18476 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 AUGUST 6, 1998 22 18477 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 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 18478 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 18479 1 2 INDEX OF PROCEEDINGS 3 Page 4 ARTHUR BERNER 5 Examination by Mr. Rinaldi..............18481 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 18480 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. 5 Mr. Eisenhart, you have a matter? 6 MR. EISENHART: I do, Your Honor. 7 I've been detailed by our side on 8 behalf of those who are traveling tomorrow to 9 raise with the Court -- to inquire as to the 10 Court's schedule for tomorrow so that people can 11 arrange their travel plans. 12 THE COURT: Any objection to adjourning 13 at 4:00 o'clock? 14 MR. RINALDI: We have no objection. I 15 think Mr. Eisenhart had indicated it would be 16 helpful to adjourn an hour or two earlier for 17 people to pack up and get back. We have no 18 objection one way or the other. 19 THE COURT: All right. 20 MR. EISENHART: Whatever the Court's 21 preference, Your Honor. 22 THE COURT: 4:00 o'clock. 18481 1 MR. EISENHART: 4:00 o'clock. 2 THE COURT: Mr. Rinaldi, you're going 3 to be the OTS representative? 4 MR. RINALDI: Yes, sir. We would like 5 to call Art Berner, Arthur Berner, as the OTS' 6 next witness. 7 THE COURT: Would you take the oath, 8 please? 9 ARTHUR BERNER, 10 was called as a witness and, having been first 11 duly sworn, testified as follows: 12 13 THE COURT: Be seated, please. 14 MR. RINALDI: Just one moment, 15 Your Honor. 16 17 EXAMINATION 18 19 Q. (BY MR. RINALDI) Would you state your 20 full name for the record, please? 21 A. Arthur Samuel Berner. 22 Q. Mr. Berner, can you relate to the Court 18482 1 what your prior work experience has been? 2 A. I started working in 1967 at Cahill, 3 Gordon, Sonnett, Reindel & Ohl, which is a 4 New York law firm. In mid-1970, I became general 5 counsel for Inexco, I-N-E-X-C-O, Oil Company. And 6 then in October, end of September, October of 7 1985, I went to United Financial Group. And then 8 in 1991 to the law firm of Winstead Sechrest 9 & Minick. 10 Q. And are you still employed or working 11 with Winchrest (sic) -- 12 A. Winstead. 13 Q. Winstead, Sechrest & Minick. Are you 14 still employed by them? 15 A. Yes, sir, I am. 16 Q. Now, you are licensed to practice as an 17 attorney, correct? 18 A. Yes, sir. 19 Q. Now, when you first went to work with 20 Cahill Gordon, I believe you said you remained 21 there until 1977? 22 A. No. 1970 -- the middle of 1970, 18483 1 towards the end of 1970. 2 Q. What was the nature of the practice 3 that you engaged in while you were there? 4 A. It was basically corporate securities 5 work, merger and acquisition work. 6 Q. In that connection, was there any 7 particular area of specialty that you were 8 involved in? 9 A. As I said, mostly securities work, 10 general corporate work. 11 Q. When you say "securities work," what 12 does that entail? Preparing filings for the SEC? 13 A. Filings, registration statements to the 14 SEC, yes, sir. 15 Q. What would be the nature of those 16 filings? 17 A. Back then, they would be annual reports 18 which are usually the Form 10K, quarterly reports. 19 Q. Those are 10Qs? 20 A. Yes. Proxy statements, registration 21 statements when people are selling stock, merger 22 documents, or when there's an acquisition that's 18484 1 going on. 2 Q. In connection with preparing those 3 things, were you charged with reviewing them for 4 their adequacy and their -- their truthfulness? 5 A. That was one of my jobs. I was a 6 junior associate, yes, sir. 7 Q. And as a junior associate, what role 8 did you play in the preparation of those kinds of 9 submissions? 10 A. I would do the -- a lot of the due 11 diligence work. I would do the drafting, the 12 initial drafts of some of the documents, and 13 reviewing the documents and sit in on part of the 14 meetings when these documents were discussed and 15 reviewed. 16 Q. When you say you did the due diligence 17 work, what did you mean by that? 18 A. In transactions, very often you have to 19 go and read contracts and read minutes of board 20 meetings and just essentially learn about the 21 company that you're dealing with; and that's 22 called due diligence work. 18485 1 Q. In connection with filings, were you 2 responsible for summarizing activities that went 3 on with various corporations for purposes of 4 reporting in the filings with the SEC? 5 A. Well, I was responsible for drafting -- 6 if we would be discussing a particular matter, I 7 would help to draft that -- that discussion of 8 that matter. 9 Q. In drafting those matters, was there 10 some rule of thumb you had to follow in 11 determining what would be included or what 12 wouldn't be included in a public disclosure 13 document? 14 A. You tried to include those things that 15 you believed were material and to disclose 16 whatever you could. The goal was disclosure. 17 Q. Okay. When you say "material," what do 18 you mean by the term "material"? 19 A. Sir, I think that's kind of an 20 undefined term. It's that which somebody would 21 think is important. 22 Q. And that would be the definition that 18486 1 you applied in complying with the securities laws? 2 A. I'm not sure I actually ever tried to 3 define it. I mean, it was just a loose 4 understanding as to what you believed was 5 important to be disclosed or described in a 6 document. 7 Q. Okay. Now, prior to joining Cahill 8 Gordon, had you attended law school? 9 A. Yes, sir, I had. 10 Q. And where did you attend law school? 11 A. New York University Law School. 12 Q. And when did you graduate? 13 A. 1967. 14 Q. As soon as you left law school, did you 15 then go to work for Cahill Gordon? 16 A. Yes, sir, I did. 17 Q. After you left Cahill Gordon, I believe 18 you said you went to a company called Inexco? 19 A. That's correct. 20 Q. What was Inexco? 21 A. Inexco was an oil company, an 22 exploration and production oil company. 18487 1 Q. Now, am I correct in assuming that 2 Cahill Gordon is a New York City law firm? 3 A. Yes, sir. 4 Q. And you were working in New York City 5 for Cahill Gordon? 6 A. Yes, sir, I was. 7 Q. Did Inexco have its offices in 8 New York? 9 A. No. At that time, Inexco had its 10 offices in Denver, Colorado. 11 Q. So, you moved out to Denver in what 12 year? 13 A. The end of 1970, I think it was. 14 Q. Then you stayed with Inexco, I believe, 15 until 1987? 16 A. 1985, sir. 17 Q. '85. Sorry. I wrote down the number 18 wrong. 19 A. I think maybe I wish I had stayed there 20 until 1987. 21 Q. Okay. You're right. It would have 22 been difficult. You would have been working two 18488 1 jobs at once, I suppose. 2 What was the nature of the work that 3 you were doing for Inexco? 4 A. I was general counsel at Inexco doing 5 general counsel work. 6 Q. Was Inexco a publicly-traded company? 7 A. Yes, sir, it was. 8 Q. How would you characterize the nature 9 of the work that you did as general counsel? 10 A. I would supervise all of the legal 11 work. There was a staff of -- well, it varied 12 from time to time -- anywhere from three to eight 13 lawyers. I would help prepare the securities 14 filings generally with outside counsel. I would 15 supervise or be responsible for the litigation, 16 knowing what was going on with outside counsel on 17 any litigation we had. 18 Generally, as general counsel, I would 19 be the guy that tried to spot all the issues to 20 figure out where -- what outside counsel we would 21 use on various matters or if we were going to do 22 something in-house. And I was also involved in 18489 1 the -- with the top management of the company. 2 Q. And what was the nature of Inexco's 3 business? 4 A. It was an oil and gas exploration and 5 production company. 6 Q. In connection with that, did you have 7 occasion, then, to review oil and gas leases or 8 contracts? 9 A. Oil and gas leases rarely. Generally, 10 I would have somebody on my staff that would do 11 the -- what I would call the hard-core oil and gas 12 legal work. Contracts -- more often, I would look 13 at gas contracts, gas purchase and sales 14 contracts. Again, I had staff people that did 15 most of that. 16 Q. In connection with your work at either 17 Cahill Gordon or Inexco, did you have any occasion 18 to draft employment contracts? 19 A. Yes, sir, I did. 20 Q. Okay. And can you describe that 21 experience? 22 A. There were two or three occasions where 18490 1 I drafted employment contracts for senior 2 executives of Inexco and, in one case, one of its 3 subsidiaries. 4 Q. And on those occasions, did you draft 5 the contracts yourself; or did you seek the 6 assistance of outside counsel to assist you with 7 the drafting of the contracts? 8 A. I don't remember. 9 Q. Okay. Now, you indicated also that you 10 were responsible at Inexco for supervising 11 litigation. 12 Do you recall that? 13 A. Outside counsel would handle 14 litigation. I was responsible for knowing what 15 was going on in the litigation. 16 Q. Was most of the legal work done by 17 Inexco handled by outside legal counsel? 18 A. It's hard to -- it's hard to say. 19 Certainly, all of the litigation was handled by 20 outside counsel. Securities work, depending on 21 the type of work, it would either be done all 22 in-house or with outside counsel. 18491 1 Q. Okay. 2 A. I would say probably 60 percent, maybe 3 more, was handled by outside counsel in the course 4 of a year. 5 Q. And when you say "security work," 6 again, Inexco would have been doing 10Ks, 10Qs, 7 proxy statements, annual reports? 8 A. Right, and securities offerings. 