22049 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 SEPTEMBER 1, 1998 22 22050 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 22051 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 22052 1 2 INDEX OF PROCEEDINGS 3 Page 4 KEVIN O'CONNELL 5 Continued Examination by Mr. Dueffert...22053 6 Examination by Mr. Eisenhart............22236 7 Further Examination by Mr. Leiman.......22246 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 22053 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:10 a.m.) 3 THE COURT: Be seated, please. We'll 4 be on the record. 5 Mr. Dueffert, you may continue with 6 your cross-examination. 7 MR. DUEFFERT: Thank you, Your Honor. 8 9 CONTINUED EXAMINATION 10 11 Q. (BY MR. DUEFFERT) Mr. O'Connell, as 12 we left yesterday, you testified that you did not 13 think there would be any information useful to 14 your analysis in the auditor's work papers and 15 that they were, in your words, superfluous, 16 correct? 17 A. Actually, could you show me 18 specifically? Because I also made reference to 19 the examiner's work papers. What specific 20 reference are you referring to? Could you point 21 me to the specific page that said that? I may 22 very well have, but what specific page are you 22054 1 making reference to? As you recall, I also -- 2 THE COURT: Well, let's determine 3 whether it's true or not, regardless of what you 4 said. 5 Q. (BY MR. DUEFFERT) At some point in 6 the process, did you consider the Peat Marwick 7 work papers superfluous? 8 A. Again, I don't recall that precise 9 phrase. I might have used it. But, no, I almost 10 always make decisions independent of what the 11 independent auditors decide, and I believe I did 12 state that it depends -- there would have to be 13 some fact dispute that the auditors could help out 14 with. 15 Q. I understand your answer. But your 16 first word was "no." So, are you telling me you 17 did consider the Peat Marwick work papers 18 superfluous? 19 A. I thought I said I don't recall using 20 that precise phrase. I might have. But again, if 21 you want to go through the specific -- 22 Q. Would you prefer the word "irrelevant"? 22055 1 A. They could be, yes. 2 Q. Did you consider them to be irrelevant? 3 A. I would say yes. 4 Q. And the examination work papers, as 5 well? 6 A. Again, I would say yes. 7 Q. Because, in your words, "the examiners 8 wouldn't be able to know what I already knew," 9 correct? 10 A. That is correct. That is one principal 11 reason, yes. 12 Q. If you would turn to your report. 13 A. The report? Okay. That was taken away 14 from me. 15 Q. We'll provide a copy. 16 A. Okay. (Whereupon the document was 17 tendered to the witness.) 18 Q. For the record, we are now looking at 19 Exhibit T7452, correct? 20 A. Yes. That's what it's marked here. 21 Q. And I would ask you to turn to 22 Paragraph 89 of your report. 22056 1 A. Okay. 2 Q. Would you please read that paragraph 3 into the record? 4 A. Certainly. Quote, "All and all, 5 Norwood was in substance a direct investment that 6 was disguised as a loan. USAT possessed all the 7 economic risk from the original 1984 acquisition, 8 to the 1985 restructuring, to the 1986 9 restructuring. All loan interest income and loan 10 fees that the association reported on this asset 11 were financed by USAT itself," end quote. 12 Q. Thank you. And then would you also 13 read one more paragraph into the record, 14 Paragraph 90? 15 A. Okay. Quote, "Reporting direct 16 investments as real estate loans is a clear 17 violation of regulations, and shows willful 18 neglect of regulatory requirements," end quote. 19 Q. You testified yesterday that United 20 improperly recorded the 30-million-dollar Norwood 21 loan as a loan, correct? 22 A. That is how they reported it to the 22057 1 examiners, yes. 2 Q. I would like to look at a few of the 3 work papers at this point. 4 A. Okay. 5 Q. Could we have Exhibit B1385, please, 6 which is at Tab 1186 already admitted into 7 evidence? 8 A. Okay. 9 Q. Is this a document you've reviewed? 10 A. Let me take a look at it first. 11 (Witness reviews the document.) I do know I have 12 seen a December 1986 TFR. Whether this is the 13 one, because I do see it's amended, I can't say 14 for sure. But I do recall seeing a 12/31/86 TFR. 15 Q. And do you recognize this as being an 16 excerpt from Peat Marwick audit work papers? 17 A. Oh. Oh, okay. By the bottom of the 18 document? "KPMG USAT confidential"? Oh, okay. 19 Let me get beyond the TFR. (Witness reviews the 20 document.) 21 Okay. I obviously do not recognize the 22 handwriting on the actual worksheets after this; 22058 1 but yes, this does appear to be part of the 2 Peat Marwick work papers. 3 Q. I'll ask you to turn to Bates No. KPMG 4 USAT 0622, which is the second-to-the-last page of 5 the exhibit. 6 A. Okay. 7 Q. Mr. O'Connell, you've never seen this 8 page before, have you? 9 A. This does not -- it does not look 10 familiar, no. 11 Q. What is the heading on the document? 12 A. "USAT direct investment for the month 13 of December 1986." 14 Q. And if you look to the first group of 15 entries, do they pertain to the Norwood loan? 16 A. Yes. It's listed as an adjustment. 17 I'd have to check exactly, an adjustment from 18 what. 19 Q. You don't know. Right? 20 A. No, I do not. Not without looking at 21 the document more carefully. 22 Q. Looking at this document alone, is it 22059 1 any indication that 100 percent of the Norwood 2 loan was reported as a direct investment? 3 MR. LEIMAN: Your Honor, may I ask a 4 question, just a clarification for the record? 5 The document itself that Mr. Dueffert's referring 6 to looks like it's printed on January 19th, 1986, 7 in the upper right part of the document which 8 makes me question why it says "direct investment 9 for the month of December 1986" on the left side 10 of the document. Maybe Mr. Dueffert could explain 11 how this report could have been printed a year 12 ahead of the point in time when it was talking 13 about purportedly. 14 MR. DUEFFERT: I will be happy for the 15 witness, as an expert with access to all of the 16 work papers, to try to address that issue, if it's 17 a question that's necessary. I don't think it is. 18 We'll see some other documents. 19 THE COURT: All right. 20 A. Again, Counselor, without looking 21 exactly at what the document shows and what the 22 adjustment is, I really couldn't say. 22060 1 Q. (BY MR. DUEFFERT) So, you have no 2 idea if the figure $15,751,628 represents the 3 disbursement on the 30-million-dollar Norwood loan 4 as of roughly December 1996, do you? 5 A. Not without -- 6 Q. I'm sorry. 1986. I apologize. 7 A. Not without looking at specific ledger 8 cards, no. I'd have to review that. 9 Q. Does the number appear correct to you 10 as a disbursement figure for the Norwood loan as 11 of December 1986? 12 A. That sounds approximately correct. I 13 believe about 22 million was paid out at the time 14 of the closing. 9.4 million of that was from UFC. 15 That would have left about -- actually, that would 16 be quite a bit of the loan disbursements. It 17 would be about $3 million of the loan 18 disbursements in the next six months. Sounds a 19 bit high; but it's possible, yes. 20 Q. You obviously haven't investigated 21 that, correct? 22 A. No, I have not. 22061 1 Q. Could we see Exhibit B4277, please? 2 A. Okay. 3 Q. Mr. O'Connell, for the record, would 4 you please identify Exhibit B4277? 5 A. This appears to be a summation of the 6 principal balance of the Norwood joint venture 7 loan as of -- last entry was December 16th, 1988, 8 and it goes back to July 31st, 1986. 9 Q. What is the amount listed as being 10 disbursed as of December 19, 1986? 11 A. Approximately $15.7 million. 12 Q. Could you read out the full amount, 13 please? 14 A. Sure. $15,751,628.45. 15 Q. And how does that compare to the entry 16 that we just saw on the USAT direct investment 17 worksheet? 18 A. They match precisely except for the 19 cents, but the dollar amount matches precisely. 20 Q. You didn't know about -- 21 A. Actually, Counselor, may I make one 22 slight clarification to yesterday -- since I see 22062 1 the final balance? Yesterday, I believe my best 2 memory was that the transaction when they -- when 3 the RTC came in, the cost basis was about 4 34 million. I see it actually was about 5 35 million. Since I see it was 25 million 4 plus 6 it would have been 9.4 million. So, it appears by 7 this that the actual cost basis was about 8 35 million. So, the sale would have been 9 4 million. I just want to make -- I think I said 10 34 and 3 yesterday. So, if I may make that 11 clarification. Go ahead. 12 Q. Does that have anything to do with the 13 topic we're discussing at this point? 14 A. I'm sorry. The document refreshed my 15 recollection. I apologize. 16 Q. Looking at this Peat Marwick work 17 paper, you didn't know about that document when 18 you accused United yesterday of improperly 19 reporting the 30-million-dollar Norwood loan as a 20 loan rather than a direct investment, did you? 21 A. Actually, I was familiar with the fact 22 that Peat Marwick on the GAAP statements did 22063 1 require most, if not all, of Peat Marwick -- 2 sorry -- most, if not all, of the Norwood 3 transaction to be reported as a direct investment. 4 I think that's actually in the work papers. 5 The issue is what they were reporting 6 to the examiners. And I believe there was, in 7 fact, a letter from the president, Jenard Gross, 8 continuing to refer to it as a loan. We can -- if 9 you'd like, we can try to find that letter. 10 Q. Well, let's take a look at the 11 examination work papers. Could we have 12 Exhibit B4276, please? 13 A. Okay. 14 Q. Mr. O'Connell, does anything about this 15 document appear familiar to you? 16 A. Again, yes. This appears to be a 17 direct investment worksheet in terms of how they 18 were coming up with the calculations for both the 19 state and federal direct investment requirements. 