{\rtf1\ansi\ansicpg1252\deff0\deflang1033{\fonttbl {\f0\fnil\fcharset0 Courier New;}} \uc1\pard\ulnone\f0\fs20\par \par \par \par \par 25450\par \par 1 UNITED STATES OF AMERICA\par BEFORE THE\par 2 OFFICE OF THRIFT SUPERVISION\par DEPARTMENT OF THE TREASURY\par 3\par In the Matter of: )\par 4 )\par UNITED SAVINGS ASSOCIATION OF )\par 5 TEXAS, Houston, Texas, and )\par )\par 6 UNITED FINANCIAL GROUP, INC., )\par Houston, Texas, a Savings )\par 7 and Loan Holding Company )\par ) OTS Order\par 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40\par a Diversified Savings and ) Date:\par 9 Loan Holding Company ) Dec. 26, 1995\par )\par 10 FEDERATED DEVELOPMENT CO., )\par a New York Business Trust, )\par 11 )\par CHARLES E. HURWITZ, )\par 12 Institution-Affiliated Party )\par and Present and Former Director )\par 13 of United Savings Association )\par of Texas, United Financial Group,)\par 14 and/or MAXXAM, Inc.; and )\par )\par 15 BARRY A. MUNITZ, JENARD M. GROSS,)\par ARTHUR S. BERNER, RONALD HUEBSCH,)\par 16 and MICHAEL CROW, Present and )\par Former Directors and/or Officers )\par 17 of United Savings Association of )\par Texas, United Financial Group, )\par 18 and/or MAXXAM, Inc., )\par )\par 19 Respondents. )\par \par 20\par \par 21 TRIAL PROCEEDINGS FOR OCTOBER 8, 1998\par \par 22\par \par \par \par \page\par \par \par \par \par 25451\par \par 1 A-P-P-E-A-R-A-N-C-E-S\par \par 2 ON BEHALF OF THE AGENCY: \par \par 3 KENNETH J. GUIDO, Esquire\par Special Enforcement Counsel\par 4 PAUL LEIMAN, Esquire\par SCOTT SCHWARTZ, Esquire\par 5 BRUCE RINALDI, Esquire\par RICHARD STEARNS, Esquire\par 6 and BRYAN VEIS, Esquire\par of: Office of Thrift Supervision\par 7 Department of the Treasury\par 1700 G Street, N.W.\par 8 Washington, D.C. 20552\par (202) 906-7395\par 9\par ON BEHALF OF RESPONDENT MAXXAM, INC.: \par 10\par FRANK J. EISENHART, Esquire\par 11 of: Dechert, Price & Rhoads\par 1500 K Street, N.W.\par 12 Washington, D.C. 20005-1208\par (202) 626-3306\par 13\par DALE A. HEAD (in-house)\par 14 Managing Counsel\par MAXXAM, Inc.\par 15 5847 San Felipe, Suite 2600\par Houston, Texas 77057\par 16 (713) 267-3668\par \par 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND\par CHARLES HURWITZ: \par 18\par RICHARD P. KEETON, Esquire\par 19 KATHLEEN KOPP, Esquire\par of: Mayor, Day, Caldwell & Keeton\par 20 1900 NationsBank Center, 700 Louisiana\par Houston, Texas 77002\par 21 (713) 225-7013\par \par 22\par \par \par \par \page\par \par \par \par \par 25452\par \par 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO.,\par CHARLES HURWITZ, AND MAXXAM, INC.: \par 2\par JACKS C. NICKENS, Esquire\par 3 of: Clements, O'Neill, Pierce & Nickens\par 1000 Louisiana Street, Suite 1800\par 4 Houston, Texas 77002\par (713) 654-7608\par 5\par ON BEHALF OF JENARD M. GROSS: \par 6\par PAUL BLANKENSTEIN, Esquire\par 7 MARK A. PERRY, Esquire\par of: Gibson, Dunn & Crutcher\par 8 1050 Connecticut Avenue, N.W.\par Washington, D.C. 20036-5303\par 9 (202) 955-8500\par \par 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: \par \par 11 JOHN K. VILLA, Esquire\par MARY CLARK, Esquire\par 12 PAUL DUEFFERT, Esquire\par of: Williams & Connolly\par 13 725 Twelfth Street, N.W.\par Washington, D.C. 20005\par 14 (202) 434-5000\par \par 15 OTS COURT:\par \par 16 HONORABLE ARTHUR L. SHIPE\par Administrative Law Judge\par 17 Office of Financial Institutions Adjudication\par 1700 G Street, N.W., 6th Floor\par 18 Washington, D.C. 20552\par Jerry Langdon, Judge Shipe's Clerk\par 19\par REPORTED BY:\par 20\par Ms. Marcy Clark, CSR\par 21 Ms. Shauna Foreman, CSR\par \par 22 .\par \par \par \par \page\par \par \par \par \par 25453\par \par 1 \par \par 2 INDEX OF PROCEEDINGS\par \par 3\par Page\par 4 BARRY MUNITZ\par \par 5 Continued Examination by Mr. Guido......25454\par \par 6 Examination by Mr. Villa................25602\par \par 7 Further Examination by Mr. Rinaldi......25627\par \par 8 .\par \par 9 .\par \par 10 .\par \par 11 .\par \par 12 .\par \par 13 .\par \par 14 .\par \par 15 .\par \par 16 .\par \par 17 .\par \par 18 .\par \par 19 .\par \par 20 .\par \par 21 .\par \par 22 .\par \par \par \par \page\par \par \par \par \par 25454\par \par 1 P-R-O-C-E-E-D-I-N-G-S\par \par 2 (9:00 a.m.)\par \par 3 THE COURT: Be seated, please. The\par \par 4 hearing will come to order.\par \par 5 Mr. Guido, you may continue with your\par \par 6 examination.\par \par 7 MR. GUIDO: Thank you, Your Honor.\par \par 8\par \par 9 CONTINUED EXAMINATION\par \par 10 \par \par 11 Q. (BY MR. GUIDO) When we broke last\par \par 12 evening, Dr. Munitz, I was asking you some\par \par 13 questions about Mr. Huebsch. Did -- I would like\par \par 14 to finish that line of questioning, if I may.\par \par 15 Did Joe Phillips -- was his supervisor\par \par 16 Ron Huebsch during the time that Joe Phillips was\par \par 17 at USAT?\par \par 18 A. That would have been in the early\par \par 19 Eighties. I remember Ron Huebsch as being one of\par \par 20 the people with whom Mr. Phillips would have\par \par 21 worked most closely. I'm not sure about the\par \par 22 direct sense of supervisor -- I couldn't say that\par \par \par \par \page\par \par \par \par \par 25455\par \par 1 he wasn't, and I do recall that that probably was\par \par 2 the closest relationship he would have had, the\par \par 3 financial officers at -- I think we were saying a\par \par 4 little bit yesterday about the role of financial\par \par 5 officers at USAT.\par \par 6 Q. Did USAT have an organizational\par \par 7 structure?\par \par 8 A. Yes.\par \par 9 Q. Was Ron Huebsch in that organizational\par \par 10 structure?\par \par 11 A. Well, as related to certain areas of\par \par 12 responsibility, I saw him as playing a role. I\par \par 13 don't have a chart in front of my mind.\par \par 14 Q. Prior to Sandy Laurenson's arrival, was\par \par 15 he the head of investments?\par \par 16 A. I don't -- I just don't recall\par \par 17 specifically what his title was at that point.\par \par 18 Q. Who did Ron Huebsch report to?\par \par 19 A. As related to -- again, he was working\par \par 20 on his time in different companies. So, I'm\par \par 21 assuming you mean as relates to United Savings?\par \par 22 Q. Yes.\par \par \par \par \page\par \par \par \par \par 25456\par \par 1 A. Well, again, I assumed that his\par \par 2 supervisors would have been in the financial\par \par 3 organizational line so that it would have been\par \par 4 probably for most of that time, in my mind,\par \par 5 Mr. Crow.\par \par 6 Q. Take a look at your transcript of\par \par 7 April 3rd, 1997.\par \par 8 MR. GUIDO: I have another copy for the\par \par 9 Court.\par \par 10 Q. (BY MR. GUIDO) Now, look at Page 39.\par \par 11 A. May I remove this staple, Mr. Guido?\par \par 12 Q. Pardon?\par \par 13 A. May I remove this staple?\par \par 14 Q. Sure.\par \par 15 A. Okay.\par \par 16 Q. Look at Page 39. There's a colloquy in\par \par 17 there about Mr. Huebsch on that page. And on\par \par 18 Line 13, it says, "Let me ask the questions. I'll\par \par 19 ask another. Did Mr. Huebsch report to you?"\par \par 20 ANSWER: "No."\par \par 21 Do you see that?\par \par 22 A. Yes.\par \par \par \par \page\par \par \par \par \par 25457\par \par 1 Q. And "who did he report to" is the next\par \par 2 question. Will you read the response into the\par \par 3 record?\par \par 4 A. Line 17, "For most of the time on most\par \par 5 activities, he" -- 18 -- "would have reported to\par \par 6 Mr. Hurwitz."\par \par 7 Q. All right. Does that refresh your\par \par 8 recollection of who Mr. Huebsch reported to at the\par \par 9 time that you were at USAT?\par \par 10 A. Well, it does in one sense. I'm just\par \par 11 not sure whether that represents -- I don't know\par \par 12 the context here. And if I had been answering\par \par 13 that as related to Federated, for example, he\par \par 14 clearly would have reported to Mr. Hurwitz.\par \par 15 So, I'm just not sure which company was\par \par 16 referred to on that Page 39.\par \par 17 Q. Is this OTS proceeding an investigation\par \par 18 of the management of United Savings Association or\par \par 19 the management of Federated?\par \par 20 MR. VILLA: I'll object to that\par \par 21 question.\par \par 22 THE COURT: Would you repeat the\par \par \par \par \page\par \par \par \par \par 25458\par \par 1 question?\par \par 2 Q. (BY MR. GUIDO) Is the -- is this\par \par 3 proceeding a proceeding challenging the management\par \par 4 of Federated or the management of United Savings\par \par 5 Association of Texas?\par \par 6 MR. VILLA: Object to the question.\par \par 7 THE COURT: Well, I think we know who\par \par 8 the respondents are in this case.\par \par 9 Q. (BY MR. GUIDO) What's your\par \par 10 understanding, Mr. Munitz?\par \par 11 THE COURT: Can you answer the\par \par 12 question?\par \par 13 A. Well, I assume, again, that the basic\par \par 14 interaction dealt with United -- with the insured\par \par 15 institution, but I've also -- you have reminded me\par \par 16 repeatedly that other companies are involved here.\par \par 17 So, I'm -- I guess the proceeding involves the\par \par 18 insured thrift institution.\par \par 19 Q. (BY MR. GUIDO) Is your testimony today\par \par 20 that with regard to the activities of USAT,\par \par 21 Mr. Huebsch did not report to Mr. Hurwitz?\par \par 22 A. I'm looking at the page where you\par \par \par \par \page\par \par \par \par \par 25459\par \par 1 directed me. Right underneath there, I say, "Ask\par \par 2 me the question again."\par \par 3 And then I believe that's me saying,\par \par 4 "Not necessarily for UFG and USAT because when he\par \par 5 was working on issues related to UFG and USAT, he\par \par 6 was, at least in my presence, at the investment\par \par 7 committee when I was there working with Gerry\par \par 8 Williams, with Jenard Gross."\par \par 9 That was the point that I was trying to\par \par 10 make.\par \par 11 Q. Well, let me -- there's a question in\par \par 12 between there where I asked you whether or not he\par \par 13 would refuse or not discuss his activities with\par \par 14 anyone except Hurwitz.\par \par 15 Do you see that?