9 Q. When you say "securities offerings," 10 you mean they would be selling the shares of 11 Inexco or offering them publicly? 12 A. They would be selling shares. 13 Initially, they were selling oil and gas limited 14 partnership interests. At various times, they 15 sold interests in oil and gas drilling well 16 leases. 17 Q. Okay. Now, after you left Inexco, your 18 next employment was with -- well, tell me, what 19 was your next employment? 20 A. With United Financial Group. 21 Q. Okay. Now, United Financial Group was 22 a savings and loan holding company; is that 18492 1 correct? 2 A. Yes, sir, that's correct. 3 Q. Now, prior to joining United Financial 4 Group, had you had any legal experience in working 5 with insured depository institutions? 6 A. No, sir, I had not. 7 Q. Did you have any experience in dealing 8 with the regulations that covered savings and loan 9 institutions prior to going to UFG? 10 A. No, sir, I did not. 11 Q. Now, can you describe for me, please, 12 how you initially became involved with UFG? In 13 other words, the process by which you were hired? 14 A. It was sometime in the middle of 1985. 15 I received a call from Kenny Friedman. Kenny 16 Friedman is a lawyer at Mayor, Day, Caldwell & 17 Keeton; and he has been a close friend of mine for 18 now 25 years. He called me at Inexco and 19 mentioned that United Financial Group was looking 20 for a general counsel and wanted to know if I knew 21 of anyone that might be available. And I told him 22 that I would get back to him in a couple of days. 18493 1 Then I thought about it and called him back and 2 told him that I thought I might be interested in 3 that job. 4 Q. Was Mr. Friedman, if you know -- does 5 he have any relationship to Charles Hurwitz? 6 A. I believe his ex-wife was Mr. Hurwitz' 7 cousin. 8 Q. Now, after you told -- determined that 9 you were interested in the UFG job, what occurred 10 next? 11 A. At some point later on -- I don't know 12 if it was a few days or a week later -- I received 13 a call from Dr. Barry Munitz, and he and I had a 14 meeting. And then there was a series of meetings 15 that I had with the senior executives at United 16 Financial Group over the course of about a month, 17 I think, month and a half. 18 Q. Okay. 19 A. And then I met with Mr. Pledger, and 20 then I was offered the job. 21 Q. Okay. Now, who did you meet with at 22 UFG before you were hired? 18494 1 A. I met with Gerry Williams on a couple 2 of occasions, maybe three or four occasions. I 3 met with Charles Hurwitz on one occasion. I met 4 with Jenard Gross on, I believe, one occasion. I 5 met with Dr. Munitz, I think, one more time, maybe 6 twice. And I'm not sure -- I might have met with 7 Mike Crow. I don't think so. And then I met with 8 Jim Pledger. 9 Q. Now, who was Mr. Pledger at this point 10 in time? 11 A. He was the general counsel at United 12 Savings, and he might have been also general 13 counsel at United Financial Group. I don't know 14 if he had that title. 15 Q. Now, you've said that you were 16 originally discussing your employment with United 17 Financial Group. 18 What did you understand the position 19 would entail when you joined United Financial 20 Group? 21 A. It was my understanding that I was 22 going to be general counsel at United Financial 18495 1 Group, that all of the lawyers at United Savings 2 would be reporting to me, that -- that Jim Pledger 3 would continue to be general counsel at United 4 Savings, and that I would essentially be in charge 5 of the securities work and any kind of 6 transactional work that they were doing and, 7 again, just to be a general counsel for a public 8 company. 9 Q. You were going to be the general 10 counsel of UFG; is that correct? 11 A. Yes, sir. 12 Q. Were you going to hold any other 13 positions at UFG? 14 A. At UFG? 15 Q. Yes. 16 A. Well, I was elected an officer of UFG. 17 Q. Do you remember what position that was? 18 A. I think it was senior vice president, 19 but it might have been some other title. It was 20 some fairly high title. 21 Q. And what about with respect to UFG? 22 Did you have a title -- I mean USAT. 18496 1 A. With USAT, I think, initially, I didn't 2 have a title. And within a very short period of 3 time, I was elected a vice president, I believe, 4 and then at some subsequent time, senior 5 vice president. 6 Q. And at the point in time you were 7 hired, did you understand you were going to be an 8 employee of UFG or an employee of USAT? 9 A. I don't think that was really ever 10 discussed. I know -- I don't think initially that 11 was really discussed at all. It didn't make any 12 difference. 13 Q. Well, initially, who paid your salary? 14 UFG or USAT? 15 A. UFG paid my salary initially. 16 Q. And you were hired, I believe, sometime 17 in the latter part of 1985? 18 A. That's correct, sir. 19 Q. Do you remember the date? 20 A. I started on September 30th. Actually, 21 it was a Monday. 22 Q. And you would have started working for 18497 1 UFG at that time as well as USAT? 2 A. Yes, sir. I think that's right, sir. 3 Q. Now, when you first started, what 4 portion of your time did you devote to your work 5 for UFG as opposed to USAT? 6 A. I've never really thought about that. 7 I don't -- I think -- truly, I've never thought 8 about it. Probably more than 50 percent of my 9 time was spent on USAT stuff. 10 Q. And in terms of your office, were there 11 separate offices for UFG and USAT? 12 A. No. No there weren't. 13 Q. So, the UFG senior executives were all 14 commingled with the USAT senior executives? 15 A. Yes. That's my recollection, sir. 16 Q. Okay. Now, what were your duties with 17 respect to UFG at the outset? 18 A. Again, I was general counsel; so, I 19 would be responsible for all of the -- ultimately, 20 all of the legal work. I was also working on 21 transactional work that was being done at USAT in 22 that initial period of time. And as I said, I had 18498 1 the -- all the lawyers were reporting to me 2 initially. 3 Q. And when you say "all the lawyers," did 4 UFG at that point in time have a legal staff? 5 A. No, UFG did not. 6 Q. Did USAT have a legal staff? 7 A. Yes, sir, it did. 8 Q. And how large was USAT's legal staff? 9 A. Again, this was -- it was about four or 10 five lawyers. 11 Q. When UFG had some securities filings or 12 an application to file, who would prepare that 13 application? 14 A. When UFG, did you say? 15 Q. Yes. 16 A. Initially, it might have been prepared 17 by -- there was a lawyer on staff named Marge 18 Kulik, and she might have taken the first crack at 19 drafting something and given it to me. 20 Q. Now, was Ms. Kulik an employee of UFG 21 or USAT? 22 A. I don't know. I think USAT, but I'm 18499 1 not sure. 2 Q. So, it was -- is it fair to say that 3 when you joined USAT and UFG, that USAT had a 4 legal staff that did legal work for both USAT and 5 UFG? 6 A. That is correct. 7 Q. Now, when you joined USAT, was there 8 anybody on the staff that had any particular 9 expertise in the area of savings and loan 10 regulations? 11 A. When I joined, Jim Pledger had -- had 12 expertise in savings and loan regulations, and I 13 believe also Debra Ruby had savings and loan 14 expertise. There was another lawyer there. I 15 don't know if he had expertise or not. 16 Q. I want to start with Ms. Ruby. How 17 long had she been engaged in savings and loan 18 work? 19 A. I don't recall. 20 Q. Okay. And how about Mr. Pledger? 21 A. Again, I don't know how many years he 22 was engaged in savings and loan. 18500 1 Q. Was Mr. Pledger quite experienced in 2 the area of savings and loan regulations? 3 A. Yes, sir, he was. 4 Q. Now, after you joined USAT, did 5 Mr. Pledger do most of the savings and loan 6 regulatory work associated with USAT? 7 A. He was responsible for it, yes, sir. 8 Q. And if a savings and loan issue came up 9 with respect to UFG, the holding company, would he 10 also do that work? 11 A. Yes, sir. Either he or outside counsel 12 would. 13 Q. Okay. Now, how long did Mr. Pledger 14 stay at USAT? 15 A. He left in the mid-part of 1986, I 16 believe. Somewhere in the June or July or August 17 time frame. 18 Q. So, that would have been a little less 19 than a year after you arrived? 20 A. Yes, sir, that's correct. 21 Q. Okay. And do you know why it was that 22 Mr. Pledger decided to leave USAT? 18501 1 A. I believe he was going to work for the 2 Texas Savings and Loan Commission. 3 Q. Was he going to be the commissioner of 4 the Texas Savings and Loan Commission? 5 A. I don't think at that time he was. I 6 think he got that job later. I may be mistaken on 7 that. I think he was going to the Texas Savings 8 and Loan Commission; and, ultimately, he became 9 Commissioner. 10 Q. After Mr. Pledger left, was there a 11 hole at USAT in terms of savings and loan legal 12 expertise? 13 A. That's hard to say because we -- we 14 utilized outside counsel extensively for the 15 savings and loan expertise. There was nobody on 16 staff. 17 Q. But prior to Mr. Pledger's leaving or 18 subsequent to Mr. Pledger's leaving, did the 19 reliance upon outside counsel with respect to 20 savings and loan matters increase? 21 A. I don't know how much Mr. Pledger 22 relied on outside counsel; so, I can't answer 18502 1 that. 2 Q. But Mr. Pledger worked for you for 3 nearly a year, didn't he? 4 A. Yes, sir. 5 Q. And during the period of time 6 Mr. Pledger worked for you, most of his work was 7 in the area of savings and loan regulations, 8 wasn't it? 9 A. Yes, sir. 10 Q. So, is it fair to say that after 11 Mr. Pledger left, that there was a greater 12 reliance upon outside counsel for savings and loan 13 expertise? 14 A. Again, I just don't know how much 15 Mr. Pledger relied on outside counsel, you know, 16 to answer his questions; so, I don't know. 17 Q. I see. Now, were there any outside 18 counsel that you used in connection with savings 19 and loan matters? 