20 Q. You've told me in the past that you've 21 had access to the federal examination work papers, 22 correct? 22064 1 A. Not the entire set of work papers, but 2 regarding the work papers regarding these two 3 loans, yes. 4 Q. You haven't had access to the entire 5 set of work papers? 6 A. No. Just -- again, the work papers, 7 say, regarding the Gateway or the Couch or 8 something, no. It was just the work papers that 9 were provided in terms of these particular loans. 10 Q. Have you asked for any work papers that 11 weren't provided to you? 12 A. No. I was just interested in these 13 particular loans. 14 Q. Does the symbol at the bottom 15 right-hand corner on the first page of the exhibit 16 indicate anything to you? 17 A. The Bates number, not offhand, no. 18 Is that what you're referring to, 19 Counselor? 20 Q. Bottom right-hand corner. Other than 21 the exhibit number. I apologize. 22 MR. LEIMAN: Your Honor, if I might, 22065 1 could we -- the document that we were given is 2 missing quite a few pages. For example, it skips 3 from Page 3 to Page 7, skips from 8 to 10, goes 4 from 14 to 16, then up to 23. 5 Is there a complete version of this 6 document that we should be using rather than this 7 abridged -- 8 MR. DUEFFERT: The Bates number is 9 sequential. It is an actual excerpt from the work 10 papers. If Mr. Leiman would like to inspect the 11 full volume from which it comes, he's free to do 12 so at this point. 13 MR. LEIMAN: I'm not worried, Your 14 Honor, about the Bates numbering. I'm more 15 concerned about whether or not the people that did 16 the Bates numbering copied all the pages that 17 would be relevant. 18 THE COURT: Well, as I understand, it's 19 from the document that Mr. Dueffert has provided 20 and it looks like a fairly thick document. I 21 don't think you need to put the whole thing in 22 unless you develop something that requires that. 22066 1 MR. LEIMAN: Your Honor, since I don't 2 know what's on the missing pages, I won't know 3 what's relevant yet. But I will look right now. 4 THE COURT: Well, I don't want to hold 5 up the proceeding while you look. Let's proceed. 6 MR. DUEFFERT: Thank you, Your Honor. 7 Q. (BY MR. DUEFFERT) I'm not sure I 8 caught your last answer. 9 Does the symbol, apart from the -- if 10 you'll hold the document kind of -- 11 A. Okay. 12 Q. The symbol at the lower right-hand 13 corner near the exhibit number has no significance 14 to you; is that correct, sir? 15 A. No, it does not. 16 Q. So, you don't know if that would 17 indicate that the document, in fact, came from the 18 1987 federal examination of United's subsidiaries? 19 A. That is correct. I would not know 20 that. 21 Q. I see. I see a scribble of sorts. 22 It's actually initials at the -- kind of to the -- 22067 1 A. In the middle of the United Savings of 2 Texas stamp? 3 Q. Right. 4 A. Yes. 5 Q. Do you have any understanding of the 6 significance of that marking? 7 A. Okay. Presuming this is part of the 8 examiner's work papers, it was common practice for 9 examiners to actually initial pages to indicate 10 that they either reviewed it or were responsible 11 for it. 12 Q. Have you been forwarded the hearing 13 testimony of Vivian Carlton? 14 A. Yes, I have. 15 Q. And have you been forwarded the 16 exhibits that were used in her testimony? 17 A. Again, I've had access to all the T7000 18 series. If there were any other documents -- I 19 don't recall any specific documents relating to 20 the -- to Ms. Carlton other than the T7000 21 exhibits, no. 22 Q. Do you recognize that marking as being 22068 1 her initials? 2 A. Actually, I don't. I don't dispute it; 3 but I do not recognize her handwriting, no. 4 Q. Would it be fair to say that you don't 5 have great familiarity with the examination work 6 papers? 7 A. I think that would be a fair statement, 8 yes. 9 Q. I'll ask you to turn to the third page 10 of the exhibit. 11 A. Okay. 12 Q. And identify it -- 13 MR. SCHWARTZ: This is the wrong volume 14 you've given us. That's the 178 series. We need 15 the 176 series. 16 Q. (BY MR. DUEFFERT) For the record, 17 could you identify the third page of the exhibit 18 which bears the Bates stamp OW176063? 19 A. 063? Okay. Sorry. This is -- oh, 20 that's weird. Sorry. 21 Q. Why did you say "that's weird," sir? 22 A. Okay. The reason for that is that the 22069 1 format is similar to the prior exhibit you gave 2 me, Exhibit No. B1385. And on the 3 second-to-the-last page of that exhibit, again the 4 format looks very similar. The dates are 5 different. The first exhibit you gave me was for 6 the month of December 1986. The current exhibit 7 you have in front of me is for the month of 8 February 1987. And because of that, the numbers 9 are slightly somewhat off. Norwood, for instance, 10 is 15.7 million in the first exhibit and 11 16.8 million in the second. But it's still under 12 adjustments. If there had been audited 13 adjustments to what they originally were reporting 14 it, it should have been already been booked in 15 December. Why is it still being shown as an 16 adjustment? Why would they adjust it more than 17 once? That's why I said it was weird. 18 Q. I see. Have you reviewed this sheet 19 before right now? 20 A. The February 1987 document, no, I don't 21 believe I have. 22 Q. And for the record, what is the caption 22070 1 of that document? 2 A. The actual title or the -- 3 Q. The caption on the top of the -- 4 A. Sure. "USAT direct investment for the 5 month of February 1987." 6 Q. And you referred to a dollar figure 7 that is next -- or follows along from a line that 8 says "ADC loan-Norwood (100 percent)"? 9 A. That is correct. 10 Q. Would you read that number into the 11 record? 12 A. It is either 16,803,000 or 18 -- it 13 could be 883. 16 million 8 blank 3523? 5? If 14 there is another document you could refer, a 15 couple of these numbers are off. Approximately 16 16.8 million. Would that help? 17 Q. Turn to B4277 again, sir, which is the 18 disbursement sheet. 19 A. Okay. We can check that. 20 Q. If you look to Page 3 of the exhibit, 21 what is the disbursements listed on the 22 30-million-dollar Norwood loan as of February 20, 22071 1 1987? 2 A. Okay. Yes. That does help out. It is 3 $16,883,522.65 which, if you round up the dollar 4 amount, would be $523 which would be the number 5 for Exhibit B4726. 6 Q. The disbursement is identical to the 7 amount listed as a direct investment on the 8 February 1987 USAT spreadsheet, correct? 9 A. That is correct, yes. 10 Q. And that was information provided to 11 Vivian Carlton and her examination team, correct? 12 A. For the 1987 examination, yes. It 13 would -- that would -- yes. That would appear -- 14 that would appear so, yes. 15 Q. Okay. Turn ahead in the exhibit to 16 OW176067. 17 A. 7. Okay. What the hell? (Witness 18 reviews the document.) 19 Q. And just for the record, I'd ask you to 20 list the information on the document that we've 21 recently been discussing and the dollar figure 22 attributed to it. 22072 1 A. Okay. This would be the USAT direct 2 investment for the month of September 30th, 1987. 3 Again, under the terminology "adjustments," they 4 have "ADC loan-Norwood (100 percent) $20,740,300." 5 Q. And if you turn back to the 6 disbursement sheet and look at the entry for the 7 disbursements of the 30-million-dollar Norwood 8 loan for September 16, 1987, are those two 9 numbers -- 10 A. They are exact except for the three 11 cents on the funding sheet. 12 Q. One more. 13 A. Okay. 14 Q. Turn ahead two more pages. I'm sorry. 15 Turn ahead several more pages to OW176071. 16 A. 71. Okay. 17 Q. For the record, would you please 18 describe the document and the pertinent 19 information in it? 20 A. Sure. Again, it is -- the document is 21 entitled "USAT direct investment for the month of 22 December 31st, 1987." Again, under the category 22073 1 of "adjustments," we have "ADC loan-Norwood 2 (100 percent) $21,772,435." 3 Q. And if you compare that to the 4 disbursement sheet of Exhibit B47 -- I'm sorry -- 5 B4277, do you find a corresponding entry? 6 A. Yes, I do. The December 16th, 1987 7 figure totaled $21,772,434.66 which, when you 8 round up the dollar amount, will round up to $445 9 which was on the B13 -- sorry -- B4276 document. 10 MR. DUEFFERT: At this point, I'll move 11 the introduction of Exhibit B4276 and B4277. 12 MR. LEIMAN: Your Honor, I object to 13 the admission of B4276. Not to B4277. I still 14 don't have the complete document of this. We 15 didn't have the right pages. 16 MR. SCHWARTZ: They didn't provide us 17 with the right pages, Your Honor. 18 MR. DUEFFERT: Your Honor, a few 19 points. One, the witness has testified at some 20 length that although I don't think he's read them, 21 he has access to examination work papers of which 22 OTS has the originals probably right here in this 22074 1 building. 2 No. 2, it's obvious that this 3 information is of direct pertinence to his 4 opinions before this court. 5 Third, Mr. O'Connell testified 6 yesterday at Page 22033 as follows. "I don't 7 believe the Notice of Charges ever mentioned 8 direct investments, but I was asked to give an 9 independent assessment and I gave it." 10 I had assumed that this witness would 11 testify to the 12th claim for relief. This is a 12 matter that he has interjected at this point. I 13 think it's appropriate to put in the evidence to 14 show that there is no basis for it. 15 MR. LEIMAN: Your Honor, I'm not 16 objecting to the nature of the questions or the 17 testimony. All I'm objecting to, at this point, 18 is until I get a chance to see a complete exhibit, 19 that you defer ruling on it. 20 Now, with regard to the other exhibit 21 Mr. Dueffert's offering, we have no objection. 22 This was faxed at midnight, Your Honor. 22075 1 MR. DUEFFERT: Your Honor, they are 2 perfectly capable of having the expert augment the 3 information from the work papers. 4 THE COURT: All right. I'll receive 5 the documents. 