\par \par 16 A. I see that. Again, it's -- what I was\par \par 17 saying was ask me the question again because,\par \par 18 again, I just wasn't understanding the question.\par \par 19 Q. I'll ask you the question today --\par \par 20 MR. KEETON: Your Honor, before he does\par \par 21 that, under the rule of optional completeness,\par \par 22 let's get this clear. I want to read it beginning\par \par \par \par \page\par \par \par \par \par 25460\par \par 1 at Page 40, Line 2. This is Dr. Munitz. "Ask me\par \par 2 that question again, the whole question."\par \par 3 Question by Mr. Guido: "Would this\par \par 4 sentence 'would not discuss his activities with\par \par 5 anyone except H' describe your view of\par \par 6 Mr. Huebsch's approach to his work for UFG and\par \par 7 USAT?"\par \par 8 ANSWER: "Not necessarily for UFG and\par \par 9 USAT."\par \par 10 QUESTION: "Okay. Why not not\par \par 11 necessarily?"\par \par 12 ANSWER: "Because as he was working on\par \par 13 issues related to UFG and USAT, he also talked, at\par \par 14 least in my presence, at the investment committee\par \par 15 when I was there and other occasions with both\par \par 16 Gerry Williams and particularly with Jenard\par \par 17 Gross."\par \par 18 Q. (BY MR. GUIDO) Did Mr. Huebsch report\par \par 19 to Charles Hurwitz on his activities on behalf of\par \par 20 USAT?\par \par 21 A. Now, again, when you say "report," I\par \par 22 was asked a question yesterday by Mr. Rinaldi, was\par \par \par \par \page\par \par \par \par \par 25461\par \par 1 I reporting to in the sense of talking to and\par \par 2 relating -- you just said to me did he report on\par \par 3 Mr. Hurwitz on his activities. Did you mean as a\par \par 4 supervisory person or did he talk to him about it?\par \par 5 I'm just -- as you can see, I was confused --\par \par 6 Q. As a supervisory person. As one of the\par \par 7 supervisory people over the activities of USAT,\par \par 8 did Ron Huebsch report to Charles Hurwitz?\par \par 9 A. I did not perceive that that was a\par \par 10 direct and sole reporting line as Mr. Huebsch\par \par 11 related to USAT and UFG matters.\par \par 12 Q. So, Mr. Hurwitz, you're saying, wasn't\par \par 13 his supervisor in that term? Is that what you're\par \par 14 saying?\par \par 15 A. All I'm saying is that as Mr. Huebsch\par \par 16 did work related to UFG and USAT, as I saw him, as\par \par 17 I interacted with him at those times that I was at\par \par 18 the investment committee, the interaction I saw\par \par 19 Mr. Huebsch have was with Mr. Crow, Gerry\par \par 20 Williams, and Jenard Gross much more than I saw\par \par 21 him have interaction with Mr. Hurwitz.\par \par 22 Q. Did you see him have interaction with\par \par \par \par \page\par \par \par \par \par 25462\par \par 1 Mr. Hurwitz about the activities of USAT?\par \par 2 A. I saw him talk from time to time with\par \par 3 Mr. Hurwitz about USAT's activities, yes.\par \par 4 Q. Let's move to another topic, and that\par \par 5 is: Have you had or did you have discussions with\par \par 6 Mr. Hurwitz at the time that MAXXAM and Federated\par \par 7 or MCO and Federated were acquiring interests in\par \par 8 the stock of UFG about the Garn-St. Germain\par \par 9 statute?\par \par 10 A. Okay. That's 16 years ago. At this\par \par 11 time, I don't remember specific reference to\par \par 12 Garn-St. Germain. I just don't recall right now.\par \par 13 Q. Okay. Did you, at the time that MCO\par \par 14 and Federated were acquiring stock in UFG, have\par \par 15 discussions with Charles Hurwitz in which he\par \par 16 related to you that he understood that there was a\par \par 17 33 to 1 capital-to-asset ratio in thrifts?\par \par 18 A. Again, I just -- a 16-year-ago\par \par 19 conversation when I saw -- I was just arriving, I\par \par 20 saw him in different settings. I just can't at\par \par 21 this point comment specifically on exchanges we\par \par 22 might have had.\par \par \par \par \page\par \par \par \par \par 25463\par \par 1 Q. So, you don't recall?\par \par 2 A. I don't recall specifically a\par \par 3 16-year-ago conversation.\par \par 4 Q. Take a look at the larger transcript,\par \par 5 the June 8th, 1995 transcript of your deposition?\par \par 6 MR. VILLA: Your Honor, I point out\par \par 7 again that the examination by Mr. Rinaldi asked\par \par 8 the same questions about exactly the same time\par \par 9 period slightly differently worded. Instead of\par \par 10 asking him about specific questions and answers,\par \par 11 he said, "What did Mr. Hurwitz find interesting\par \par 12 about USAT? What did you discuss with Mr. Hurwitz\par \par 13 about the interesting aspects of USAT? Tell us\par \par 14 everything you recall about that."\par \par 15 Now, we went through that with\par \par 16 Mr. Rinaldi for probably 45 minutes. As a matter\par \par 17 of fact, with every board meeting, he asked, "And\par \par 18 what else defined interesting about USAT?"\par \par 19 Now we're going through the same\par \par 20 issues; but instead of using the word\par \par 21 "interesting," we're going back on a\par \par 22 question-by-question basis. I point this out\par \par \par \par \page\par \par \par \par \par 25464\par \par 1 because this is repetitive questioning, and they\par \par 2 are going at the same issue by two different\par \par 3 examiners. And that's one thing the Court's\par \par 4 ruling did not permit them to do. If Mr. Rinaldi\par \par 5 hadn't gone into the issue, I wouldn't be up and\par \par 6 objecting now.\par \par 7 MR. KEETON: Your Honor, I join in that\par \par 8 objection. The whole motivation for buying the\par \par 9 stock and how much they were going to buy was gone\par \par 10 into my Mr. Rinaldi. If he didn't ask the\par \par 11 specific question, it doesn't mean Mr. Guido can\par \par 12 go in behind him and fill in the gaps.\par \par 13 MR. RINALDI: Your Honor, I showed him\par \par 14 a board minute in which the chairman of the board\par \par 15 said, "I have an opportunity to acquire UFG\par \par 16 shares, and it appears to me to be an interesting\par \par 17 opportunity." I asked him if he had any\par \par 18 conversation about that interesting opportunity.\par \par 19 I did not ask him about Garn-St. Germain. I did\par \par 20 not ask him about leveraging. I did not ask him\par \par 21 about 33 to 1.\par \par 22 None of the materials Mr. Guido is\par \par \par \par \page\par \par \par \par \par 25465\par \par 1 asking him about were part of my examination. I\par \par 2 restricted my examination to what was going on at\par \par 3 the board minutes where Mr. Hurwitz was at the\par \par 4 board and what he told the board with respect to\par \par 5 those particular minutes.\par \par 6 MR. KEETON: I adhere with my objection\par \par 7 and join with Mr. Villa. Very tricky if that's\par \par 8 how they are interpreting Your Honor's order.\par \par 9 They are covering the same areas with two lawyers.\par \par 10 THE COURT: Seems to me Mr. Rinaldi\par \par 11 covered the control subject. I thought Mr. Guido\par \par 12 was going to get into the investments. Last\par \par 13 evening, we started to get into the equity\par \par 14 arbitrage and those issues. I thought that's why\par \par 15 we had this division of labor. You were the\par \par 16 investments person, and Mr. Rinaldi covered these\par \par 17 areas of control and the takeover and all that.\par \par 18 We had an extensive examination about that.\par \par 19 MR. GUIDO: I'm sorry, Your Honor. I\par \par 20 am transitioning into the wholesale strategy right\par \par 21 here. In fact, this page that I've directed the\par \par 22 witness to does exactly that, Your Honor.\par \par \par \par \page\par \par \par \par \par 25466\par \par 1 THE COURT: All right. Let's get --\par \par 2 MR. GUIDO: I'm not going into the\par \par 3 motivation for the purchase of the thrift. What\par \par 4 I'm going into is what Charles Hurwitz' role was\par \par 5 and what Mr. Munitz' role was in setting the\par \par 6 investment direction of the thrift. This was a\par \par 7 transition question, and the answer to the -- to\par \par 8 the question I asked the witness to refresh his\par \par 9 recollection --\par \par 10 THE COURT: All right. Well, let's\par \par 11 hear what your question is.\par \par 12 MR. GUIDO: -- to look at Page 141 of\par \par 13 this transcript.\par \par 14 THE COURT: Let's move along.\par \par 15 Q. (BY MR. GUIDO) Page 141 of the\par \par 16 June 8th, 1995 transcript. It talks about\par \par 17 there -- it says, Question, "When he spoke to you\par \par 18 in terms of Garn-St. Germain, did he indicate to\par \par 19 you that because of that legislation, it was his\par \par 20 view that it could be used for takeover\par \par 21 activities?"\par \par 22 ANSWER: "No, not for takeover\par \par \par \par \page\par \par \par \par \par 25467\par \par 1 activities but for a broader range of more\par \par 2 wholesale-oriented investment type ventures." And\par \par 3 then it says "but." Then I asked you another\par \par 4 question.\par \par 5 MR. KEETON: Your Honor, I object if\par \par 6 this is a question or if it's not just reading\par \par 7 something into the record that is in violation of\par \par 8 Your Honor's order about sustaining the objection.\par \par 9 He's still into the control and the purchase of\par \par 10 the investment. He's not into the areas he's\par \par 11 supposed to be covering.\par \par 12 THE COURT: I think we're getting there\par \par 13 pretty shortly.\par \par 14 MR. GUIDO: Thank you, Your Honor.\par \par 15 Q. (BY MR. GUIDO) Now, was Charles Hurwitz\par \par 16 a leading proponent of the wholesale strategy at\par \par 17 USAT?\par \par 18 A. He was one of the people, as I recall,\par \par 19 in the strategic planning conversations who argued\par \par 20 that we had to make a change from what we had been\par \par 21 doing earlier around the board table, yes.\par \par 22 Q. Take a look at that same deposition\par \par \par \par \page\par \par \par \par \par 25468\par \par 1 transcript, Page 74. And I'll direct your\par \par 2 attention to Line 7 through Line 9. Let me back\par \par 3 up, and I'll put it -- start at Page 24, Line --\par \par 4 Page 74, Line 24, the first question that puts it\par \par 5 into context.