20 A. Initially, we used Bob Pozen at Caplan 21 & Drysdale. 22 Q. And how did you come into contact with 18503 1 Mr. Pozen? Had you known him previously? 2 A. No, I had not known him before. United 3 Savings was using Caplan & Drysdale and Mr. Pozen 4 before I got there. 5 Q. Did Mr. Pozen also provide savings and 6 loan expertise as outside counsel for UFG? 7 A. To the extent it needed it, yes, he 8 did. 9 Q. And you indicated that, initially, you 10 worked with Mr. Pozen. 11 Did there come a time when you began to 12 use other outside counsel for savings and loan 13 matters? 14 A. Yes, sir. 15 Q. And who did you then begin to use? 16 A. Tom Leahey at Kirkpatrick & Lockhart. 17 Q. And why was it that you shifted from 18 Mr. Pozen at Caplan & Drysdale to Tom Leahey of 19 Kirkpatrick & Lockhart? 20 A. Mr. Pozen left Caplan & Drysdale. 21 Q. Okay. Did he go to another firm? 22 A. He went to Fidelity Investments. 18504 1 Q. Okay. Now, as the -- I believe you 2 said you were general counsel of USAT; is that 3 correct? 4 A. At what point? 5 Q. After Mr. Pledger left. 6 A. After Mr. Pledger left, yes, I was 7 named general counsel of USAT, also. 8 Q. Okay. Prior to his leaving, were you 9 the executive vice president for legal matters at 10 USAT? 11 A. Prior to his leaving? 12 Q. Yes. 13 A. I don't believe so. 14 Q. Did there ever come a time when you 15 became the executive vice president for legal? 16 A. I think so, yes, sir. 17 Q. Was that the title you were given when 18 Mr. Pledger left? 19 A. I'm not sure if I was given that title 20 at that time or a subsequent time. 21 Q. But you do recall at some point in time 22 shortly after you arrived at USAT, you became an 18505 1 officer? 2 A. Of USAT? 3 Q. Uh-huh. 4 A. I believe I was elected an officer. 5 Q. Was that immediately, or was there some 6 hiatus? 7 A. I think there was some hiatus. 8 Q. Now, as an officer of USAT, did you 9 serve on any committees? 10 A. As an officer of USAT? 11 Q. Yes. 12 MR. VILLA: Do you mean this time 13 frame? 14 MR. RINALDI: Right. We'll go through 15 it all. 16 MR. VILLA: Thank you. 17 Q. (BY MR. RINALDI) When you first 18 arrived there, did you serve on any committees? 19 A. There was a strategic planning 20 committee. I don't know when that started. So, 21 when I first arrived, I'm not sure if I served on 22 any committees or not. 18506 1 Q. Okay. In 1986, were you appointed to 2 serve on any committees that you recall? 3 A. Yes, sir, I was. 4 Q. And what committees did you begin to 5 serve on in 1986 that you recall? 6 A. I served on the investment committee. 7 I was on the strategic planning committee, and I 8 think that may be the only committees in 1986. 9 But if you have anything to show me -- that's all 10 I can recall right now. 11 Q. Did there come a time when you also 12 became a member of the executive committee of 13 USAT? 14 A. The executive committee? 15 Q. Uh-huh. 16 A. I don't believe -- well, I might have 17 been -- in 1988, it's possible. 18 Q. How about the -- well, besides the 19 investment committee and the strategic planning 20 committee, were there any other committees that 21 you served on at USAT, just over time? If they 22 came on, just tell me approximately when you would 18507 1 have served in that capacity. 2 A. I believe in 1988, I served on a real 3 estate investment committee or one or two real 4 estate committees. And there might have been 5 other committees that I served on in the 1988 time 6 frame. 7 Q. Did you -- if you recall, did you also 8 serve in any capacity as -- well, did there come a 9 time when you became a director at USAT? 10 A. Yes, sir. 11 Q. And when was that? 12 A. That was in February of 1988. 13 Q. Now, what about UFG? Did you serve on 14 any committees of UFG? 15 A. I believe there was the investment 16 committee I served on and, again, the strategic 17 planning committee. I'm not sure if UFG had a 18 strategic planning committee or if it was a 19 combined committee. And it's -- that's all I can 20 recollect right now. 21 Q. Do you recall whether you were on the 22 executive committee of UFG? 18508 1 A. It's possible in 1988 I was, but I 2 don't recall it. 3 Q. Okay. Who was John H. Palmer? 4 A. John Palmer was an attorney that worked 5 on staff for some short period of time at USAT. 6 Q. He worked under your supervision, 7 didn't he? 8 A. Yeah, that's correct. 9 Q. Let me hand you a copy of what's been 10 previously marked as Tab 1130, and it's 11 Exhibit B1741. It's not in those books. We'll 12 get to the books in a moment. 13 Now, I realize that this is only a 14 snapshot and that things change over time. But 15 this purports to be a memorandum drafted by 16 John H. Palmer on September the 9th, 1987; and 17 it's a revised UFG and subsidiaries directory. 18 Do you see that? 19 A. Yes, sir, I do. 20 Q. And if you turn to Page 7 -- is it 7? 21 I'm sorry -- to the first full page of that, it 22 starts off with "United Financial Group's officers 18509 1 and directors." And this is, again, a snapshot at 2 the end of 1987. 3 And it indicates there that you were 4 senior vice president and corporate counsel -- 5 A. Sir, I'm lost. I don't know which page 6 you're looking at. 7 Q. I'm sorry. It's Page -- I apologize. 8 It's Page US2021552. 9 Do you see the little Bates stamp in 10 the corner? 11 A. Okay. 12 Q. It's the first page of the document. 13 A. Yes, sir. 14 Q. This purports to set out the officers 15 and directors of UFG on September the 9th, 1987. 16 Do you see that? 17 A. Yes, sir, I do. 18 Q. Do you have any reason to doubt that 19 Mr. Palmer's, you know, listing of the officers 20 that appears in this document is accurate? 21 A. Do I have any reason to doubt that it's 22 accurate? 18510 1 Q. Yeah. 2 A. No. I think it is accurate. 3 Q. And it indicates on the first page of 4 the UFG directors and officers, which is O21522, 5 that you were the senior vice president, corporate 6 counsel, and secretary of UFG. 7 Do you see that? 8 A. Yes, sir. 9 Q. How long had you held those positions, 10 just approximately? 11 A. For UFG? 12 Q. Yeah. 13 A. Probably since I started working there. 14 Q. Okay. And then if you turn to the next 15 page, it indicates that you were also a member of 16 the executive committee. 17 Do you see that? 18 A. Well, actually, I was secretary. I 19 wasn't a member of the committee. 20 Q. Okay. That was going to be my next 21 question. 22 When it indicates that you are the 18511 1 secretary to the committee, does the secretary 2 play any role with respect to the operations of 3 the committee; or does the secretary merely take 4 the notes of meetings? 5 A. Again, I was not a member of the 6 committee; so, I would have taken the notes of the 7 minutes of the meeting. I wasn't a member. 8 Q. Okay. So, anywhere it indicates that 9 you were secretary, it doesn't necessarily mean 10 you were on the committee? 11 A. It doesn't necessarily mean that, 12 that's correct, sir. 13 Q. Now, I notice that you said you thought 14 you were on the investment committee of UFG. 15 Do you recall that? 16 A. Yes, sir. 17 Q. Now, here it says "investment 18 committee"; and it lists you as secretary. 19 How can I tell when it lists you as 20 secretary whether you're a full member or simply 21 there to take the notes? 22 A. From this document, I'm not sure that 18512 1 you can. 2 Q. Is there any document from which I 3 could make that determination? 4 A. Yeah. I think you would have to -- 5 yes. I think the answer is yes. 6 Q. Okay. What would that be? 7 A. Probably go back to the minutes when 8 these committees were formed to see who the 9 members are of the committees. 10 Q. So, with respect to the executive 11 committee of UFG, it's your recollection that the 12 only thing you did was take the notes? 13 A. Yeah. It's my recollection that I was 14 not a member of that committee. 15 Q. Okay. And what -- what was the 16 function of the executive committee, sir? 17 A. Oh, I -- I mean, I'm giving this off 18 the top of my head. Obviously, it was spelled out 19 in the minutes. 20 Q. Well, I'm just talking sort of 21 generally. 22 A. Generally, it would have the authority 18513 1 to act in place of the board, to do anything that 2 the board could do when the board wasn't in 3 session. 4 Q. Okay. And in September of 1987, the 5 members would have been Mr. Munitz, Mr. Gross, 6 Mr. Hurwitz, and Mr. Whatley; is that correct? 7 A. Well, I believe this is a correct 8 document. I don't have a recollection of that, 9 but I have no reason to think this is wrong. 10 Q. But as the secretary of the executive 11 committee, you would have participated in all of 12 their meetings and would have been aware of what 13 was going on at those meetings, correct? 14 A. Again, generally, that is correct. If 15 I was there, I would have been aware of what was 16 going on, yes, sir. 17 Q. In fact, you were charged with 18 recording what occurred and the votes that were 19 taken and preparing the minutes, weren't you, as 20 secretary? 21 A. Right. That's what I said. If I was 22 there, I would have known what they were doing. 18514 1 Q. And with respect to the investment 2 committee, you indicated that you were a member as 3 well as being the secretary? 4 A. Yes, sir. 5 Q. Okay. So, you would have been aware of 6 everything that was going on at the investment 7 committee, as well; is that correct? 8 A. Generally, that's correct, sir. 9 Q. And this would have covered the period 10 from the date you began at UFG through to the date 11 you terminated, whenever that might have been? 12 A. No. That's not totally correct. 