6 Q. (BY MR. DUEFFERT) Mr. O'Connell, 7 looking at these three exhibits, they indicate 8 that the Norwood loan was recorded as a direct 9 investment by United, don't they? 10 A. Actually, Counselor, I can't come to 11 that conclusion because, as I said, I'm troubled 12 by the phrase "adjustments." I don't know why the 13 phrase "adjustment" would appear on every month; 14 so, I don't know what that means. 15 Q. So, despite seeing these three 16 exhibits, you still assume that United committed 17 fraud, correct? 18 MR. LEIMAN: Objection, Your Honor, to 19 the term fraud. Mr. O'Connell has never, ever 20 accused anywhere in his written report or 21 testimony USAT of committing fraud. I object to 22 the term, Your Honor. 22076 1 MR. DUEFFERT: May I clarify the 2 question? 3 THE COURT: Yes, you may. 4 MR. DUEFFERT: Thank you, Your Honor. 5 Q. (BY MR. DUEFFERT) For the record, 6 Mr. O'Connell, I'd ask you to read into the record 7 Paragraphs 12 and 14 of your report. 8 A. Sure. 9 Q. Under the heading "summary of 10 conclusions." 11 A. Okay. Paragraph 12, quote, "My 12 conclusions are summarized as follows: USAT 13 engaged in unsafe and unsound practices that, A, 14 overstated income; B, understated their capital 15 requirements; C, violated regulations regarding 16 loan underwriting; D, violated regulations 17 relating to the keeping of accurate and complete 18 books and records; and E, resulted in substantial 19 losses to the thrift, and ultimately the Deposit 20 Insurance Fund." 21 Q. Now, if you could please move to 22 Paragraph 14? 22077 1 A. Sure. Paragraph 14. Quote, "Further, 2 by engaging in the above activities, management 3 portrayed its financial condition as being 4 healthier than really existed, which could delay 5 necessary supervisory action to curtail their 6 speculative activities. The bases for these 7 conclusions are discussed in detail below," end 8 quote. 9 Q. And actually, for the record, I'll ask 10 you to read one last paragraph. 11 A. Okay. 12 Q. Paragraph 90, which is at the 13 conclusion of your section on the Norwood 14 transaction. 15 A. Okay. Again, quote, "Reporting direct 16 investments as real estate loans is a clear 17 violation of regulations, and shows willful 18 neglect of regulatory requirements," end quote. 19 Q. At the time you signed your report, up 20 until this morning, you had not seen the documents 21 I just showed you, correct? 22 A. I am fairly certain I did not see the 22078 1 figure -- the adjustments -- the page with the 2 adjustments because I would have remembered that. 3 So, no, I don't believe I saw those. 4 Q. And -- 5 A. The disbursement schedule, I probably 6 have at some point. 7 Q. Despite seeing the evidence you've just 8 seen, you still assume that with respect to the 9 Norwood loan, management portrayed its financial 10 condition as being healthier than really existed. 11 Right? 12 A. That is correct, yes. 13 Q. Let's move on. 14 Mr. O'Connell, you are here, are you 15 not, in part to offer your opinions with regard to 16 loan underwriting, correct? 17 A. That is correct. 18 Q. And market conditions are a factor in 19 loan underwriting, aren't they? 20 A. Yes, they are. 21 Q. Okay. Apart from all the information 22 that was in United's files and information that 22079 1 Mr. Leiman has provided to you and OTS enforcement 2 has provided to you, you didn't do any independent 3 research about market conditions in evaluating the 4 underwriting of these two loans, did you? 5 A. You mean other than what we say in the 6 loan files and the receivership files? No, I did 7 not. 8 Q. Now, by contrast, you did make an 9 independent assessment with regard to direct 10 investments? 11 A. That's part and parcel of reviewing the 12 overall loan files. Yes, I did. 13 Q. You didn't make an assessment of market 14 conditions even though they are referenced in the 15 12th claim for relief at Paragraph 272, correct? 16 A. That is correct, yes. 17 Q. And you didn't do any research into the 18 market conditions in San Antonio and Austin in the 19 mid-1980s, did you? 20 A. No, I have not. Again, no -- other 21 than what was in the loan files, no, I did not. 22 Q. Could we take a look, please, at 22080 1 Exhibit B961? 2 A. Okay. 3 Q. For the record, Exhibit B961 is 4 identified "Area Profile 1" dated May 1986 and it 5 suggests or indicates that it originated with 6 something called the Rice Center. 7 Mr. O'Connell, is this a document that 8 you have reviewed in the course of preparing your 9 opinions and conclusions in this case? 10 A. There were a number of economic 11 reports, shall we say community profiles and the 12 like in the loan files. This looks familiar in 13 format; but I certainly don't recall seeing it 14 specifically, no. 15 Q. The designation Exhibit B961 doesn't 16 indicate to you that it is a document that was 17 designated by respondents last August in this case 18 as a potential exhibit? 19 A. Actually, I'm afraid the number doesn't 20 mean anything to me in that respect, no. 21 Q. You did talk to Mr. Leiman about such 22 things as occupancy rates, correct, yesterday? 22081 1 A. Yes, certainly. 2 MR. DUEFFERT: Move the introduction of 3 Exhibit B961. 4 MR. LEIMAN: No objection. 5 THE COURT: Received. 6 Q. (BY MR. DUEFFERT) For the record, I'd 7 ask you to read the header that appears on the 8 front page right underneath "Area Profile No. 1" 9 and the date. 10 A. Sure. Quote, "A growth market in 11 San Antonio," unquote. 12 Q. And that pertains to the Westplex area, 13 does it not? 14 A. Yes. That is how it is titled, yes. 15 Q. You don't know anything about the Rice 16 Center, I take it? 17 A. Not really, no. 18 Q. Do you have any reason to dispute the 19 characterization of the Rice Center found at the 20 bottom of the first column on the first page of 21 the exhibit and carrying over to the top of the 22 second column? 22082 1 A. Oh, I see. Where it says -- where it 2 starts "Rice Center and its technical advisors"? 3 Is that how it starts? 4 Q. Yes. 5 A. Okay. No. I have no reason to either 6 confirm or dispute it, no. 7 Q. And if you turn to the -- oh, by the 8 way, the Westplex area is the area of San Antonio 9 surrounding Park 410, correct? 10 A. That is my understanding of how the 11 neighborhood is described, yes. 12 Q. I'll ask you to turn to the last page 13 of the exhibit. 14 A. Okay. 15 Q. Does the mailing label on that page 16 indicate that this document actually was received 17 or at least mailed to Stanley Rosenberg? 18 A. (Witness reviews the document.) Yes, 19 it does. 20 Q. Okay. And above the name "Rice Center" 21 on the mailing portion of that page, there is a 22 description of the Rice Center. And I would ask 22083 1 you to read that into the record. 2 A. Sure. Quote, "Published by Rice 3 Center, an educational non-profit corporation 4 affiliated with Rice University to facilitate and 5 encourage research and the dissemination of 6 knowledge regarding communities. This publication 7 is available at a modest cost," end quote. 8 Q. For the record, I'd ask you to read the 9 top two bullet points of the summary on that page; 10 and they are underneath the heading "economic 11 trends." 12 A. Okay. There are two bullet points. 13 Bullet, "The resident workforce in the 14 Westplex" -- and that's capital W-E-S-T, capital 15 P-L-E-X, one word -- "in the Westplex area is 16 expected to increase from 37,863 in 1985 to 53,198 17 by 1990, a 41 percent increase." 18 Second bullet, "The 125-million-dollar 19 Sea World aquatic theme park, scheduled to open in 20 1988, is expected to create 900 permanent jobs, to 21 draw 3 million tourists annually, and to serve as 22 an economic stimulus for hotel, retail, and office 22084 1 development in the Westplex area," end quote. 2 Q. Thank you. And for the record, I'd ask 3 you to read only one more bullet point, which is 4 the top one under the next heading, "demographic 5 trends." 6 A. Okay. Again, the bullet point before 7 it, "By the year 1990, population in the Westplex 8 area is expected to reach 126,017 people, a 9 34 percent increase over the 1985 population of 10 93,942, and 10 percent of the 1,252,000 population 11 forecast for Bexar County in 1990," end quote. 12 Bexar is B-E-X-A-R. 13 Q. Are you sure it's pronounced that way? 14 A. Frankly, no. 15 Q. In preparing your opinions and 16 conclusions, I take it you didn't look for this 17 type of contemporaneous market information that 18 might not have been provided to you by Mr. Leiman 19 or OTS? 20 MR. LEIMAN: Object to the question as 21 being way too vague. What does he mean by "this 22 type of information"? Does he mean positive 22085 1 information, information which shows growth 2 trends? Could he clarify the question, please? 3 THE COURT: Well, we've just looked at 4 the information. I think the question is clear 5 enough. 6 A. Again, Counselor, I just looked at the 7 documents that were in the receivership's loan 8 files. 9 Q. (BY MR. DUEFFERT) Did you review the 10 newspaper article quoted at Paragraph 272 of the 11 Notice of Charges? 12 A. Since I don't recall the article -- if 13 you can refresh my memory. I may have, but I 14 don't recall the article. 15 Q. I'll direct you to a sentence at the 16 bottom of Page 101 -- I'm sorry. I'll wait for a 17 second. 18 Are you on Page 101 of the Notice of 19 Charges? 20 A. Yes, I am. 21 Q. I'll direct you to a sentence at the 22 very bottom of that page and ask you to read it 22086 1 into the record. 2 A. Sure. Actually, the entire paragraph 3 or just the -- 4 Q. I think that sentence would be 5 sufficient. 6 A. Okay. Fine. Quote, "In December 1985, 7 San Antonio's major newspaper carried the 8 headline" -- another quote -- "'Real estate boom 9 city turns to bust,' end quote, and reported" -- 10 another quote -- "'Overbuilding of offices, 11 retail, apartments, and lost financing lead to 12 plenty of foreclosures,'" end quote and end quote. 