\par \par 6 "Based upon your conversation with\par \par 7 Mr. Hurwitz, did he feel that this was an\par \par 8 opportunity to convert United to a wholesale\par \par 9 operation?"\par \par 10 ANSWER: "I think the UFG board was\par \par 11 having that conversation; and he was one of the\par \par 12 talkers, as was I. I mean, we were both directors\par \par 13 of the UFGI board at that point; so, it need not\par \par 14 take a separate confidential walled-off exchange.\par \par 15 It was right out there on the table."\par \par 16 Do you see that?\par \par 17 A. Yes.\par \par 18 Q. And then my question is: "I understand\par \par 19 that. In that context, he was a leading proponent\par \par 20 that they go to this wholesale strategy."\par \par 21 What was your answer?\par \par 22 A. "Yes, sir."\par \par \par \par \page\par \par \par \par \par 25469\par \par 1 Q. Is that your testimony today?\par \par 2 A. Yes, sir.\par \par 3 MR. KEETON: Your Honor, that's the\par \par 4 whole point. We've now got four times the same\par \par 5 answer in the record. I don't know what\par \par 6 Mr. Guido's purpose in this is, but I think\par \par 7 Your Honor needs to take control of this. He\par \par 8 can't impeach the witness when the witness gave\par \par 9 the exact answer he's now read to him three times.\par \par 10 MR. GUIDO: Your Honor, I think the\par \par 11 witness clarified his answer by reading what his\par \par 12 response was.\par \par 13 THE COURT: I didn't perceive any\par \par 14 difference, but let's get to your investment\par \par 15 issues.\par \par 16 Q. (BY MR. GUIDO) Now I would like to move\par \par 17 to another topic, and that is: Did Charles\par \par 18 Hurwitz have any role with regard to setting the\par \par 19 profit targets for USAT?\par \par 20 A. Well, I think particularly in the time\par \par 21 when he was the chair of the United Financial,\par \par 22 Inc. board, as I recall now, around -- since --\par \par \par \par \page\par \par \par \par \par 25470\par \par 1 again, I mentioned to Mr. Rinaldi yesterday United\par \par 2 Savings was the major asset of United Financial\par \par 3 Group, Inc. Mr. Hurwitz was the chairman of the\par \par 4 UFGI board. So, although I don't recall\par \par 5 specifically those conversations, in my mind I\par \par 6 would assume he would be one of the participants\par \par 7 in that exchange, yes.\par \par 8 Q. I would like to show you a document\par \par 9 that's been marked as 4340, which is the minutes\par \par 10 of the annual meeting of the shareholders of\par \par 11 United Financial Group --\par \par 12 MR. EISENHART: Your Honor, could we\par \par 13 have a real identification of this exhibit?\par \par 14 MR. GUIDO: I'm sorry. B4340 was the\par \par 15 minutes of the annual meeting of the\par \par 16 shareholders --\par \par 17 MR. EISENHART: It would simply help to\par \par 18 know if it was in evidence and, if so, if there\par \par 19 was a tab number. After 103 days, I would think\par \par 20 that procedure would have sunk in.\par \par 21 MR. GUIDO: Your Honor, it's B4340,\par \par 22 which are the minutes of the annual meeting of the\par \par \par \par \page\par \par \par \par \par 25471\par \par 1 shareholders of United Financial Group, Inc.,\par \par 2 dated April 30th, 1985.\par \par 3 MR. BLANKENSTEIN: Mr. Guido, do you\par \par 4 have extra copies of that?\par \par 5 MR. KEETON: It's not on the list.\par \par 6\par \par 7 (Discussion held off the record.)\par \par 8\par \par 9 MR. GUIDO: I think it is on the list,\par \par 10 Mr. Keeton.\par \par 11 MR. NICKENS: It's on the supplemental\par \par 12 list. We were looking at the original list. It's\par \par 13 on the supplemental list, and we have it.\par \par 14 THE COURT: All right. Let's proceed.\par \par 15 Are you offering this exhibit?\par \par 16 MR. GUIDO: I move B4340 into the\par \par 17 record.\par \par 18 Q. (BY MR. GUIDO) Take a look at --\par \par 19 MR. VILLA: No objection.\par \par 20 THE COURT: Received.\par \par 21 Q. (BY MR. GUIDO) Take a look at Page 3 of\par \par 22 the document, Dr. Munitz.\par \par \par \par \page\par \par \par \par \par 25472\par \par 1 Do you see Page 3 of the exhibit?\par \par 2 A. Yes.\par \par 3 Q. Do you see where it says "Mr. Hurwitz\par \par 4 discussed" -- the fifth paragraph down?\par \par 5 A. Uh-huh, yes.\par \par 6 Q. -- "discussed the company's earnings\par \par 7 and his desire to smooth out the\par \par 8 quarter-to-quarter earnings of the company"?\par \par 9 A. Yes.\par \par 10 Q. Now, my question for you is: Did\par \par 11 Charles Hurwitz set the profit targets for the\par \par 12 association?\par \par 13 A. Again, I just want to be sure -- I\par \par 14 think the company that's being referred to here is\par \par 15 United Financial Group.\par \par 16 Q. Which you've testified, have you not --\par \par 17 A. I just want to be sure that -- was the\par \par 18 question you were asking me about United Financial\par \par 19 Group?\par \par 20 Q. United Savings Association --\par \par 21 A. Okay. I wanted to be sure I understood\par \par 22 the question. I think he was, as I say, one of\par \par \par \par \page\par \par \par \par \par 25473\par \par 1 the key people participating in planning about\par \par 2 both the holding company and the association.\par \par 3 Q. Now, did there exist an entity called\par \par 4 the strategic planning committee for USAT?\par \par 5 A. Yes. Over a certain period of time,\par \par 6 yes.\par \par 7 Q. And who were the members of that\par \par 8 committee?\par \par 9 A. Well, I don't know if I could tell you\par \par 10 specifically who they all were; and it was an\par \par 11 informal group. It wasn't a line operating\par \par 12 committee designated by the board, as I recall.\par \par 13 But it would have essentially been the key\par \par 14 managers of the association and the holding\par \par 15 company. In most instances, those were the same\par \par 16 people. And then probably experts inside would\par \par 17 have come, depending upon the topic.\par \par 18 Q. Now, I would like to direct your\par \par 19 attention to Tab 1294, which is Exhibit B3925,\par \par 20 which is a memorandum from Mike Crow dated\par \par 21 April 28th, 1986. B3925, Tab 1294.\par \par 22 Have you had a chance to review that?\par \par \par \par \page\par \par \par \par \par 25474\par \par 1 A. The single sheet?\par \par 2 Q. Yes.\par \par 3 A. Yes.\par \par 4 Q. Now, I would like you -- does that\par \par 5 refresh your recollection of who the specific\par \par 6 individuals were that were members of the\par \par 7 strategic planning committee?\par \par 8 A. Basically, yes, although the point I\par \par 9 was trying to make was that that -- I'm -- if you\par \par 10 had shown me another invitation to another meeting\par \par 11 of the strategic planning group, in all likelihood\par \par 12 it would have had some different people. I'm not\par \par 13 certain those were all specifically the members,\par \par 14 but that sounds basically like the core group.\par \par 15 For example, Ron Huebsch -- I would be surprised\par \par 16 if Ron Huebsch was a regular member of the\par \par 17 strategic planning committee.\par \par 18 Q. Were you a regular member of the\par \par 19 strategic planning committee?\par \par 20 A. Oh, yes.\par \par 21 Q. Was Gerald Williams a regular member?\par \par 22 A. Yes.\par \par \par \par \page\par \par \par \par \par 25475\par \par 1 MR. KEETON: Your Honor, could you ask\par \par 2 Mr. Guido to speak up?\par \par 3 MR. GUIDO: I'm sorry.\par \par 4 MR. KEETON: Thank you.\par \par 5 Q. (BY MR. GUIDO) Gerald Williams, I think\par \par 6 you said "yes"?\par \par 7 A. Yes.\par \par 8 Q. Was Michael Crow a regular member?\par \par 9 A. Well, again, as I say, this wasn't a\par \par 10 formal operating line responsible group. But Mike\par \par 11 Crow had the sort of role where he was either a\par \par 12 member or he would have regularly been at that\par \par 13 group.\par \par 14 Q. And was Jenard Gross?\par \par 15 A. In the time that he was there, yes, he\par \par 16 would be -- in my judgment, it would have been\par \par 17 hard to imagine having some conversation of\par \par 18 strategic planning where, if Mr. Gross was\par \par 19 available, he wouldn't have been there.\par \par 20 Q. Was Charles Hurwitz?\par \par 21 A. In many instances, he would have been a\par \par 22 person we would have invited to that conversation,\par \par \par \par \page\par \par \par \par \par 25476\par \par 1 yes.\par \par 2 Q. Now, I would like to direct your\par \par 3 attention to the investment committee now.\par \par 4 A. Okay.\par \par 5 Q. When was the investment committee set\par \par 6 up?\par \par 7 A. I couldn't tell you right now\par \par 8 specifically the time. I don't know.\par \par 9 Q. Okay. Was there -- were there\par \par 10 different investment committee -- was there a\par \par 11 different investment committee for UFG than there\par \par 12 was for USAT?\par \par 13 A. I don't recall.\par \par 14 Q. Was the -- was there essentially one\par \par 15 functioning investment committee?\par \par 16 A. I mean, my memory at this point is an\par \par 17 investment committee that essentially looked at\par \par 18 issues related to UFG and USAT, although it --\par \par 19 there would have been such a natural overlap, it\par \par 20 wouldn't surprise me if that were the case.\par \par 21 Q. So, if the minutes show that there were\par \par 22 joint meetings, then you wouldn't have any dispute\par \par \par \par \page\par \par \par \par \par 25477\par \par 1 about that?\par \par 2 A. Well, I wouldn't have any dispute with\par \par 3 what the minutes showed normally anyway. But in\par \par 4 this case, I agree with you.\par \par 5 Q. Now, did Charles Hurwitz attend\par \par 6 investment committee meetings when you were at UFG\par \par 7 and USAT?\par \par 8 A. Not every one of them but regularly,\par \par 9 yes.\par \par 10 Q. Now, how did -- do you recall the\par \par 11 origination of USAT's investments in\par \par 12 mortgage-backed securities?