13 Q. Well, how long -- how long would you 14 have remained on these committees? 15 A. Well, now, the investment committee 16 wasn't formed until some time after I came to UFG. 17 Q. Okay. And the record will reflect when 18 it was formed. But whatever date that was formed, 19 you would have been on that committee and remained 20 on that committee from the date of its formation 21 through what date? 22 A. On the investment committee, I think 18515 1 through December 30, 1988. 2 Q. Okay. And on December 30, 1988, that's 3 the date that USAT went into receivership, 4 correct? 5 A. That's correct, sir. Yes, sir. 6 Q. Now, did you then terminate your 7 involvement with the investment committee at UFG 8 when USAT went into receivership? 9 A. After December 30th, I don't have a 10 recollection that we had investment committees at 11 UFG. 12 Q. Okay. Now, it goes on. And the next 13 page indicates that you were a director of Group 14 Investors Trust Company. 15 Do you see that? 16 A. Yes, sir. 17 Q. Were you then involved with the UFG's 18 employees' savings plans -- 19 A. No. 20 Q. -- in that capacity? 21 A. No, sir, I was not. 22 Q. All right. Well, let's move on, then, 18516 1 to the United Savings Association of Texas which 2 is at Page 7 and Bates stamped O21258. 3 A. Did you say Page 7. 4 Q. It's Page 7, and it's Bates stamped 5 021258. 6 Do you have that? 7 A. Yes, sir. 8 Q. This purports to be a listing of the 9 directors of United Savings Association of Texas 10 in September 1987. And it indicates, again, that 11 you were on the executive committee as secretary. 12 Do you see that? 13 A. Yes, sir, I do. 14 Q. Was there a separate executive 15 committee for both USAT and UFG? 16 A. Yes, sir, I believe so. 17 Q. Okay. Now, were you simply on the 18 executive committee of USAT for purposes of taking 19 notes and recording what occurred at the committee 20 meetings; or did you serve as a member? 21 A. I was not a member of the committee. 22 Q. Okay. Now, with respect to the 18517 1 investment committee, were you a member of that 2 committee? 3 A. Yes, sir, I was. 4 Q. And from the date of its inception on 5 forward? 6 A. I believe so, sir. Yes, that's 7 correct. 8 Q. Until USAT failed? 9 A. Yes, sir. 10 Q. And in that capacity, you also served 11 as secretary? 12 A. Yes, sir, that's correct. 13 Q. So, you would have been aware of all of 14 the decisions that took place at the investment 15 committee from the date of its inception all the 16 way through to USAT's failure at the end of 1988, 17 correct? 18 A. For the meetings that I was there, 19 that's correct, sir. 20 Q. Now, when you weren't there, did you 21 have some responsibility to make sure that someone 22 else on your staff took the notes and prepared the 18518 1 minutes? 2 A. No, sir. 3 Q. Who would take the notes and prepare 4 the minutes when you weren't there? 5 A. Somebody else that was on the committee 6 would take the notes. 7 Q. And if you missed a meeting, at the 8 subsequent meeting, were the minutes of the prior 9 meeting approved? 10 A. I don't believe the minutes were 11 actually approved. They were circulated. I don't 12 think there was actually a formal approval of the 13 minutes. 14 Q. Well, if you missed a meeting, would 15 you be then advised at the subsequent meeting of 16 what had occurred and what you had missed? 17 A. I would have received minutes of that 18 meeting at some point. 19 Q. And would it have been your practice to 20 review the minutes to inform yourself as to what 21 occurred in your absence? 22 A. Generally, I would scan the minutes. 18519 1 Q. Now, on Page 9, which is Bates stamped 2 O21530, it indicates that under "legal," that you 3 were an executive vice president, general counsel, 4 and secretary of USAT. 5 Do you see that? 6 A. Yes, sir, I do. 7 Q. And then below that, it lists 8 Mr. Palmer and Ms. Ruby who you mentioned 9 previously and the other members of your staff in 10 September of 1987; is that correct? 11 A. Yes, sir. 12 Q. Okay. Now, did you serve -- and does 13 this accurately reflect what positions you held at 14 USAT? 15 A. I believe so. I believe that -- 16 Q. And for what period of time did you 17 hold these positions? 18 A. Again, I'm not sure when I was elected 19 to that position at USAT. It was sometime after 20 Pledger left. It would be reflected in the 21 minutes. 22 Q. Okay. Now, if we move on, then, to 18520 1 Page 12, do you recall that USAT had a number of 2 subsidiaries? 3 A. Yes, sir, I do. 4 Q. And did you serve as a director for 5 most, if not all, of those subsidiaries? 6 A. I believe so. 7 Q. Okay. And just to save a little time, 8 on the front page that is the table of contents 9 which is the third page into the document, it 10 lists 14 subsidiaries of United Savings 11 Association of Texas. 12 Do you see that? 13 A. Yes, sir. 14 Q. Were you a director with respect to all 15 of those? 16 Do you recall? 17 A. I really have no recollection. I would 18 have to go look. 19 Q. But if we flip through here and -- this 20 would indicate whether you were a director or not? 21 I mean, you see on Page 12, which is the United 22 capital management, for example, which had the 18521 1 purpose of soliciting large accounts on behalf of 2 USAT, you were the director and a vice president 3 and a secretary. 4 Do you see that? 5 A. Yes, sir, I do. 6 Q. Now, when it says "vice president," 7 that means that you were -- you performed some 8 function with respect to this subsidiary? 9 A. Probably not in this case. 10 Q. Did the subsidiaries have regular 11 meetings? 12 A. I don't believe they had regular 13 meetings, no. 14 Q. To the extent that the subsidiaries 15 kept minutes, was that your responsibility as 16 secretary? 17 A. Yes, sir. 18 Q. Okay. Are you aware of any subsidiary 19 of USAT as to which you were not a director and 20 did not serve as secretary? 21 A. I am not aware one way or the other. 22 We would have to go through this and look. 18522 1 Q. I have looked through this, and it's my 2 distinct recollection in every instance, you were 3 listed as a director and an officer; and in one or 4 two cases, you were not listed as secretary. If 5 you would take a moment to look from Page 12 to 6 Page 20, perhaps you can verify that you served as 7 a director in all the subs of USAT. 8 A. (Witness reviews the document.) Okay. 9 Q. Now -- and does it reflect that you 10 were a director of all of the subs of USAT? 11 A. Well, the ones you told me to look at, 12 yes, sir. 13 Q. Take a look at Page 19, United 14 Mortgage -- United MBS Corporation. 15 Do you see that? 16 A. Yes, sir. 17 Q. Okay. Were you a director of United 18 MBS? 19 A. Yes, sir, I was. 20 Q. Okay. And what was the nature of 21 United MBS's business? 22 A. It was a -- well, acquisition and 18523 1 disposition of corporate debt obligations. I 2 think it dealt mostly in mortgage-backed 3 securities. 4 Q. Now, you were reading from the document 5 when you gave that answer. 6 A. Right. 7 Q. Do you recall that United 8 Mortgage-Backed Security was a -- an entity which 9 dealt in mortgage-backed securities? 10 A. United MBS? 11 Q. Yes. 12 A. That's my recollection. 13 Q. Okay. And is that the subsidiary for 14 which Sandra Laurenson worked? 15 A. Well, she actually worked for United 16 Savings. 17 Q. And do you know if Sandra Laurenson was 18 a senior vice president of United MBS? 19 A. Again, it says it here. I have no 20 reason to doubt this is incorrect. 21 Q. Did United MBS have periodic meetings? 22 A. I don't recall it having any meetings, 18524 1 actually. 2 Q. And you don't recall ever having taken 3 any minutes as secretary? 4 A. No, I don't recall. 5 Q. Okay. Then I notice at Page 22 and 23, 6 there is USAT Finance II and USAT Finance III; and 7 you were a director of both of those -- I'm sorry. 8 You were not a director of USAT Finance II but -- 9 I'm sorry. 10 You were a director of both of those, 11 correct? 12 A. Yes, sir. 13 Q. Did those subsidiaries have regular 14 meetings or meetings at all, if you recall? 15 A. I would have to look at the minutes. I 16 don't recall them having meetings, but they may 17 have. 18 Q. In your experience, how did all these 19 subs carry out their business if they didn't have 20 meetings? 21 A. Again, we would have to look at what 22 the sub was responsible for doing to see if they 18525 1 had a regular business. 2 Q. Well, United MBS was engaged in 3 purchasing mortgage-backed securities, correct? 4 A. Yes, sir. 5 Q. And that was pretty much a regular 6 business at USAT, wasn't it? 7 A. At some point in time, yes, sir, that's 8 correct. 9 Q. Well, in 1987, was it? 10 A. Yes, sir. 11 Q. But you don't recall whether there were 12 periodic meetings or regular meetings of United 13 MBS? 14 A. I certainly don't. 15 Q. Okay. Now, take a look at Page 25. 16 What's United Mortgage Finance? 17 Do you recall that? 18 A. No, sir, I don't. 19 Q. It indicates it was a finance 20 subsidiary. 21 Do you see that? 22 A. Yes, sir. 18526 1 Q. But you don't have any idea as to the 2 nature of the business it was engaged in? 3 A. At this point in time, no, sir, I 4 don't. 5 Q. Okay. And would the same be true with 6 respect to the next page, United Mortgage 7 Securities, Inc.? 8 A. I don't have a specific recollection. 9 I could guess, but I don't want to. 10 Q. And then on the next page, it makes 11 reference to United Financial Corporation 12 subsidiaries. 13 Do you see that? What was United 14 Financial Corporation? That was a subsidiary of 15 USAT? 16 A. I believe that's correct, but I -- I 17 would have to take a look through here. 18 Q. Okay. And do you recall whether you 19 were a director of United Financial Corporation? 20 Take a look at Page 14. 