renewals 13 of appointments of officers and direction to 14 committees. We've had this before with 15 Mr. Huebsch. If you have a date that he was 16 actually appointed to the committee, it might help 17 him. The periodic reappointments by board of 18 directors don't indicate the first date. 19 MR. SCHWARTZ: Your Honor, I asked if 20 it refreshed his recollection. If it does, it 21 does. If it doesn't, it does. 22 THE COURT: All right. I'll deny the 14489 1 objection. You may answer. 2 A. It doesn't really refresh my 3 recollection. I think it's safe to say that I was 4 on that committee after August 29th, 1984; and I 5 don't remember going off the committee during my 6 tenure at United. 7 Q. (BY MR. SCHWARTZ) What about for the 8 real estate investment committee? Do you recall 9 when you became a member of the real estate 10 investment committee? 11 A. No, sir, I really do not. 12 Q. About how long -- was it at the time 13 you started at United? 14 A. It pretty much -- I looked at -- I 15 suspect that the two committees -- the timing was 16 probably pretty equal, you know; but I can't be 17 precise. I really don't know. 18 Q. Is it fair to say, then, that to the 19 best of your recollection, your responsibilities 20 for the senior loan committee and your 21 responsibilities with the real estate investment 22 committee started about the same time? 14490 1 A. That's my fuzzy recollection. 2 Q. Let's talk a little bit about the 3 meetings of the senior loan committee. Describe 4 the typical meeting. How would it take place? 5 A. To the best of my ability -- and my 6 memory on this is very fuzzy -- and, again, we're 7 talking about a time frame of five years and I'll 8 just say during the latter part -- latter period 9 of my tenure at United. 10 As best I recall, Mr. Gross would 11 typically be the chairman or the head of the 12 committee; and Mr. Graham or Mr. Childress or one 13 of their senior people would have various projects 14 or loans, whichever we're talking about, for 15 consideration. And it was not at all unusual that 16 a page would have been distributed of materials on 17 certain of the agenda items prior to the committee 18 meeting. And then the -- the committee would -- 19 would typically -- and, again, this is a 20 generalization that's kind of fuzzied up by the 21 passage of time. But I remember Mr. Graham and 22 Mr. Childress or one of their senior people 14491 1 typically came to the committee through a verbal 2 presentation of the key documentation and the 3 economics of the deal or whatever we were talking 4 about. That's pretty much what I remember. 5 Q. You said there was a page distributed 6 beforehand. About how long beforehand would you 7 get that page? 8 A. I don't know. 9 Q. How often would the committee meet? 10 A. I really don't know. It seemed to me 11 that it was on an as-needed basis, but I could be 12 mistaken there. For example, the investment 13 committee, I think, met every week. I don't 14 remember the loan committee being that way. 15 Q. You mentioned the investment committee. 16 How long would the investment committee meetings 17 last? 18 A. The investment committee meetings would 19 last -- some of them would be real short, like 20 45 minutes; and some of them would be two and a 21 half hours. It just depended on what was going 22 on. 14492 1 Q. What about the meetings of the -- 2 strike that. 3 Do you recall I asked you generally 4 about senior loan committee meetings? Now 5 specifically, do you recall the Park 410 6 transaction? 7 A. I recall the Park 410 loan, yes, sir, I 8 do. 9 Q. Do you recall the senior loan committee 10 meeting at which the Park 410 loan was discussed? 11 A. I really -- I have a vague recollection 12 of that being discussed in the senior loan 13 committee meeting. 14 Q. $80 million, is that what you recall? 15 A. Sure, sure. You know, I certainly -- 16 but the reason I'm being -- trying to be precise 17 is when I say I have a vague recollection, I 18 remember Park 410 and David Graham going on and on 19 about the project, us reviewing a lot of 20 documents. And I remember the figures were 70, 21 $80 million. 22 Q. Do you recall that Mr. Hurwitz attended 14493 1 that meeting? 2 A. I really don't remember that. 3 Q. What about with the real estate 4 investment committee? Why don't you describe 5 those meetings? 6 A. They seemed to be -- from my 7 perspective, they seemed to be very similar to the 8 senior loan committee meetings. 9 Q. Were they held at the same time? 10 A. My memory is no. 11 Q. They were held at different times? 12 A. Yes, sir, I believe so. 13 Q. Okay. 14 A. And, again, I could be -- there 15 certainly could have been joint meetings, but I'm 16 not positive. 17 Q. Would Mr. Gross chair those meetings of 18 the real estate investment committee, as well? 19 A. I don't know. 20 Q. Well, who do you recall chaired the 21 meetings of the real estate investment committee? 22 A. The honest answer is I get the real 14494 1 estate investment committee and the senior loan 2 committee confused. I mean, it's been a long 3 time; and I remember Mr. Gross kind of being the 4 boss. So, that's really about the best I can do. 5 Q. When you say "the boss," do you mean 6 the boss of USAT or the boss of the committee 7 meetings? 8 A. He was the boss or the CEO of USAT, and 9 he was my boss. So, that's -- I considered him to 10 be the boss. 11 Q. Okay. Do you recall how presentations 12 would be made before the real estate investment 13 committee? Did it operate pretty much the same as 14 the senior loan committee? 15 A. Best I recall, yes. 16 Q. And so, Mr. Graham or Mr. Childress or 17 some member of their staff would make a 18 presentation? 19 A. Typically, yes. 20 Q. And would you receive a page of 21 materials sometime beforehand for those proposals, 22 as well? 14495 1 A. Well, again, I can't really be precise 2 and say that I remember that because I do get the 3 committees mixed up. But I think that if there 4 were a sizable project, that it certainly -- 5 probably would have operated the same way. 6 Q. What typically do you recall being in 7 these packages? 8 A. I really don't recall what was in the 9 packages. It -- other than typically, there would 10 be a summary written by one of the senior real 11 estate people: Graham, Childress, or one of their 12 people. And then there would be backup material. 13 As to what that backup material was, I really 14 don't remember. 15 Q. Did you read it? 16 A. I read the portions that -- as best I 17 recall, I certainly didn't take the page and set 18 it over on my credenza and forget about it. 19 That's one extreme. 20 The other extreme is to read every 21 line. So, I was somewhere in the middle. I would 22 look at the presentation and do a review and see 14496 1 if it appeared to be reasonable. 2 Q. The presentation, are you talking about 3 the summary? 4 A. The summary. And then I would thumb 5 through the backup and that sort of thing and look 6 at it if, you know, if it was of interest or I 7 needed to look at it. 8 Q. Do you recall doing that in connection 9 with the -- first of all, do you recall receiving 10 a page in connection with the Park 410 loan? 11 A. Specifically, no. 12 Q. How about generally? 13 A. Well, generally, when you get to a 14 particular loan, I feel a little uncomfortable. I 15 can't imagine that I wouldn't have, but I just 16 don't remember. 17 Q. Are you familiar with the Norwood or 18 Deauville transaction? 19 A. I am now. 20 Q. In the last couple of days, you've had 21 an opportunity to talk about that with your 22 attorneys? 14497 1 MR. VILLA: Objection. 2 A. Well, I became very aware of it when I 3 got the notice of charges. 4 Q. (BY MR. SCHWARTZ) In the -- do you 5 recall receiving the page in connection with the 6 Norwood transaction? 7 A. No, sir. Norwood is -- I remember a 8 lot more about Park 410 than I do Norwood. 9 Norwood is -- in terms of my memory -- is just 10 principally related to -- it was in Austin, and I 11 remember the names of some of the parties 12 involved. 13 Q. We'll talk more specifically about 14 Norwood in a minute. I wanted to ask you some 15 questions about the length of the meetings of the 16 senior loan committee. 17 MR. SCHWARTZ: For counsel's reference, 18 I have it at T7119, Tab 128, the August 25th 19 senior loan committee meeting. This was used with 20 a witness and not offered. 21 Q. (BY MR. SCHWARTZ) Do you recognize 22 Exhibit T7119 as the August 12th, 1985 agenda, if 14498 1 you will, or minutes of the senior loan committee 2 meeting? 3 A. I see the document. I don't have a 4 memory of it; but certainly, I see that it's 5 titled "senior loan committee." Appears to be the 6 minutes of the August 12th meeting. 7 Q. And do you see down at the bottom, 8 there are some signatures? 9 A. Yes, sir. 10 Q. Okay. Is your signature down there? 11 A. Yes, sir, it is. 12 Q. Is that the one directly under 13 "executive vice president"? 14 A. It is. 15 Q. And who -- what are the other 16 signatures, if you can identify them quickly? 17 A. I believe the one to the direct right 18 of me is Delores Jackson. The one right under 19 Delores Jackson, I believe, is -- well, 20 Mr. Bentley. 21 Q. All right. 22 A. Then the one to the far right is Gerald 14499 1 Williams. And the one at the top, I don't know. 2 Q. Now, I notice that Delores Jackson's 3 signature is there; and it looks to me like 4 "D. Jackson." Up at the top, it identifies who 5 attended that meeting. 6 Do you see that? 7 A. Yes, sir, I do. 8 Q. And Ms. Jackson's name is not there. 9 I'm wondering if -- if these minutes are signed 10 separate from people attending the meetings. 11 A. I don't know. Typically -- I just have 12 a vague memory that the minutes would be at the 13 next meeting and they would be on the table and 14 you would be asked to sign the minutes. But 15 that's a vague memory. 16 I really -- I guess the direct answer 17 to your question is: I don't know. 18 Q. You would be asked to sign the minutes 19 regardless of whether you attended or not? Is 20 that your testimony? 21 A. No. I'm confused there. 22 Q. So, you just don't know why her name is 14500 1 at the bottom and not at the top showing she 2 attended the meeting? 3 A. No, sir. 4 Q. You just don't know? 5 A. I really don't know. 6 Q. It says the meeting was opened at 7 9:19 a.m. 8 Do you see that? 9 A. I see that. 10 Q. There was discussion of nine items. 11 Do you see them? 12 A. I count seven, but whatever. There's a 13 number of items discussed certainly. 14 Q. Well, okay. Why do you -- I'm sorry. 15 I see nine items on my sheet. I see the first one 16 is "Approval of acquisition and development loan 17 on Chapel Creek Ranch." 18 A. I apologize. I did not count that. 19 Q. So, there was discussion of nine items 20 at this meeting; and the meeting was concluded at 21 10:37 a.m. 22 A. That's what this page says, yes. 14501 1 Q. Do you have any recollection of the 2 minutes being inaccurate as far as the time of the 3 meeting starting and adjourning? 4 A. I just don't have a memory one way or 5 the other. 6 Q. To the best of your knowledge, this is 7 correct information? 8 A. I have no basis -- I -- we didn't have 9 a habit of making mistakes, you know, unless we 10 made a mistake. I just don't know. 11 Q. And at the top, it also indicates that 12 you were at this meeting. So, do you recall being 13 at this particular meeting; or you just don't 14 recall that? 15 A. I don't remember. 16 Q. Okay. Next exhibit is A1645. 17 THE COURT: Do you want to offer this 18 exhibit? 19 MR. SCHWARTZ: I'm sorry. I thought 20 you had a copy. 21 THE COURT: Well, it was identified but 22 never offered. 14502 1 MR. SCHWARTZ: I would offer 2 Exhibit T7119. 3 MR. VILLA: No objection. 4 THE COURT: Received. 5 Q. (BY MR. SCHWARTZ) The next exhibit is 6 at Tab 1039. It's Exhibit B4167. Now, this 7 document also indicates that you attended the 8 meeting, correct? 9 A. I see my name. 10 Q. And Mr. Hurwitz also attended this 11 meeting; is that correct? 12 A. I see Mr. Hurwitz's name. 13 Q. And there was discussion of -- I count 14 six items; is that correct? 15 A. Yes, sir. 16 Q. And the meeting started -- opened at 17 9:15 a.m. and was adjourned at 10:06 a.m., about a 18 51-minute meeting, to discuss those six items; is 19 that correct? 20 A. That's what these minutes indicate. 21 Q. And one of the items discussed at the 22 meeting was the status of the Park 410 and 14503 1 Deauville loans, correct? 2 A. I see that. 3 Q. Exhibit T7668. And this was another 4 meeting of the senior loan committee of 5 January 6th, 1986, correct? 6 A. I see the minutes indicate a senior 7 loan committee, January 6 of '86. 8 Q. And you were at this meeting according 9 to these minutes, correct? 10 A. I see my name, yes. 11 Q. And it indicates the meeting was opened 12 at 9:10 a.m. and adjourned at 9:55 a.m. for a 13 total of a 45-minute meeting, correct? 14 A. I see that. 15 Q. I count six items discussed. 16 Do you see that? 17 A. Yes, sir. 18 Q. And the third document, fourth 19 paragraph down -- fifth paragraph down, it says, 20 "Discussion of the Park 410 West proposal." 21 Do you see that? 22 A. Yes, I do. 14504 1 Q. And Mr. Hurwitz also was indicated as 2 being at this meeting, correct? 3 A. I see Mr. Hurwitz's name. 4 Q. Do you recall this meeting? 5 A. No, sir, I do not. 6 Q. So, you don't know how much of that -- 7 of that 45 minutes or so was spent discussing 8 Park 410? 9 A. No, sir, I don't. 10 Q. Exhibit T -- excuse me. A1647 at 11 Tab 1041. And you attended this meeting, as well, 12 the February 10th, 1986 meeting of the senior loan 13 committee; is that correct? 14 A. My name is indicated as having 15 attended. 16 Q. You don't question that you were there, 17 though? 18 A. No, sir, I don't question it. 19 Q. The meeting started at 9:05 a.m. and 20 there were four, I count, items discussed and 21 closed at 9:25 for a total of 20 minutes; is that 22 right? 14505 1 A. That's what this page indicates. 2 Q. 7585. I'm handing you Exhibit T7585; 3 which is the minutes of the April 7th, 1986 senior 4 loan committee. 5 A. I see that. 6 Q. And it indicates that you were at this 7 meeting at the top there? 8 A. It does. 9 Q. And there was -- let's see. The 10 meeting commenced at 9:10 a.m. and adjourned at 11 10:05 a.m.? 12 A. That's what the schedule says, yes, 13 sir. 14 Q. For a total of 55 minutes. And 15 Mr. Hurwitz attended this meeting as well, 16 correct? 17 A. His name is indicated as having 18 attended, yes. 19 MR. SCHWARTZ: Your Honor, I offer 20 Exhibit T7585. 21 MR. VILLA: No objection, Your Honor. 22 THE COURT: Received. 14506 1 Q. (BY MR. SCHWARTZ) The sixth item on 2 that sheet, a request by Neil Robertson for 3 financing -- 4 A. I apologize. I'm lost. 5 Q. -- on the April 7th, 1986 -- first 6 page, the sixth item down, seventh paragraph. 7 A. Okay. 8 Q. Do you see that? 9 A. A request by Neil Robertson. 10 Q. Yes. Do you know anything about the 11 Park 10 project? Do you recall anything? 12 A. Well, what I recall -- it could be 13 wrong, but I thought Park 10 was out on the west 14 side of Houston. I believe there's a project out 15 there called Park 10, like, roughly 20, 25 miles 16 from downtown Houston. 17 Q. So, these seven items were discussed in 18 that 55 minutes; is that correct? 19 A. I haven't counted them; but there's a 20 number of items, yes, sir. 21 Q. In that summer banking program that you 22 took -- what years was that? 14507 1 A. Nineteen -- I believe the program was 2 1976 through '78, you know, roughly -- about the 3 late Seventies. 4 Q. In that course, do you recall any real 5 estate lending courses? 6 A. No. There were lending courses, but 7 they were principally related to working capital 8 loans. 9 Q. Commercial loans? 10 A. Yes, sir, typical that a commercial 11 bank would engage in. 12 Q. Any course on appraisals, reviewing 13 appraisals? 14 A. Not that I remember at all. I would be 15 surprised if there were. 16 Q. Any courses on real estate investments? 17 A. No. 18 Q. Any courses on reviewing economic 19 feasibility studies related to real estate? 20 A. Not that I remember at all. 21 Q. And in your -- you indicated that you 22 had an MBA? 14508 1 A. Yes, sir. 2 Q. And in your bachelor's degree, did you 3 have any training in the courses that you took in 4 those programs in real estate, appraisals, or 5 investment or anything like that? 6 A. No, nothing directly related to real 7 estate. There would be courses on the general 8 subject of investments and how you evaluate them, 9 but nothing homed in on investments, no, sir. 10 Q. When you started at USAT, do you recall 11 what the REO or foreclosed real estate situation 12 was? 13 A. I remember that the REO area was small, 14 and I believe -- I can't quote numbers, but I 15 remember that the -- that the figure was -- was -- 16 was small. 