\par \par 13 A. The origination?\par \par 14 Q. Uh-huh.\par \par 15 A. No.\par \par 16 Q. Do you recall whether -- how you\par \par 17 learned that USAT was going to be making\par \par 18 investments in mortgage-backed securities?\par \par 19 A. Well, here again, both a long time past\par \par 20 and not an area of expertise; but if I'm not\par \par 21 mistaken, I think there were some mortgage-backed\par \par 22 securities either or both already underway at\par \par \par \par \page\par \par \par \par \par 25478\par \par 1 United or perhaps -- I might be confusing that\par \par 2 with the institution we were discussing yesterday\par \par 3 with which we merged. But my vague recollection\par \par 4 is there were some mortgage-backed securities on\par \par 5 either or both of those activity lists as I was\par \par 6 arriving.\par \par 7 Q. Well, in terms of the expansion in\par \par 8 let's say 1984, do you recall that?\par \par 9 A. Well, we had talked yesterday about the\par \par 10 arrival of Joe Phillips and fixed income\par \par 11 activities. So, I remember his arriving -- and I\par \par 12 think he was at American General -- and some more\par \par 13 complex activity in that time period.\par \par 14 Q. Did you attend any presentations of\par \par 15 investment bankers regarding mortgage-backed\par \par 16 security risk-controlled arbitrage programs?\par \par 17 A. Yes.\par \par 18 Q. And who were those investment bankers?\par \par 19 A. Well, I believe that there were\par \par 20 several; and I don't know that I sat in on all of\par \par 21 them. The one that comes to mind as you ask the\par \par 22 question, I think, is Salomon Brothers.\par \par \par \par \page\par \par \par \par \par 25479\par \par 1 Q. Do you recall when that occurred?\par \par 2 A. No.\par \par 3 Q. I would like you to look at Tab 242,\par \par 4 B377.\par \par 5 THE COURT: Is that B377?\par \par 6 MR. GUIDO: B377, Your Honor.\par \par 7 Q. (BY MR. GUIDO) Does that refresh your\par \par 8 recollection of about the time that USAT was\par \par 9 expanding its investments in mortgage-backed\par \par 10 securities?\par \par 11 A. Well, I don't -- again, I'm assuming\par \par 12 you don't want me to read this. So, what it --\par \par 13 what it says to me is that there was a\par \par 14 presentation by Salomon Brothers on the 24th of\par \par 15 October 1984 to United Savings of Texas. I don't\par \par 16 know if that was the one to which I was referring.\par \par 17 I don't know what this is about.\par \par 18 Q. Well, was the Salomon presentation on\par \par 19 that date at about the time that USAT was\par \par 20 increasing its investments in high-yield bonds and\par \par 21 equity arbitrage?\par \par 22 A. I don't remember the exact timing, but\par \par \par \par \page\par \par \par \par \par 25480\par \par 1 it seems to me roughly the time period that Joe\par \par 2 Phillips was arriving. I can't comment now, but\par \par 3 I've got no reason to not feel it's in roughly\par \par 4 that period.\par \par 5 Q. What was the original reason for hiring\par \par 6 Joe Phillips?\par \par 7 A. My recollection was the desire to have,\par \par 8 as part of the management group, someone with more\par \par 9 experience in fixed income investments.\par \par 10 Q. High-yield bonds?\par \par 11 A. I think to the extent to which you\par \par 12 would call high-yield bonds within a fixed income\par \par 13 category and that that was his experience, I\par \par 14 suspect yes.\par \par 15 Q. Wasn't that his prior experience?\par \par 16 A. I commented again yesterday what I\par \par 17 recall about Mr. Phillips -- and I think it was at\par \par 18 American General -- that his broad experience, as\par \par 19 contrasted with the equity side, was more on the\par \par 20 fixed income side. I don't know specifically,\par \par 21 Mr. Guido, what part of that. I just don't\par \par 22 remember.\par \par \par \par \page\par \par \par \par \par 25481\par \par 1 Q. Now, did Jenard Gross and Charles\par \par 2 Hurwitz inform you that they wanted the\par \par 3 mortgage-backed security portfolio to increase at\par \par 4 about the time of the Salomon presentation?\par \par 5 A. Can I separate -- there are two parts\par \par 6 of the question. Let me comment to the latter. I\par \par 7 can't say right now specifically as to the timing.\par \par 8 So, if you'll allow me, I'd like to take that part\par \par 9 separately.\par \par 10 I don't remember exactly the timing,\par \par 11 but Salomon Brothers is a company that I remember\par \par 12 making a presentation. So, that sounds, timing,\par \par 13 right.\par \par 14 Then back to the first part. I don't\par \par 15 know that Mr. Gross was there in 1984; but at some\par \par 16 point during the strategic planning conversations\par \par 17 and around the board table, both Mr. Hurwitz and\par \par 18 Mr. Gross would have been amongst the people\par \par 19 talking about that strategic direction.\par \par 20 Q. Did they -- either Mr. Gross or\par \par 21 Mr. Hurwitz -- at any time ask you to recruit\par \par 22 somebody to manage the mortgage-backed securities\par \par \par \par \page\par \par \par \par \par 25482\par \par 1 portfolio?\par \par 2 A. At any time?\par \par 3 Q. Uh-huh.\par \par 4 A. Yes. They would have been two of the\par \par 5 people who asked me to be in the middle of\par \par 6 recruitment that led to Sandy Laurenson's hiring,\par \par 7 for example.\par \par 8 Q. What about Joe Phillips?\par \par 9 A. Well, I would have -- again, as I told\par \par 10 Mr. Rinaldi yesterday, I just have less clear of a\par \par 11 recollection because that would have been several\par \par 12 years before that. I'm pretty clear on the\par \par 13 process of Sandy Laurenson because I was right in\par \par 14 the middle of that one. I just don't remember as\par \par 15 well the Joe Phillips hiring.\par \par 16 Q. Why did they tell you -- either\par \par 17 Mr. Gross or Mr. Hurwitz -- tell you that they\par \par 18 wanted to recruit someone with Sandy Laurenson's\par \par 19 qualifications?\par \par 20 A. I think by then, it's -- I don't\par \par 21 know -- probably a couple of years after this date\par \par 22 you've shown me. That exchange I remember more\par \par \par \par \page\par \par \par \par \par 25483\par \par 1 clearly with Mr. Gross where we had had subsequent\par \par 2 to this a number of other consultants and\par \par 3 conversations with other financial institutions\par \par 4 about fixed income paper, about mortgage-backed\par \par 5 securities. And the conclusion reached by all of\par \par 6 us was that, again, we wanted to further\par \par 7 strengthen the portion of the management team that\par \par 8 had experience in that area. Their request to me\par \par 9 was to look everywhere we could look and try to\par \par 10 find the strongest possible person for that role.\par \par 11 Q. Why did they want to strengthen the\par \par 12 team? Did they tell you?\par \par 13 A. Well, they probably -- I can't at this\par \par 14 time comment what they said. I could give you a\par \par 15 feel for my sense of it.\par \par 16 Q. Go ahead. What was your understanding?\par \par 17 A. My sense of it was that it was an area\par \par 18 that we were gaining great and great understanding\par \par 19 of; that amongst our strategic choices, it was an\par \par 20 activity that made sense to us; and that, as in\par \par 21 all things we did, no differently than they said\par \par 22 to me, "We think that that money desk activity\par \par \par \par \page\par \par \par \par \par 25484\par \par 1 makes sense, and let's find the strongest possible\par \par 2 person." That led to Jim Jackson. It was the\par \par 3 same exchange regarding "Let's find the strongest\par \par 4 possible person for this other strategic area of\par \par 5 the company."\par \par 6 Q. Well, you already had Joe Phillips\par \par 7 managing the mortgage-backed security portfolio,\par \par 8 didn't you?\par \par 9 A. I can't comment specifically on the\par \par 10 timing. The only thing I recall was -- again,\par \par 11 this would not have been strange at all -- if this\par \par 12 is an area we want to be involved and it's a\par \par 13 complicated area, let's be absolutely certain that\par \par 14 we have the best possible people.\par \par 15 Q. Now, what were the purposes of the\par \par 16 mortgage-backed security portfolio?\par \par 17 A. Well, in general, my sense of it was\par \par 18 to -- that it would be one component of an overall\par \par 19 financial strategy. That part, as I recall,\par \par 20 basically geared to, in general, obviously the\par \par 21 generation of revenue. I think that was the\par \par 22 purpose of everything we were doing. And\par \par \par \par \page\par \par \par \par \par 25485\par \par 1 specifically in this way, to create a yield income\par \par 2 over time that would strengthen the bottom line.\par \par 3 Q. How was it to generate a yield income\par \par 4 or spread?\par \par 5 A. Well, you're about to enter an area\par \par 6 where I move precariously in terms of my own\par \par 7 knowledge and particularly after all of this time.\par \par 8 My general sense was that by matching certain\par \par 9 assets and certain liabilities without any\par \par 10 scientific certainty, that what Salomon Brothers\par \par 11 and others were saying were this was a financial\par \par 12 strategy that, in all likelihood, would generate a\par \par 13 yield positive impact on the bottom line.\par \par 14 Q. Well, how were you to protect against\par \par 15 interest rate shifts?\par \par 16 A. Well, again, my feel -- I'm not sure\par \par 17 that anyone was guaranteeing that you could\par \par 18 protect against interest rate shifts. I remember\par \par 19 either Salomon Brothers or someone else making a\par \par 20 presentation that had an overhead that looked at\par \par 21 historically here's how interest rates have\par \par 22 shifted and, in all likelihood, they shift in this\par \par \par \par \page\par \par \par \par \par 25486\par \par 1 pattern up and this pattern down and that in\par \par 2 certain combinations of assets and liabilities and\par \par 3 there were -- again, without being able to\par \par 4 scientifically define them -- hedges and swaps\par \par 5 related to the mortgage-backed securities that\par \par 6 would generate that revenue.