21 A. (Witness reviews the document.) Yes, 22 sir. 18527 1 Q. You were a director; is that correct? 2 A. That is correct, sir. 3 Q. Now, do you recall as you sit here 4 today anything about the nature of the business of 5 United Financial Corporation? 6 A. No, sir, I don't. 7 Q. Okay. You can put that aside, I think, 8 for the time being. 9 Now, all of these -- you indicated that 10 you were not a director of USAT or UFG until, I 11 think you said, February of 1988; is that correct? 12 A. Yes, sir. 13 Q. Okay. Can you describe the 14 circumstances under which you became a director of 15 USAT and UFG? 16 A. I was asked to join the board. 17 Q. Okay. And how did that -- who asked 18 you to join the board? 19 A. I'm not sure if it was Jenard Gross or 20 Charles Hurwitz. One or the other. 21 Q. Okay. And when either Jenard or 22 Mr. Hurwitz came to you, what did they tell you? 18528 1 A. That they wanted me to serve on the 2 board, the boards. 3 Q. Did you feel you had any choice in the 4 matter? 5 A. No, sir. 6 Q. And why was that? 7 A. Well, I had signed the contract in 8 September of the previous year which said that, if 9 requested, I would serve on the board of United 10 Financial Group or any of its subsidiaries. 11 Q. And that was a contract you entered 12 into with which entity? 13 A. United Financial Group, sir. 14 Q. And that was entered into in September, 15 you said, of 1987? 16 A. That's my recollection. 17 Q. Okay. Did anyone else join the board 18 of either USAT or UFG at that time? 19 A. Mike Crow joined the board of, I 20 believe, UFG. I don't think he joined USAT. 21 Q. Did Mr. Crow, if you recall, have a 22 provision in his contract that required him to 18529 1 join the board of UFG? 2 A. I believe he did, sir. 3 Q. Did you draft that contract, sir? 4 A. Yes, sir, I did. 5 Q. And is there a reason why Mr. Crow 6 joined the UFG board but did not join the USAT 7 board? 8 A. I don't know. 9 Q. Okay. Was Mr. Crow, to your knowledge, 10 approached by either Mr. Gross or Mr. Hurwitz and 11 asked to join the board, as well? 12 A. I don't know. 13 Q. Now, did anyone else join the board at 14 or about the time that you joined the board? 15 A. I believe Paul Schwartz joined the 16 board of UFG. He might have also joined USAT. 17 I'm not sure. 18 Q. Okay. Now, who was Mr. Schwartz? 19 A. He was an executive at MAXXAM. 20 Q. And what was MAXXAM? 21 A. MAXXAM was a publicly-held corporation. 22 Q. And what was MAXXAM's relationship to 18530 1 USAT and UFG? 2 A. MAXXAM was the largest stockholder of 3 UFG. 4 Q. And UFG was a 100 percent shareholder 5 of USAT, correct? 6 A. Yes, sir, that's correct. 7 Q. And who was the controlling shareholder 8 of MAXXAM? 9 A. I think it's Charles Hurwitz, but I -- 10 I mean, I have no specific recollection. I think 11 Charles Hurwitz is the controlling shareholder. 12 Q. Do you know how it was that 13 Mr. Schwartz came to be placed on the UFG board? 14 A. No, sir, I don't. 15 Q. And what was it that caused 16 Mr. Schwartz, yourself, and Mr. Crow to go onto 17 the USAT -- I mean the UFG board? 18 A. As I said, we were asked to join the 19 board. And in my case and in, I believe, 20 Mr. Crow's case, we had a contract that said we 21 would have to serve on the board if asked. 22 Q. Well, had some event triggered that? 18531 1 A. Other than being asked? No, I don't 2 believe so. 3 Q. Was there a shortage of directors on 4 the UFG board? 5 A. There were a number of directors that 6 had resigned, but certainly there was a -- I think 7 there were four or five -- four directors at that 8 time. 9 Q. Do you recall, after you joined the UFG 10 board, whether Mr. Hurwitz remained on the board? 11 A. I think he resigned just before I got 12 on or immediately after I got on, right around 13 that time. 14 Q. So, as soon as Mr. Schwartz and 15 yourself and Mr. Crow went on the UFG board, 16 Mister -- at or about that same time, Mr. Hurwitz 17 left; is that correct? 18 A. The UFG board, yes, sir, that's 19 correct. 20 Q. Okay. Now, in connection with your 21 work at USAT, what was the nature of the legal 22 work that you did there? 18532 1 A. Which time frame? 2 Q. Well, let's start with 1985 and work 3 forward. 4 A. When I first got there, one of the 5 first things I know I worked on was their CMO -- 6 they were doing a collateralized mortgage 7 obligation transaction. That started somewhere in 8 the late 1985, early 1986 time frame. 9 I was also working on -- I'm trying to 10 remember. I think it was the Yellow Cab 11 transaction that I was working on. I believe that 12 was around at that time. 13 There was a securities offering that 14 they were doing that was called the DARTs or the 15 AMPs, one or the other. I was working on that. 16 In the beginning of 1986, I started 17 working on the subordinated debt obligation. They 18 were trying to raise some additional capital for 19 United Savings. 20 There may have been other things. 21 Those are the only things I can think of right 22 now. 18533 1 Q. Now, with respect to the subordinated 2 debt application, did USAT have to apply to the 3 Federal Home Loan Bank of Dallas for permission to 4 issue subdebt? 5 A. That's my recollection. 6 Q. And were you involved in the activities 7 related to any applications that might have been 8 made to the Federal Home Loan Bank of Dallas 9 relating to that subdebt application? 10 A. Yes, sir, I was. 11 Q. And that would have occurred in 12 approximately what period of time? 13 A. It was the -- again, my recollection 14 was it was the beginning of -- the first part of 15 1986. 16 Q. We'll come back to that later. 17 Were there any other applications that 18 you recall with respect to the Federal Home Loan 19 Bank of Dallas that you may have participated in? 20 A. I don't recall any right now. 21 Q. At the end of 1985 when you first 22 arrived at USAT, do you recall whether USAT was 18534 1 having a problem with its liability growth? 2 A. I believe that's right. 3 Q. Okay. And though you were newly 4 arrived there, did you become involved in any way 5 with the liability growth application? 6 A. I don't recall being involved in it. 7 Q. Do you recall whether an application 8 was filed with the Federal Home Loan Bank of 9 Dallas? 10 A. I don't have a specific recollection of 11 that, no, sir. 12 Q. Okay. Would that have then been 13 handled by Mr. Pledger? 14 A. I believe so, yes, sir. 15 Q. But at that point in time, he would 16 have been acting under your direction? 17 A. Well, he was general counsel at USAT; 18 so, it's hard to say if he was acting under my 19 direction. I mean, that was his responsibility. 20 Q. But it was your responsibility to 21 supervise Mr. Pledger at that point in time, was 22 it not? 18535 1 A. I don't think I supervised him on 2 regulatory matters. 3 Q. He was on his own? 4 A. He had -- he reported to -- he had -- 5 Gerry Williams was above him; and, certainly, they 6 did a lot of discussions. And it would be hard 7 for me to be supervising Mr. Pledger on regulatory 8 matters. 9 Q. Did there come a time when Mr. Pledger 10 reported to you as the -- 11 A. He officially reported to me, but he 12 wouldn't have dealt with regulatory issues. He 13 wouldn't have come to me for input on regulatory 14 matters. 15 Q. But he officially reported to you. If 16 he had a regulatory question, though, he might go 17 to someone other than you; is that fair? 18 A. I think that's -- that's fair. 19 Q. In connection with regulatory 20 submissions, would he discuss them with you or -- 21 as the head of -- of the legal department at USAT, 22 did you review any of those submissions? 18536 1 A. He probably would have told me about 2 them, and I'm sure he would have copied me on 3 anything. 4 Q. Now, do you recall, at the end of or 5 the beginning of 1986, a direct investment 6 application being made to the Federal Home Loan 7 Bank of Dallas? 8 A. I don't have a specific recollection of 9 that, no, sir. 10 Q. Now, other than the CMO obligations and 11 the subdebt application that you referenced in 12 1986, do you recall -- what was the nature of the 13 work that you performed in '86 and into '87? 14 A. For? 15 Q. USAT. 16 A. Goodness. I mean, certainly after 17 Mr. Pledger left, you know, I was responsible for 18 all of the legal work at USAT, so -- I mean, I was 19 responsible for all of it. 20 Q. And you believe that he left sometime 21 in June or July of 1986? 22 A. That's my recollection. Sometime in 18537 1 the middle of 1986, sir. 2 Q. Okay. And at the same time, you were 3 also providing -- you were supervising all of the 4 legal work of UFG; is that correct? 5 A. Yes, sir. 6 Q. And that would have included filing all 7 of their public disclosure materials? 8 A. Yes, sir, that's correct. 9 Q. Now, with respect to the public 10 disclosure materials, were those prepared by 11 outside counsel; or did you take an active role in 12 preparing them? 13 A. I took an active role. 14 Q. Okay. Let's start with the 10K. My 15 recollection is that the 10K has a lot of 16 narrative in it; and then, usually, at the end, it 17 has an auditor's report -- I'm sorry -- annual 18 report. 19 Is that fair to say? 20 A. Is it fair to say that it has a 21 narrative and then financial statements? 22 Q. Yes. 18538 1 A. Yes, sir. 2 Q. Would you be involved in reviewing the 3 financial statements with respect to an annual 4 report? 5 A. I would certainly look at them, but I 6 wouldn't be responsible for them. 7 Q. That would be the responsibility of 8 someone else. Right? 9 A. Yes, sir. 10 Q. And who would it be normally? 11 A. The chief financial officer. 12 Q. Which would be Mr. Crow? 13 A. Right. 14 Q. Now, with respect to the narrative 15 portion of it, would you take a role in drafting 16 the narrative? 