17 Q. This is in January of '84? 18 A. It was in early '84. Whether it was 19 January, I don't really -- I can't peg a date or a 20 month. 21 Q. And did those problems with REO and 22 foreclosed real estate continue throughout your 14509 1 tenure? 2 A. Yes. To the best of my recollection, 3 they became worse. 4 Q. So, they grew from the time you started 5 to the time of the receivership? 6 A. That is correct. There is a 7 possibility that they might have leveled off, but 8 I really don't remember. It's certainly fair to 9 say from early '84 onward, just in general, the 10 REO area increased or became worse. 11 Q. Do you recall testifying in your 12 deposition regarding people literally mailing in 13 their keys? 14 A. I don't remember that, but I remember 15 that happening. 16 Q. And what is that in reference to? 17 A. That's in reference to single-family 18 home loans and I just -- it sticks in my mind 19 because the lady that handled REO at the time 20 was -- happened to be from my hometown, and I went 21 to high school with her. And we talked about old 22 times, et cetera. There was one lady that handled 14510 1 all the REO reporting and so forth. I recall she 2 just became overwhelmed with the volume. 3 Q. The volume of -- 4 A. The volume of problem loans, REO type 5 situations. And I remember I didn't -- I never 6 saw it; but I remember hearing stories from the 7 real estate people of keys being sent in the mail 8 saying, I guess basically, "The house is yours." 9 Seems to me that that was principally related to 10 single-family home loans. 11 Q. Whose job was it to go out and find 12 real estate opportunities, real estate lending 13 opportunities or investment opportunities? 14 A. I believe the point people on that 15 would be David Graham and Gem Childress. 16 Q. And you mentioned Mr. Graham and 17 Mr. Childress as being the real estate experts you 18 relied on in connection with loans in real estate? 19 A. They were certainly among the real 20 estate people that I relied on, yes. 21 Q. And within this senior loan committee, 22 you relied on Mr. Graham, Mr. Childress, and 14511 1 Mr. Gross? 2 A. Those were certainly three people, yes, 3 that I relied on. 4 Q. What was Mr. Graham's educational 5 background in connection with real estate? 6 A. I don't know. 7 Q. Do you know what training he had, if 8 any? 9 A. No, sir, I do not. I don't know 10 whether -- I certainly don't know now. I don't 11 know whether I knew at the time or not. 12 Q. Do you know if he had any training on 13 reviewing appraisals? 14 A. I don't know. 15 Q. Did you know if he had any training on 16 reviewing feasibility studies of real estate? 17 A. Well, let me be clear. I certainly 18 don't know now, and I don't know whether I did or 19 didn't know at the time. 20 Q. And is your answer the same for 21 Mr. Childress? 22 A. Yes, sir, it is. 14512 1 Q. You just don't know what experience or 2 training he had in connection with real estate -- 3 A. That's correct. 4 Q. -- underwriting? 5 A. I had a general understanding that both 6 of them, Graham and Childress, had been at United 7 for some time and had been involved in a number of 8 real estate projects. But as to their specific 9 training or qualifications, no, I don't know. 10 Q. What about Mr. Gross? 11 A. The only thing that -- I didn't know 12 Mr. Gross prior to coming to United; but I 13 remember Mr. Gross's name, I believe, being 14 mentioned at First City in that Mr. Gross, I was 15 aware, had built a significant number of 16 apartments. He had been a big apartment builder 17 in Houston, but that's about the limit. You know, 18 I knew that Mr. Gross -- I think I remember he 19 went to Vanderbilt. 20 Q. In real estate or -- 21 A. He went to Vanderbilt College. In 22 terms of his real estate training, I don't know. 14513 1 Q. And you don't know if he had any 2 training in appraisals or real estate investments, 3 specific training, other than the fact that he 4 happened to own apartments? 5 A. He had been an apartment developer and 6 builder. Other than that, no, I didn't have the 7 specific knowledge of Mr. Gross's training. When 8 I say I don't know, I certainly don't know today 9 and I don't know whether I would have known at 10 that time. 11 Q. What about in loan underwriting? 12 A. Pretty much the same answer. 13 Q. For all three gentlemen? 14 A. Yes. Let me be clear. I didn't know 15 what their background and training was, or I don't 16 remember and I don't remember what I knew then. 17 It's possible I could have seen a resume for 18 various purposes on one or all of them. 19 Q. But as you sit here today, you just 20 don't have any understanding at all as to whether 21 they had any training whatsoever in real estate 22 issues? 14514 1 A. Formal training, no. I don't know what 2 their training was. 3 Q. Do you know what Mr. Graham's 4 experience was in real estate matters? 5 A. Well, Mr. Graham was the -- had been at 6 United for some time and had worked with 7 Mr. Bentley on a number of projects, I believe. 8 Eastchase is one that comes to mind. So, I knew 9 that Mr. Graham had been involved in that process 10 for some time. How long, I don't know. 11 Q. Is your answer the same with 12 Mr. Childress? 13 A. Yes, sir. Right. 14 Q. Did you work on foreign currency issues 15 or international debt issues at any time during 16 your work with United? 17 A. At United -- 18 Q. I'm sorry. Strike that. I have a note 19 here that it was at First City. 20 A. Yes. At First City, we did have those 21 issues. 22 Q. I apologize. 14515 1 Now, I want to talk to you about your 2 time constraints when you were at United. You 3 mentioned some of the major projects that you 4 worked on when you started. Internal audit 5 controls was one? 6 A. Internal controls. 7 Q. About how much time did you spend -- 8 what percentage of your time was spent on working 9 on issues related to the internal audit controls? 10 A. I can't put a number to it. I can tell 11 you that that was my primary focus, and that's 12 what I worked the most on in terms of mental 13 effort and hours put in was to address the whole 14 internal control and systems problem area. 15 THE COURT: Mr. Schwartz, we'll adjourn 16 until 1:30. 17 18 (Whereupon, a lunch break was taken.) 19 20 THE COURT: We'll be back on the 21 record. 22 Mr. Schwartz, you may continue. 14516 1 MR. SCHWARTZ: Thank you, Your Honor. 2 Q. (BY MR. SCHWARTZ) We were talking about 3 what you spent your time doing at USAT. We talked 4 about internal audit controls or internal 5 controls. That was the major part of your 6 responsibilities at USAT? 7 A. Yes, sir. During the early years, that 8 is correct. 9 Q. When you say "early years," what are 10 you referring to? 11 A. 1984 and '85. 12 Q. Through the end of 1985? 13 A. It's hard for me to be that precise 14 because certainly that work continued even into 15 1986; but just on a gross characterization, in 16 1984, the percentage of my time or the proportion 17 of my time would have been very big on improving 18 internal controls. In 1985, it probably would 19 have been a little less. '86, a little less. But 20 still, it would be significant. 21 Q. I know it's hard to quantify, as you 22 said earlier. Would you say 90 percent of your 14517 1 time in '84 was spent on internal audit, or 2 70 percent? 3 A. I really can't peg a number. I just 4 remember the activities that I did. A lot of them 5 had to do with internal controls. 6 Q. So, that was something that -- some 7 aspect of internal controls, you touched every 8 day? 9 A. Yes, sir. 10 Q. What about performing actual financial 11 reporting functions? 12 A. In terms of me personally preparing 13 financial reports? 14 Q. Yes, sir. 15 A. Yes, I did some of that in 1984. 16 Q. In '85? 17 A. In '85, it would have been less so 18 because we had staff people that were on board by 19 then that were well-qualified to do that. 20 Q. And would you be reviewing their work? 21 A. Typically, yes. 22 Q. So, you would spend time on that, as 14518 1 well? 2 A. That's correct. It depends on the kind 3 of reports. Some reports I would review. Some 4 reports I would not. 5 Q. What about on the computer conversion 6 you mentioned? When did that project start? 7 A. That started in 1984, fairly early on. 8 Sometime probably in the spring or summer of 1984. 9 Q. And how long did that project last? 10 A. It seemed to last for a couple of years 11 at least. 12 Q. So, 1984, 1985, and possibly beyond? 13 A. That is correct. And I'm including in 14 there things like -- even after the conversion -- 15 computer conversion occurred, there would be some 16 data-cleansing projects. 17 Q. What is that? 18 A. That would be where data had been bad 19 in the computer system or, in other words, it 20 didn't match up with the loan files, for example, 21 and it was bad on the original system that, say, 22 came from Houston First. And even though you put 14519 1 a new system in, the data is still going to be the 2 same data. So, we had projects and work to make 3 sure that all of our information was as accurate 4 as we could get it. 5 Q. And what percent of your time did you 6 spend on that project? 7 A. Again, it's impossible for me to 8 estimate. It was a major project. 9 Q. A substantial part of your time was 10 spent on that? 11 A. Of my personal time, probably not. It 12 was something that I certainly spent time on. But 13 we had a number of people doing that. I believe 14 we had hired Arthur Anderson to come in and assist 15 us on that project. 16 Q. And they all reported to you? 17 A. The partner in charge reported to me. 18 Q. And the staff of people that you had on 19 that also reported to you? 20 A. I believe they, most of the time, 21 reported to Jim Wolfe or the head of operations; 22 and they, in turn, reported to me. 14520 1 Q. Is the issues -- are the issues 2 concerning the computer conversion something that 3 you touched every day? 4 A. No, I wouldn't say that. 5 Q. Okay. What about dealing with 6 investment bankers, consultants, things like that? 7 A. I certainly did that activity, yes. 8 Q. And about how much of your time did you 9 spend on that? 10 A. Again, that would -- I can't give a 11 percentage. It was certainly not something I did 12 every day. It would be dealing with a particular 13 investment banker maybe every day out of the week 14 for one week and then not doing that type of 15 activity for another couple of weeks. 16 Q. And what about with the problems with 17 the REO and foreclosures? 18 A. That is something that I was involved 19 with principally from the aspect of accounting. 20 In terms of the actual REO department that was 21 formed, that was under the direction of Mr. Graham 22 and Mr. Childress. 14521 1 Q. How much of your time did you spend on 2 REO and foreclosure issues? 3 A. In terms of the accounting, I can't 4 give you a percentage; but in order of magnitude, 5 it would be significantly less than the computer 6 conversions or the internal control issues. 7 Q. We've talked about -- about half a 8 dozen major areas that you worked on: Internal 9 controls, financial reporting, computer 10 conversion. 11 What about branch sales? The branch 12 sales, was that something that you worked on? 13 A. Yes, sir, it was. 14 Q. And what time frame were you working on 15 issues related to the branch sales? 16 A. I believe the big branch sale to 17 Independent American Savings, I think that was 18 year-end 1984. It could have been year-end 1985. 19 I'm not positive, but it was one of those two 20 years. And then there were subsequent smaller 21 branch sales but still significant in size. 22 Q. How much of your time do you recall 14522 1 spending on issues related to branch sales? 2 A. Quite a lot. And the first branch 3 sale, Independent American Savings, I spent less 4 time because Gerald Williams was there at the 5 association during that time period; and he 6 handled a lot of that himself personally. So, I 7 would assist him in terms of numbers and that sort 8 of thing. 9 Later during my tenure at United after 10 Mr. Williams had departed, I was more directly 11 responsible for doing financial analysis and 12 assisting with the deal itself. 13 Q. Financial analysis of the branch sales? 14 A. Of the prospective branch sale, yes. 15 Q. You mentioned Mr. Williams. I want to 16 bring you back to your conversation about the 17 senior loan committee. 18 You said Mr. Williams was on the senior 19 loan committee? 20 A. Gerald Williams, yes, sir, he was. 21 Q. Did Mr. Williams -- do you know what 22 Mr. Williams's background in real estate was? 14523 1 A. No, I do not. I know that -- I had 2 known Mr. Williams for a number of years at First 3 City, and I knew that Mr. Williams was a CPA. But 4 I don't have any direct knowledge of his real 5 estate experience. 6 Q. So, you don't know if he had any 7 knowledge of appraisals or reviewing them or 8 feasibility studies, anything like that related to 9 real estate? 10 A. No, sir, I don't. 11 Q. Do you know if Mr. Williams relied on 12 Mr. Gross, Mr. Graham, and Mr. Childress in making 13 decisions on real estate issues? 14 A. I really -- it's hard for me to say 15 what Mr. Williams relied on. I don't know. 16 Q. Also, do you know if Mr. Berner 17 attended meetings of the senior loan committee? 18 A. I believe Mr. Berner did. 19 Q. In what capacity? 20 A. I don't know. I just don't remember 21 whether he at some time became a member or was 22 there as a non-voting participate. I just don't 14524 1 remember. 2 Q. We talked about the things that you 3 spent your time on. If you could for us, please 4 list in the amount of time -- in order of the 5 amount of time you spent on a particular project 6 what you spent the most time on moving down so 7 that I sort of have an idea of how much time was 8 left for you to work on real estate issues. 9 A. Okay. 10 Q. We talked about internal controls, the 11 actual financial reporting -- 12 A. Right. 13 Q. -- computer conversions, branch sales? 14 A. Okay. And we're talking principally 15 here. I have to kind of divide it between 1984 16 and 1985. 17 Q. 1984 -- you started in January of '84 18 through, say, the middle of 1986. 19 A. Okay. 20 Q. All right? 21 A. Okay. 22 Q. How would you rank your allocation of 14525 1 time? 2 A. By far, the largest percentage or 3 proportion would be addressing internal controls, 4 addressing financial reporting that relate to 5 those internal controls. 6 Second, I would think -- and these are 7 all estimates from a foggy memory -- would be the 8 computer conversion. 9 Then I would think -- you know, it kind 10 of cuts across all areas, but hiring and training 11 people was a very time-consuming activity. Then 12 No. 4 -- 13 Q. Is that in connection with the audit 14 function? 15 A. Well, that would be in connection with 16 any function. That would be in connection with 17 the computer department. We hired a -- replaced 18 our head of data processing. It would be in 19 connection with our treasury department. A lot of 20 those people were changed out. It would relate to 21 the comptroller's department. We got a new 22 controller and a number of new individuals. Then 14526 1 something we didn't mention that I did spend a lot 2 of time on was installing a financial budgeting 3 and planning system, and that was -- 4 Q. When was that? 5 A. 1984. And the way it really works is 6 the first year, it's pretty rough. By "rough," I 7 mean you install a planning or budgeting system in 8 a company that's never really had much of one. 9 And so, the first year, you do the best you can 10 because you want the department managers to 11 participate. You want the head of lending to 12 participate, et cetera. 13 And then by the second year, most of 14 the people know what to expect; so, you get better 15 results. So, that's kind of what I was talking 16 about. 17 And then there was this whole area that 18 I just throw into special projects, which would 19 include dealings with the investment bankers, 20 branch sales, potential sale of loan servicing, 21 potential sale of our consumer loan portfolio, 22 "fix it" kind of exercises that Mr. Williams or 14527 1 Mr. Gross or Mr. Bentley would assign us to. 2 Q. And you also mentioned earlier that one 3 of the areas that came under your control at some 4 point in your tenure at USAT was the HR, human 5 resources function? 