13 Q. Before you finalized your report, did 14 you do anything to verify whether that article 15 provided a fair and balanced picture of what was 16 being reported in the market at the time? 17 A. Again, no, not really. 18 Q. Could we have Exhibit B399, please? 19 For the record, I will identify 20 Exhibit B399 as an article from the Sunday Express 21 News of San Antonio dated October 27, 1985. The 22 headline reads, "San Antonio enjoying a great deal 22087 1 of growth," correct? 2 A. That is correct, yes. 3 Q. And I guess I'd just ask you to read 4 the first two paragraphs into the record. 5 A. Okay. 6 MR. LEIMAN: Your Honor, before 7 Mr. O'Connell does that, would Mr. Dueffert please 8 identify whether the by-line and the person 9 mentioned in the by-line is a staff writer for the 10 newspaper or whether this person is essentially 11 putting together an infomercial? 12 MR. DUEFFERT: Your Honor, I don't 13 think I'm -- I don't know how to respond to that. 14 I don't think it's my obligation. 15 MR. LEIMAN: Your Honor, it looks like 16 an advertisement. I don't object to putting in 17 newspaper articles so long as they are legitimate 18 newspaper articles. This looks like a commercial 19 to me, like an advertisement. 20 THE COURT: All right. Well, you may 21 develop that on your redirect. Let's proceed. 22 A. Okay. Quote, "The working adjectives 22088 1 in San Antonio's commercial real estate lexicon 2 for the last 24 months is 'growth'" -- growth in 3 quotation marks -- "'growth' from both private and 4 government sectors and growth certain to sustain 5 the momentum of economic progress in San Antonio," 6 end paragraph. 7 New paragraph, "From the Sea World 8 announcement in early '85 to the revelation of two 9 multi-million-dollar grants, one for downtown 10 revitalization and the other for expansion of the 11 UT Health Science Center in mid-October, 1985 has 12 been a year which will bolster the future of 13 San Antonio's economy," end quote. 14 Q. Thank you. If contemporaneous 15 published reports indicated that the real estate 16 market in the Park 410 neighborhood, in fact, had 17 better prospects than almost any other 18 neighborhood in Texas as of early 1986, would that 19 change your opinion in any way? 20 A. No. You're still talking about a 21 speculative project. You're still speculating on 22 continued growth. You're still speculating on 22089 1 increased prices to fund the investment as opposed 2 to the actual collateral itself. 3 Q. Exhibit B4265. 4 THE COURT: Did you offer B399? 5 MR. DUEFFERT: I would be pleased to, 6 Your Honor. 7 THE COURT: Received. 8 MR. LEIMAN: For the record, Your 9 Honor, I object. 10 Q. (BY MR. DUEFFERT) For the record, 11 Exhibit B4265 is an article from the Austin 12 American Statesman. 13 A. Okay. 14 Q. Dated Thursday, September 5, 1985. And 15 I will direct your attention to the -- 16 A. Okay, yes. I do see the date. Okay. 17 It's hard to read. 18 Q. I'll direct your attention to the 19 article that is on the bottom of the exhibit which 20 is entitled "Leasing survey eases oversupply 21 worry." 22 A. Okay. 22090 1 Q. And if you would just like to read the 2 bottom paragraph of the second column of that 3 article going into the middle paragraph of the 4 third column. 5 A. Just to be sure that -- you're talking 6 about the paragraph that begins "she forecasts"? 7 Q. Correct. Thank you. 8 A. That's fine. Okay. Quote, "She 9 forecasts that Austin will have a one-year supply 10 for office space available for lease at the end of 11 this year and the end of 1986. Woods projects 12 4.7 million square feet will come on line during 13 1986 and in 1987 she said 5.2 million square feet 14 should be built, or about a one-and-a-half-year 15 supply." 16 Q. Next paragraph, please. 17 A. Sure. Quote, "'In other words, even 18 though the market is going through a boom, so is 19 office absorption,' Woods says. If absorption 20 holds steady, the office market does not look so 21 bad after all." 22 Q. And finally, if you could just read the 22091 1 top paragraph of the next column. 2 A. Sure. And this is quote -- and this 3 itself is a quote. "We are assuming that the 4 market is ongoing, that, like a food chain cycle, 5 as one tenant leaves, there is another to take its 6 place," end quote, Woods said. 7 New quote, "What we are observing" -- 8 I'm sorry -- "What we're observing is; there are 9 enough new firms starting up that are going into 10 the lower-priced buildings. It seems, amazingly 11 enough, to work out very well," end quote. 12 Q. And again, this article shows what kind 13 of information was being reported in the market, 14 does it not? 15 A. It's certainly one opinion that's being 16 reported in the market, yes. 17 Q. And it's not something you uncovered in 18 your own research? 19 A. No, it would not. Although frankly, I 20 will say, forgetting her opinion, the hard facts 21 don't look good. 22 Q. Well, if the intersection in Austin in 22092 1 which the Norwood project was located, in fact, 2 was one of the best-situated sites in all of Texas 3 for a development project in 1986, would that 4 change your conclusion in any way? 5 A. Counsel, I have no idea how I would 6 have been able to judge if it was one of the best 7 locations in all of the state of Texas. I would 8 take the data as it is presented. 9 Q. I'm actually asking you something of a 10 hypothetical based, to some extent, on facts. But 11 take it as a hypothetical. If the area of Austin, 12 the intersection of -- do you know the highways? 13 A. Yes. I believe so. 14 Q. What are they? 15 A. I think I actually spelled it out in 16 the report. But offhand, I don't recall them. 17 Q. That's fine. If the intersection of 18 Austin in which the Norwood project was located, 19 in fact, was one of the best-situated sites in all 20 of Texas as of 1986 for development projects, 21 would that change your opinion in any way? 22 A. Counselor, I'll be very candid. I've 22093 1 been in the regulatory field a long time. If 2 somebody came to me and made that kind of 3 remarkable assertion, that it's not just the best 4 site in the area or the best site in the city but 5 the best site in entire state, I would look very 6 skeptical at them. That just does not sound like 7 a factual statement. That sounds like a purely 8 unsubstantiated opinion. 9 Q. I'm a lawyer. And I get to ask you 10 questions because you're an expert witness. 11 Could you answer the question? 12 A. Counselor, I'm afraid, as I said, the 13 first thing I would ask you to do is if somebody 14 came to me with that type of a hypothetical, I 15 would say, "How do you know that? How do you 16 prove that?" 17 Q. I'm asking you as an expert to assume 18 it's true. 19 A. Okay. Ask the question again. This is 20 going to be hard for me to grasp, but go ahead. 21 Ask me again. 22 Q. If the intersection in Austin in which 22094 1 the Norwood project is located, in fact, was one 2 of the best-situated sites in all of Texas for a 3 development project in 1986, would that change 4 your conclusions in any way? 5 A. No, it would not. The underwriting is 6 the underwriting. 7 Q. And location has nothing to do with 8 underwriting, correct? 9 A. Oh, sure it does. The fact that -- 10 when we were going through the appraisals, we were 11 specifically talking about locations, comparables 12 in the area, occupancy rates in Austin and 13 San Antonio. Of course it means -- of course it 14 means something. And frankly, as I'm going 15 through this, her opinion is somewhat different 16 than the actual projection she made. 17 Q. Sir, I've asked you a hypothetical 18 question. I haven't asked you about the article. 19 A. Okay. 20 Q. Exhibit B763, please. 21 MR. DUEFFERT: Your Honor, I will move 22 the admission of Exhibit B4265. 22095 1 MR. LEIMAN: No objection. 2 THE COURT: Received. 3 A. Okay. 4 Q. (BY MR. DUEFFERT) Mr. O'Connell, is 5 this a document that you recognize? 6 A. No. I don't believe I've seen this 7 before. I may have, but I certainly don't recall 8 it. 9 Q. Again, the exhibit designation B763 10 doesn't indicate to you that it's a document that 11 the respondents designated as an exhibit perhaps a 12 year ago? 13 A. It does not -- again, the B763 doesn't 14 ring a bell to me one way or the other. 15 Q. For the record, I would ask you to 16 identify the title of the document, including the 17 headline. 18 A. Sure. The title of the document -- 19 actually, Counselor, if I may, does this mean -- 20 is this supposed to be words, or is this just a 21 bad fax? This -- was that just nothing? 22 Q. I'm only asking you for the title. 22096 1 A. Okay. Well, I'm just wondering if that 2 was supposed to be the title on top. Okay. 3 Assuming that was just nothing up there, what I 4 can read is "410 Westplex, a dynamic planned 5 business community, spring 1986." 6 Q. And the headline? 7 A. Sure. "Westside Freeway under 8 construction." 9 Q. And this appears to be a brochure, does 10 it not, put out by a business association 11 affiliated with 410 Westplex? 12 A. That is what it reads like, yes. 13 Q. And does this document indicate to you 14 that there is a reasonable basis to believe that 15 at least two lanes -- at least four lanes of the 16 Westside Highway were under construction as of 17 spring 1986? 18 A. Yes. 19 Q. In fact, there is a picture of it on 20 the bottom left-hand corner, although it's 21 difficult to see. Right? 22 A. Oh, the groundbreaking picture? 22097 1 Q. Yeah. 2 A. Yeah. 3 MR. DUEFFERT: I'll introduce 4 Exhibit B763, please. 5 MR. LEIMAN: No objection, Your Honor. 6 THE COURT: Received. 7 Q. (BY MR. DUEFFERT) Could we have 8 Exhibit B36, please? 9 THE COURT: It looks like we have a 10 B763, which is showing ownership of UFG stock, a 11 colored exhibit. 12 MR. DUEFFERT: We will have it remarked 13 during the break and offer this as a new exhibit. 14 THE COURT: Could we be off the record 15 for a moment? 16 17 (Discussion held off the record.) 