17 A. Yes, sir. 18 Q. And was -- were you ultimately 19 responsible for signing off on the narrative 20 portions of the annual reports of UFG? 21 A. The board of directors was ultimately 22 responsible. 18539 1 Q. Did you sign off as the 2 attorney-in-fact on the annual reports? 3 A. I'm not sure I understand your 4 question. 5 Q. Are you familiar with the term 6 "attorney-in-fact"? 7 A. Yes, sir. 8 Q. What does it mean? 9 A. It means someone who has the power of 10 attorney to sign someone else's name. 11 Q. So, did you sign the annual reports on 12 behalf of the board of directors? 13 A. I don't have a recollection one way or 14 the other. 15 Q. Okay. Now, would your answers be the 16 same with respect to other securities filings that 17 were made on behalf of UFG? 18 A. Which answers? 19 Q. Were you principally involved in 20 drafting the narrative portions of those 21 documents? 22 A. I believe so, yes, sir. 18540 1 Q. And you would review the financial 2 materials enclosed in those documents, but that 3 would also be the subject of review by Mr. Crow; 4 is that correct? 5 A. Yes, sir. 6 Q. Okay. Now, did you play any role at 7 USAT with respect to dealings with the Federal 8 Home Loan Bank of Dallas or the Federal Home Loan 9 Bank Board in Washington? 10 A. During the whole -- 11 Q. Well, just describe for me what, if 12 any, role you played in dealing with either of 13 those entities? 14 A. Goodness. Over the three-year period? 15 At various times, I would have discussions with 16 people at the Federal Home Loan Bank of Dallas and 17 the Federal Home Loan Bank Board in Washington, 18 meeting with them. 19 Q. When regulatory matters came up or 20 legal issues associated with the rules and 21 regulations governing savings and loans, were you 22 the person that would take the lead in dealing 18541 1 with the Federal Home Loan Bank of Dallas? 2 A. Initially, it was Jim Pledger. 3 Q. Okay. And sometime in June or July of 4 1986, you've testified Mr. Pledger left. 5 After Mr. Pledger's departure, would 6 you then have taken a lead role in dealing with 7 legal matters associated with the operations of 8 USAT as they pertained to the Federal Home Loan 9 Bank of Dallas? 10 A. I would have used outside counsel, but 11 I was the responsible person in-house. 12 Q. Okay. And you say you would use 13 outside counsel. But I'm talking about 14 communicating with the Federal Home Loan Bank of 15 Dallas. 16 Would you typically participate in the 17 communications with the Federal Home Loan Bank of 18 Dallas? 19 A. Certain things I would participate in, 20 and certain things I wouldn't. 21 Q. What kinds of things would you 22 participate in? 18542 1 A. There would be meetings or telephone 2 calls with the supervisory agent and other people 3 on their staff. And some of those I would be 4 involved in, and some I wouldn't. 5 Q. When the supervisory agent in the 6 Federal Home Loan Bank of Dallas wanted to make an 7 inquiry regarding a regulatory matter with respect 8 to USAT, were you the person that they would 9 contact first? 10 A. Yeah. I think on some things, they 11 would contact me first; and some things, they 12 wouldn't. 13 Q. Well, was there any standing rule as to 14 whether people who were contacted by the Federal 15 Home Loan Bank of Dallas regarding regulatory 16 issues had to contact you and advise you that 17 there had been a contact with them? 18 A. I don't believe there was a rule to 19 that effect, no. 20 Q. Okay. What was the practice? 21 A. Generally, I would find out. 22 Q. You mean they would report it to you? 18543 1 A. Generally but not all the time. 2 Q. Well, is there any person at USAT that 3 acted as the principal liaison between USAT and 4 the Federal Home Loan Bank of Dallas? 5 A. Well, I think after -- well, the answer 6 is yes. Yes, sir. 7 Q. Who would that person have been? 8 A. That person probably was me after 9 Pledger left. 10 Q. And in connection with dealing with the 11 Federal Home Loan Bank of Dallas, who did you deal 12 with? 13 A. Oh, goodness. Neil Twomey, Ginger 14 Baugh. There was a whole bunch of other people 15 that would -- primarily, it was those two during 16 the time that I was there. 17 Q. And what was your understanding of the 18 position that Mr. Twomey held? 19 A. He was the supervisory agent over 20 United, United Savings. 21 Q. And what does that mean, "the 22 supervisory agent over United Savings"? 18544 1 A. He was the one who was responsible for 2 making sure that -- whatever the Federal Home Loan 3 Bank Board wanted to know about United Savings, it 4 would go through him. 5 Q. So, if there was any inquiry or 6 questions regarding what USAT was doing, it would 7 generally come from Mr. Twomey? 8 A. Not necessarily, no. 9 Q. Okay. Did Mr. Twomey have someone that 10 assisted him? You mentioned a Ginger Baugh? 11 A. Yes. 12 Q. What did you understand was the role of 13 Ms. Baugh? 14 A. She worked for Mr. Twomey. She 15 reported to Mr. Twomey. 16 Q. And what was your -- can you just sort 17 of generally describe what, if any, involvement 18 you had with Ms. Baugh? 19 A. She would call up every now and then 20 and ask questions or send letters, and we would 21 have those sort of communications. 22 Q. How would you characterize the 18545 1 communications or the amount of communications? 2 Did you generally communicate with Mr. Twomey 3 directly, or was it usually through Ms. Baugh? 4 A. I think it was more often with 5 Mr. Twomey directly, at least my communications. 6 Q. Now, if you -- when you say your 7 communications, what do you mean by that? 8 A. I think there were communications with 9 other people at USAT. 10 Q. Okay. When you say your 11 communications, you mean if you had to initiate 12 communication with the Federal Home Loan Bank of 13 Dallas, you would go to Mr. Twomey? 14 A. Sometimes, and sometimes Ms. Baugh. 15 Q. Okay. Was there anyone else that you 16 would go to at USAT -- I mean at the Federal Home 17 Loan Bank of Dallas? 18 A. At various times, there were other 19 people, yes, sir. 20 Q. And were they people that were higher 21 up in the supervisory structure than either 22 Ms. Baugh or Mr. Twomey? 18546 1 A. I'm not sure what the -- sometimes they 2 were higher up, and sometimes -- I don't know 3 where they were in the hierarchy. 4 Q. Well, if you went to Mr. Twomey and 5 didn't get a satisfactory response, would you then 6 go to Ms. Baugh; or did you perceive Mr. Twomey to 7 be higher up in the supervisory structure? 8 A. I think Mr. Twomey was higher up than 9 Ms. Baugh. 10 Q. And if you went to Mr. Twomey, did 11 there ever come occasions when you didn't get what 12 you thought was a satisfactory response from 13 Mr. Twomey and you had to go to other persons? 14 A. I'm sure there were. I don't recall 15 them right now but -- 16 Q. And do you recall the identities of the 17 persons you might have gone to? 18 A. Again, I don't have a specific 19 recollection; but I know we talked to other 20 people. 21 Q. Do you recall Daniel Thomas? 22 A. Yes, sir, I do. 18547 1 Q. And what do you recall about 2 Mr. Thomas? 3 A. I remember he was at the Federal Home 4 Loan Bank of Dallas. 5 Q. Do you remember whether you had 6 communications with him periodically? 7 A. Sporadically. 8 Q. And do you recall whether that was in 9 connection with any particular matters? 10 A. He -- I remember -- yes, sir. 11 Q. And what do you recall? 12 A. He was involved with the -- one of the 13 exams, maybe both of the exams; and there might 14 have been other issues that he was involved in. 15 Q. Okay. And when you say he was involved 16 with one or both of the exams, what do you mean by 17 that? 18 A. Again, I think -- I remember him being 19 involved in coming to meetings in connection with 20 the Federal Home Loan Bank examinations of United 21 Savings. 22 Q. Now, you brought up the subject of the 18548 1 examinations of USAT. 2 Do you recall that there were several 3 examinations of USAT during the period that you 4 were the general counsel of USAT? 5 A. During the period that I was general 6 counsel? 7 Q. Uh-huh. 8 A. There were, I think, two or three. 9 Q. Okay. And after Mr. Pledger left -- 10 and let me say that there was an exam that began 11 in 1986 while Mr. Pledger was still there but that 12 shortly after, he left. I mean shortly after its 13 commencement, he left, just as a reference. 14 What role would you have played 15 vis-a-vis the examination? 16 A. I was there to answer any questions 17 that anybody would have -- that they would ask me 18 about. 19 Q. Were you the principal point of contact 20 for the examiners? 21 A. I don't believe so. 22 Q. Who would that have been? 18549 1 A. I think after Pledger left -- now, it 2 was Pledger when he was there. I think after 3 Pledger left, it was Jim Wolfe. 4 Q. So, if an examiner had a question 5 regarding some aspect of the examination, they 6 would first go to Mr. Wolfe? 7 A. Again, that's my recollection; but 8 that -- I don't know. 9 Q. Mr. Wolfe was the controller, correct? 10 A. That's right. 11 Q. And did he, then, work for Mr. Crow? 12 A. He reported to Mr. Crow, yes, sir. 13 Q. Okay. And what kinds of issues during 14 the examination would be brought to you? 15 A. I don't recall. 16 Q. Do you recall that during the 17 examinations, once -- do you recall that during 18 the examinations, the examiners would meet with 19 officers of USAT periodically to discuss their 20 ongoing examination? 21 A. Yes, sir. 22 Q. Were those meetings that you 18550 1 participated in? 2 A. I participated in one or more of those 3 meetings, yes, sir. 4 Q. Well, did you consider it part of your 5 job to involve yourself in the examination 6 process? 