6 A. That's correct. 7 Q. What did you do in that capacity? 8 A. Well, I don't really remember. I think 9 what we did is consolidated that function and 10 reduced head count. 11 Q. Consolidated the human resources 12 function? 13 A. Yes, sir. We -- the human resources 14 function had been a stand-alone department, and we 15 were under an effort to try to reduce operating 16 expenses. So, the head of human resources started 17 reporting to me. And over time, it appeared to me 18 that a lot of those functions could be performed 19 elsewhere, perhaps with less cost. And so, I 20 ended up combining the human resources function 21 under one common head; and the net result is we 22 performed the same functions and cut head count. 14528 1 Q. About how long into your tenure at USAT 2 did the HR functions come under your authority? 3 A. I think that was -- I'm pretty positive 4 that was after Gerald Williams left; so, that 5 would have been the 1987 time frame probably. 6 Q. And in your capacity in human 7 resources, did you have anything to do with the 8 development of performance appraisals or merit 9 increase reviews, anything like that? 10 A. Not that I remember. I don't remember 11 getting more involved in that than I was before. 12 I mean, that typically, in terms of granting 13 overall salary -- the salary budget, that 14 typically was done by the various department heads 15 and, ultimately, the CEO. 16 Q. And so how much of your time would you 17 estimate you spent on overseeing the human 18 resources and the general bricks and mortar of the 19 operation? 20 A. Human resources, 1984 and '85, it would 21 have been pretty much zero. And then 1986, 22 whenever I assumed responsibility for the human 14529 1 resources function. During the year that I 2 assumed that responsibility, I spent a fair amount 3 of time looking into exactly what they did with 4 the assistance of some other people to see if we 5 could streamline things and reduce expenses. And 6 then it was kind of -- if you did a graph, it 7 would be -- for one year, I probably spent quite a 8 lot of time. And then by 1988, I probably spent 9 very little time on that particular function. 10 Q. And would you place the amount of time 11 that you spent reviewing real estate deals that 12 were brought to the senior loan committee by 13 Mr. Graham at the bottom of that list in terms of 14 the time you spent on a particular project? 15 A. No, sir, I wouldn't. 16 Q. Where would you put that? 17 A. I would put that in the area of, you 18 know, working with the investment bankers, you 19 know, doing projects for Mr. Williams or 20 Mr. Gross. I mean, it was just something that -- 21 it wasn't a day-to-day type activity that I was 22 directly responsible for; but certainly when I 14530 1 needed to pay attention to it, I made time to do 2 it. 3 Q. Okay. Of the items that you 4 identified, I placed the investments as the sixth 5 one that you mentioned, sixth one on the list. 6 Does that sound about right? 7 A. The investments, like -- 8 Q. The first one was the internal controls 9 and then actual financial reporting. Computer 10 conversion, you had third. Hiring and training 11 people, fourth. Installing a financial budget 12 planning system. Dealing with investment bankers 13 and consultants. And then seventh, you had, as 14 the branch sales, the work that you did on branch 15 sales. 16 So, you said you spent more time on 17 real estate matters than you did on the branch 18 sales during that time frame? 19 A. Well, I suppose I've gotten into a more 20 precise exercise than I meant it to be. No. I 21 would say I probably spent more in, like, the year 22 1986, on the branch sales than I spent on real 14531 1 estate. However, in 1985, maybe I spent more time 2 on real estate than I did on the branch sales. 3 So -- it's very hard to characterize, 4 you know, so many years ago kind of how I spent my 5 time. I know I was busy, real busy. 6 Q. I'm sure you were. 7 Nevertheless, that sounds about right, 8 to your recollection, that it was sixth, seventh, 9 or eighth on the list of things you were doing as 10 far as the amount of time that you spent. 11 MR. VILLA: Objection, Your Honor. 12 Characterizing this man's testimony for the last 13 half an hour is unfair. He testified to what he 14 spent his time on on events 14 years ago, and I 15 think trying to characterize it like that 16 summarizes his testimony unfairly. 17 MR. SCHWARTZ: Mr. Crow was a member of 18 the senior loan committee, and I'm just trying to 19 find out and nail down exactly how much time he 20 devoted to those responsibilities. 21 THE COURT: We've spent a lot of time 22 on this issue. I don't know what more can be 14532 1 said. 2 MR. SCHWARTZ: I'll move on, 3 Your Honor. 4 Q. (BY MR. SCHWARTZ) We talked a little 5 bit about the real estate owned and the 6 foreclosure issues. You testified, I believe, 7 that there was a problem when you started; and it 8 progressively got worse. Is that correct? 9 A. That's my memory. 10 Q. What is the effect of REO on the 11 institution's books? 12 A. Well, the effect is negative in terms 13 of net income because REO generally used to be an 14 accruing loan that earned interest. And so, it 15 becomes a non-interest accruing asset just on the 16 balance sheet. 17 Q. So, you're not collecting interest on 18 it? 19 A. That's correct. And oftentimes, you 20 have other expenses associated with foreclosed 21 properties. 22 Q. Do you have to pay taxes? 14533 1 A. Taxes, maintenance, other -- you know, 2 you try to remarket the properties as best you 3 can; and certainly, there's expenses associated 4 with that. But the -- from my memory, the 5 dominant expense was just the cost of carry. You 6 had something that used to be earning 8 to 7 12 percent and, all of a sudden, it's earning zero 8 but you still have to pay the deposit rate that 9 was used from it. 10 Q. And that was a problem that grew 11 throughout your -- grew increasingly worse 12 throughout your tenure? 13 A. That's my memory. There could have 14 been periods where it leveled off or decreased, 15 but my memory is that it pretty much increased. 16 Q. Exhibit T7569 at Tab 721, this is the 17 UFG 10Q for the quarter ending March 31st, 1985? 18 A. Yes, sir. 19 Q. Okay. Did you prepare this document? 20 A. I didn't prepare it typically. The 10Q 21 would be prepared by Mr. Wolfe and his staff and, 22 very secondarily, Bruce Williams and his staff; 14534 1 and then I would certainly review it. 2 Q. If you turn to the last page, OW012969, 3 it indicates that there's a signature mark for 4 you. Does that indicate that you reviewed it and 5 concurred with its contents? 6 A. It indicates that I would have signed 7 the 10Q and I certainly reviewed it. 8 Q. And does it -- would you sign it if you 9 didn't concur with its contents? 10 MR. VILLA: Objection, Your Honor. 11 Asking any person or the director of a public 12 company whether he agrees with anything he signs 13 by signing an SEC filing if he concurs with all 14 the content, I think, is an unfair question. 15 THE COURT: Well, let's have the 16 answer. Denied. 17 A. I really -- when I signed these, the 18 10Qs, I really don't know -- to me, it meant -- 19 and not being a lawyer, it meant that I had 20 reviewed the document and had been as careful as 21 possible to make it accurate. But that's about as 22 far as it goes on my -- I didn't -- I don't 14535 1 remember what I thought in 1985 one way or the 2 other. 3 Q. (BY MR. SCHWARTZ) Your recollection is 4 that you wouldn't have signed it if you had any 5 major disagreements with what it contained; is 6 that correct? 7 A. It would indicate that I reviewed the 8 document and found it to be reasonable. I suppose 9 there's some circumstance that -- you know, if 10 something is so outrageous in a 10Q that it's 11 totally misstated or distorted, then the thing to 12 do is resign and find another job. But there may 13 be items in the 10Q that I don't necessarily agree 14 with but that aren't so material that that would 15 lead you to bolt. 16 Q. Let me refer you to Page OW012963 under 17 "results of operations." 18 Do you see that? 19 A. I see that, yes. 20 Q. And in the first sentence, it talks 21 about a net loss for the quarter. 22 Do you see that? 14536 1 A. Yes. 2 Q. Then it goes on to say, "This 3 unfavorable change reflects an increase in the 4 change for loans and real estate losses and a 5 decrease in the net interest margin of 4.2 and 6 $2.3 million respectively. These changes are 7 primarily contributable to the continuing adverse 8 economic and real estate conditions in the Houston 9 and Brownsville areas which have resulted in 10 significant increases in foreclosures and 11 nonaccruing loans." 12 Do you see that? 13 A. Yes, sir. I see that. 14 Q. And in the beginning of 1985, were you 15 concerned about a weakening in the real estate 16 market principally in the Houston and Brownsville 17 areas? 18 A. Well, I can't remember exactly during 19 this time period what I was concerned about. As a 20 more general answer to your question, certainly I 21 was concerned about increases in foreclosed real 22 estate. 14537 1 Q. What was the cause of the weakening in 2 the real estate market, to your knowledge? 3 A. To the best of my knowledge -- and 4 again, we're going back a lot of years -- the -- 5 principally, the decline in the energy industry. 6 Q. And at or about that point in time, 7 that adverse impact was -- that was being felt in 8 real estate had spread to -- started to spread to 9 other parts of the state. Right? 10 A. I don't -- I don't know. I mean, you 11 know, we're limiting ourselves to 1985; and as to 12 which parts of the state were better or worse, I 13 don't know. I know that Houston -- or I say I 14 know. I believe Houston was hit hardest of the 15 major metropolitan areas during this time frame. 16 Q. Exhibit T7568, which I believe is 17 Tab 721A. I assume that your answers about 18 preparation and signature would be the same for 19 this document, as well. This is the 10Q for the 20 period ended June 30, 1985, of UFG? 21 A. Yes, sir. 22 Q. Would you turn to the page Bates marked 14538 1 OW013004? And down towards the bottom of the page 2 under "results of operations," do you see that? 3 A. Yes, sir, I do. 4 Q. It again talks about a net loss for the 5 six months ended June 30, 1985, and says, "These 6 decreases in the real estate market in Houston and 7 most of Texas have resulted in significant 8 increases in foreclosures and nonaccruing loans 9 and, in turn, increased provisions for losses on 10 loans and real estate acquired in settlement of 11 loans"; is that correct? 12 A. I see that statement, yes. 13 Q. Was it your understanding that by 14 mid-1985, the problems with respect to weakening 15 housing and real estate markets in Houston had 16 spread to the entire state? 17 A. No. I don't recall -- I see that is 18 written on this document, and it's different than 19 the prior document. But as to my memory of why 20 the language was changed, I don't know. 21 Q. Are you familiar with the term "audit 22 planning memo"? 14539 1 A. That's something that, if I'm 2 understanding, would be a Peat Marwick-generated 3 document. 4 Q. Exhibit 7599. Do you recognize 5 Exhibit T7599 as an October 8, 1985 audit planning 6 memorandum for United Financial Group? 7 MR. VILLA: Objection, Your Honor. 8 This is one of the few documents we puzzled over 9 because it doesn't have any Bates stamp numbers on 10 it. This document does not have any obvious 11 source. 12 I'll allow the witness to answer the 13 questions. But all other documents exchanged 14 between the parties have Bates stamp numbers; and 15 all documents from Peat Marwick or the FDIC, OTS, 16 and respondents all have Bates stamps. This 17 doesn't -- 18 MR. SCHWARTZ: I have no explanation as 19 to why it doesn't have a Bates stamp, Your Honor. 20 The question is: Does he recognize what the 21 document is? 22 A. No, sir. I do not recognize what this 14540 1 is. 2 Q. (BY MR. SCHWARTZ) Do you have any basis 3 to dispute the statement at No. 1 on the page? 4 MR. VILLA: Objection, Your Honor. Can 5 we hear at least where the document came from 6 since the only person in the room who appears to 7 know it is Mr. Schwartz? 8 The witness has never seen it before. 9 There's no indication where it came from, and now 10 we're reading from it. Object to that, 11 Your Honor. 12 MR. SCHWARTZ: Mr. Crow has explained 13 that audit planning memoranda were created by 14 Peat, Marwick & Mitchell. Why it doesn't have a 15 Bates number, I can't explain. My question is 16 merely whether or not he has reason to dispute the 17 statement on the page. 18 MR. VILLA: Objection, Your Honor. 19 They called the Peat Marwick people. They could 20 have put it in through them. I have no idea where 21 the document comes from. 22 THE COURT: Let's leave the statement 14541 1 out of it and ask him whether he agrees with the 2 assertion. 3 Q. (BY MR. SCHWARTZ) "The continuing 4 depression in the Houston and Rio Grande Valley 5 real estate and home construction markets which 6 was resulted in increased foreclosures and 7 nonaccruing loans" -- strike that. That's a 8 continuation of a preceding sentence. 9 The sentence begins, "The following are 10 the primary factors that have affected our 1985 11 audit planning. One, the continuing depression in 12 the Houston and Rio Grande Valley real estate and 13 home construction markets which has resulted in 14 increased foreclosures and nonaccruing loans." 15 Does that refresh your recollection, or 16 is your recollection inconsistent with that? 17 MR. VILLA: Objection. I think the 18 appropriate question is does he agree with it. 19 A. I don't remember this. 20 Q. (BY MR. SCHWARTZ) You don't remember 21 the factor? You don't remember the document? 22 A. No, I don't remember the document. 14542 1 It's puzzling to me -- it's -- up in the top, it 2 says the anticipated users of this planning 3 document include the audit committee of the board, 4 UFG management, and Peat, Marwick & Mitchell. 5 I've got a vague memory -- this doesn't 6 look like a Peat Marwick document. 7 Q. Were you UFG management? 8 A. Yes, sir. 9 Q. So, you've indicated already that you 10 don't recall the document? 11 A. Correct. 12 Q. But do you recall the -- whether or not 13 the statement that I read is consistent with your 14 recollection? 15 A. About the depression? 16 Q. The depression in Houston and 17 Rio Grande Valley real estate? 18 A. That's a -- well, I don't know. 19 "Depression" is a pretty strong word. I know 20 Houston -- specifically, I know more about 21 Houston; and I know from my experience at First 22 City and then continuing with United that Houston 14543 1 was hit hard in terms of job creation and job loss 2 or job growth and, thus, in real estate values. I 3 don't know how you would characterize that. 4 MR. SCHWARTZ: Your Honor, I will offer 5 Exhibit T7599. 6 MR. VILLA: I'll object. There's no 7 basis in this record to introduce this document. 8 THE COURT: Sustained. 9 Q. (BY MR. SCHWARTZ) In the paragraph that 10 starts just below on the first page under No. 2, 11 do you see that: "We have worked with Jim Wolfe 12 and Mike Canant"? 13 A. Yes, I do. 14 Q. Who was Jim Wolfe and Mike Canant? 15 A. Jim Wolfe was the controller of the 16 association, and Mike Canant was the internal 17 auditor. 18 Q. And did they report to you? 19 A. Jim Wolfe did. I don't believe Mike 20 Canant did at this time, but I can't be positive. 21 There was a -- I think we discussed this this 22 morning. There was a six-month-or-so window that 14544 1 the internal audit department did report to me. I 2 don't think it was in this time frame. 3 MR. SCHWARTZ: Your Honor, Mr. Crow has 4 indicated he was a member of the UFG management 5 for whom the memoranda indicates it was directed 6 to. It was, to Mr. Crow's recollection, created 7 by Peat Marwick & Mitchell. It was specifically 8 for people under his direction at this time. I 9 therefore offer it in evidence. 10 MR. VILLA: He said it doesn't look 11 like a Peat Marwick document. As I said, they had 12 Peat Marwick here. They could have identified the 13 document if they wanted to. 14 Q. (BY MR. SCHWARTZ) Did you say that it 15 does not look like a Peat Marwick document? 16 A. That's correct. 17 MR. SCHWARTZ: Nevertheless, 18 Your Honor, he was a member of UFG management. 