18 19 THE COURT: All right. We'll be back 20 on the record. 21 I had received B763, which is titled 22 "410 Westplex" and it's dated spring 1986. 22098 1 Q. (BY MR. DUEFFERT) All right. And I 2 will now ask the witness to look at B36. 3 A. Okay. 4 Q. Once again, to -- well, for the record, 5 this appears to be another brochure or portion 6 thereof from 410 Westplex, if you'll look at the 7 second page. And then the top page has a 8 compilation of copies of newspaper clippings. And 9 my understanding is this was probably both sides 10 of a two-page document. 11 A. Okay. 12 Q. Is this a document with which you are 13 familiar? 14 A. Again, no, I don't recall seeing this. 15 I may have, but I do not recall it. 16 Q. And again, the designation B36 does not 17 indicate it's something that the respondents 18 designated as an exhibit in this case 19 approximately a year ago? 20 A. Again, the number doesn't mean anything 21 to me, no. 22 MR. DUEFFERT: Move the admission of 22099 1 Exhibit B36. 2 MR. LEIMAN: Your Honor, I object to 3 the admission. It's an undated document. Counsel 4 has indicated it may not even be complete. I'm 5 not sure what the point of these two pages is. 6 MR. DUEFFERT: Your Honor, it's a 7 document that originates from 410 Westplex, which 8 is the business association surrounding Park 410. 9 It is a brochure that reproduces newspaper 10 clippings. I could spend the next five minutes 11 asking him about them. I don't know if we need to 12 do that at this point. 13 MR. LEIMAN: Your Honor, my only point 14 here is I'm not certain what the assertion or what 15 is to be gained by this document. If it's merely 16 being offered to show that the 410 Westplex 17 Business Association put out these two pages, I 18 guess that's fine. But if it's to show anything 19 else, I would object. It has no value. 20 MR. DUEFFERT: I can ask some further 21 questions if it lacks foundation. 22 THE COURT: All right. 22100 1 Q. (BY MR. DUEFFERT) Mr. O'Connell, if 2 you look at this grouping of clippings on the 3 front page, the montage, there is in the upper 4 right-hand corner a headline saying "Sea World 5 expects 3 million first year." 6 Do you see that? 7 A. Yes, I do. 8 Q. Is that prediction consistent with the 9 prediction you've seen in such sources as the 10 Love & Dugger appraisal you were discussing with 11 Mr. Leiman yesterday? 12 A. Love & Dugger did presume there was 13 going to be a positive economic impact from the 14 Sea World development. The precise prediction, I 15 don't recall. We can look at the document. But I 16 do recall they were expecting positive economic 17 results from it. 18 Q. Farther down below on the document, do 19 you see a headline saying "VTI sets plant 20 construction for '87"? 21 A. Correct. 22 Q. Is that comparable to any predictions 22101 1 you've seen in the appraisals you've reviewed? 2 A. Again, there were representations in 3 the appraisals about some high-tech firms moving 4 into the area. Offhand, I don't recall if VTI was 5 one of them. But yes, I do recall seeing some 6 indication of high-tech firms' interest in the 7 area. 8 Q. Do you see above that a clip that says 9 "Developers announce plan for 388-acre Park 410 10 West"? 11 A. Yes. 12 Q. Have you attempted to locate the 13 original of that clipping to try to read the 14 entire thing? 15 A. Again, Counselor, since I am not 16 familiar with the document, no, I would not have 17 done that. 18 Q. In fact, you've gone and looked for 19 original, full copies of none of these clips, 20 correct? 21 A. That would be correct, yes. 22 Q. But it does appear from the face of the 22102 1 document that these clippings were submitted as 2 part of a brochure put out by 410 Westplex, 3 correct? 4 MR. LEIMAN: Your Honor, I object to 5 the question. He couldn't possibly know. These 6 are undated. Moreover, on the next page of the 7 exhibit, Page 2, it says "1986 was a pivotal 8 year." 9 There is no indication that -- as to 10 the reliability of any of these, whether they are 11 made up, whether he went to a print shop somewhere 12 or in an arcade in Atlantic City and had these 13 made up, put his picture on Time Magazine. I 14 don't understand what the reliability of this 15 document is or how we can question from it, Your 16 Honor. 17 MR. DUEFFERT: May I take one moment? 18 We identified this as a potential exhibit roughly 19 a year ago. Mr. O'Connell says he's had access to 20 boxes of documents. This is a directly pertinent 21 document that we identified. In a year, he's done 22 no follow-up on this information. We've given the 22103 1 OTS one year to make objections as to 2 authenticity. That was the purpose of designating 3 it prior to the hearing. 4 THE COURT: All right. I'll receive 5 it. 6 Q. (BY MR. DUEFFERT) One last newspaper 7 article, and then we'll finish. Could we have 8 Exhibit T7357, please? And we've taken the 9 liberty of creating a more legible version of this 10 exhibit. This was a document that was identified 11 by OTS as one of their exhibits. 12 A. Okay. 13 Q. Mr. O'Connell, are you familiar with 14 this 1987 newspaper article that's reproduced in 15 Exhibit T7357? 16 A. Oh, okay. Actually, Counselor, here it 17 is. Yes, I do see this. I don't -- no, I'm 18 certain I've never seen this before. 19 Q. I'm sorry. Could I hear that answer 20 again, sir? 21 A. I'm certain I've never read this. I 22 may have seen it, but I probably just skipped 22104 1 right over it. 2 Q. This is actually one of the T7000 3 series of exhibits, correct? 4 A. That's correct. 5 Q. For the record, would you please just 6 identify the date of the article and the newspaper 7 from which it's drawn? 8 A. Sure. August 9th, 1987. 9 Q. And newspaper? 10 A. Oh, sorry. The Express News of 11 San Antonio, Texas. 12 Q. And if you could, read into the record 13 the first column of the article. 14 A. Okay. "Northwest San Antonio." Sorry. 15 Quote, "Northwest San Antonio, where Sea World is 16 under construction, is the hottest real estate 17 niche in town," end quote. 18 Q. Continue in that column. 19 A. Okay. New paragraph. Quote, "Although 20 land sales still are few, real estate brokers say 21 a vast majority of their inquiries are from people 22 curious about far west San Antonio," end quote. 22105 1 Q. And continue. 2 A. Pardon me? Oh, continue? Okay. New 3 paragraph. Quote, "When the current real estate 4 doldrums finally fade and the Sea World park opens 5 next year, real estate brokers believe that 6 developers, land speculators and investors will be 7 clamoring for a piece of the action," end quote. 8 Continue? 9 Q. Why don't you continue for two more 10 paragraphs? 11 A. Okay. New paragraph. It's a quote. 12 "'Northwest San Antonio is going to explode,' end 13 quote, says Charles Martin Wender, owner of 14 thousands of acres near Sea World." 15 New paragraph, "Monied interests, 16 including major hotel operators, already are 17 looking hard at the area and a few have made 18 investments," end quote. 19 Q. This dates from before the 20 restructuring proposals made by the Park 410 21 borrowers in late 1987 and 1988, correct? 22 A. That would be correct, yes. 22106 1 Q. If the evidence in this proceeding 2 shows that Park 410's neighborhood, in fact, was 3 among the most favorable in Texas even in the 4 worst market conditions of mid-1987, would that 5 change your opinion in any way? 6 A. It depends on what the nature of the 7 evidence would be. I really don't consider 8 newspaper articles to be hard evidence unless they 9 have some specific hard facts. I think you 10 noticed in my opinion, I did not quote any 11 newspaper articles. People should not make loans 12 based on newspaper articles. Regulators should 13 not regulate based on newspaper articles. 14 Q. That seems fair. 15 MR. DUEFFERT: This might be an 16 appropriate time for a break. 17 THE COURT: All right. We'll take a 18 short recess. 19 20 (Whereupon, a short break was taken 21 from 10:15 a.m. to 10:40 a.m.) 22 22107 1 THE COURT: Be seated, please. We'll 2 be back on the record. 3 Mr. Dueffert, you may continue. 4 MR. DUEFFERT: Thank you, Your Honor. 5 Q. (BY MR. DUEFFERT) I'll ask you to 6 take a look, Mr. O'Connell, at Paragraph 260 of 7 the Notice of Charges, which I think is before 8 you. 9 A. Okay. 10 Q. And that paragraph -- 11 A. Hold it, hold it, hold it. Okay. 12 Q. -- references a 400 percent increase 13 in land development loans by USAT from 1983 to the 14 end of 1986, correct? 15 A. That is correct, yes. 16 Q. And it refers to several competitors of 17 USAT and lists them as University Savings, 18 Gibraltar Savings, First Texas of Dallas, and 19 San Antonio Savings, correct? 20 A. Also correct, yes. 21 Q. I'd like to explore a bit just what 22 that really meant. 22108 1 First, what was the -- by your most 2 generous possible estimate, what was the largest 3 disbursement United had on the Park 410 and 4 Norwood projects in the years 1986 or 1988? 5 A. Actually, for the Norwood, I think we 6 had that in front of us today. And again, I 7 believe the figure would have been around 8 $35 million, which would have been the 9 $9.4 million investment from UFC and I believe it 10 was about a 25.4-million-dollar loan as of 11 December of '88. 12 With regards to Park 410, I believe it 13 was between 72 to $73 million. 14 Q. And totaling those, you get something a 15 little less than 120 million? 16 A. Actually, significantly less. Closer 17 to about -- about 108 million, I believe. 18 Q. And, say, as of 1977 (sic), United's 19 assets were roughly what? 20 A. 1987? 21 Q. Yes. 22 A. As I recall, roughly about 6 billion. 22109 1 We actually have a TFR in front of us. We can 2 double check that. 3 Q. What I'm aiming for is I'd just like -- 4 what percentage of United's total assets are 5 represented by the Park 410 and Norwood loans? 6 A. Something less than -- assuming all of 7 my recollections are accurate, it would have been 8 something less than 2 percent. In the high 1.8, 9 1.9 percent range. 