\par \par 7 Q. Well, was it your understanding, then,\par \par 8 that what was being proposed was a risk-controlled\par \par 9 arbitrage in which short-term funding of reverse\par \par 10 repurchase agreements were used to finance\par \par 11 purchases of mortgage-backed securities and the\par \par 12 interest rate risk was to be hedged with swap\par \par 13 agreements?\par \par 14 A. Well, you've just told me a lot more\par \par 15 than I either knew or remembered. I'm just not\par \par 16 sure at this point in time about that level of\par \par 17 detail, Mr. Guido. I ought not to comment on that\par \par 18 degree of specificity.\par \par 19 Q. So, you don't know?\par \par 20 A. I don't right now remember that level\par \par 21 of detail.\par \par 22 Q. Let's take a look at your June 8th,\par \par \par \par \page\par \par \par \par \par 25487\par \par 1 1995 transcript at Page 1 --\par \par 2 A. Is that the big one?\par \par 3 Q. The big one. Page 154 through 155\par \par 4 starting on Line 10 of 154 through Line 19 of\par \par 5 Page 155.\par \par 6 A. Sir, I want to be sure I have the\par \par 7 right -- Line 10 says, "Mr. Stuart, excuse me. Is\par \par 8 there a date on that?"\par \par 9 Q. Hold on one second. I'm sorry. Well,\par \par 10 I can't address you to the transcript because I\par \par 11 have the wrong page.\par \par 12 So, you don't recall specifically what\par \par 13 the nature of the mortgage-backed security\par \par 14 portfolio was to be in 1984?\par \par 15 A. I was referring -- just trying to move\par \par 16 through with you to the last question. I don't\par \par 17 recall at this point the specific -- you mentioned\par \par 18 something repo, and I simply don't at this point\par \par 19 remember the specificity that you were reflecting\par \par 20 in your question.\par \par 21 Q. Okay. Was it your understanding that\par \par 22 the interest rate risk was to be hedged with some\par \par \par \par \page\par \par \par \par \par 25488\par \par 1 instrument?\par \par 2 A. In general, that there was to be a\par \par 3 balance or -- and/or a hedge, yes.\par \par 4 Q. Now, did there come a time when the\par \par 5 portfolio was to be increased in size beyond what\par \par 6 happened at the end of 1984 and early 1985?\par \par 7 A. As I recall -- I'm not sure whether it\par \par 8 was that particular portfolio. But as I recall,\par \par 9 somewhere in that period to which you were\par \par 10 referring earlier about the hiring of Sandy\par \par 11 Laurenson, that there was a change in order of\par \par 12 magnitude.\par \par 13 Q. And was it a threefold increase in\par \par 14 magnitude? Do you recall?\par \par 15 A. I don't remember -- I don't remember\par \par 16 the specifics, but I do remember a change -- an\par \par 17 increase.\par \par 18 Q. All right. A sizable increase?\par \par 19 A. Well, I don't know what the definition\par \par 20 is; but I certainly do remember -- it was an\par \par 21 increase that, in my memory, wasn't unrelated to\par \par 22 the question that I participate in finding what\par \par \par \par \page\par \par \par \par \par 25489\par \par 1 led to Sandy Laurenson.\par \par 2 Q. If Sandy Laurenson had testified that\par \par 3 she was instructed by Jenard Gross to increase\par \par 4 that mortgage-backed security portfolio to\par \par 5 $3 billion by May of 1987, would you have any\par \par 6 reason to disagree with her?\par \par 7 A. I wouldn't have any reason to challenge\par \par 8 her testimony, no.\par \par 9 Q. Now, who supervised Sandy Laurenson?\par \par 10 A. Well, to my -- the conversations I\par \par 11 remember most regularly were with Mr. Gross and\par \par 12 Mr. Crow. Of hers, that is. Not of mine.\par \par 13 Q. Now, you testified that there was an\par \par 14 investment committee. Do you recall?\par \par 15 A. Today?\par \par 16 Q. Do you recall that there was an --\par \par 17 A. Yes. I didn't remember when it\par \par 18 started; but yes, there was an investment\par \par 19 committee.\par \par 20 Q. And do you recall whether you were the\par \par 21 person that created the investment committee?\par \par 22 A. Well, I didn't -- I didn't create it.\par \par \par \par \page\par \par \par \par \par 25490\par \par 1 I certainly remember being involved -- I was\par \par 2 involved in getting it started.\par \par 3 Q. And do you recall who the members of\par \par 4 the investment committee were?\par \par 5 A. I don't specifically. Again, as with\par \par 6 the strategic planning group, I have a general\par \par 7 sense of who was likely to be the members. But\par \par 8 I -- if you were to read me the names, I could\par \par 9 give you probably a good sense.\par \par 10 Q. Was Jenard Gross a member of that\par \par 11 committee?\par \par 12 A. Well, again, I'm almost certain that he\par \par 13 was. You know -- I mean, I just -- it seems to me\par \par 14 that he would be one of the people who would be on\par \par 15 the investment committee.\par \par 16 Q. Were you a member of the committee?\par \par 17 A. I originally was a member of it to get\par \par 18 it started. And then at some point -- I wouldn't\par \par 19 attend regularly each meeting because my function\par \par 20 there was very different than the other people's\par \par 21 there. And then at some point, I made it --\par \par 22 formally made it clear that I was leaving so they\par \par \par \par \page\par \par \par \par \par 25491\par \par 1 would stop saying in the minutes that I wasn't\par \par 2 there.\par \par 3 Q. Whatever it reflects in the minutes,\par \par 4 you have no reason to disagree with them?\par \par 5 A. I have no reason to disagree with that.\par \par 6 Q. I would like to show you Document 1654,\par \par 7 B1626.\par \par 8 A. Thank you.\par \par 9 Q. Have you had a chance --\par \par 10 A. I have.\par \par 11 Q. Now, does that refresh your\par \par 12 recollection of when you resigned formally from\par \par 13 the investment committee?\par \par 14 A. Yes. Yes, absolutely.\par \par 15 Q. Okay. Now, the -- when was the\par \par 16 investment committee created?\par \par 17 A. Well, I think I said earlier I just\par \par 18 don't remember the specific time.\par \par 19 Q. Was it more than a year before\par \par 20 May 19th, 1987?\par \par 21 A. Again, you -- I suspect you know the\par \par 22 date. I don't know the date.\par \par \par \par \page\par \par \par \par \par 25492\par \par 1 Q. If the records show that, would you\par \par 2 have any reason to disagree with the fact that you\par \par 3 sat on the investment committee for over a year?\par \par 4 A. I wouldn't have any reason to disagree\par \par 5 with my being a member of the investment committee\par \par 6 from whenever the record shows the starting time\par \par 7 was to this memo.\par \par 8 Q. The memo says that the reason you were\par \par 9 given formal membership was "in order to have a\par \par 10 critical mass of policy people shaping the initial\par \par 11 framework for our activities."\par \par 12 Do you see that?\par \par 13 A. Yes.\par \par 14 Q. What are you referring to there?\par \par 15 A. That when the first committee was first\par \par 16 established, I believe, by the board, they were\par \par 17 concerned -- it was at a time that I was spending\par \par 18 more time -- somewhere in that period, I discussed\par \par 19 with Mr. Rinaldi about the change of my role and\par \par 20 that my responsibility here was to see that the\par \par 21 committee was established, that minutes were being\par \par 22 taken, that issues were being discussed openly,\par \par \par \par \page\par \par \par \par \par 25493\par \par 1 and that enough people around that table had\par \par 2 different policy perspectives to literally, what\par \par 3 it says, shape the initial framework for our\par \par 4 activities.\par \par 5 That having been done, I needed to move\par \par 6 on.\par \par 7 Q. Now, did the investment committee\par \par 8 review mortgage-backed security transactions on an\par \par 9 individual basis?\par \par 10 A. On an individual basis? I just -- I'm\par \par 11 not sure. I mean, the minutes -- I'm just\par \par 12 assuming the minutes would have reflected what\par \par 13 they did. I don't know if it was on an individual\par \par 14 basis. And I wasn't there, as you can see, at\par \par 15 every meeting or subsequent to the 19th of May.\par \par 16 So, I don't know the specific answer to that\par \par 17 question.\par \par 18 Q. Was every trade that was made in the\par \par 19 mortgage-backed security portfolio reviewed by the\par \par 20 investment committee during the period of time you\par \par 21 were a member of that committee?\par \par 22 A. I'm just not sure. Every trade? I'm\par \par \par \par \page\par \par \par \par \par 25494\par \par 1 just not sure.\par \par 2 Q. If Sandy Laurenson testified to that\par \par 3 fact, would you have any reason to disagree with\par \par 4 her?\par \par 5 A. I would have no reason to dispute her\par \par 6 sworn testimony.\par \par 7 Q. Now, I would like to direct your\par \par 8 attention to another topic. And I would you to\par \par 9 take a look at Tab 329, which is T4333.\par \par 10 Do you have the document before you?\par \par 11 A. The one that says "bond man"?\par \par 12 Q. Yes. Look at the very last paragraph\par \par 13 on that first page.\par \par 14 MR. VILLA: Your Honor, may I ask that\par \par 15 we give the witness an opportunity to read this\par \par 16 document? It wasn't on their pull list; and it's\par \par 17 been 14 years or 12 years, whatever it's been. He\par \par 18 ought to be given an opportunity to read it, even\par \par 19 if he is on the stand.\par \par 20 A. (Witness reviews the document.) Okay.