19 It's directed for the use of UFG management and 20 specifically refers to people under his control. 21 THE COURT: Well, I don't believe 22 that's sufficient foundation to receive the 14545 1 document. 2 MR. SCHWARTZ: Very well. 3 Q. (BY MR. SCHWARTZ) The next exhibit is 4 Exhibit B1298, and this was admitted at Tab 1171. 5 And it is the 1986 audit planning memo which 6 presumably was from the same source as the 1985 7 audit planning memo. 8 Mr. Crow, would you take a moment to 9 look at Exhibit B1298 and tell me if that 10 refreshes your recollection of the source of the 11 document? 12 A. (Witness reviews the document.) I 13 don't remember the document specifically, but I 14 believe I've seen similar documents. 15 Q. In the course of your work at USAT? 16 A. Yes, sir. 17 MR. SCHWARTZ: Your Honor, I move again 18 for the admission of Exhibit T7599. 19 THE COURT: Well, the format is 20 virtually identical -- I'll receive it -- 21 identical with B1298. 22 MR. SCHWARTZ: Thank you. 14546 1 Q. (BY MR. SCHWARTZ) If you would look 2 again at the middle of the first page of text, the 3 sentence begins, "The following are the primary 4 factors that have affected our 1986 audit 5 planning." 6 First of all, do you know what is meant 7 by "primary factors affecting an audit"? 8 A. That would be things that the auditors 9 would consider. I can't -- if it's a technical 10 definition, I can't remember it. 11 Q. The first primary factor that's 12 identified, it says, "The continuing depression in 13 the Houston and Rio Grande Valley real estate and 14 home construction market which have resulted in 15 increased foreclosures and nonaccruing loans" -- 16 MR. NICKENS: Your Honor, which 17 document are we reading from? 18 MR. SCHWARTZ: I'm sorry. I apologize. 19 The following are the primary factors -- 20 THE COURT: Which document are you on 21 now, Mr. Schwartz? 22 MR. SCHWARTZ: Well, Your Honor, I 14547 1 don't have a copy of B1298. I'm using a T 2 exhibit, T7600. I apologize for the confusion. 3 The T7600 is a two-page exhibit which is just the 4 second and third page of the exhibit that's been 5 admitted that the witness is looking at. 6 THE COURT: That shouldn't read 7 differently. 8 MR. SCHWARTZ: I was looking at the 9 wrong place in my notes. 10 MR. NICKENS: I'm looking at B1298 11 which references -- it doesn't say anything about 12 Rio Grande Valley in my copy. 13 MR. SCHWARTZ: If I can look at your -- 14 MR. NICKENS: I don't have any idea 15 whether this is important, but those words don't 16 appear here. 17 MR. SCHWARTZ: I apologize, Your Honor. 18 Q. (BY MR. SCHWARTZ) In the center of that 19 page, "The following are the primary factors that 20 have affected our 1986 audit planning. One, the 21 continuing depression in the Houston and Texas 22 real estate and home construction markets which 14548 1 has resulted in increased foreclosures and 2 nonaccruing loans." 3 Do you see that? 4 A. I see that, yes, sir. 5 MR. VILLA: Are we on the October 31, 6 1986 memo now? 7 MR. SCHWARTZ: Yes. 8 MR. VILLA: Okay. Thank you. 9 Q. (BY MR. SCHWARTZ) So, it's fair to say, 10 then, that in the period from the 1985 audit 11 planning memo to the 1986 audit planning memo, 12 real estate depression had continued to spread 13 throughout Texas. Is that correct or consistent 14 with your recollection? 15 A. I don't have a recollection. I 16 certainly see what the words say, and I am very 17 comfortable with this. This is a 18 Peat Marwick-generated document, October 31st, 19 because I get back into all these other schedules. 20 I believe it is Peat Marwick. 21 Q. So, you don't have any basis to dispute 22 the statement as you sit here today? 14549 1 MR. NICKENS: Your Honor, he said he 2 had no recollection. I mean, what are we 3 establishing when the witness has said he has no 4 recollection by asking a person with no 5 recollection whether he has a basis to dispute the 6 statement in a document? 7 THE COURT: All right. Sustained. 8 Q. (BY MR. SCHWARTZ) Exhibit T7005, 9 Tab 650 now, in December or January of 1985, did 10 you happen to see this article in a newspaper from 11 San Antonio, if you recall? 12 A. I don't recall. And I would -- I 13 didn't take the San Antonio paper; so, I would 14 seriously doubt it. 15 Q. You said earlier that you reviewed 16 periodicals in real estate. What periodicals did 17 you review? 18 A. Magazines. 19 Q. What magazines? 20 A. Gee. Business Week, Fortune, Forbes. 21 That's about as specific as I can get. I don't -- 22 I didn't -- you know, I typically read The Houston 14550 1 Chronicle. 2 Q. So, the periodicals that you testified 3 earlier that you reviewed to learn about real 4 estate issues were things like Business Week, 5 Forbes -- 6 A. Business Week, Forbes, Fortune. I 7 remember there was a real estate guide put out by 8 one of the big CPA firms. I don't think it was 9 Peat Marwick. I reviewed that. 10 Q. If you don't recall seeing this 11 particular article, were you aware otherwise that, 12 as the article states, foreclosures were mounting 13 and new construction was slowing in San Antonio? 14 A. No, sir, I was not. 15 Q. How about that real estate experts in 16 San Antonio were saying that, quote, "The fall of 17 the real estate market was driven by overbuilding 18 in the office, retail, and apartment markets in 19 about June of 1985 by the drying up of financing 20 to buy land and construct new buildings"? 21 Were you aware of that kind of 22 information being reported out of San Antonio? 14551 1 A. I really don't remember what I would 2 have been aware of in San Antonio in 1985. 3 Q. You were making loans in San Antonio. 4 The Park 410 was for $80 million. What research 5 did you do on the market in San Antonio? 6 A. As it relates to the Park 410 loan, the 7 real estate staff had done, I believe, a great 8 deal of research on that particular location; and 9 it appeared to be a very, very good location. And 10 I recall we had generated a lot of paper, a lot of 11 feasibility studies, that sort of thing. I can't 12 be specific and point to a document because I just 13 simply don't remember. 14 Q. Well, when you voted to approve the 15 Park 410 loan, though, you were aware that the 16 purpose was to sell sites for office, retail, and 17 apartment development; is that correct? 18 A. I was aware that it was a mixed-use 19 investment project off of the Loop 410 on the west 20 side of town close to the proposed Sea World and 21 was supposed to have a new freeway running through 22 it or adjacent to it. 14552 1 Q. What research did you do to find out 2 about that? 3 A. Reviewed the documents -- the specific 4 answer is I really can't recall. 5 Q. Did you rely on what Mr. Graham 6 presented to you? 7 A. Typically, yeah. I would have relied 8 on the information the real estate people, 9 including Mr. Graham, gave us. 10 Q. And Mr. Gross? 11 A. Primarily, Mr. Graham because he was 12 kind of the point man on Park 410. But I 13 certainly relied on Mr. Gross' opinion. 14 Q. As you sit here today, you don't recall 15 whether you did any independent research on the 16 San Antonio market where this project was to be 17 built; is that correct? 18 A. In terms of independent, you mean going 19 outside of the information available in United -- 20 Q. Yes. 21 A. -- and going to whatever outside 22 source? 14553 1 Q. Anything at all. Reading a newspaper, 2 looking at TV, anything at all? 3 A. I don't recall doing that, no, sir. 4 Q. Were you aware that in November 1985 in 5 Bexar County, Texas -- that's where San Antonio 6 is. Right? 7 A. Yes, sir. 8 Q. -- that 42 commercial properties with 9 original loans of $500,000 or more were sold 10 because their owners could not arrange financing. 11 Were you aware of that? 12 A. I don't remember whether I was or not. 13 Q. Do you recall whether the real estate 14 experts you relied on, Mr. Graham or Mr. Gross, 15 ever told you any of those facts? 16 A. Specifically, I can't remember whether 17 they did or did not. 18 Q. Are you familiar with the developer 19 named Omni Interests? 20 A. No, sir. 21 Q. Were you aware, as this article 22 reports, that the Omni Interests problems in 14554 1 San Antonio had required that they put three major 2 investment projects into foreclosure due to the 3 tightening real estate market in San Antonio? 4 A. I don't remember what I was aware of 5 related to that, no, sir. 6 Q. And Mr. Graham -- you don't recall 7 Mr. Graham or Mr. Gross informing you of that 8 during the discussion of Park 410? 9 A. Mentioning Omni Interests, no. 10 Q. Or the fact that they had put three 11 major investment projects into foreclosure due to 12 a tightening real estate market? 13 A. I don't remember that. They may have. 14 I just simply don't remember. 15 Q. What about Traveler's Insurance Corp.? 16 Were they stating publicly in December of 1985 -- 17 December 1985 that the San Antonio real estate 18 market is soft all around? 19 A. Could you repeat that, please? 20 Q. Were you aware that the manager of the 21 investments office in San Antonio of the 22 Traveler's Insurance Company was stating publicly 14555 1 in December of 1985 that the San Antonio real 2 estate market is soft all around? 3 A. I don't remember whether I was aware of 4 that or not. I don't have a recollection of that. 5 Q. And you don't recall Mr. Gross or 6 Mr. Graham informing you of information like that? 7 A. I don't remember that, no. Again, they 8 may have. We're talking 1985 year here. That's a 9 long time ago. 10 Q. Were you aware that at least this 11 newspaper was reporting, in December 1985, that, 12 quote, "Owners of many shopping centers and office 13 projects are finding it more and more difficult to 14 pay off their loans in an overbuilt market that 15 has forced them to offer reduced rent and other 16 incentives to attract tenants." 17 Were you aware of that? 18 A. I don't recall whether I was aware of 19 that or not. 20 MR. VILLA: Your Honor, you know, we 21 objected when this was originally introduced that 22 these are not facts. This is just somebody's 14556 1 reporting. He's read it into the record, as if 2 they were facts, that they have been established 3 that unnamed people running unnamed projects are 4 making unattributed statements. 5 I want to suggest that we have another 6 cooperative witness that's suggesting all this as 7 being true. There's no factual basis in the 8 record for what some newspaper reporter decided to 9 report in San Antonio in 1985. 10 MR. SCHWARTZ: I'm finished with this, 11 Your Honor. 12 THE COURT: Well, in response to 13 Mr. Villa, I think it's clear that the statements 14 are published reports; and I would construe the 15 question to ask whether or not he was aware that 16 such public statements were made. 17 Q. (BY MR. SCHWARTZ) Mr. Crow, is the kind 18 of information that we've been talking about the 19 kind of information that you would have found 20 useful in making a decision on the Park 410 loan? 21 A. Well, the -- the kind of information -- 22 I mean, just in general, a person wants all the 14557 1 information they can get. But from the best of my 2 memory, we attended to home in on the -- the 3 development plan where the location was, the 4 feasibility study, detailed appraisals. Again, 5 this is just again -- I don't really remember 6 exactly what we looked at, but having the experts 7 and our staff look at the proposed project and see 8 if it made sense. That's kind of what I remember. 9 And I know we generated two or three 10 cabinet fulls of paper related to Park 410. I say 11 I know. I believe we did. And I did rely on the 12 real estate people to summarize that for review, 13 and I certainly can't say that I went through and 14 looked at every piece of paper or read every 15 article. 16 Q. You said that there were file cabinet 17 drawers full of documents related to Park 410? 18 A. I remember a lot of documents, stacks. 19 Q. What documents? 20 A. I have no idea. I just remember stacks 21 of paper because my physical location was close to 22 Mr. Graham and Mr. Childress' office, and that was 14558 1 a big project they were working on. 2 Q. So, they told you that this is the 3 stack of Park 410 material? 4 A. Honestly -- well, I don't really -- it 5 was my impression, when I went into their office, 6 there was a lot of paper. And for whatever 7 reason, I thought it was Park 410. Beyond that, 8 my memory is foggy. I don't know whether they 9 told me that or not. 10 Q. And you don't know whether those 11 documents were, say, bills from contractors or 12 subcontractors or correspondence from the 13 developers or any kind of promotional material 14 from the borrowers? Anything like that? You just 15 don't know? 16 A. No, I don't know. I didn't do a review 17 of the -- of the documentation other than what was 18 presented. 19 Q. Well, you do recall that the Park 410 20 project was to sell sites for the construction of 21 a shopping mall, office space, apartments, 22 warehouse space, things like that? 14559 1 A. I remember the term "mixed use." 2 Q. Is that consistent with your 3 understanding of what "mixed use" is? 4 A. That it would be commercial and 5 residential. 6 Q. How did you, as a member of the senior 7 loan committee, come to the conclusion that the 8 Park 410 deal was something that USAT should put 9 its money into? 10 A. Well, over a period of time -- and I 11 think this morning, we looked at the Park 410 12 project and a subsequent loan had been reviewed 13 and looked at at various meetings over a fairly 14 lengthy period of time. And -- 15 Q. Those were the meetings that were about 16 an hour or so long that we looked at this morning. 17 A. Yes, sir. 18 Q. Okay. 19 A. And I was aware that there were other 20 meetings outside of the senior loan committee 21 meetings talking about Park 410. And from best -- 22 you know, my independent memory, I remember it 14560 1 appeared to be a very good location, you know, 2 around a major loop in San Antonio. It, you know, 3 was close to the proposed Sea World project which 4 did, in fact, come up and that the borrowers were 5 willing to put up $10 million in letters of 6 credit. 7 Q. Who told you it was a good location? 8 A. I don't remember who told me that. 9 Q. Did Mr. Graham tell you that, if you 10 recall? 11 A. Sir, I don't remember specifically who 12 told me that. 13 Q. How did you come to the conclusion on 14 your own that it was a good location other than 15 through information that was provided to you by 16 Mr. Gross or Mr. Graham? 17 A. I probably didn't come to that 18 conclusion on my own. 19 Q. How did you come to that conclusion, 20 then? 21 A. I don't remember. 22 Q. But it would have been based on things 14561 1 that were presented to you by either Mr. Gross or 2 Mr. Graham, to the best of your recollection? 3 MR. VILLA: Objection, Your Honor. He 4 did testify that it came from Mr. Graham; and now, 5 we're getting Mr. Gross and Mr. Graham. He throws 6 it in every time. 7 His prior testimony was he got the 8 information from Mr. Graham. The questions are 9 all misleading by throwing in another person and 10 getting this witness to agree to it. 11 THE COURT: The question may be 12 misleading, but I think the answer is he doesn't 13 remember. I don't know where we are on this. 14 Next question. 15 Q. (BY MR. SCHWARTZ) Exhibit 7743, 16 Tab 789. We've talked about San Antonio some. 17 How about for Austin? In or about December 15th, 18 1985, did you happen to see this associated press 19 article on the overbuilt office space in Texas 20 cities? 21 A. I don't remember. 22 Q. Were you aware from any other sources, 14562 1 as this article reports, that developers in Austin 2 are having to offer hefty discounts and rent 3 concessions to fill their buildings? 4 A. I simply don't remember what I knew in 5 1985 related to that subject. 6 Q. "And Austin, a city that has added 7 three-quarters of its present space to the skyline 8 since 1980, leads the state with a staggering 37 9 percent vacancy rate"? 10 A. Again, I don't remember whether I was 11 aware or unaware of that. 12 Q. Is that information that you would have 13 found useful in making your determination on 14 whether to approve the loan to the Norwood 15 developers? 16 A. The -- what type of information? 17 Q. The information that I just relayed to 18 you. 19 A. The information related to the -- well, 20 I don't know. 21 Q. You don't know if it would have been 22 useful to know that developers in Austin were 14563 1 offering hefty discounts and other rent 2 concessions to fill their buildings? 