10 Q. And that's the 12th claim for relief. 11 Right? 12 A. Yes, that is correct. 13 Q. Looking at the other so-called 14 competitors of United identified in Paragraphs 259 15 and 260 of the Notice of Charges, have you done 16 any kind of peer analysis to explore United's 17 position vis-a-vis those four thrifts? 18 A. No. That wasn't within the scope of 19 the analysis, no. 20 Q. It is within the -- it's raised by the 21 4th claim of relief -- the 12th claim of relief, 22 isn't it? 22110 1 A. I believe so. 11th claim actually, 2 isn't it? 3 Q. We went through that yesterday. I 4 think it's the 12th. 5 Briefly, I would just like to show you 6 a book. And if you'd like to identify this for 7 the record. 8 A. Okay. 9 Q. Sir, can you identify the book I've 10 given you? 11 A. Oh, okay. This is a 1988 -- actually, 12 why don't I turn inside to see the specific date? 13 Okay. 14 Okay. This is a 1988 Sheshunoff, 15 S-H-E-S-H-U-N-O-F-F, Savings and Loan 16 Associations, Texas, 1988 Summation based on -- as 17 I'm looking on the inside page, based on 18 December 1987 data. December 31st, 1987 data. 19 Q. Okay. And you also have before you an 20 excerpt from that, correct? 21 A. Sure. Do you want me to actually 22 verify that it's a clip page? 22111 1 Q. Well, if you look at the green tab, 2 you'll find it. 3 A. Okay. Yes. I actually see the arrow 4 there. 5 Q. Okay. And I just want you to help me 6 out here and read for me -- first off, where in 7 this chart would one find a percentage of assets 8 devoted to ADC loans? 9 A. That would be the -- that would be the 10 sixth category under "asset overview" next to 11 "non-residential real estate." 12 Q. All right. And what figure do you see 13 for United? 14 A. United shows 4.1 percent. 15 Q. 4.1 percent. Gibraltar? 16 A. Which is on top, is 22.4 percent. 17 Q. University? 18 A. That's the fourth institution, 19 26.4 percent. 20 Q. 26.4 percent. First Texas? 21 A. That's No. 5. It would be 9.4 percent. 22 Q. And finally, San Antonio? 22112 1 A. That would be No. 9, 21.4 percent. 2 Q. So, of those five thrifts, USAT had the 3 lowest percentage of ADC loans, correct? 4 A. Yes, that is correct. 5 Q. In fact, as of 1986 or -- I'm sorry -- 6 the as-of date of that document was? 7 A. I believe the inside front cover -- the 8 first page actually says -- I'll just -- why don't 9 I quote so I don't -- quote, "This publication 10 contains financial analyses using data taken 11 primarily from the FHLBB quarterly thrift 12 financial report as of December 31st, 1987, for 13 federally insured savings and loan associations." 14 Q. So, as of the end of 1987, the end of 15 what the Notice of Charges describes as a buildup 16 of ADC loans by USAT, USAT remained substantially 17 under -- remained substantially under all the 18 other thrifts in ADC lending, didn't it? 19 A. Yes. That is -- that is what it shows 20 here, yes. 21 Q. First Texas was the closest but still 22 had more than twice USAT's percentage of ADC 22113 1 loans, correct? 2 A. Yes. 9.4 percent versus 4.1 percent 3 for USAT. 4 Q. And the other three thrifts had 5 probably about five times as many ADC loans as 6 USAT had or more? 7 A. If terms of University, it's actually 8 over six times, I believe. 9 Q. Does the fact that USAT was 10 substantially under this peer group identified by 11 the Notice of Charges affect your opinion in any 12 way? 13 A. No. As I said, doing a peer analysis 14 of other Texas thrifts wasn't part of the -- was 15 not part of my assignment. 16 Q. But you were designated on the 12th 17 claim for relief, correct? 18 A. I believe so. 19 Q. You didn't make an independent 20 assessment of this information? 21 A. No, I did not. 22 Q. And if the evidence shows that USAT did 22114 1 not vigorously pursue ADC loans but, instead, was 2 selective and careful in deciding to proceed with 3 Park 410 and Norwood, would that change your 4 conclusion in any way? 5 A. Let me have that question reread. 6 7 (The record was read by the court 8 reporter, as requested.) 9 10 A. Sure, it would. 11 Q. (BY MR. DUEFFERT) In what way? 12 A. If there was, indeed, careful due 13 diligence done in terms of going forward with 14 those transactions, certainly that would be -- 15 that would clearly go into the question of safety 16 and soundness. 17 Q. Let's move on. 18 Do you dispute that with regard to both 19 Park 410 and Norwood, the borrowers involved in 20 the 1986 transactions were reasonably wealthy and 21 experienced developers? 22 A. The only one I could say for a fair 22115 1 amount of confidence is I do believe 2 Mr. Rosenberg's financial statements represented a 3 high degree of liquid assets. The rest of the 4 borrowers, I'd have to review again. So, I really 5 can't say one way or another without looking at 6 the core documents again. 7 Q. Despite your preparation, you can't 8 tell me about GMR's balance sheet? 9 A. Offhand, no, I cannot. 10 Q. Or the background of IPIC? 11 A. Again, no. Not without reviewing the 12 core documents again, no. 13 Q. And could you tell me anything of 14 substance about Mr. Krasovec's financial 15 statement? 16 A. I recall his reported net worth -- in 17 fact, I think it primarily came from the -- again, 18 it came from the underwriting documents presented 19 to, I think it was the senior loan committee. In 20 fact, I'm remembering, I believe, a stated net 21 worth of about 13 million. Liquid assets somewhat 22 less than that, significantly less than that. 22116 1 Again, without knowing specifically how the 2 breakdown of that net worth is, no, I would not -- 3 I would not make an opinion one way or another. 4 Q. Your -- first of all, do I understand 5 correctly that the track record and wherewithal of 6 a principal in a development project is an 7 important factor in underwriting? 8 A. Certainly, yes. 9 Q. You don't point anywhere in your report 10 to any information regarding the track record and 11 wherewithal of the borrowers/principals in the 12 Park 410 and Norwood transactions, do you? 13 A. That is correct, yes. 14 Q. The track record and wherewithal of the 15 Park 410 and Norwood borrowers are not negative 16 facts about those loans, correct? 17 A. Actually, for Norwood, it probably is 18 because of the switching of the borrowers from 19 Block and Gordon to Krasovec and Minch. It was -- 20 as I recall, Block and Gordon had much more 21 detailed experience laid out than Krasovec and 22 Minch did, and I believe they also had higher net 22117 1 worths. But the reason I didn't go too much into 2 the financial background is that the evidence 3 suggested that the guarantees had really no 4 substance behind them. So, no, I didn't go too 5 much into that. 6 Q. So, you're saying Krasovec's 7 wherewithal and track record was not significant 8 to you? 9 A. Actually, I think I said it was 10 inferior to that that was represented by the 11 original borrowers, Block and Gordon? 12 Q. So, it was significant to you? 13 A. Yes. It would have -- it is 14 significant, yes. 15 Q. But you didn't cite the positive 16 financial features of GMR or IPIC or Mr. Rosenberg 17 in your report? 18 A. That is correct. I did not. 19 Q. Those features don't support criticisms 20 of the loans. Right? 21 A. Actually, I'm not sure about that, 22 Counselor, for the very simple reason I don't 22118 1 believe they ever had experience in this type of a 2 transaction. 3 Q. So, you would still be able to 4 criticize them? 5 A. Yes. 6 Q. But you certainly don't cite any 7 positive features about their wherewithal or track 8 record. Right? 9 A. That is correct, yes. 10 Q. And you would find it very hard to say 11 something positive about a loan that took major 12 losses, wouldn't you? 13 A. Clearly, the weight of the evidence 14 would be against such a loan, yes. 15 Q. I'd like a simple answer. 16 You would find it very hard to say 17 something positive about a loan that took major 18 losses, wouldn't you? 19 A. I think I already did answer that 20 question. It's certain possible I could find some 21 positive things; but generally, yes, the weight of 22 the evidence would be against it. 22119 1 Q. Without qualification, can you answer 2 that question? 3 MR. LEIMAN: Asked and answered, Your 4 Honor. 5 A. I think I just did. 6 MR. LEIMAN: He's already answered it 7 twice. 8 THE COURT: All right. Sustained. 9 Q. (BY MR. DUEFFERT) I'm a little 10 interested in how regulators use the term "risk" 11 and "risky." 12 A. Okay. 13 Q. Could we have Exhibit T8142, please, 14 which is at Tab 1450? 15 Mr. O'Connell, does this appear to you 16 to be a December 20, 1988 memorandum to the 17 Federal Home Loan Bank Board from Billy Wood? 18 A. Yes. 19 Q. Would you turn to Page 9 of the 20 memorandum, please? 21 A. Sure. 22 Q. There is a chart -- 22120 1 A. Excuse me, Counsel. I just -- I do 2 recall seeing this document, but I do -- I frankly 3 didn't recall the date discrepancy before. 4 If you'll notice, the front page is 5 dated December 20th. The other pages are dated 6 December 15th. 7 Q. With that clarification -- 8 A. The only -- I see -- this may have just 9 been a mistake in the Federal Home Loan Bank of 10 Dallas, but can I presume that your questions are 11 going to be on the assumption that this -- say, 12 for instance, the last pages were not a draft? 13 That this is -- 14 Q. I'm only asking you about Page 9. 15 A. Okay. 16 Q. It's Bates numbered OW075448. 17 A. Okay. 18 Q. Do you see presented -- 19 MR. LEIMAN: Excuse me, Your Honor. We 20 apparently don't have a copy. 21 Do you have an extra copy, 22 Mr. Dueffert? I know you identified it on your 22121 1 list. We just don't have a copy of it. 2 Q. (BY MR. DUEFFERT) Turning to Page 9, 3 do you see financial data concerning USAT from 4 December 31, 1985, until September 30, 1988? 5 A. Yes, I do. Financial summary, right. 6 Q. And do you see a line about five down 7 that is listed as "high-risk loans"? 