\par \par 21 Q. Do you see the last paragraph on the\par \par 22 first page where it makes a reference to the\par \par \par \par \page\par \par \par \par \par 25495\par \par 1 swaps? It says, "Just like our swaps were not\par \par 2 designed properly and didn't give any thought to\par \par 3 the possibility of prepayments."\par \par 4 Do you see that?\par \par 5 A. Yes.\par \par 6 Q. Do you know what that refers to?\par \par 7 A. No.\par \par 8 Q. Do you recall that --\par \par 9 A. I should correct one thing. The "no"\par \par 10 was to the swaps issue. I have some vague\par \par 11 recollection of the issue of prepayments. So, my\par \par 12 "no" was to the swap question. Perhaps I answered\par \par 13 too quickly.\par \par 14 Q. What do you recall about the\par \par 15 prepayments?\par \par 16 A. Only that at some point in time, there\par \par 17 was a discussion about the relationship between\par \par 18 interest rates and the rate of prepayment.\par \par 19 Q. Now, when I asked you earlier about the\par \par 20 question of what the mortgage-backed security\par \par 21 portfolio was, as you understood it to be, did\par \par 22 you -- you indicated that the purpose was to have\par \par \par \par \page\par \par \par \par \par 25496\par \par 1 some sort of a yield going forward so that it\par \par 2 would generate a profit.\par \par 3 Do you recall that testimony?\par \par 4 A. Yes, sir.\par \par 5 Q. That was your understanding of that\par \par 6 portfolio?\par \par 7 A. That was my general understanding, yes,\par \par 8 sir.\par \par 9 Q. Now, do you recall there came a point\par \par 10 in time after the Salomon Brothers presentation in\par \par 11 November of 1984 that that turned out not to be\par \par 12 the case?\par \par 13 MR. NICKENS: Your Honor, I'm not sure\par \par 14 what "not to be the case" means. And "after 1984"\par \par 15 takes into a period of about seven years where he\par \par 16 was involved. I mean, we need to be a little more\par \par 17 specific. We know we have United MBS. We have\par \par 18 other portfolios. I'm not sure what he's asking.\par \par 19 MR. GUIDO: I'll rephrase the question,\par \par 20 Your Honor.\par \par 21 Q. (BY MR. GUIDO) Do you recall that there\par \par 22 came a time when interest rates declined and it\par \par \par \par \page\par \par \par \par \par 25497\par \par 1 had an impact on the mortgage-backed security\par \par 2 risk-controlled arbitrage portfolio at USAT?\par \par 3 A. I recall at least one period of time\par \par 4 when an interest rate decline caused a greater --\par \par 5 at least my memory now is that it caused a greater\par \par 6 pace of refinancing or prepayment or both than had\par \par 7 been originally assumed in the structure. At\par \par 8 least, that's vaguely right now what I remember.\par \par 9 That may be, in part, because you have a similar\par \par 10 phenomenon. As I look in the newspaper, the same\par \par 11 thing is happening today.\par \par 12 Q. Do you recall whether it was -- there\par \par 13 was an interest rate shift both in time and by\par \par 14 intensity of interest rates that caused\par \par 15 prepayments to accelerate beyond the point that\par \par 16 people at USAT had anticipated?\par \par 17 A. I think that was the question I was\par \par 18 answering. Maybe I misunderstood the first\par \par 19 question.\par \par 20 Q. Is your answer "yes"?\par \par 21 A. Yes.\par \par 22 Q. Do you remember the entity called USAT\par \par \par \par \page\par \par \par \par \par 25498\par \par 1 Mortgage Finance?\par \par 2 A. Do I remember it? No.\par \par 3 Q. Okay. Do you recall that at the end of\par \par 4 1985, that USAT created a subsidiary to purchase\par \par 5 additional mortgage-backed securities?\par \par 6 A. Well, I have a vague recollection\par \par 7 somewhere in that time period that, at least one\par \par 8 instance, that a subsidiary was created. And I\par \par 9 think -- at least my recollection was one of those\par \par 10 subsidiaries was created and then fairly soon\par \par 11 after was uncreated.\par \par 12 Q. Okay. And do you recall whether or not\par \par 13 you participated in any decisions regarding the\par \par 14 creation and dissolution of that subsidiary?\par \par 15 A. Whether I personally participated?\par \par 16 Q. Yeah, as a member of a committee or a\par \par 17 member of management.\par \par 18 A. I don't remember now where I would have\par \par 19 been.\par \par 20 Q. If the minutes would reflect that you\par \par 21 participated in its creation and discussion of its\par \par 22 dissolution, would you have any reason to disagree\par \par \par \par \page\par \par \par \par \par 25499\par \par 1 with those minutes?\par \par 2 MR. NICKENS: What minutes are we\par \par 3 referring to, Your Honor?\par \par 4 MR. GUIDO: The minutes of the\par \par 5 executive committee. Excuse me.\par \par 6 A. Is this something I've seen? Am I\par \par 7 missing something?\par \par 8 Q. (BY MR. GUIDO) No. I haven't shown you\par \par 9 anything just yet.\par \par 10 A. So, I don't know --\par \par 11 Q. I'm just asking you whether or not --\par \par 12 A. I don't know.\par \par 13 Q. I would like you to take a look at a\par \par 14 series of documents which are at -- the first\par \par 15 document is Tab 1389 at A1218. The second is\par \par 16 Tab 1438, which is at A1219. The third is\par \par 17 Tab 1390, which is A1220. The fourth is Tab 1310,\par \par 18 which is at B697. And the fifth is Tab 585, which\par \par 19 is B690.\par \par 20 A. Do you want me to look at all of them\par \par 21 now or one at a time?\par \par 22 Q. We'll go through them one at a time.\par \par \par \par \page\par \par \par \par \par 25500\par \par 1 A. First one is?\par \par 2 Q. This is Tab 1389. I think they are in\par \par 3 the order that I will be going through them.\par \par 4 A. No, they are not. Tell me the first\par \par 5 one.\par \par 6 Q. Tab 1389.\par \par 7 A. Okay.\par \par 8 Q. Do you see the discussion of the -- in\par \par 9 the second paragraph of the new financing\par \par 10 subsidiary regulations?\par \par 11 A. Yes.\par \par 12 Q. Okay. Does that refresh your\par \par 13 recollection that you participated in discussions\par \par 14 of the creation of a financing subsidiary of USAT\par \par 15 to purchase mortgage-backed securities?\par \par 16 A. Yes. That is, that I was there. It\par \par 17 doesn't give me much more than that, but yes.\par \par 18 Q. Now, take a look at the next document,\par \par 19 which is Tab 1438 which is A1219.\par \par 20 Does that refresh your recollection\par \par 21 that you attended meetings of the --\par \par 22 A. Hold on for a minute. (Witness reviews\par \par \par \par \page\par \par \par \par \par 25501\par \par 1 the document.) Okay.\par \par 2 Q. Now, I would like to direct your\par \par 3 attention in that to Page 2 in the\par \par 4 next-to-the-last paragraph.\par \par 5 Do you see that?\par \par 6 A. Uh-huh. (Witness nods head\par \par 7 affirmatively.)\par \par 8 Q. It also talks about the new financing\par \par 9 subsidiary regulations and possible alternatives.\par \par 10 That paragraph which is for the minutes of the\par \par 11 executive committee of United Savings Association\par \par 12 of Texas is virtually identical to the second\par \par 13 paragraph on A1218, which is the minutes of the\par \par 14 executive committee of United Financial Group, is\par \par 15 it not?\par \par 16 A. Looks a lot alike, yes.\par \par 17 Q. And did the executive committee of UFG\par \par 18 meet jointly with the executive committee of USAT?\par \par 19 A. Sometimes. Sometimes.\par \par 20 Q. And did it do so at times that the\par \par 21 minutes reflect that two separate meetings\par \par 22 occurred?\par \par \par \par \page\par \par \par \par \par 25502\par \par 1 A. I don't remember if it was -- one of\par \par 2 you yesterday asked me about the membership of the\par \par 3 executive committees, and I think you showed that\par \par 4 they were virtually the same group. So, I\par \par 5 don't -- it wouldn't have surprised me if they\par \par 6 were meeting together or in series. And I don't\par \par 7 recall -- this is just an occasion where I see\par \par 8 there are two separate minutes. I don't know\par \par 9 whether that would happen frequently or\par \par 10 infrequently.\par \par 11 Q. Now I would like to direct your\par \par 12 attention to B690, which is at Tab 585.\par \par 13 A. (Witness reviews the document.)\par \par 14 Q. Have you seen this document before?\par \par 15 A. Well, it shows a copy to me. And so, I\par \par 16 suspect -- I have no reason to believe that at\par \par 17 some point I had not seen it.\par \par 18 Q. Have you reviewed this document\par \par 19 recently?\par \par 20 A. Have I reviewed it recently? No. I\par \par 21 don't recall reviewing this document.\par \par 22 Q. Have you reviewed any documents that\par \par \par \par \page\par \par \par \par \par 25503\par \par 1 were designated by the OTS as potential exhibits\par \par 2 to be used in your testimony by me in this case?\par \par 3 MR. VILLA: For the record, I don't\par \par 4 know that he knows the source of the documents\par \par 5 that we gave him; but they were most of the\par \par 6 documents that the OTS had designated. So, he was\par \par 7 just shown documents. I'm not sure he could\par \par 8 answer that question.\par \par 9 Q. (BY MR. GUIDO) You reviewed documents\par \par 10 before your testimony?\par \par 11 A. It depends on the definition. I flew\par \par 12 in the night before this, and I had a brief period\par \par 13 once before to take a quick look at some of those\par \par 14 documents.\par \par 15 Q. Okay. Now, take a look at Page 2 of\par \par 16 the document. It talks about USAT Mortgage\par \par 17 Finance.\par \par 18 Do you see that at the bottom of the\par \par 19 page?\par \par 20 A. (Witness reviews the document.)\par \par 21 Q. Does that refresh your recollection\par \par 22 about the creation of the subsidiary by USAT to\par \par \par \par \page\par \par \par \par \par 25504\par \par 1 buy $500 million worth of mortgage-backed\par \par 2 securities hedged with swaps?\par \par 3 A. Beyond -- in any meaningful way beyond\par \par 4 reading this paragraph right now, no.