3 MR. VILLA: Objection. Assuming it was 4 important to know that some newspaper was 5 reporting this fact. You're not representing that 6 this is a fact. 7 MR. SCHWARTZ: Well, I would like to 8 represent it as a fact; but I know you're going to 9 disagree with me on that. Nevertheless, I want to 10 know what the witness knew. If this is 11 information that he would have found useful to him 12 when he was voting as a member of the senior loan 13 committee to approve a 30-million-dollar 14 development in Austin, wouldn't he want to know 15 all the information that was available? 16 MR. VILLA: Object to the question. 17 The question ought to be that somebody is 18 reporting this to be a fact that the OTS can't 19 prove through other evidence. 20 THE COURT: Let's confine it to the 21 reported information. 22 A. Would you repeat the question, please? 14564 1 Q. (BY MR. SCHWARTZ) The reported 2 information, is that the kind of information that 3 you would have found useful in making a 4 determination as a member of the senior loan 5 committee as to whether to approve the Norwood 6 transaction? 7 A. Well, I can answer it generally. As a 8 member of the senior loan committee, I would want 9 to have information about conditions in the 10 markets where the project is. 11 Q. And you don't recall Mr. Graham or 12 Mr. Gross relaying any of that kind of information 13 to you during the senior loan committee meetings 14 or other meetings? 15 A. Well, I simply don't remember what 16 specific information they relayed. I mean, 17 typically, we certainly discussed conditions and 18 the geographic locations where we were making 19 projects and loans. But in terms of this specific 20 loan and these specific reports, I don't remember. 21 Q. You mentioned earlier that in addition 22 to the senior loan committee meetings, there were 14565 1 other meetings that you had where Park 410 was 2 discussed. What meetings were those? 3 A. Well, what I -- what I meant to say is 4 that I was aware that other meetings were 5 occurring relating to Park 410. Typically, I 6 didn't attend those meetings. I would just -- and 7 it was nothing formal. It was just the real-world 8 working of the real estate people coming, huddling 9 with Mr. Gross or Jerry Williams or whoever, and 10 talking about Park 410. 11 Q. But you were not a party to these 12 meetings? 13 A. Typically not. 14 Q. How do you know that they were 15 discussing Park 410 or Norwood for that matter? 16 A. Well, I suppose I made an assumption 17 because that was the major activity that 18 Mr. Graham was working on. And I mean, every time 19 I saw him, he would have something in his hand or 20 whatever related to that. But I -- factually, you 21 know -- I don't have a memory that somebody told 22 me we were meeting for purposes of discussing 14566 1 Marc IV 10, but I believe that. 2 Q. Exhibit T7651, Tab 689. Who was Mel 3 Blum? 4 A. Mr. Blum was a -- I believe his 5 position was a consultant to United Savings, and 6 the arrangement -- he was a consultant, but he was 7 there most of the time so -- during his 8 engagement. So, from my -- from an observer, he 9 was pretty much full time. 10 Q. To refresh your recollection, the 11 Norwood 30-million-dollar loan was -- was -- the 12 meeting of the senior loan committee to discuss 13 that was June 2nd, 1986. 14 Is that consistent with your 15 recollection? 16 A. I don't -- I can't peg a date. I don't 17 know. 18 Q. Okay. Well, were you aware in March 19 1986 that -- first of all, the document that 20 you're looking at, do you -- have you ever seen it 21 before? 22 A. I don't think I've seen it before. I 14567 1 don't remember it. 2 Q. This is a series of documents actually 3 put out by the City of Austin containing 4 information on city growth. 5 Have you ever seen those reports 6 before? 7 A. I don't remember. I just don't 8 remember. 9 Q. Were you aware that in March of 1986, 10 the City of Austin itself was reporting that for 11 the northeast quadrant -- that's the area where 12 the project -- Norwood United project was 13 located -- was reporting that it could take up to 14 25 years for the planned 25 million square feet of 15 office space to be absorbed. 16 I'll refer you to Page OW195368 in this 17 document. 18 A. I'm on the page. 19 Q. And if you look at the first asterisked 20 paragraph -- 21 A. I see the paragraph. 22 Q. -- were you aware of that information? 14568 1 A. I don't remember seeing this; so, I -- 2 you know, the fair answer is I don't remember 3 whether I knew or not. 4 Q. What about that the City was reporting 5 in its growth watch report that, quote -- and I'm 6 looking down at the last asterisked paragraph on 7 that page just above "conclusions "-- "Given the 8 amount of development already in the planning 9 process, land use in the area will be largely 10 committed for the next 35 to 50 years." 11 Do you see that? 12 A. I see that. 13 Q. Were you aware of that information at 14 the time? 15 A. I don't remember whether I was or was 16 not. 17 Q. Is that the kind of information that 18 you would have liked to have been aware of at the 19 time that you were making a loan to the Norwood 20 borrowers? 21 A. Well, again, one wants all the market 22 information they can get. Whether this specific 14569 1 study is the type of information we would want, I 2 don't know. 3 It's from the City of Austin? 4 Q. Yes, sir. 5 A. I don't know what their purpose is. 6 I'm just not familiar with this study. 7 Q. So, to the best of your recollection, 8 this is the first time that you're hearing any of 9 this; is that right? 10 A. I don't remember -- yes. The answer, I 11 suppose, is "yes" because I don't remember reading 12 or seeing this information and these numbers. 13 Q. Exhibit 7138, Tab 690. Do you recall 14 ever seeing this market analysis by Burke, O'Hara, 15 Ford Associates before? 16 A. No, sir. I don't remember whether I've 17 seen it or not. It's addressed to Mr. Minch. 18 Q. Mr. Minch? 19 A. Right. 20 Q. You don't recall whether you ever saw 21 this before? 22 A. No, I don't remember that. I think he 14570 1 was one of the principals involved in Norwood. 2 Q. That's correct. This is a market 3 analysis. 4 Do you have any recollection of whether 5 United required that Mr. Minch obtain this? 6 A. I don't know. 7 Q. I represented to you earlier that the 8 senior loan committee minutes for the approval of 9 the Norwood property were -- was dated June 2nd, 10 1986. You said you didn't recall that. Right? 11 A. The specific date, yes, sir, right. 12 Q. If you look at the first page inside -- 13 this feasibility study or market study is dated 14 June 4th, 1986, correct? 15 A. That's the date of the letter to 16 Mr. Minch. 17 Q. So, assuming that my statement to you 18 that the SLC meeting was June 2nd, 1986, this is 19 not the kind of detailed feasibility report that 20 you were referring to earlier that was in the 21 hands of United at the time the senior loan 22 committee made its decisions; is that correct? 14571 1 A. Well, assuming the date of the loan 2 approval or the real estate project approval was 3 June 2nd, clearly, the June 4th date is after 4 that. 5 Q. So, this is not something that would 6 have been in United's possession at the time? 7 A. Well, I don't know. 8 Q. You just don't know? 9 A. Because, I mean, the transmittal letter 10 to Minch is June 4th; but I don't know whether the 11 report was floating around to somebody else. I 12 don't know. 13 Q. Would you turn to Page 19 of the 14 report? Is that Chapter 4? 15 A. Yes, sir. 16 Q. Would you have been aware at the time 17 that you voted to approve the loan to Norwood 18 that, as it says right under "Austin suburban 19 office market," for the past five years and 20 particularly the past three years, office 21 development in the three county Austin MSA has 22 grown more rapidly than its employment base? 14572 1 Would you have been aware of that 2 information? 3 A. I don't know what I would have been 4 aware of during this time frame. 5 Q. How about that "interviews with real 6 estate professionals reveal that commonly-held 7 view that the office space market is overbuilt and 8 is likely to remain overbuilt"? Would you have 9 been aware of that? 10 A. I don't know. 11 Q. Do you recall Mr. Gross or Mr. Graham 12 ever telling you that? 13 A. I don't have a recollection as to 14 whether they did or did not. I simply don't know. 15 Q. Do you recall ever looking at the map 16 that appears on Page OW193374 to see the 17 competition posed by office buildings already in 18 the area immediately surrounding the Norwood site? 19 A. I can't specifically say if I saw this 20 map. Certainly -- I don't remember -- I remember 21 Mr. Graham and Childress were always using maps to 22 show members where projects were and where 14573 1 competing projects were. In terms of this 2 specific document, I simply don't know. 3 THE COURT: My copy doesn't have a map 4 in it. Does everybody else's? 5 6 (Discussion held off the record.) 7 8 THE COURT: Thank you. 9 Q. (BY MR. SCHWARTZ) How about on the next 10 page? You weren't aware that Burke O'Hara was 11 reporting on the oversupply -- the second 12 paragraph under "performance of proposed office 13 product," do you see that? 14 A. I'm sorry. 15 Q. I'm on Page 27 of the document, 16 OW193375. 17 A. And which paragraph again, please? 18 Q. Under 4.4, "Performance of proposed 19 office product." 20 Do you see that? 21 A. Yes. 22 Q. You weren't aware that Burke O'Hara was 14574 1 reporting that the oversupply anticipated in the 2 Austin office market when the Norwood office 3 product enters the market will be great? 4 A. No, sir. I don't know whether I was 5 aware or unaware of that. 6 MR. VILLA: Your Honor, at the risk of 7 pointing out the obvious, Mr. Huebsch was under 8 direct-examination by the OTS for 20 hours; and my 9 cross took 35 minutes. We're now on the way to 10 that again with Mr. Crow. He said he doesn't 11 remember this and he's now pulled out a 150-page 12 document and he's reading page after page after 13 page. I'm sure that the OTS feels like they are 14 entitled to ask questions until we all expire. 15 The honest truth is they are making no 16 headway here, and that's why this is taking six 17 months to try. He said he doesn't know, he didn't 18 see. It's abusive, argumentative, pointless 19 questioning. 20 I object to it, Your Honor. There's no 21 basis for anybody to believe that he would be able 22 to answer any of these questions. He said he 14575 1 doesn't remember. 2 MR. SCHWARTZ: The point of all this is 3 there was a plethora of information available to 4 the witness at the time regarding the conditions 5 in the areas where he was approving 80- and 6 30-million-dollar loans and that he exercised no 7 effort whatsoever to learn anything other than 8 what he was told by Mr. Gross and Mr. Graham. 9 That's the point of this. 10 MR. NICKENS: Your Honor, that's not 11 the testimony. The testimony is he doesn't 12 remember. They are taking the fact that somebody 13 doesn't remember a specific document or Page 13 14 from 15 years ago to support statements like were 15 just now made by Mr. Schwartz. The only evidence 16 is he doesn't recall. That is precisely the kind 17 of evidence one would expect for events of this 18 vintage. 19 Mr. Schwartz's conclusion as to what 20 the evidence is is precisely the problem and the 21 difficulty that we are experiencing. Witnesses 22 can't be expected -- now, if they recall, I'm sure 14576 1 that the questions will be to bring that out. But 2 we've spent an hour going over documents that the 3 witness, at the very beginning, said he did not 4 remember or recall ever having seen; gone over 5 various statements that he couldn't possibly have 6 recalled whether he knew them or not. The 7 conclusion that he didn't do anything because he 8 doesn't remember something 13 years ago is frankly 9 totally unwarranted. 10 MR. SCHWARTZ: First of all, I think 11 that I am entitled to use whatever means that I 12 can to try to refresh the witness' recollection. 13 So, I am going to -- I would like to be able to 14 present him with as much information as we are 15 aware of that was available at the time for him to 16 have reached any kind of independent conclusion on 17 his own about whether or not these -- this 18 information would have been relevant to him at the 19 time. 20 THE COURT: All right. Well, I think 21 you're entitled to show him some of these 22 documents. We'll take a short recess. 14577 1 2 (Whereupon, a short break was taken.) 3 4 THE COURT: Be seated, please. We'll 5 be back on the record. 6 Mr. Schwartz, you may continue. 7 Q. (BY MR. SCHWARTZ) We went through some 8 information on the Burke, O'Hara report on 9 Chapter 4 concerning the office product analysis. 10 Do you recall that? 11 A. Yes, I do. 12 Q. Were you aware that the Norwood project 13 included a planned eight office buildings 14 comprising more than 1.3 square million feet of 15 office space? 16 A. I don't remember that, no. 17 Q. Chapter 5 of the market analysis is on 18 the hotel product. Were you aware at the time 19 that Burke, O'Hara was reporting an unusually 20 large hotel room inventory for Austin already in 21 existence? 22 A. I don't remember whether I knew that or 14578 1 didn't know it. 2 Q. Or that lodging industry experts 3 uniformly agree that a Austin hotel will 4 experience much lower occupancy rates in the next 5 five years than in the past five years. 6 Were you aware of that at the time? 7 A. No, sir, I don't know whether I was 8 aware of it or not aware of it. I just simply 9 don't recall. 10 Q. That occupancy rates were projected at 11 50 percent for the period 1985 to 1990 in Austin 12 and those occupancy rates could drive room rates 13 down 10 to $15 per night in Austin. 14 Were you aware of that at the time? 15 A. I don't remember whether I was aware of 16 it or not. 17 Q. And that Burke, O'Hara was reporting 18 that the northeast area was considered to be 19 overbuilt at the time in hotel rooms where the 20 Norwood Park site was located? 21 Were you aware of that? 22 A. I don't remember whether I was or was 14579 1 not. 2 Q. Did you have an opportunity to see the 3 map at OW193385 showing the hotel competition 4 facing Norwood. The map that we looked at earlier 5 showed the office building competition in the 6 area. This shows the hotel competition. It's at 7 OW193385. 8 A. And the question please? 9 Q. Did you ever see that before? 10 A. Not that I remember. I remember, 11 again, the real estate area had a lot of maps with 12 colored markers on it for various projects; but 13 I -- I simply can't say whether I did or didn't 14 see this map. 15 Q. You don't recall whether any of those 16 maps indicated the hotel competition in the area 17 of the Norwood project. 18 Is that your testimony? 19 A. That I don't remember whether I saw it 20 or didn't see it. 21 Q. And is the kind of information that 22 I've discussed with you the kind of information 14580 1 that you think would have been helpful to you in 2 making a determination at the time on approving 3 the Norwood loan when you were a member of the 4 senior loan committee? 5 A. Well, a general one would certainly 6 want to look at the market conditions in the 7 community and competitive developments. And 8 for -- you know, I just simply don't remember. 9 For all I know, we might have looked at this 10 report. I just don't remember. 11 Q. Were you aware that the Norwood project 12 included two hotel sites for between 480 and 510 13 rooms? 14 A. I don't remember whether I was aware of 15 it or not, sir. 16 Q. And you don't recall whether Mr. Graham 17 or Mr. Gross ever discussed any of that kind of 18 information with you? 19 A. I don't have a recollection of such a 20 discussion. 21 Q. Then in making the -- your decision to 22 approve the Norwood loan, what -- what information 14581 1 do you recall relying on? 2 A. I don't recall what information we 3 looked at or I looked at related to the Norwood 4 loan. 5 Q. Thank you, sir. 6 Exhibit T7020, Tab 687. Do you 7 recognize Exhibit T7020? 8 A. (Witness reviews the document.) I 9 don't remember it, but it's -- the document 10 appears to be a loan committee approval summary. 11 Q. It's a June 2nd, 1986 approval -- says 12 "loan committee approval." Is this the summary 13 that you were referring to earlier that Mr. Graham 14 or someone on his staff would provide to you with 15 a packet? 16 A. This is the type of thing, yes. 17 Q. Okay. 18 A. And I recall there were other, perhaps, 19 more detailed than this; but I don't remember 20 exactly. Certainly as it relates to Norwood, I 21 don't remember the package. 