8 A. Yes, I do. 9 Q. For purposes of this memorandum, the 10 Federal Home Loan Bank Board of Dallas defined 11 high-risk loans as being every ADC loan, every 12 commercial loan, every loan for five or more 13 dwellings, didn't it? 14 A. And loans to facilitate. Yes, it's 15 actually noted here. 16 Q. So, at least in this memorandum, the 17 regulators defined as "high risk" every loan that 18 was not a single-family mortgage, didn't they? 19 A. Not entirely, Counselor. I believe 20 there were other types of loans that aren't listed 21 as high risk; but they tend to be not material, 22 for instance for sheer loans. 22122 1 So, instead of going through the entire 2 line items, I think we should just -- I mean, it's 3 described here. I think the document ought to 4 speak for itself, frankly. 5 Q. Okay. So the record is now clear, why 6 don't you just read the definition of "high-risk 7 loans." 8 A. All right. There is an asterisk by the 9 phrase "high-risk loans," and the asterisk reads 10 as follows. Quote, "High-risk loans include" -- 11 another quote -- "five or more dwellings, 12 commercial, 'acquisition, development and 13 construction loans,' end quote, and, quote, 'loans 14 to facilitate,'" end quote. 15 Q. Finally, I note that the numbers for 16 what are called high-risk loans decline each 17 period from 1985 onward. 18 Do you see that? 19 A. Yes, I do. 20 Q. And you don't note that fact anywhere 21 in your report, I take it? 22 A. No, not at all because I believe what 22123 1 the results show is that they were making more 2 high-risk loans but more high-risk loans were 3 turning into delinquencies and REO. If you'll 4 observe -- if you'll observe those two numbers 5 together, delinquent loans and REO jump from 6 approximately 800 million as of December '85 to 7 approximately $1 billion as of December of '86. 8 Q. Mister -- you can put that one aside. 9 Mr. Leiman asked you questions about United's 10 records with respect to these two loans. 11 A. That is correct. 12 Q. Do you agree that the underwriting 13 documents for the Park 410 loan appear complete? 14 A. Actually, Counselor, I'd have to give 15 two answers on that. My recollection -- in fact, 16 I think I even commented on this in the 17 deposition. 18 My recollection of the closing books -- 19 that the closing books are generally 20 well-documented and well laid out, the actual 21 legal documents. But my belief is the overall 22 underwriting file was seriously deficient. 22124 1 Q. Could you please go back to your 2 report? 3 A. Sure. 4 Q. And let's take a look at Paragraph 93. 5 A. Okay. I've got it. Sorry. Okay. 6 Paragraph 90. 7 Q. Would you read, please, Paragraph 93 8 into the record? 9 A. 93? Okay. Quote, "On the Park 410 10 transaction, the association failed to record its 11 joint venture interest in the original 1985 12 acquisition. The joint venture interest, coupled 13 with the fact that the association was funding all 14 expenses of their portion of the venture, showed 15 that Park 410 was, in substance, a direct 16 investment in real estate," end quote. 17 Q. By that paragraph, you imply that 18 United failed to report its interest in the 1985 19 joint venture for Park 410 as an investment in its 20 own books and records, don't you? 21 A. Excuse me? Do you want to -- 22 MR. LEIMAN: Mr. Dueffert, I don't 22125 1 think he understands the question. 2 A. Yes. Could I have the question reread? 3 Q. (BY MR. DUEFFERT) I'll be happy to 4 re-ask it. 5 You say in the first sentence, "On the 6 Park 410 transaction, the association failed to 7 record its joint venture interest in the original 8 1985 acquisition." 9 A. Okay. 10 Q. Second sentence of that paragraph says 11 that "The joint venture interest, coupled with the 12 fact that the association was funding all expenses 13 of their portion of the venture, show that Park 14 410 was, in substance, a direct investment in real 15 estate." 16 A. Okay. 17 Q. And that is underneath the heading 18 captioned "USAT engaged in a number of activities 19 to structure equity investment in real estate to 20 appear as real estate loans." 21 A. Okay. 22 Q. Paragraph 93 implies that United failed 22126 1 to record its interest in the 1985 joint venture 2 as an investment in its own books and records, 3 doesn't it? 4 A. Oh, I see. Okay. I'm sorry. 5 Counselor, I don't think I made the conclusion on 6 that. I just made fact statements. I'm sorry if 7 you read that implication into it. But that's -- 8 I don't believe I made that -- if that is what you 9 implied into it, but I did not make any 10 conclusions with those -- with those statements. 11 I thought those were basically fact statements. 12 Q. You're saying that Paragraph 93 is a 13 fact statement, not a conclusion? 14 A. That's basically correct. Well, I 15 stand corrected. It does say that Park 410 was, 16 in substance, a direct investment in real estate. 17 But I don't believe -- yeah. No, I did not -- I 18 don't believe in the report I ever said that the 19 original 1985 acquisition was not reported as a 20 direct investment. I will -- we can go back in 21 the rest of the report. 22 Q. Well, let's just go back one page. 22127 1 What is the heading at the bottom of 2 the prior page? 3 A. Okay. 4 Q. For the record. 5 A. Okay. "Conclusions." Okay. 6 Q. And you still think it's unreasonable 7 to read Paragraph 93 as a conclusion. Right? 8 MR. LEIMAN: Your Honor, that's not 9 what he said. He said he didn't mean that. 10 THE COURT: He didn't mean what? 11 MR. LEIMAN: He didn't mean it was 12 unreasonable to read it that way. What he said 13 was that's not the implication that he -- it's not 14 the meaning that he gave to it. Now, I think if 15 he wants to ask the witness what the meaning was, 16 that's fine. But he shouldn't put words in the 17 witness' mouth. 18 THE COURT: Well, he's looking at the 19 document but -- is 93 a conclusion, Mr. O'Connell? 20 THE WITNESS: Yes, it is. But I mean, 21 I did not make a conclusion -- and I've gone 22 through the document, the entire document, not 22128 1 just that one paragraph. And no, I did not 2 criticize USAT for not recording the 1985 3 transaction as a direct investment. 4 Q. (BY MR. DUEFFERT) And you're telling 5 me that I -- you are testifying that you believe 6 it's unreasonable of me to read that paragraph and 7 take it to mean that United failed to record its 8 interest in the 1985 joint venture as an 9 investment in its own books and records? 10 A. Actually, Counselor, in the way you 11 just described the context of how you could read 12 that, no. I think that -- I could see how you 13 could come to that conclusion, yes. I -- I regret 14 if that is the implication that was left. 15 Q. Let's take a look at another exhibit, 16 T7055, please. 17 MR. DUEFFERT: Your Honor, as a matter 18 of housekeeping, I have not yet moved B4275 into 19 evidence, which is the excerpt from the treatise 20 and will do so now. 21 MR. LEIMAN: Your Honor, this wasn't on 22 their list. We got this today. But we have no 22129 1 objection to admitting it. 2 THE COURT: Received. 3 Mr. Dueffert, how about T7357? 4 Have you offered that? 5 MR. DUEFFERT: If I have not, I do so 6 at this time. 7 MR. LEIMAN: What is it? No objection, 8 Your Honor. 9 THE COURT: Received. 10 Q. (BY MR. DUEFFERT) And for the record, 11 would you please identify this document, 12 Mr. O'Connell? 13 A. Yes. This is a memorandum from a David 14 Graham to agreeing Wickliff, W-I-C-K-L-I-F-F. 15 Subject matter, Park 410 West-Property dated 16 April 2nd, 1985. 17 Q. And this is a document you reviewed 18 prior to finalizing your report, correct? 19 A. Yes, it is. 20 Q. And the second paragraph of this 21 memorandum indicates that Mr. Graham was directing 22 Mr. Wickliff to establish the Park 410 Joint 22130 1 Venture interest under, quote, "USAT-land under 2 development," close quote, in the real estate 3 report, correct? 4 A. That is correct. 5 Q. And that would be an investment 6 account, correct? 7 A. That is also correct, yes. 8 MR. DUEFFERT: If that document is not 9 in evidence, I will move it in at this point. And 10 for the record, that is T7055. 11 MR. LEIMAN: No objection. 12 MR. DUEFFERT: I have been advised at 13 this point that it is, and it's Tab 641. I 14 apologize. 15 Q. (BY MR. DUEFFERT) Mr. O'Connell, I 16 don't have an index of yesterday tomorrow; but as 17 I was listening, I don't believe I ever once heard 18 you mention the $10 million in letters of credit 19 that were a feature of the Park 410 loan. 20 Do you think I'm wrong? 21 A. Offhand, I don't recall mentioning it 22 either, no. 22131 1 Q. In fact, you testified yesterday that 2 with regard to the Park 410 loan, United bore, 3 quote, "all the economic risk of the transaction." 4 Right? 5 A. That is correct, yes. Actually, did I 6 say that or did I say "substantially all"? 7 Q. Would you like to see your testimony? 8 A. Sure. What page number? 9 Q. Page 22008. You have a long answer. 10 A. Okay. 11 Q. And then the last sentence is the one 12 that I focused on personally. 13 A. Okay. 14 MR. LEIMAN: Your Honor, excuse me for 15 one moment. The copy of the transcript that I 16 have from yesterday, there is mention to letters 17 of credit on Page 22021. 18 Does that help, Mr. Dueffert? 19 MR. DUEFFERT: No. That was an earlier 20 question, but I appreciate it. 21 MR. LEIMAN: It's right here, and they 22 related to letters of credit at the time these 22132 1 loans were approved. 2 A. Actually, as a matter of fact, 3 Mr. Leiman, that is right. In fact, I mentioned 4 it another time. 5 Q. (BY MR. DUEFFERT) But Mr. O'Connell, 6 I do have a question pending at this point. 7 A. I apologize. Back to 22008. 8 Q. Is it your recollection that you 9 testified -- 10 A. Excuse me. Could I read the whole -- 11 is it the question that starts on Page 22007? 