7 A. To involve myself, yes, sir. 8 Q. And did you also consider it part of 9 your job to assist the examiners in resolving any 10 issues that might arise during the course of their 11 examinations? 12 A. I think it's everybody's job, yes, sir. 13 Q. You indicated that the -- you may have 14 participated in several meetings with examiners. 15 Did you, to your recollection, attempt 16 to attend any meetings that were called or 17 requested by the examiners to discuss the 18 examination findings? 19 A. I'm not sure -- if I were told about a 20 meeting and if they asked me to be there, I would 21 certainly be there. 22 Q. When you say if they asked you to be 18551 1 there -- 2 A. The examiners. 3 Q. If the examiners didn't ask you to be 4 there, you wouldn't go? 5 A. If I knew about a meeting and thought I 6 would be helpful, I would go. 7 Q. So, is it fair to say that you didn't 8 play a -- a lead role in communicating with the 9 examiners with respect to the examination? 10 A. I'm not sure I understand what you mean 11 when you say "lead role." 12 Q. How would you characterize your 13 involvement with the examination? That's all I'm 14 trying to get at. 15 MR. VILLA: Object, Your Honor. He's 16 described it. He's now trying to characterize a 17 period that takes four months. I mean, the 18 witness has described factually what he's done. 19 He's now trying to boil it down to one word. 20 MR. RINALDI: Your Honor, I'm not 21 trying to boil it down to one word. I'm looking 22 for a narrative from him as to what is involved 18552 1 and would have been in the examination process. 2 He's told me that, occasionally, he would have 3 attended meetings if someone requested him to. 4 THE COURT: All right. I'll deny the 5 objection. You may answer. 6 A. Could you repeat the question? 7 Q. (BY MR. RINALDI) Could you generally 8 characterize what role you played with respect to 9 the examinations? 10 A. If requested to attend meetings, I 11 would go to those meetings. If anyone wanted 12 documents that I could provide them, I would make 13 sure that they would be provided to them. Just 14 generally be helpful, get it done. 15 Q. Now, do you recall that at the -- that 16 periodically during the examinations, there would 17 be communications -- written communications back 18 and forth between the Federal Home Loan Bank of 19 Dallas and United Savings Association of Texas? 20 A. Yeah. Yes, I do, sir. 21 Q. And with respect to any written 22 communication between the Federal Home Loan Bank 18553 1 of Dallas and USAT, what would your involvement be 2 regarding those communications associated with an 3 examination? 4 A. It's hard to say. You would have to 5 show me something, and I would be able to perhaps 6 tell you what my involvement was. 7 Q. Okay. Generally, did you write letters 8 or review the contents of letters which were sent 9 to the Federal Home Loan Bank of Dallas? 10 A. Again, if you showed me a specific 11 letter, I might be able to tell you what my 12 involvement was in that. 13 Q. If your signature appears on a letter 14 that was sent to the Federal Home Loan Bank of 15 Dallas, would that indicate that that was a matter 16 in which you were actively involved; or did you 17 typically just have someone draft the letter and 18 you would sign it as chief counsel? 19 A. It would be a combination of both of 20 those. 21 Q. But you wouldn't just sign a letter 22 regarding a matter in which you were not involved 18554 1 in, would you? 2 A. Would I sign a letter without reading 3 it? 4 Q. No, no. If you were not involved in a 5 matter, you wouldn't sign a letter with regard to 6 the issue, would you? 7 A. That's not necessarily true. 8 Q. Now, do you recall that at the 9 conclusion of each of the examinations, the board 10 of directors would meet with the examiners and 11 would receive a presentation regarding the 12 examination findings? 13 A. Yes, sir, I do. 14 Q. Now, that would take place at a board 15 meeting of USAT, wouldn't it? 16 A. Yes, sir. 17 Q. Do you recall that they would call 18 sometimes a special board meeting so that the 19 directors could hear the findings of the 20 examiners? 21 A. Yes, I do. 22 Q. And you were the secretary that 18555 1 participated at those board meetings and kept the 2 minutes, weren't you? 3 A. Yes, sir. 4 Q. Now, following -- so, you were aware, 5 then, what the examiners' conclusions had been at 6 each of the examinations that were conducted, 7 weren't you? 8 A. At that time, yes, sir. 9 Q. Okay. And after the examination was 10 presented to the board, was there some process by 11 which the board had to sign off and indicate that 12 they had received the exam and understood its 13 contents? 14 Do you recall that? 15 A. I don't recall one way or the other. 16 Q. Do you recall that after the 17 examinations were received by USAT, whether any 18 responses were supplied by USAT to the Federal 19 Home Loan Bank of Dallas regarding any of the 20 examinations? 21 A. I believe so. 22 Q. And do you believe that that occurred 18556 1 with respect to all of the examinations that you 2 were involved in? 3 A. I don't know if that's true. 4 Q. Now, with respect to any correspondence 5 responding to an examination, what role would you 6 participate in that? 7 A. I would certainly review it. I might 8 draft portions of it, again depending on what we 9 were responding to. 10 Q. Well, you were the chief counsel. And 11 if the response was being submitted on behalf of 12 the board, is that something that would have been 13 prepared in your office? 14 A. Again, I think portions would have been 15 prepared in my office. Portions would have been 16 prepared by the various departments in the 17 institutions. 18 Q. Well, did the directors actually have 19 the -- you know, some office that prepared their 20 correspondence for them; or was, generally, the 21 directors' correspondence prepared by the legal 22 department that you directed? 18557 1 A. Again, I'm not sure I understand the 2 question. 3 Q. Well, when I say "the directors," I 4 mean -- if the board of directors wanted to send a 5 letter to some individual at the Federal Home Loan 6 Bank of Dallas, did the board of directors sit 7 down and draft that themselves; or was that 8 drafted in the office of the general counsel? 9 A. Again, it depends upon what the letter 10 would be. The board of directors would have 11 reviewed any letter that went out over their 12 signature. Whether the letter was drafted in my 13 office or somebody else's office would depend on 14 what the letter was about. 15 Q. If the letter dealt with regulatory 16 issues, would it generally have been drafted in 17 your office? 18 A. Again, it would have come out over my 19 signature. Whether it was drafted in my office 20 would depend on what we were dealing with or just 21 what the matter was that the letter was dealing 22 with. 18558 1 Q. When a letter came out over your 2 signature, did that mean that you had read the 3 contents of the letters and were familiar with the 4 representations that were made in the letter? 5 A. I would say that's generally true. 6 Q. Now, you indicated that at the 7 outset -- and maybe you gave the answer to this 8 question, but let me just wrap it up here -- you 9 began by working at UFG and being paid by UFG. 10 Do you recall that? 11 A. Yes, sir. 12 Q. Did there come a time after you joined 13 UFG and USAT when USAT took on the obligation of 14 paying your salary? 15 A. I thought so. 16 Q. And when would that have been? 17 A. I thought it happened sometime in 1986 18 or 1987. 19 Q. Okay. And after 1986 or '87, did USAT 20 thereafter continue to pay your salary? 21 A. Well, that was my recollection at the 22 time. 18559 1 Q. Okay. Now, with respect to bonuses 2 that you received, were those bonuses that were 3 paid by USAT? 4 A. Again, that was my recollection. 5 Q. And your checks came out of the USAT 6 payroll account; is that right? 7 A. I don't know. 8 Q. Well, we'll show you some later; and 9 maybe that will refresh your recollection. 10 MR. RINALDI: Your Honor, I'm about to 11 start into a new area. Would this be an 12 appropriate place to take a break? 13 THE COURT: All right. We'll take a 14 short recess. 15 16 (Whereupon, a short break was taken 17 from 10:25 a.m. to 10:49 a.m.) 18 19 THE COURT: Be seated, please. We'll 20 be back on the record. 21 Mr. Rinaldi. 22 Q. (BY MR. RINALDI) Mr. Berner, before 18560 1 we broke we had been discussing or had discussed 2 the departure of Mr. Pledger. 3 Why was it that you were hired by UFG 4 when Mr. Pledger was already the general counsel 5 and very knowledgeable of regulatory affairs? 6 A. Well, he was at USAT. 7 Q. Yes. 8 A. Why was I hired? I think they were 9 looking for someone that had more of a business 10 background and a securities background. 11 Q. And why was it that they were 12 interested in someone with a securities 13 background? 14 A. I really don't know. 15 Q. When you first joined USAT, was USAT 16 becoming more involved in securities transactions? 17 A. Well, they were doing the CMO 18 transactions and the DARTs and the AMPs 19 transactions. 20 Q. And was that something that Mr. Pledger 21 had any expertise in? 22 A. I don't believe so. 18561 1 Q. So, was it your understanding, then, 2 that one of the reasons you were brought on is to 3 assist in the securities issues that might arise 4 at USAT and UFG? 5 A. Yes, sir. 6 Q. Okay. Now, we had talked a moment ago 7 about the examination process. 8 Would you take a look at the document 9 that I put before you? This is Tab 395. It's 10 Exhibit T8014. This is a letter dated April 16th, 11 1987, to the board of directors of USAT; and it's 12 from Daniel A. Thomas, the senior supervisory 13 agent. 