22 Q. Well, would you look at the last page 14582 1 of that? Is that your signature on there? 2 A. That is my signature. It certainly 3 appears to be, yes. 4 Q. And the other signatures are Mr. Graham 5 at the top? Is that -- 6 A. The one right above mine is 7 G.R. Williams, Gerald Williams. 8 Q. And to the left of that? 9 A. To the left of that, I believe -- the 10 one in the middle, I believe, is Mr. Gross'. 11 Q. And the one at the bottom? 12 A. I don't know. 13 Q. Do you recall attending this particular 14 meeting of the senior loan committee? 15 A. No, sir, I don't have such a 16 recollection. 17 Q. Do you recall signing to approve this 18 loan? 19 A. No, sir, I do not. 20 Q. You have no reason to dispute the 21 accuracy of the fact that that is your signature 22 and that you did approve the Norwood loan? 14583 1 A. I have no reason to dispute that I 2 signed this, no. 3 Q. And your signature there indicates that 4 you approved making the loan, correct? 5 A. It assumes that as a member of the 6 senior loan committee, I voted for approval of 7 this -- this project, yes. 8 Q. As you sit here today, you just don't 9 recall why -- is that your testimony -- why you 10 approved the loan? 11 A. Right. I can't recall the pluses and 12 minuses and the numbers and that sort of thing. 13 Certainly not. 14 Q. Okay. We're going to look at some of 15 those. On this document on the first page, it 16 refers to Frank Krasovec and Jeffrey Minch. 17 Mr. Minch's name we saw earlier on the Burke, 18 O'Hara report. 19 Do you remember the name Frank 20 Krasovec? 21 A. I remember -- yes, I do remember those 22 names. 14584 1 Q. Do you recall whether or not 2 Mr. Krasovec and Mr. Minch were the first 3 borrowers on the Norwood project that had come to 4 United? 5 A. I believe it -- my memory is that 6 Block and Gordon were involved in this project. 7 Q. Block and Gordon? 8 A. That's my memory. Whether that's 9 accurate, I don't know. 10 Q. Is that memory that's been refreshed in 11 the last few days, or is that memory that you 12 recall from 1986? 13 A. No. I remember -- I believe we 14 discussed in my deposition that, for whatever 15 reason related to the Norwood project, I 16 remembered Krasovec, Block, Gordon. 17 Q. And Minch? 18 A. I've had my memory refreshed on Minch. 19 Q. Exhibit T7008, Exhibit 663. 20 Now, you were on the senior loan 21 committee in December of 1984, correct? 22 A. It appears that I was, yes. 14585 1 Q. And that is your signature on the last 2 page? 3 A. Yes, sir, it is. 4 Q. Can you identify the other signatures 5 there? 6 A. The one on the right-hand column is 7 G.R. Williams. The ones above that, I don't know. 8 Q. You mean above your name? 9 A. Yes, sir. 10 Q. Now, this was a -- do you recall this 11 meeting of the senior loan committee? 12 A. No, sir, I do not. 13 Q. Were you familiar with the borrowers: 14 Mr. Block and Mr. Gordon, Tom Gordon and Steve 15 Block? 16 A. No, sir, I did not know them or wasn't 17 familiar with them. 18 Q. What do you recall about them as 19 borrowers? 20 A. Just their name and that it was a name 21 often mentioned by Graham and/or Childress. 22 Q. In what capacity? 14586 1 A. They -- that's about all I remember. 2 Q. Are you aware that this is the same 3 piece of property that's referred to in the 4 previous exhibit we just looked at: 7020? 5 A. I don't have a memory of that. I've 6 seen documents recently but -- that suggest that. 7 Q. So, you are aware that Mr. Block and 8 Mr. Gordon were borrowers on the property in '84 9 and Mr. Krasovec and Minch were borrowers on the 10 property in 1986; is that correct? 11 A. Yes, sir. It appears that Mr. Block -- 12 Mr. Gordon and Mr. Block are the borrowers in 13 1984. 14 Q. Did you know what their business was? 15 A. No, sir, I didn't know them. 16 Q. Did you know anything to do -- do you 17 know anything about their background in the 18 development of shopping malls? 19 A. As to what I knew back in 1984, I don't 20 remember. 21 Q. Or 1985 or 1986? 22 A. No, sir, I don't remember what I knew, 14587 1 whether I knew their background and experience or 2 not. 3 Q. Well, were you aware of -- 4 well, obvious -- strike that. 5 This indicates under "applicant" -- I'm 6 looking at 7008 -- Mr. Gordon and Mr. Block's cash 7 liquidity and net worth. 8 Do you see that? 9 A. I see that. 10 Q. Is that the only information that you 11 can recall concerning their financial resources 12 that you were -- that you saw at that time? 13 A. Seems to me that there was -- and I may 14 be getting confused with this leather loan. 15 Q. Which one is that? The 7020? 16 A. Yes, sir. The June 2nd, 1986. It 17 seems to me there were financial statements 18 associated with these parties. 19 Q. Well, looking at 7008, were you aware 20 that this was a six-month loan to Mr. Block and 21 Mr. Gordon for the purchase of that land? 22 A. I don't remember that. I can -- I can 14588 1 see the page has -- the term is six months. 2 Q. And it's for $18.2 million, correct? 3 A. That's the amount listed on the 4 schedule, yes, sir. 5 Q. And to your recollection, this was -- 6 you approved making this loan as referenced in 7 Exhibit 7008. I don't have a recollection, but 8 that is my signature on the page. 9 That indicates that you approved of it? 10 A. That indicates that I voted for this 11 loan. 12 Q. It says on here "recommended by." Do 13 you see that on the first page: David Graham? 14 A. Yes, sir, I see that. 15 Q. Did the fact that Mr. Graham 16 recommended a loan hold any particular 17 significance to you? 18 A. Well, Mr. Graham and Mr. Childress, I 19 had respect for their abilities, yes. 20 Q. What knowledge did you have of their 21 abilities? You testified earlier that you weren't 22 aware of their background and experience in real 14589 1 estate. 2 A. Well, I suppose I made -- I don't 3 remember, back in 1984, why I had formed that 4 opinion that they were qualified people; but I -- 5 I do remember that I thought Graham and Childress 6 were experienced real estate people. 7 Q. Under the category "applicant," it says 8 there that "Stephen Block, Trustee, with full 9 personal guarantees of Thomas Gordon and Stephen 10 Block." 11 Do you see that? 12 A. I see that. 13 Q. What is a full personal guarantee? 14 A. Well, I'm not an attorney. What it 15 means to me -- 16 Q. What did it mean to you as a member of 17 the senior loan committee voting to approve this 18 loan? 19 A. Well, I don't remember the -- the 20 meeting or approving the loan; but from reading 21 the page, 'full personal guarantee' means that 22 that individual or that entity is fully liable for 14590 1 the loan. If the loan goes bad, all of their net 2 worth can be used to satisfy the loan. 3 Now, as to whether that's a -- a 4 correct, legal definition, I don't know. 5 Q. And they had a total of about 6 $1.24 million in cash liquidity as indicated 7 there; is that right? 8 A. That's what the schedule shows, yes, 9 sir. 10 Q. And about $24 million in total net 11 worth. Right? 12 A. That's what the schedule shows, yes. 13 Q. Is having full personal guarantees 14 something you would have liked to have seen on 15 loans? 16 A. Just as a general statement, my 17 recollection is I would rather have full personal 18 guarantees than not have it, yes, sir. 19 Q. Why? 20 A. Because you can go back -- again, I'm 21 not a lawyer, but I think you -- if you have a 22 full personal guarantee, you can go back against 14591 1 that individual or entity to the full extent of 2 their net worth. 3 Q. Now, if that was an 18.2-million-dollar 4 loan for six months, that came due in about June 5 of 1985, correct? 6 A. Six months, yes, sir. 7 Q. I'm going to show you two exhibits 8 quickly: 7010 and 7011. 9 Now, you notice in the intervening six 10 months, Mr. Krasovec and Mr. Minch -- looking at 11 the amended authorization, 7011 on the second 12 page -- do you see that? 13 A. I see that, yes. I see the four names 14 there. 15 Q. So, Mr. Krasovec and Minch came onto 16 the loan; is that right? 17 A. Well, looking at the borrower's 18 section, it -- I don't remember, but I'm just 19 reading from the document. It says, "Stephen 20 Block, Trustee. There will be a trust agreement 21 between Stephen Block, Trustee, and Deauville 22 Austin Venture I." 14592 1 Q. Which document? 2 A. 7011, that they are the borrowers. I'm 3 looking at previously-approved Stephen Block, 4 Trustee, and then now amended Stephen Block, 5 Trustee. There will be a trust agreement between 6 Stephen Block, Trustee, and Deauville. 7 Q. Then it adds Krasovec and Minch for 8 100 percent of the loan. 9 Do you see that? 10 A. I see that. 11 Q. Then the next page, it lists the cash 12 liquidity of those individuals. Right? 13 A. Yes, sir. 14 Q. And this loan was amended to increase 15 to $21 million; is that right? 16 A. The previous -- reading from the 17 schedule, the previously approved amount was 18 12,200,000; and the total now amended is 19 21 million. 20 Q. For an increase of about 2.8 million, 21 correct? 22 A. If my math is right, yes. 14593 1 Q. Going back to Exhibit 7020, which was 2 the June '86 approval, the same piece of property, 3 what happened to Block and Gordon? 4 A. Well, I don't see Mr. Block or Gordon 5 on the June 2nd, 1986 as an applicant. 6 Q. Are you aware of any consideration that 7 Mr. Block or Mr. Gordon paid to be released from 8 any liability that they might have had on the 9 earlier loans? 10 A. I don't remember. I simply don't know. 11 Q. Also, if you notice that this loan, 12 7020, has joint and several guarantee of the top 13 25 percent by Mr. Krasovec and Mr. Minch -- do you 14 see that? 15 A. Where is that, sir? 16 Q. That's under "applicant" just above 17 "guarantor." 18 A. I do see that. 19 Q. So, that's less protection for United 20 on the guarantees than the previous loans, 21 correct, for a greater loan amount, correct? 22 MR. VILLA: Objection. You mean it's a 14594 1 smaller percentage? 2 MR. SCHWARTZ: I'm sorry? 3 MR. VILLA: Are you asking him to 4 compare percentages? 5 MR. SCHWARTZ: Yes. 6 MR. VILLA: I see. 7 THE COURT: Where is this? 8 MR. SCHWARTZ: I'm comparing the 9 percentages of the guarantee on the 1984 loan that 10 was 100 percent guaranteed and on Exhibit 7020, 11 the loan guarantee was for up to 25 percent. 12 A. Well, the earlier loan, Exhibit 7011, 13 was guaranteed 100 percent by Gordon and Block; 14 and it appears the June 2nd, 1986, just reading 15 from the schedule, was a top 25 percent guarantee 16 of Krasovec and Minch. 17 Q. Correct. That's exactly right. And 18 you don't know what happened to Mr. Block and 19 Mr. Gordon in the intervening time frame? 20 A. I don't remember why, you know -- 21 MR. SCHWARTZ: Did I say Krasovec and 22 Minch? I said Block and Gordon. 14595 1 MR. NICKENS: Yes. 2 Q. (BY MR. SCHWARTZ) And your answer was? 3 I'm sorry. 4 A. I don't remember. 5 Q. Did you ask during that time frame what 6 happened to Mr. Block and Mr. Gordon, why were 7 they let off of the earlier loan? 8 A. I don't remember whether I did or 9 didn't. 10 Q. Do you see in the two documents that 11 Mr. Block and Mr. Minch's cash on getting a 12 30-million-dollar loan, cash -- net worth is less 13 than that of Mr. Block and Mr. Gordon on the 14 earlier loan for 18.2 and $21 million? 15 A. I see, reading from the schedule, that 16 the cash position of Krasovec and Minch was less 17 than the Block and Gordon. 18 Q. Was that significant to you at all as 19 to the time as to whether you should make this 20 loan? 21 A. I don't remember so. I can't -- I just 22 don't remember the circumstances or the details. 14596 1 Q. Why would you loan $30 million to two 2 borrowers with fewer resources when those same two 3 borrowers plus two others had greater resources? 4 Why would you do that? 5 A. Sir, I don't remember the details of 6 this transaction. So, I can't -- I don't know. 7 Q. Were you -- were you aware of whether 8 or not the loan to Krasovec and Minch, Block, and 9 Gordon was current at the time of the senior loan 10 committee meeting of June 2nd, 1986? 11 A. I don't remember whether it was or was 12 not. 13 Q. Did you learn at some point in time 14 that Mr. Block and Mr. Gordon were having any kind 15 of financial problems? 16 A. I really don't remember. I remember -- 17 I can't be specific. I remember some of these 18 four names -- Krasovec, Minch, Block and Gordon -- 19 had some shopping centers or something that were 20 creating financial pressure, but that's about all 21 I remember. 22 Q. They were being hit with the same 14597 1 economic conditions as everybody else in Texas. 2 Is that consistent with your recollection? 3 A. I've told you about all I remember. I 4 don't know the reasons why and the circumstances 5 of that. 6 Q. You remember that they had other 7 shopping center products, correct: Block and 8 Gordon? 9 A. Well, I don't remember whether it was 10 Block and Gordon. I remember it was one or a 11 combination of these four. But I remember that it 12 had to do with commercial property. 13 Q. Do you recall whether or not the 14 problems that you recalled them having in that 15 commercial property caused them to want to be 16 released from any obligation on the loan? 17 A. No, sir. I don't remember that. It 18 may or may not have occurred. I just don't 19 remember. 20 Q. Let me ask it this way: If this loan 21 had gone into REO because of a default by Block 22 and Gordon, USAT would have stopped collecting any 14598 1 payments on it, correct? 2 A. If it had gone into default, yes. 3 Q. And USAT would have had to start paying 4 maintenance costs, taxes, et cetera on the 5 property, correct? All of those, yes? 6 A. That is correct. 7 Q. All of those bad things that we talked 8 about earlier about what happens to an 9 institution's books when a property is taken into 10 REO, correct? 11 A. If it had gone into default and if the 12 guarantees were no good or whatever. 13 Q. So, by extending this June 2nd, 1986 14 loan to Krasovec and Minch and letting Block and 15 Gordon off of the prior loans, United avoided 16 taking this property into REO, correct? 17 A. I don't know whether that's correct or 18 not. You asked me to assume that it was in 19 default, and it was REO. And I don't know that. 20 I don't know. 21 Q. I'm not asking you to assume that it 22 was in REO. 14599 1 A. Okay. 2 Q. Yes. I'm asking you to assume that if 3 the project was taken into REO, then United would 4 have had all of the bad things we talked about -- 5 the payment of taxes, maintenance, all of those 6 things occur on its books, correct? 7 A. If a project goes into REO, I think, 8 clearly, you're not collecting interest income and 9 that sort of thing, yes. 10 Q. And assuming that that would have 11 happened to the Norwood property -- 12 A. Assuming that it's in REO. 13 Q. Assuming that Block and Gordon's 14 obligations on the Norwood property would have 15 gone into default and USAT would have had to take 16 the property into REO, USAT avoided that by 17 extending a 30-million-dollar loan to Krasovec and 18 Minch and letting Block and Gordon off; is that 19 correct? 20 A. I don't know. It seems to me I'm 21 missing a step here. 22 Q. What are you missing? 14600 1 A. Well, I can follow the -- assuming it 2 goes into REO -- but you seem to be getting at by 3 making this loan, we keep it from going into REO. 4 Q. Correct? 5 A. And I don't know. 6 Q. Do you recall United subsidiary UFC 7 putting up any money on the Norwood project? 8 A. I do not without -- I know UFC 9 oftentimes put up money for projects. As to 10 whether it did for this project, I don't know. If 11 you've got some documentation or something, I'll 12 certainly -- 13 Q. Okay. We'll take a look at that in a 14 little bit. 15 A. Yeah, that would be in the real estate 16 committee. 17 Q. Okay. Exhibit T7013, Tab 675. Do you 18 recall ever seeing those financial statements of 19 Mr. Krasovec and Mr. Minch before? 20 A. I have a vague memory of seeing 21 financial statements from -- it certainly could 22 have been these two people. It was some of that 14601 1 group of four, but I do remember the financial 2 statements. 3 Q. When would you have seen them? 4 A. I can't be specific, but I'm assuming 5 it was during this time frame we're talking about. 6 Q. Did you ask any questions about them? 7 A. I don't remember whether I did or 8 didn't. 9 Q. Do you recall anyone asking any 10 questions about the financial statements? 11 A. I simply don't remember the discussion. 