\par \par 5 Q. Okay. Let's take a look at\par \par 6 Exhibit B697, which is at Tab 1310.\par \par 7 A. Two pages?\par \par 8 Q. I have one page.\par \par 9 A. Okay.\par \par 10 Q. Do you see it indicates you as being a\par \par 11 recipient of that memorandum?\par \par 12 A. Yes, sir.\par \par 13 Q. Do you recall reviewing this document\par \par 14 before your testimony?\par \par 15 A. I'm not -- again, I don't know -- I\par \par 16 just don't know. Do you want me to read it?\par \par 17 Q. Do you recall ever seeing this\par \par 18 document?\par \par 19 A. I have no reason to believe I didn't,\par \par 20 but I don't remember it.\par \par 21 Q. Do you know why USAT Mortgage Finance\par \par 22 was dissolved?\par \par \par \par \page\par \par \par \par \par 25505\par \par 1 A. I have a vague recollection if -- as I\par \par 2 referred earlier, if this is the one -- and Jim\par \par 3 Pledger -- I think Jim Pledger had been the\par \par 4 general counsel and then became the Texas Savings\par \par 5 and Loan commissioner. If that's the -- if this\par \par 6 is the occasion, some expectation about\par \par 7 regulations referred to in this Pledger memo\par \par 8 turned out not to be the case. That's a very\par \par 9 vague -- I'm not sure that I'm even referring to\par \par 10 the right situation.\par \par 11 So, I probably should answer the\par \par 12 question, "No, I'm not certain."\par \par 13 Q. Now, I would like to direct your\par \par 14 attention to another area; and that is how the\par \par 15 mortgage-backed security portfolio was managed\par \par 16 by -- by USAT.\par \par 17 A. Okay.\par \par 18 Q. You testified that your understanding\par \par 19 was that the general purpose was -- your\par \par 20 understanding of the general purpose of the\par \par 21 portfolio is it would be a risk-controlled\par \par 22 arbitrage hedged with instruments such as swaps to\par \par \par \par \page\par \par \par \par \par 25506\par \par 1 generate an interest rate spread.\par \par 2 Do you recall that testimony?\par \par 3 A. I think you just summarized it better\par \par 4 than I did. That was basically my understanding.\par \par 5 Q. Basically your understanding of what\par \par 6 the mortgage-backed security portfolio was?\par \par 7 A. Yes.\par \par 8 Q. Did the mortgage-backed securities\par \par 9 portfolios end up operating that way?\par \par 10 MR. NICKENS: Your Honor, he just asked\par \par 11 the witness "portfolio"; and now he's asking a\par \par 12 question which I can barely hear where I believe\par \par 13 he said "portfolios." Now, this witness'\par \par 14 recollection of these events from a long time ago\par \par 15 is understandably vague. We have known from,\par \par 16 what, 103 days here that there were many\par \par 17 strategies involving mortgage-backed securities.\par \par 18 If Mr. Guido wants to focus on a\par \par 19 specific one and get the witness' recollection, we\par \par 20 have absolutely no problem with that. For him to\par \par 21 summarize a strategy and say "portfolio" and then\par \par 22 come back and say, I will say under his breath,\par \par \par \par \page\par \par \par \par \par 25507\par \par 1 "portfolios" is not a fair question.\par \par 2 THE COURT: All right. Restate it\par \par 3 so --\par \par 4 MR. KEETON: I want to join in that,\par \par 5 Your Honor; and I don't think it's unintentional\par \par 6 when he drops his voice.\par \par 7 Q. (BY MR. GUIDO) Mr. Munitz, do you have\par \par 8 any understanding of any mortgage-backed security\par \par 9 portfolios or portfolio at USAT that USAT didn't\par \par 10 attempt to reduce the interest rate risk in that\par \par 11 portfolio by the use of hedging instruments?\par \par 12 A. Well, I -- I don't even under the\par \par 13 question. So, I guess the answer is "no."\par \par 14 Q. You sat on the investment committee,\par \par 15 correct?\par \par 16 A. As I think I said earlier, I was not\par \par 17 there as one of the world's greatest experts on\par \par 18 these instruments. I was there to make sure the\par \par 19 people who were were acting in the best interests\par \par 20 of the institution.\par \par 21 Q. How were you able to ascertain whether\par \par 22 or not they were acting in the best interests of\par \par \par \par \page\par \par \par \par \par 25508\par \par 1 the institution?\par \par 2 A. Well, this is basically what I do for a\par \par 3 living, deal with people in my academic life who\par \par 4 know more than I do about virtually everything.\par \par 5 My task is to use my good judgment to be sure the\par \par 6 right issues are raised, that the rights experts\par \par 7 are there, that the right materials are studied,\par \par 8 and to make sure responsible expertise is brought\par \par 9 to bear. This is what I've been raised to do.\par \par 10 Q. Is one of your views of your role to\par \par 11 make sure that the proper policies are followed?\par \par 12 A. I don't monitor it all the time, but\par \par 13 one of my roles is to try to be sure that\par \par 14 appropriate policies are in place and that there\par \par 15 are people there whose job it is to monitor their\par \par 16 application.\par \par 17 Q. Was it your understanding at the time\par \par 18 that you were at USAT that sales out of a\par \par 19 mortgage-backed security risk-controlled arbitrage\par \par 20 for the purpose of generating accounting gains was\par \par 21 a proper function of a risk-controlled arbitrage\par \par 22 portfolio?\par \par \par \par \page\par \par \par \par \par 25509\par \par 1 A. Again, I don't -- I just don't know\par \par 2 enough at this point in time to answer that\par \par 3 question or even be certain that I understand the\par \par 4 technical nature of that question.\par \par 5 Q. So, you don't know what the distinction\par \par 6 is between managing a portfolio for purposes of\par \par 7 generating an interest rate spread and managing a\par \par 8 portfolio in order to generate accounting gains\par \par 9 through sales?\par \par 10 A. Well, I have a general sense of a\par \par 11 distinction between managing a portfolio for yield\par \par 12 and spread, managing a different kind of portfolio\par \par 13 for investment returns. I'm not sure about the\par \par 14 question about accounting gains because that --\par \par 15 being raised by a father who's an accountant, he's\par \par 16 taught me a long time ago not to throw that word\par \par 17 around. I'm not sure what that means.\par \par 18 I understand the distinction between\par \par 19 those two. And at least I thought I once\par \par 20 understood that in looking at earnings, sometimes\par \par 21 one acts in a way that looks like the other. I\par \par 22 just don't understand the specifics of the\par \par \par \par \page\par \par \par \par \par 25510\par \par 1 question.\par \par 2 Q. What is your understanding of the\par \par 3 distinction between those two portfolios?\par \par 4 A. My basic understanding of the\par \par 5 underlying distinction is that in one set of\par \par 6 activities, the basic objective is as close as one\par \par 7 can get to a managed -- "locked-in" is the phrase\par \par 8 that people used. I never believed that was a\par \par 9 scientific term myself. That you're managing one\par \par 10 portfolio for its yield spread income and thereby\par \par 11 bring certain accounting and regulatory\par \par 12 implications and that you're managing another kind\par \par 13 of portfolio for trading purposes or for\par \par 14 shorter-term activity purposes or because you're\par \par 15 planning to sell all or part of those pieces over\par \par 16 different periods of time and thereby bring very\par \par 17 different accounting and regulatory expectations.\par \par 18 Q. What is your understanding of the\par \par 19 purposes of the equity arbitrage portfolio that\par \par 20 was held at USAT?\par \par 21 A. My sense of the equity arbitrage\par \par 22 portfolio is that it tended to fall into the\par \par \par \par \page\par \par \par \par \par 25511\par \par 1 latter of those two categories. That's my memory\par \par 2 of it. I could be putting it in the wrong\par \par 3 category.\par \par 4 Q. What do you mean when you say "the\par \par 5 latter"?\par \par 6 A. The latter of my two was that the\par \par 7 equity arbitrage portfolio was more likely to be\par \par 8 managed with a shorter framework which might or\par \par 9 might not be matched to other instruments but that\par \par 10 was treated by accountants and by regulators\par \par 11 differently than the portfolio that would be\par \par 12 managed for fundamentally yield and spread\par \par 13 purposes, although trades may be made there, as\par \par 14 well. Those are the two roads I was trying to\par \par 15 describe.\par \par 16 Q. Now, with regard to the high-yield bond\par \par 17 portfolio, which of the two roads did you\par \par 18 understand that to be on?\par \par 19 A. As an amateur here and against my\par \par 20 better judgment, my instinct is -- and that is in\par \par 21 answering the question -- that it's more likely to\par \par 22 be in the -- that it's closer to the equity\par \par \par \par \page\par \par \par \par \par 25512\par \par 1 arbitrage than to the mortgage-backed securities.\par \par 2 Q. Okay.\par \par 3 A. I'm on thin ice of knowledge here.\par \par 4 Q. What about the mortgage-backed security\par \par 5 portfolio? What did you understand that to be in\par \par 6 terms of these two categories?\par \par 7 A. I think my earlier testimony was that\par \par 8 in terms of those two categories, that the\par \par 9 mortgage-backed security portfolio was much more\par \par 10 likely to be in the former of those two roads.\par \par 11 Q. Now, did there come a time at USAT\par \par 12 where its growth strategy wasn't generating\par \par 13 sufficient income to offset losses that were\par \par 14 embedded in its portfolio?\par \par 15 A. I'm not sure -- I'm not sure what "its\par \par 16 growth strategy" means.\par \par 17 Q. Well, let's go back to the wholesale\par \par 18 strategy. What was the purpose of the wholesale\par \par 19 strategy?