14 Do you see that? 15 A. (Witness reviews the document.) 16 Q. And in particular, I wanted to direct 17 your attention to the fourth full paragraph on the 18 first page. 19 Do you see that? 20 A. Yes. 21 Q. And it talks there about USAT failing 22 to meet its net worth. 18562 1 Do you see that? 2 A. Uh-huh, I see that. 3 Q. Do you recall that in about April of 4 1987, USAT was advised by examiners that the 5 examiners had concluded that USAT was failing its 6 minimum net worth requirements? 7 A. Yes, I do. 8 Q. Okay. And as the secretary to the 9 board, did you periodically receive reports 10 regarding the financial condition of USAT? 11 A. As secretary to the board? 12 Q. Uh-huh. 13 A. I received the reports, yes. 14 Q. Well, correct me if I'm wrong, but in 15 each of the board minutes I've seen for USAT, at 16 the beginning of the board meeting, there appears 17 to be a presentation made. And, generally, it's 18 made by the chief financial officer who, at this 19 period of time, I believe, would have been 20 Mr. Crow. 21 Do you recall that there was such a 22 presentation generally made at the USAT board 18563 1 meetings? 2 A. That's right. 3 Q. Okay. And, generally, what was the 4 nature of that financial presentation? 5 A. Mr. Crow would go over the balance 6 sheet and the income statement and would go over 7 various regulatory ratios that we were required to 8 meet and where we stood on various things, just a 9 general overall financial report. 10 Q. And one of those regulatory ratios that 11 was periodically reviewed was the capital 12 requirement of USAT; isn't that correct? 13 A. Right. 14 Q. And do you recall that when USAT was 15 advised by the examiners in T8014 that the 16 examiners believed USAT had failed their net worth 17 requirement as of June 30th by $10.5 million, do 18 you recall what the reaction of the board was? 19 A. My recollection is that we disagreed 20 with that conclusion. 21 Q. Okay. And when you say "we," did you 22 have occasion to discuss this with anyone at USAT? 18564 1 A. Yes, I did. 2 Q. And who would you have discussed it 3 with? 4 A. At various times, I discussed it with 5 the senior officers, some of the senior officers; 6 and then it was discussed at board meetings, a 7 board meeting. 8 Q. Was that of serious concern to USAT? 9 A. That it was below -- that it disagreed 10 with the Federal Home Loan Bank Board? 11 Q. Well, that the Bank Board at least 12 believed USAT was failing to meet its minimum 13 capital requirement as of June 30th, 1986? 14 A. Yes, it was. 15 Q. And as the chief counsel, do you recall 16 what, if any, impact that may have had upon USAT 17 if, in fact, they were failing their minimum 18 capital requirement? 19 A. Well, again, I don't think we agreed 20 with that conclusion. 21 Q. I understand you didn't agree. But did 22 you understand at this point in time that if, in 18565 1 fact, the examiners were correct, that it could 2 have some impact upon USAT? 3 A. Yes. 4 Q. Okay. 5 A. I'm not sure it was at this point in 6 time; but I know at some point, I was aware that 7 it could have an impact. 8 Q. What was your understanding as to the 9 impact a net worth failure could have on the 10 institution? 11 A. Unfortunately, I don't remember right 12 now what it was. 13 Q. Do you recall whether it could have 14 limited the types of investments that USAT could 15 have made? 16 A. Again, at this point in time, I really 17 don't recall. 18 Q. Do you recall that USAT was involved in 19 making something called direct investments? 20 A. Yes. 21 Q. All right. Do you recall whether a net 22 worth failure could potentially result in a 18566 1 limitation on direct investments that the 2 institution could make? 3 A. I don't have specific recollection 4 right now. 5 Q. Okay. Now, you indicated that USAT 6 disputed the finding of a net worth failure that's 7 reflected in T8014. 8 Do you recall that? 9 A. Yes, yes. 10 Q. Can you describe for me in your own 11 words what occurred after USAT received T8014? 12 A. Over a -- over a long period of time, I 13 think like a year or so, there were meetings and 14 discussions with people at the Bank Board: 15 Mr. Twomey and maybe Ms. Baugh. And then my 16 recollection is there was a resolution of that 17 issue. 18 Actually, there was no resolution as to 19 whether or not we had, in fact, failed our net 20 worth at that time; but there was a resolution as 21 to how it would get solved. 22 Q. And in connection with that discussion 18567 1 back and forth between the Federal Home Loan Bank 2 of Dallas and USAT, what role did you play? 3 A. At various times, I was part of that -- 4 that discussion. 5 Q. So, you would participate in the 6 meetings at which the net worth failure were 7 discussed with the Bank Board? 8 A. Yeah. I'm not sure I participated in 9 all of them, by I certainly participated. 10 Q. Do you recall that there was a series 11 of correspondence that went back and forth between 12 USAT and the Federal Home Loan Bank of Dallas? 13 A. Yes, I do. 14 Q. And who was responsible for preparing 15 that correspondence? 16 A. I don't remember right now who was 17 responsible. Certainly, the chief financial 18 officer would have had a major role in it since it 19 had to do with net worth maintenance -- net worth 20 obligations. 21 Q. Did the letters that were prepared and 22 sent to the Federal Home Loan Bank of Dallas 18568 1 emanate out of your office? 2 A. That's very possible. 3 Q. Do you recall that -- whether you 4 signed those letters which were sent to the 5 Federal Home Loan Bank of Dallas in which the 6 issue of the net worth failure was disputed by 7 United Savings Association of Texas? 8 A. I think I signed some letters. I might 9 have -- there might have been other people who 10 signed letters. I don't remember. 11 Q. And when you signed those letters, you 12 would have first reviewed them with other members 13 of executive management to assure that they were 14 factually accurate? 15 A. I would have certainly reviewed it with 16 the person who prepared the factual part of it, 17 yes, sir. 18 Q. And if there was anything in those 19 letters that was inaccurate, you would have made 20 an effort to correct it? 21 A. If I knew about it, yes, sir. 22 Q. Now, you indicated that the dispute 18569 1 over the net worth failure persisted for some 2 period of time; and you indicated that it got 3 resolved ultimately. 4 Do you recall what the resolution was? 5 A. Yeah. The -- the resolution was that 6 United would permit, I think it was, Grant 7 Thornton to come in and review our books and 8 records and somebody else to review the 9 securities -- I think it was junk bond portfolio. 10 Q. But, in fact, there still was a dispute 11 over the net worth question, was there not, 12 notwithstanding the retention of Pru-Bache and an 13 accounting firm to look at the books and records? 14 A. I thought that was the resolution of 15 that dispute. 16 Q. You don't recall that there continued 17 to be a dispute between the Bank Board and USAT 18 over the net worth condition of USAT? 19 A. Again, my recollection is that that was 20 the resolution of that dispute. 21 Q. How would you characterize the 22 condition of USAT at or about the time that this 18570 1 letter is dated; that is, in about April of 1987? 2 A. I would have to look at some financial 3 information to know. 4 Q. Well, what generally do you recall at 5 that point in time? 6 A. Well, generally, you know, Texas was 7 going through a recession or depression, depending 8 on how badly you thought it was. And United 9 certainly was having problems. 10 Q. Do you recall if, at that point, you 11 were projecting that USAT would report a 12 regulatory net loss in the foreseeable future? 13 A. At this time, I think -- I really don't 14 remember specifically. 15 Q. Do you recall that you were -- though 16 you disputed the net worth failure as of 17 June 30th, 1986, that UFG was projecting that in 18 the future, they would fail their minimum capital 19 requirements? 20 A. I believe that's right. 21 Q. And that would have been about the time 22 of this letter, in April or May of 1987? 18571 1 A. I'm not sure of the time frame, but I 2 know it was at some point. 3 Q. Would you take a look at what's 4 previously been marked as Tab 888? And this is 5 Exhibit A12235. 6 MR. VILLA: I'm sorry? 7 MR. RINALDI: 35. 8 MR. VILLA: Could you give me that 9 number again? 10 MR. RINALDI: 12235, Tab 888. 11 A. Do you want me to read this or -- 12 Q. (BY MR. RINALDI) Well, let me ask 13 you: Do you recognize this document, sir? 14 A. Yes, I've seen this document. 15 Q. And it's called "United Savings 16 Association restructuring proposal." 17 Do you see that? 18 A. Yes, sir. 19 Q. And it's dated about six weeks after 20 the 1986 -- I mean the letter wherein the Bank 21 Board communicated to USAT the results of the 1986 22 examination. 18572 1 Do you see that? 2 A. Yes, sir. 3 Q. And if you turn to the second page and 4 the second paragraph beginning with "USAT," do you 5 see that? 6 A. Yes, I do. 7 Q. And it says, "USAT's financial position 8 today is that significant future gains from asset 9 sales are not available." 10 Is that consistent with your 11 recollection of what the position of USAT was at 12 or about May 1987? 13 A. Yes, sir, it is. 14 Q. Okay. Did you draft this document, 15 sir, or participate in its preparation? 16 A. I participated in its preparation. 17 Q. Okay. And prior to it having been -- 18 well, strike that. 19 And then it goes on and says, "Most of 20 the above-water assets have been liquidated, and 21 the remaining assets would not generate a 22 significant profit upon sale."