12 Q. Yes, sir. 13 A. Okay. That's fine. (Witness reviews 14 the document.) Oh, okay. That's fine. 15 Q. And do you still -- 16 A. Okay. 17 Q. -- stand by your testimony that -- 18 A. Actually, Counselor, the -- 19 Q. Sir, I'm not done with my question. 20 A. Okay. Go ahead. 21 Q. Do you stand by your testimony that 22 the -- with regard to the Park 410 loan, the 22133 1 thrift owned all the economic risk of the 2 transaction? 3 A. Actually, Counselor, I didn't say that 4 if you read what I actually stated. The question 5 had to do with underwriting and speculation, and 6 then I made -- I did make mention of both Norwood 7 and Park 410, about expenses being paid, et 8 cetera. And then I said, "So, in that sort of a 9 situation, yes, I believe it is unsafe and 10 unsound." I was then describing a type of a 11 situation which was unsafe and unsound, but I 12 didn't specifically cite Park 410 or cite Norwood 13 as being the -- there is a basic safety and 14 soundness issue, and I used those two as an 15 example. But I -- that statement should not be 16 used as directly relating to either Park 410 or 17 Norwood. 18 Q. Even though Mr. Leiman asked you "which 19 project are we talking about"? 20 A. Yes. And as you said, in the long 21 answer, I did talk about both of them. But no. 22 I'm glad you brought this up because I would have 22134 1 been surprised if I had said all the economic risk 2 for Park 410 because you have that 3 10-million-dollar letter of credit and/or -- I 4 think there was some CDs, actually, if my 5 recollection is right. But that $10 million of 6 additional collateral was actually very important 7 to my determining in my own mind that 8 Mr. Rosenberg wasn't a controlling person. So, 9 I'm surprised by that. I would have been 10 surprised by that. 11 Q. Do you agree that top 25 percent 12 guarantees protect the most vulnerable portion of 13 loan proceeds, don't you? 14 A. That wouldn't be my language; but I 15 wouldn't disagree with it, no. 16 Q. And with regard to the letters of 17 credit, cash collateral was not required by the 18 express terms of any regulation or policy 19 regarding ADC loans, was it? 20 A. Again, that is correct. No, it would 21 not have been required. 22 Q. Indeed, no Federal Home Loan Bank Board 22135 1 policy or regulation expressly required a lender 2 making an ADC loan to obtain guarantees. Right? 3 A. Again, that is correct, yes. 4 Q. And the letters of credit in the 5 Park 410 loan eventually were collected on. 6 Right? 7 A. Yes. That is my understanding, that 8 upon liquidation, that 10 million was, indeed, 9 collected by the RTC. 10 Q. You used the term yesterday with regard 11 to the approval process for Park 410, "rubber 12 stamp." 13 Do you remember that? 14 A. That is correct. 15 Q. And I believe it appears in your expert 16 report, does it not? 17 A. Yes. Again, that is correct. 18 Q. And if you could just point us all to 19 what paragraph, that would be helpful. 20 A. Oh, okay. Actually, "rubber stamping" 21 is the precise phrase I used. Paragraph No. 65. 22 Q. Mr. O'Connell, I'd like to go back one 22136 1 minute. 2 A. Okay. 3 Q. Remember, we were just talking about 4 Park 410 and the amount of economic risk borne by 5 United? 6 A. That is correct. 7 Q. And you responded that although the 8 question was what projects are you talking about, 9 it was a long answer and, at the end, you didn't 10 get there. Right? 11 Could you please turn to Page 21811 of 12 yesterday's transcript? 13 A. 811. Okay. 14 Q. Are you with me? 15 A. Okay. You're right. Okay. Good 16 point. 17 Q. Did you not respond on page -- of the 18 transcript, 21811, in part, "but in the 1986 19 transaction" -- and this pertains to Park 410 -- 20 "the association still had the entire economic 21 risk of the transaction that it should have 22 remained as a direct investment"? 22137 1 A. That's correct. That is -- that's 2 clearly a misstatement on my part. I should have 3 said "substantially all the risk." 4 Q. Let's go back to rubber stamping. 5 A. Okay. 6 Q. You've studied the record in this case 7 at some length, correct? 8 A. Yes. 9 Q. Which board members voted to approve 10 the 80-million-dollar Park 410 loan in 1986? 11 A. My recollection is that the vote was 12 nine to one and that all of the board members 13 voted for it except, I believe, Mr. Winters. 14 Q. You remember that Mr. Winters 15 dissented. Can you name any of the board members 16 who voted for the loan? 17 A. Offhand, no. I do recall -- I think it 18 was Mr. Munitz who actually made the motion or 19 seconded the motion. I'd rather defer to the 20 actual document. But I do recall the vote was 21 nine to one. I'd have to check the actual board 22 minutes to know all the board members. 22138 1 Q. And do you know how many outside 2 directors voted to approve the loan? 3 A. Again, it would have been everyone 4 except Mr. Winters. 5 Q. And do the names Duckett, Keltner, 6 Silverman, Sterling, and Whatley help refresh your 7 memory? 8 A. Yes. In fact, I think Mr. Duckett 9 actually seconded the motion. I believe Mister -- 10 my recollection is Mr. Munitz made the motion and 11 Mr. Duckett seconded it or perhaps it was the 12 reverse. But again, we can check the document 13 itself. 14 Q. Now, you mentioned that Mr. Winters 15 dissented the vote? 16 A. That is correct. 17 Q. You would still call the vote a rubber 18 stamp even if two directors dissented, wouldn't 19 you? 20 A. I would -- actually, if you read the 21 entire paragraph, I would say it was a rubber 22 stamp if the board simply ratified the decision 22139 1 without taking some steps to discipline the senior 2 loan committee or take some steps to ensure that 3 its policies were being enforced. 4 In fact, I think Mr. Gross himself 5 said, "Well, they could theoretically have fired 6 us." 7 So, if you're asking me what I mean by 8 "rubber stamping," I think I just answered that. 9 The board needed to take some steps to be sure 10 their policies are being enforced. 11 Q. Again, the paragraph in your report 12 you're reading from, which number? 13 A. No. 65. 14 Q. So, you're saying that if three 15 directors of United in May of 1986 dissent like 16 Mr. Winters -- 17 A. That is correct. 18 Q. -- but, nonetheless, the loan is 19 approved and no instructions are given to the 20 senior loan committee or any kind of punishment 21 for them -- 22 A. Okay. 22140 1 Q. -- you would still call that board 2 action a rubber stamp. Right? 3 A. Oh, sure. I mean, this is -- either -- 4 if the board is going to have policies, the 5 policies versus to be enforced. If they are not 6 going to be enforced, if the board isn't going to 7 take any steps to enforce it, then the policies 8 are worthless. Management is then under -- 9 management basically knows they have a blank check 10 to violate the policies. 11 Q. You wouldn't change your conclusion 12 that the vote was a rubber stamp no matter how 13 many directors dissented so long as the bottom 14 line was an approval of the loan. Right? 15 A. If -- putting it this way, if the vote 16 was ten to nothing but the board specifically 17 cited management for failure to -- failure to 18 abide by the policy and specifically cited 19 management for putting the board really in an 20 impossible position, if there was some measure 21 of -- and they didn't necessarily have to fire 22 them -- some measure of censure toward management 22141 1 for overstepping their bounds, then it could have 2 been ten to nothing and then it would have been a 3 different response. But the key is not the vote. 4 The key is the action or, in this case, the lack 5 of same. 6 Q. And you're saying that Paragraph 65 7 doesn't relate to the action of the board? 8 A. Of course it does. It relates to -- 9 they actually ratified it and they took absolutely 10 no effort that I could see to see that their 11 policies and procedures were kept. 12 Q. Let's move on to Norwood. 13 A. Okay. 14 Q. Start at the beginning, 1984 loan. 15 A. Correct. 16 Q. I believe you told Mr. Leiman yesterday 17 that you believe that the original Block loan, the 18 Deauville loan, the '84 Norwood loan, had what you 19 called numerous red flags, correct? 20 A. Again, I may have said "numerous." But 21 I believe one red flag in particular. But if I 22 said "numerous," you can point me to the specific 22142 1 quote. 2 Q. Well, I don't have "numerous" in my 3 outline; but I think I remember two red flags. 4 A. Okay. 5 Q. One of them was that it is your view -- 6 let's start -- you disregard -- as a factual 7 matter, on the 1984 Block loan, the relevant terms 8 are you have a purchase of land for roughly 9 15.9 million. Right? 10 A. That is correct. 11 Q. And you have a loan from United that's 12 of $18 million? 13 A. Approximately that, yes. 14 Q. And then you have 100 percent 15 guarantees, personal guarantees, from Mr. Block 16 and Mr. Gordon, correct? 17 A. That was correct, yes. 18 Q. And I believe the other red flag you 19 mentioned, which I probably should summarize, is 20 that the 1984 Bolin appraisal presented a value of 21 $28.8 million? 22 A. Actually -- yeah, I believe that's 22143 1 correct, although with I thought when we saw the 2 actual '84 underwriting, that was 28.5 but there 3 was a slight discrepancy -- 4 Q. Did you say 28.5? 5 A. Yeah. As I recall, there was a slight 6 discrepancy between what was in the underwriting 7 document and what the as of December of '94 -- as 8 of December 84 appraisal actually showed. 9 Q. Let's start with the guarantees. 10 A. Okay. 11 Q. It's your view that if a guarantee is 12 released in the future, even if it's for some 13 business reason, the guarantee wouldn't have 14 substance from the very beginning. Right? 15 A. The Federal Home -- the Federal Home 16 Loan Bank Board and I believe even the independent 17 auditors have generally taken a very dim view 18 towards guarantees in viewing guarantees as 19 evidence of repayment because there has been a 20 long history that they have been very hard