12 Q. Okay. Exhibit T7029, Tab 698. This is 13 an appraisal of Norwood Park by Rex Bolin & 14 Associates; and it's dated July 22nd, 1986. 15 Do you see that? 16 A. Yes, sir, I do. 17 Q. Now, if -- if you look back at 7020, 18 the loan approval document, on the third page, up 19 at the top, it says, "A new R41B appraisal is 20 being prepared by Rex Bolin which should indicate 21 a value of the raw land of around $30 million," 22 correct? 14602 1 A. I see that. 2 Q. And then seven weeks later, July 22nd, 3 1986, an appraisal was received or was sent to the 4 institution, correct? 5 A. I see the appraisal dated July 22nd, 6 1986, to David Graham from Rex Bolin. 7 Q. So, at the time you voted to approve 8 the Norwood loan on June 2nd, 1986, you did not 9 have any kind of an appraisal to analyze; is that 10 correct? 11 A. Let's see. You know, I really don't 12 know. 13 Q. Don't know what? 14 A. I don't know whether we did or didn't. 15 I know there were instances where a loan was 16 approved subject to the receipt of an appraisal, 17 and I don't know. 18 Q. You have a 25 percent guarantee. 19 What's the single-most important or significant 20 security for the institution when it makes a loan 21 like Norwood -- like the Norwood loan? What's the 22 security? 14603 1 A. Well, I'm not a real estate loan 2 underwriter. Just from an intuitive standpoint, I 3 would say. 4 Q. Would you say it's the value of the 5 land itself? 6 A. Certainly you've got the value of the 7 land as an extremely important consideration -- 8 Q. At the time you voted to approve -- 9 MR. NICKENS: Your Honor, I haven't -- 10 he's not allowing the witness to answer; so, I 11 can't hear what Mr. Crow's answer is. 12 A. You've got the value of the land, any 13 personal guarantees, if there's any letters of 14 credit, whatever. 15 Q. (BY MR. SCHWARTZ) Were there any 16 letters of credit on the Norwood loan? 17 MR. VILLA: Your Honor, if he could get 18 out his whole answer out and then ask him the 19 question, I think that's the ordinary procedure. 20 A. Okay. The question was? 21 Q. (BY MR. SCHWARTZ) So, at the time that 22 you voted on June 2nd, 1986, to approve the 14604 1 Norwood 30-million-dollar loan, you did not have 2 an appraisal of the property; isn't that correct? 3 A. I don't know. 4 Q. And I believe you testified that -- I 5 think you said, certainly, it's a significant 6 item. It's the property itself being the security 7 of the loan (the value of the property itself), 8 correct? 9 A. Certainly. That's a -- if the real 10 estate is going to be the collateral for a loan, 11 then the value of that property as developed would 12 be important. 13 Q. On Exhibit 7020, the loan approval of 14 the Norwood loan, there's a reference to the third 15 page to two earnest money contracts. 16 Do you see that, the third and fourth 17 pages? 18 A. Let's see. 19 Q. One by Brown and one by Tammenga? 20 A. I see that. 21 Q. What's an earnest money contract? 22 A. That's where a party just -- again, I'm 14605 1 not a loan underwriter or real conversant in this 2 field; but to me, an earnest money contract is 3 where Party A agrees to buy a certain piece of 4 property and puts down an amount of money that is 5 typically held in escrow, something like that. 6 Q. And it gives the parties an opportunity 7 to have a "look see" at the property and whether 8 they want to continue with the deal, is that 9 correct -- 10 A. Yes, I believe that's correct. 11 Q. -- so they can get out of the deal 12 before it becomes a hard contract; is that right? 13 A. The determination of a hard contract 14 and all that I'm a little uncomfortable with 15 because I'm not sure I know how to define that. 16 Q. Did you ask anyone about whether these 17 contracts with Brown and Tammenga were firm 18 contracts that would be enforced by the borrowers 19 to buy the property? 20 A. I don't remember whether I did or 21 didn't. I don't know. 22 Q. Well, would it be important that 14606 1 borrowers on the project have firm or hard 2 contracts to buy pieces of the property when 3 you're making a decision as to whether or not to 4 approve the loan? 5 A. Well, I don't know. I would -- I'm not 6 a loan underwriter; but certainly, given the 7 choice, you would rather have everything pre-sold 8 under a hard contract. I think you would have to 9 look at the practices of the day as to whether 10 that was the -- the common practice. I simply 11 don't know. 12 Q. And -- 13 A. And I guess my answer is: In a perfect 14 world, sure, I would rather have everything under 15 hard contract, locked up, and collateralized. But 16 that's clearly probably an unrealized particular 17 assumption. So, you have to back off to what is 18 the real market. That's an area that I don't know 19 or don't remember. 20 Q. Okay. Well, you know, did it ever 21 occur to you during the course of a senior loan 22 committee to say something to the effect of, 14607 1 "Well, we don't have an appraisal on this 2 property; and we don't have hard contracts. The 3 Tammenga and the Brown contracts aren't firm 4 contracts. And the, Burke O'Hara feasibility 5 study isn't here yet. Why don't we wait a few 6 days and see what comes in and take a look at that 7 stuff?" Did anything like that ever occur to you? 8 A. Sir, I don't know what occurred to me 9 back, you know, 12 years ago. I can't say what 10 occurred to me. 11 Q. When the -- this appraisal came in, the 12 Exhibit 7029 came in seven weeks after the loan 13 was approved by the senior loan committee, did you 14 read it then? 15 A. I don't remember. 16 Q. Exhibit 7701, Tab 734. Have you ever 17 seen Appraisal Associates of Austin appraisal 18 before dated June 11th, 1986? 19 A. I don't know whether I've seen it or 20 not. I don't recall it. 21 Q. Do you know who paid for it? 22 A. No, sir, I don't. 14608 1 Q. T7021, Tab 688. We talked earlier 2 about -- I had asked you if you recalled United 3 Financial Corporation contributing any money 4 towards this, about $9 million or so. 5 Do you recall that? 6 A. Yes, sir, I do. 7 Q. Did -- does this refresh your 8 recollection? 9 A. It really does not. I clearly see, in 10 the "proposal" section, certainly UFC was an 11 investor. 12 Q. And that they were putting up $9 plus 13 million? 14 A. Yes. I see what the schedule says, 15 "and shall be obligated to fund up to a maximum of 16 9.4 million in cash contributions." 17 Q. Is that your signature on the last page 18 of the exhibit? 19 A. Yes, sir, it is. 20 Q. And so, there's no question in your 21 mind that you voted to approve of this investment 22 by UFC, correct? 14609 1 A. I don't remember it, but I have no 2 reason to dispute it. 3 Q. We looked earlier at Exhibit T7701 4 which was the AAA appraisal, Appraisal Associates 5 of Austin appraisal. Would you turn in the third 6 page in -- turn to the third page in -- 7 A. I'm kind of lost here. I apologize. 8 Q. Let me help you. It's this one right 9 here. 10 A. Thank you. 11 Q. Now, that indicates a value of the 12 property of $37,500,000. 13 Do you see that? 14 A. Yes. I see that number down at the 15 bottom of the page. 16 Q. If USAT loaned $30 million to the 17 borrowers for this project and UFC put in up to 18 $9.4 million on the property and this appraisal is 19 accurate, was United and UFC upside down on the 20 loan from Day 1? 21 MR. VILLA: Objection, unless "upside 22 down" is a term of art. If he's asking him to add 14610 1 up the numbers, I have no objection. 2 Q. (BY MR. SCHWARTZ) Add up the numbers? 3 A. Help me where to start. 4 Q. A 30-million-dollar loan from United 5 Savings. 6 A. That's on Exhibit -- 7 Q. 7020. 8 A. Okay. 9 Q. $9.4 million from UFC. So, we have 10 30 million plus 9.4 million, correct? 11 A. I see the numbers, yes. 12 Q. So, that would be $39.4 million, 13 correct? 14 A. 30 million plus 9.4 million would be 15 39.4 million. 16 Q. And that number is bigger than 17 $37,500,000, correct? 18 A. That number is, in fact, bigger than 19 37.5 million. 20 Q. So, then, if this appraisal is accurate 21 at $37,500,000, then United and UFC's money into 22 this project was greater than the value of the 14611 1 project itself; isn't that correct? 2 A. Well, that's -- I don't know because I 3 think you would -- UFC was an investor in the 4 project. And here, they are putting in 5 9.4 million; and they are forming a venture. And 6 then, I suppose, the venture is borrowing money; 7 and, you know, it's difficult for me to say. Is 8 this an as-developed appraisal? It's hard for me 9 to get past the adding-up-the-numbers part. 10 Q. Did you have any training in -- you 11 testified earlier that you had no training in 12 reviewing appraisals. Right? 13 A. That's correct. 14 Q. Did you ever ask anyone at United to 15 review any of the appraisals that we've looked at 16 today? 17 A. I don't remember whether I did or 18 didn't. 19 Q. Did United have an appraisal staff 20 whose responsibility it was to review appraisals? 21 A. I don't know whether they would be 22 called an appraisal staff. 14612 1 Q. Who is "they"? 2 A. The people underneath Graham and 3 Childress. 4 Q. Who underneath Mr. Graham or 5 Mr. Childress reviewed appraisals for the 6 institution? 7 A. I can't name names, but I -- I believe 8 that they had people on their staff that did 9 review appraisals. 10 Q. Why do you believe that? 11 A. I have a vague memory of that, of 12 people -- I mean, Graham and Childress were always 13 talking about appraisals and I know that there was 14 this R41B issued and I remember it to be a big 15 deal. And that's fairly generic, I realize; but I 16 simply can't name names because I don't remember. 17 Q. Do you recall any specific training in 18 reviewing appraisals that those -- or experience 19 that those individuals had in reviewing 20 appraisals? 21 A. Probably. I don't remember -- I don't 22 know whether I would have been aware of their 14613 1 training. 2 Q. I'm sorry? 3 A. I said I don't know whether I would 4 have been aware of their training. It wouldn't -- 5 it typically wouldn't be my normal practice to go 6 ask, you know, somebody that reported to Mr. Gross 7 or Mr. Graham or Mr. Childress to "Let me see your 8 resume for your qualifications." 9 Q. I realize that. What I'm trying to 10 find out, though, is what you did to ascertain 11 whether or not there was any accuracy to the 12 appraisals that were submitted to USAT. 13 A. I don't remember. I remember us -- 14 when I say "us," I'm talking about the financial 15 staff. Certainly, the accounting people got 16 involved in appraisals and doing what's called NRB 17 or net realizable value. 18 Beyond that, I really -- my memory is 19 hazy. 20 Q. Do you recall any discussion about -- 21 in the Norwood deal about releasing Krasovec and 22 Minch or United being able to release Krasovec and 14614 1 Minch if they failed to achieve $10 million in 2 sales within 18 months? 3 A. I don't have a memory of that. I've 4 reviewed documents recently that indicated that 5 was basically the case. 6 Q. Exhibit T7018, Tab 685. Is this one of 7 the documents that you reviewed? 8 A. I don't know. I reviewed quite a few 9 documents last night that I think the OTS had 10 indicated would be used, and I simply don't 11 remember this. 12 Q. You don't remember whether you ever saw 13 this at or around the time that it was sent? 14 A. No, sir, I don't remember. 15 Q. In the exhibit that we looked at which 16 was the real estate investment committee minutes, 17 Exhibit 7021 -- 18 A. Yes, sir. 19 Q. -- under -- on the second page under 20 "Special conditions," Item No. 3 -- do you see 21 that? 22 A. I see that. 14615 1 Q. It says, "If, at the end of 18 months, 2 Krasovec and Minch has not closed $10 million in 3 gross sales at the agreed upon pro forma prices, 4 United Financial shall have the option to remove 5 Krasovec/Minch from the venture at no cost to 6 United Financial. If Krasovec/Minch are removed 7 from the venture, they shall also be released of 8 liability on the development loan." 9 Do you see that? 10 A. I see that. 11 Q. Do you recall discussion of that 12 matter? 13 A. No, sir. I don't remember it. I 14 certainly see it on the schedule, though. 15 Q. But you have no question in your mind 16 that you voted to approve that special condition? 17 A. I have no question that I voted to 18 approve this proposal June 2nd, 1986. 19 Q. And who suggested that that kind of 20 language be included in the special conditions on 21 this investment? 22 A. I don't know. 14616 1 Q. Do you know what it means when it goes 2 on to say that all of their liability would be 3 waived if they failed -- if they were released 4 from their obligations? 5 A. Could you repeat that, please? 6 Q. Sure. Strike the question. 7 Did you have an understanding of -- I'm 8 sorry. 9 MR. SCHWARTZ: Could you read the 10 question back, please? 11 12 (The record was read by the court 13 reporter as requested.) 14 15 Q. (BY MR. SCHWARTZ) Did you have an 16 understanding of what that language meant? 17 MR. VILLA: Did he have an 18 understanding then, or do you want him to 19 interpret it now? 20 MR. SCHWARTZ: Anything he can possibly 21 recall, Mr. Villa. 22 MR. VILLA: Then. Okay. 14617 1 A. Then? 2 Q. (BY MR. SCHWARTZ) Then or now. First 3 then. 4 A. Then, I don't remember; so, I don't 5 recall it at all. 6 Q. As you read it now? 7 A. As I read it now -- again, I would 8 certainly caution that I'm not a lawyer. 9 Q. Do you recall if you asked a lawyer 10 about the language? 11 A. No, but I guess my point or what I'm 12 trying to explain is that -- for me to interpret 13 something like this, I would take it to our 14 general counsel; and he, in turn, would take it 15 perhaps to the outside lawyers. But what it would 16 mean to me is that if they are removed from the 17 venture, then they don't have any further 18 liability to the guarantees. 19 Q. Do you recall the term of the loan 20 portion? 21 A. Do I have a memory from back then? 22 Q. It was a three-year loan. 14618 1 Do you recall that? 2 A. No, sir. 3 Q. All right. Would you take a look back 4 at the senior loan committee approval, which I 5 believe was 7020? 6 A. Yes, sir. 7 Q. Does it indicate there that it was a 8 three-year loan? 9 A. Yes, sir. On Page 2, reading from the 10 schedule, the term is three years with two 11 one-year renewals. 12 Q. So, if United exercised its option to 13 release Krasovec and Minch in 18 months -- strike 14 that. 15 Was there an interest reserve built 16 into this loan, as well? 17 A. Could you direct -- I don't remember, 18 but could you direct me to that on the document? 19 Q. We'll take a look at another document. 20 Assume that there was an interest reserve built 21 into this loan for purposes of my question. 22 If there was an interest reserve built 14619 1 into the loan that extended past 18 months, then 2 under that circumstance, Krasovec and Minch would 3 never have had to personally put out any money of 4 their own to make payments on this loan; is that 5 correct? 6 A. Well, assuming there were an interest 7 reserve -- 8 Q. That exceeded the 18 months? 9 A. -- that exceeded the term of their 10 liability and assuming they were released, sitting 11 here today, I would say that that's correct. I 12 certainly don't remember that or remember the 13 circumstances. 14 Q. Do you recall whether Mr. Krasovec and 15 Minch were being paid a fee for their management 16 services of Norwood? 17 A. No, sir, I don't remember that. 18 Q. Does the number $22,000 a month come to 19 mind or refresh your recollection? 20 A. No, sir. 21 Q. 7589, T7589 at Tab 1032A. 22 MR. SCHWARTZ: We're unable to locate 14620 1 the tabbed copy. I'm going to show the witness my 2 copy and ask if you recall that agenda -- those 3 minutes of the senior loan committee from 4 June 1st, 1986. 5 A. No, sir, I don't recall that. It 6 indicates here I wasn't there, but -- 7 Q. (BY MR. SCHWARTZ) Are your initials 8 down at the bottom there? 9 A. I don't see them. 10 Q. Okay. And this was the loan -- this 11 was the meeting at which the 30-million-dollar 12 Norwood loan was approved? 13 A. Yes, sir. 14 Q. Now, you testified earlier that you 15 approved -- your signature is on the June 2nd 16 proposal? 17 A. Yes. It's on Exhibit 7020. 18 Q. So, would you have signed the June 2nd 19 proposal or approval without having attended the 20 senior loan committee meeting at which it was 21 discussed? 22 A. I don't -- I'm kind of at a loss as to 14621 1 how I would do that. I have no explanation. I 2 don't know. 3 Q. That meeting started at what time and 4 add adjourned at what time? 5 A. It indicates that it started at 6 9:04 a.m.; and the meeting was adjourned at 7 10:19 a.m. 8 Q. So, in that hour and 15 minutes, how 9 many items were discussed? 10 A. You've got it added up for me. Six. 11 Q. Six items? 12 A. Yes. 13 Q. Does that -- okay. Thank you. 14 Exhibit T7022, Tab 691. 15 16 (Discussion held off the record.) 17 18 Q. (BY MR. SCHWARTZ) Have you ever seen 19 that before? 20 A. The first time I remember seeing this, 21 I think, is last night in the documents that were 22 pulled for my testimony. That's the first time I 14622 1 believe I saw it. 2 Q. In the second paragraph, it refers to 3 an agreement that was reached between Norwood 4 Properties and Jenard Gross and Charles Hurwitz 5 regarding an ownership split. 6 Do you see that? 7 A. I see that. 8 Q. Do you have any recollection of 9 Mr. Hurwitz being involved in a discussion of the 10 ownership split on the Norwood property? 11 A. No, sir. I have no memory of that. 12 Q. I had one other question about 13 Exhibit 7020 which, I believe, is still in front 14 of you. It's the approval. I asked you earlier 15 about the "recommended by" line of the approvals. 16 Do you recall that? 17 A. Yes, sir, I do. 18 Q. What does it mean when it says, 19 "Recommended by David Graham/Jenard Gross"? 20 A. I don't really remember exactly. My 21 best attempt at a recollection is that, typically, 22 Graham would take one project and Childress would 14623 1 take another project and the, quote, "recommended 2 by," it was kind of up to that individual to make 3 the presentations, get the documentation together, 4 be kind of the point person in the deal. 5 Q. Do you recall asking any questions 6 concerning the Norwood transaction? 7 A. I just simply don't remember the 8 process; so, I don't know whether I did or did not 9 ask questions. I just don't know. 10 Q. Do you have any recollection at all of 11 Mr. Gross or Mr. Graham making a presentation on 12 the Norwood transaction? 13 A. No, sir, I don't. 14 Q. Okay. Go back to Exhibit 7021, which 15 is the real estate investment committee approval. 16 On the fourth page under "funding," do you see 17 that? 18 A. I see "funding," yes. 19 Q. Now, the 9.4-million-dollar investment 20 by UFC, a substantial part of that was used to pay 21 down United's existing debt balance on that 22 property; is that correct? 14624 1 A. Well, I don't have a memory of that. I 2 can read what's on this page. Would you like me 3 to? I see that on the page. 4 Q. You have no recollection of what the 5 $9.4 million was used for? 6 A. No, sir, other than what's on this 7 document. 8 Q. Okay. You can put that away. 9 Do you know whether Krasovec and Minch 10 ever reached the 10-million-dollar sales mark on 11 Norwood? 12 A. I don't have a memory then -- from back 13 then. I've reviewed documents recently that 14 indicate they did not. 15 Q. Whether you have a recollection of 16 whether they reached the 10-million-dollar mark, 17 do you have any recollection at all about the 18 progress of the loan after it was made? 19 A. I remember -- oh, after it was made? 20 Q. What were you going to say? What did 21 you recall? 22 A. Well, I'm trying to think here. 14625 1 Q. I thought we -- never mind. 2 A. I remember it coming up as -- I believe 3 it came up as a criticism in one of the exam 4 reports. I remember that. 5 Q. Do you recall anything other than 6 recently concerning whether or not Krasovec and 7 Minch ever made any sales on the Norwood property? 8 A. Ignoring what I've looked at 9 recently -- 10 Q. Do you have any recollection from that 11 time period? 12 A. No, sir, I don't. 13 Q. Okay. Exhibit T7581, Tab -- excuse me. 14 MR. SCHWARTZ: Well, now, I have, on 15 this file, Exhibit B1051 and Exhibit T7581. I 16 don't know what the tab number is. It's not on 17 this. 18 19 (Discussion held off the record.) 20 21 Q. (BY MR. SCHWARTZ) It's Tab 1051. Now, 22 as we talked earlier, you said that I could show 14626 1 you some documents that might refresh your 2 recollection concerning the term of the loan and 3 the interest reserve. 4 Does this document -- it's a 5 January 21, 1988 real estate investment committee 6 approval. Does this refresh your recollection? 7 A. No, sir. I don't remember it. I see 8 that I signed the document. 9 Q. And on the first page, it indicates 10 that "At current rate, interest reserve depleted 11 in 13 months"? 12 A. Where is that, please? 13 Q. That's right in the middle of the page. 14 "Note: At current rate, interest reserve depleted 15 in 13 months." 16 A. I see that. 17 Q. That is January 21, 1988; and the loan 18 was approved in June of 1988, correct? 19 A. That's correct. 20 Q. Okay. So, the interest reserve 21 continued for another 13 months into 1989, 22 correct? 14627 1 A. The loan was approved in June of '86. 2 Q. '86. I'm sorry. 3 A. Yes, sir. And then by the time we get 4 to January of '88 -- 5 Q. There's another 13 months -- 6 A. -- another 13 months to run is the way 7 I read this document. 8 Q. So, from June of '86 to January of '88, 9 Krasovec and Minch would not have had to make any 10 payments on the loan, correct, themselves? It 11 would all come from the interest reserve, correct? 12 A. I believe that all interest payments 13 would come from the interest reserve. 14 Q. And if you would look at -- on the 15 second page under "USAT loan issue," do you see 16 under A? Does that refresh your recollection that 17 Krasovec and Minch were being paid $22,000 per 18 month as a management fee? 19 A. No, sir, I don't remember that; but I 20 certainly see what it says on this page. 21 Q. Do you recall discussion at all 22 concerning whether or not Krasovec and Minch would 14628 1 be released by United from their obligations on 2 Norwood? 3 A. No, sir. 4 Q. Do you see down at the bottom, there 5 are three recommendations? 6 A. I see that. 7 Q. Do you recall any discussion of any of 8 those recommendations? 9 A. No, sir. 10 Q. All right. The next exhibit, I think, 11 has two tab numbers. It's at Tab 184 and Tab 91. 12 It's the August 1986 USAT business plan. 13 MR. SCHWARTZ: I'll hand the witness 14 Tab 91, also referred to as Twomey 21. 15 Q. (BY MR. SCHWARTZ) Do you recall ever 16 having seen this document before? 17 A. I don't remember seeing it from back 18 during the time period. I've seen it recently. 19 Q. Would you please turn to Page 22 of 20 that document? In the second paragraph, the 21 second-to-the-last sentence says, "The association 22 requires appraisals by qualified, professionally 14629 1 designated unaffiliated fee appraisers with 2 respect to the primary property security for each 3 loan." 4 Do you see that? 5 A. I see that. 6 Q. Who made the determination as to who 7 met those requirements? 8 A. Factually, I don't know. I can presume 9 it must have been the real estate staff, but I 10 really don't know. 11 Q. The last sentence goes on to read, "The 12 appraisals are also reviewed by the association." 13 Do you see that? 14 A. I see that. 15 Q. I asked you before if you knew who, and 16 I think you indicated that you assumed that 17 somebody that worked for Mr. Graham reviewed 18 appraisals. 19 A. Graham or Childress. 20 Q. Someone who worked for Graham or 21 Childress? 22 A. Yes. They may have reviewed them 14630 1 themselves. I don't know. 2 Q. Did you ask at any time whether they 3 had reviewed the appraisals? 4 A. I don't remember whether -- whether I 5 did or didn't. 6 Q. Well, who did you rely on to review 7 real estate appraisals in making lending 8 decisions? 9 A. Well, other than the real estate staff, 10 it's difficult to be more specific than that. 11 Q. When you say "real estate staff," 12 you're referring to Mr. Graham, Mr. Childress, or 13 one of the people that worked for them? 14 A. Yes, sir. 15 Q. But you don't know who? 16 A. No, sir, I don't. 17 Q. Would you turn to Page 26, please? At 18 the top, it reads, "Due to the downturn in the 19 Texas economy over the past four years, the 20 association has experienced a greater degree of 21 delinquencies this year than in the past." 22 Do you see that? 14631 1 A. I see that. 2 Q. Who authored this document? 3 A. I don't know. I really don't know. I 4 can give you a typical -- what happens typically. 5 But as to this specific document, I can't really 6 say. 7 Q. Do you know what the purpose of the 8 document was? 9 A. I believe it was a business plan that 10 had been requested by the Federal Home Loan Bank 11 of Dallas as it indicates on the transmittal 12 letter. 13 Q. And it was prepared by USAT? 14 A. Yes, sir. 15 Q. At the top of Page 26, it reads, "Due 16 to the downturn in the Texas economy over the past 17 four years, the association has experienced a 18 greater degree of delinquencies and foreclosures 19 than in the past." 20 Would that take the downturn back to 21 1982 then? Is that right? 22 A. From a literal reading of this -- this 14632 1 document since it addresses August of 1986, I 2 think that's a fair characterization. 3 Q. And it's specifically referring to 4 greater degree of delinquencies and foreclosures, 5 correct? 6 A. I see that. 7 Q. "The 1985 increase in real estate 8 acquired in settlement of loans reflects the 9 continuing economic and real estate problems 10 experienced in Houston and throughout Texas. 11 While the association does not have any energy 12 related loans, the Texas economy in general, and 13 Houston in particular, are significantly impacted 14 by the energy industry. The downturn in this 15 industry and other economic problems have resulted 16 in increased unemployment levels, weakened housing 17 and real estate markets, and increased 18 delinquencies and foreclosures in nearly every 19 major market in the state." 20 Now, that doesn't exclude Austin as a 21 major market in the state of Texas, does it? 22 A. As I read the document, no, it would 14633 1 not. 2 Q. Or San Antonio, does it? 3 A. As I read the document, no, it would 4 not. 5 Q. Would you turn to Page 34? In the 6 second-to-the-last paragraph towards the bottom of 7 that paragraph, do you see in the center of the 8 seventh line up from the bottom, that says "since 9 1985"? 10 A. Yes, sir, I do. 11 Q. "Since 1985, the association has 12 redirected its real estate investment policy and 13 is no longer actively taking part in new projects 14 as a joint venture with developers. Instead, the 15 association will finance developers only where the 16 credit and investment risk appears justified and 17 where the association can receive a market 18 interest rate, fees, a significant investment from 19 the developer, and an equity participation in the 20 project." 21 Do you see that? 22 A. I see that. 14634 1 Q. That wasn't true in the case of 2 Norwood, was it, sir? 3 A. I believe that Norwood was not 4 classified as a loan. So -- I believe Norwood was 5 classified as an investment from Day 1. So, it 6 would not be -- would not meet this criteria. The 7 next sentence says, quote, "Such investments are 8 classified as loans." 9 Q. Well, the borrowers in Norwood put up 10 no equity of their own, correct? 11 A. I don't remember any, no. I think they 12 had personal guarantees. 13 Q. But they put up no cash of their own to 14 the project; is that correct? 15 A. That's my understanding of the reading 16 of the documents, yes. 17 Q. Isn't it true that the Norwood 18 transaction was a deal where United was making a 19 100 percent loan and funding interest payments and 20 fees where the developer had no equity in the 21 deal? 22 A. Well, I don't know whether it is or 14635 1 isn't. I don't know. I mean, we can go back 2 through if you would like. I don't remember from 3 the time. I can read from the documents. 4 Q. Well, we've looked over the approvals 5 that you signed -- 6 A. Yes, sir. 7 Q. -- on the Norwood transaction? 8 A. Right. 9 Q. Do you recall seeing any investment by 10 the borrowers in the project, any of their own -- 11 putting up any of their own money? 12 A. I don't remember seeing any investments 13 or cash investment. There might have been -- you 14 know, I don't know this -- there might have been 15 so-called sweat equity, but I -- I don't see any 16 cash investment, no. 17 Q. What is "sweat equity"? 18 A. I remember it was a term used back in 19 the mid-Eighties that if a -- if a real estate 20 person worked on a project and spent their time 21 and effort in getting zoning and marketing a 22 project, that was termed, quote, "sweat equity." 14636 1 Q. Is what you're stating now something 2 that you recall from 1986, or is that something 3 that you recall from a recent review of documents? 4 A. I really -- I don't know. It's hard 5 for me to separate -- I've reviewed some documents 6 in preparation for depositions and then this, the 7 actual trial testimony, that I get fogged up. 8 Q. So, you don't remember whether you had 9 ever heard the term "sweat equity" in 1986 in 10 connection with Norwood; is that correct? 11 A. I can't be sure, no. 12 Q. Your understanding of sweat equity, 13 does that provide any financial security for the 14 institution? 15 A. I don't think it provides any cash, no. 16 Q. Does it provide anything -- any other 17 kind of financial security for the institution? 18 A. That the institution -- well, it 19 could -- it certainly could increase the value of 20 the collateral. 21 Q. Sweat equity increases the value of the 22 collateral? How does that happen? 14637 1 A. Well, if -- if a real estate person 2 works diligently on a project and gets -- manages 3 certain improvements and gets the improvements 4 done, that would increase the value of the 5 property. If a real estate person got a zoning 6 change, that potentially could increase the value 7 of the property. 8 Q. The purpose of the loan was to do those 9 very things, correct. You were making a loan for 10 exactly that reason? 11 A. Yes. 12 Q. So, what did this additional security 13 of what you're calling sweat equity provide? 14 A. I will not argue with you that it will 15 not provide any cash that you could go and get. 16 Q. Would you turn to what's Bates marked 17 as OW0150680? Is that your resume? 18 A. Yes, sir. It appears to be my resume. 19 Q. All right. Just before I referred you 20 to that page, the question that I had asked you 21 was: The Norwood transaction was a deal where 22 United was making a 100 percent loan and funding 14638 1 interest payments and fees and where the developer 2 had no equity in the deal, and we had started 3 talking about that and you mentioned the sweat 4 equity. What about the 100 percent loan? Do you 5 recall that? 6 A. I remember -- I remember there was no 7 cash down payment in the documents we reviewed. 8 Q. So, United was making a 100 percent 9 loan on the project? 10 A. United was making a loan with no cash 11 down payment from these individuals. 12 Q. I'm not sure I understand the 13 distinction between what you're saying and what 14 I'm saying. Are we saying two different things? 15 Was it a 100 percent loan, or was it not? 16 A. Well, let me go back and review -- 17 Q. Exhibit 7020. 18 A. Let me review this for just a minute, 19 please. 20 Q. Sure. And while you're looking that 21 over, I'm also going to ask you whether United was 22 funding the interest payments and fees. 14639 1 MR. VILLA: How about one at a time. 2 Okay? One question at a time. 3 MR. SCHWARTZ: Since he's reviewing the 4 document, I wanted him to have an opportunity to 5 review all the questions I'm going to ask him 6 about it. 7 THE COURT: Do you have an answer? 8 THE WITNESS: It appears to me, sir, as 9 best I can reconstruct from the document, that 10 United Financial Corp. was making a 11 9.4-million-dollar investment and then there was a 12 30-million-dollar loan. And that's my 13 understanding. 14 Q. (BY MR. SCHWARTZ) Okay. And what 15 about -- and we've already seen an exhibit, 581, 16 that United was making all -- that all of the 17 interest payments and fees were funded; is that 18 correct? 19 A. I don't remember seeing that, but I 20 don't dispute that. That's not atypical. 21 THE COURT: We'll adjourn until 22 9:00 o'clock tomorrow. 14640 1 2 (Whereupon at 4:50 p.m. 3 the proceedings were recessed.) 4 . 5 . 6 . 7 . 8 . 9 . 10 . 11 . 12 . 13 . 14 . 15 . 16 . 17 . 18 . 19 . 20 . 21 . 22 . 14641 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 14th day of July, 17 1998. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-99 21 . 22 . 14642 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 14th day of July, 18 1998. 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