\par \par 20 A. Well, again, I'm not -- you had\par \par 21 mentioned that earlier. I think I have a vague\par \par 22 sense of what the wholesale as against the retail\par \par \par \par \page\par \par \par \par \par 25513\par \par 1 contrast is. I don't think we've talked about\par \par 2 that. But my answer to your question basically\par \par 3 would be to make money.\par \par 4 Q. Well, why don't we start off with, I\par \par 5 guess, the questions that I didn't ask you. And\par \par 6 that is: What was the wholesale strategy, and how\par \par 7 did it differ from what you've just referred to as\par \par 8 the so-called retail strategy?\par \par 9 A. When I was joining the board and the --\par \par 10 in that '82, '3, '4 period that I discussed\par \par 11 yesterday with Mr. Rinaldi, basically the\par \par 12 activities of most savings and loans -- I think\par \par 13 fairly clearly Texas savings and loans -- were\par \par 14 dealing with branches and single-family\par \par 15 residential lending. And for a variety of\par \par 16 economic reasons somewhat vague to me now, those\par \par 17 strategies were not all that successful. And,\par \par 18 therefore, a lot of people to whom I was listening\par \par 19 were discussing more of a wholesale strategy\par \par 20 which, as I recall, dealt with a different\par \par 21 configuration of branches, a different\par \par 22 configuration of the way you brought money in, a\par \par \par \par \page\par \par \par \par \par 25514\par \par 1 somewhat different configuration of the way you\par \par 2 dealt with the housing market in terms of putting\par \par 3 money out, and other distinctions in business\par \par 4 strategy.\par \par 5 Q. And was one of the components of that\par \par 6 business strategy the sale of branches and to\par \par 7 depend more on wholesale deposits, the money desk,\par \par 8 to raise funds and to use the profits from the\par \par 9 branch sale to leverage up the growth of the\par \par 10 institution and invest those funds in\par \par 11 mortgage-backed securities, high-yield bonds, and\par \par 12 equity arbitrage?\par \par 13 A. Would you respectfully let me make\par \par 14 those two questions right where you paused?\par \par 15 Q. Sure.\par \par 16 A. It just might be easier for me to\par \par 17 answer your question.\par \par 18 I have a fairly clear recollection that\par \par 19 one of the strategies in that shift I was\par \par 20 describing engaged the sale or the merger or the\par \par 21 dispensation or the closing of a number of\par \par 22 branches. And as part of that, in the way money\par \par \par \par \page\par \par \par \par \par 25515\par \par 1 was coming in, to deal more with -- not\par \par 2 exclusively. There were regular deposits but also\par \par 3 more of a money desk deposit. It was kind of\par \par 4 answering the first of the two questions. Less\par \par 5 clear to me specifically about the linkage.\par \par 6 But in my recollection, the number of\par \par 7 things that you then went through in the second\par \par 8 part of the question or what I'm making the second\par \par 9 question were, yes, part of an overall pattern. I\par \par 10 just wasn't as sure about the -- you said\par \par 11 something about leveraging up or increasing size,\par \par 12 and I was trying to piece those apart. Sorry.\par \par 13 Q. Now -- but, essentially, what the\par \par 14 institution did around November of 1984 was to\par \par 15 make a decision to dispose of the branch sales, to\par \par 16 use those profits to increase its investments so\par \par 17 that there would be new investments that would\par \par 18 generate an income to offset the negative earnings\par \par 19 of the institution that existed at that time?\par \par 20 A. I'm only questioning the linkage you\par \par 21 made in terms of "use those profits." As I\par \par 22 recall -- I was fairly much involved in the\par \par \par \par \page\par \par \par \par \par 25516\par \par 1 aftermath of the branch sale and combination -- as\par \par 2 we were discussing yesterday, that came with the\par \par 3 merger. I was less involved with the sort of\par \par 4 arithmetic fiscal matters than I was with branches\par \par 5 and which people and what did it mean. The only\par \par 6 places I can't testify is whether one generated\par \par 7 profits and those moneys were then used for other\par \par 8 things. As to the broad shift in strategy, that's\par \par 9 consistent with what I recall.\par \par 10 Q. And that broad shift in strategy\par \par 11 included growing the institution to generate\par \par 12 additional earnings?\par \par 13 A. That's my recollection.\par \par 14 Q. And what were those additional earnings\par \par 15 to be used for?\par \par 16 A. Generating more additional earnings.\par \par 17 Q. Were they there to -- I mean, was the\par \par 18 increase -- was the growth designed to create an\par \par 19 income stream that would offset a pre-existing\par \par 20 negative income stream?\par \par 21 A. I hope so. I mean, it seems like a\par \par 22 reasonable -- yeah, I think so.\par \par \par \par \page\par \par \par \par \par 25517\par \par 1 Q. All right. And were some of the\par \par 2 investments that were made, in mortgage-backed\par \par 3 securities, high-yield corporate bonds and equity\par \par 4 arbitrage?\par \par 5 A. Were those some of the investments\par \par 6 made? Yes.\par \par 7 Q. And were those the primary investments\par \par 8 that were made?\par \par 9 A. Well, I only remember another of -- a\par \par 10 range of other kinds of investments, as well. So,\par \par 11 I just can't comment on primary. I don't remember\par \par 12 the mix of the numbers. I do remember that there\par \par 13 were other strategies.\par \par 14 Q. Did there come a point in time when you\par \par 15 recognized that the income stream from the growth\par \par 16 in the investments in the mortgage-backed\par \par 17 securities, high-yield bonds, and equity arbitrage\par \par 18 would not offset pre-existing losses?\par \par 19 A. My memory is that of the three items\par \par 20 you mentioned there in the second half of that\par \par 21 question, their income streams over different\par \par 22 periods of time were dramatically different. But\par \par \par \par \page\par \par \par \par \par 25518\par \par 1 I testified yesterday that all put together, at\par \par 2 some point the numbers for the entire institution\par \par 3 at the bottom line were getting worse.\par \par 4 Q. What do you mean? After the initiation\par \par 5 of the wholesale strategy?\par \par 6 A. Well, I was just talking about the time\par \par 7 period in which -- you asked me did I remember\par \par 8 what they were contributing to the revenue stream.\par \par 9 And what I was saying was at different times,\par \par 10 different of those pieces were making dramatic\par \par 11 contributions to the revenue stream. But that my\par \par 12 recollection is over that period of time of my\par \par 13 experience there, the overall revenue was going\par \par 14 down.\par \par 15 Q. I would like you to take a look at\par \par 16 Tab 867, which is A10645. I would like to direct\par \par 17 your attention to the first paragraph which\par \par 18 says -- where it talks about the non-operating\par \par 19 gains.\par \par 20 A. I haven't gotten through the whole\par \par 21 thing. It will just take too much time. Go\par \par 22 ahead.\par \par \par \par \page\par \par \par \par \par 25519\par \par 1 Q. See the first paragraph that talks\par \par 2 about "the non-operating gains will be necessary\par \par 3 to report profits for the third and fourth\par \par 4 quarters of 1986"?\par \par 5 A. Yes.\par \par 6 Q. Does this refresh your recollection of\par \par 7 when you became aware that the growth strategy was\par \par 8 not going to generate a net income spread\par \par 9 sufficient to offset the various items that were\par \par 10 generating a negative income spread?\par \par 11 A. If you mean when I first became aware,\par \par 12 no, because it's very possible that I was becoming\par \par 13 aware of that earlier than this. I'm showed a\par \par 14 copy of this memo, and it would have been an\par \par 15 update. But I'm not sure this was news to me.\par \par 16 Q. At least as of this date, June 23rd,\par \par 17 1986, you were aware of that fact?\par \par 18 A. Yes, sir.\par \par 19 Q. And the negative figures are set out in\par \par 20 that "net income contribution net of cost of\par \par 21 carry."\par \par 22 Do you see that?\par \par \par \par \page\par \par \par \par \par 25520\par \par 1 A. I do.\par \par 2 Q. Now, I would like to direct your\par \par 3 attention to another document which is dated\par \par 4 9/8/86. It's really two documents. Tab 335,\par \par 5 T4246, which is the strategic planning committee\par \par 6 notes of 9/8/86. And then there is the Tab 870,\par \par 7 which is the 9/15 Smith Breeden presentation at\par \par 8 A10660.\par \par 9 A. Do you want me to look at both?\par \par 10 Q. I would like you to look at both\par \par 11 documents. In fact, the first document, the\par \par 12 strategic planning committee notes which is the\par \par 13 Tab 335 document --\par \par 14 A. Okay. That one first?\par \par 15 Q. Take a look at that and flip into the\par \par 16 document to where it talks about the Smith Breeden\par \par 17 presentation.\par \par 18 A. Page?\par \par 19 Q. Let me get the page for you. Does\par \par 20 yours have the US Bates stamp numbers on the\par \par 21 right-hand --\par \par 22 A. I have underneath in the middle OW\par \par \par \par \page\par \par \par \par \par 25521\par \par 1 numbers and a T4246 on the top page.\par \par 2 Q. I think I have a different --\par \par 3 THE COURT: We'll take a short recess.\par \par 4 MR. GUIDO: Thank you, Your Honor.\par \par 5\par \par 6 (Whereupon, a short break was taken\par \par 7 from 10:35 a.m. to 11:00 a.m.)\par \par 8\par \par 9 THE COURT: Be seated, please. We'll\par \par 10 be back on the record.\par \par 11 Mr. Guido, you may continue.\par \par 12 MR. GUIDO: Thank you, Your Honor.\par \par 13 THE COURT: We were looking at T4246,\par \par 14 and the copy that I have doesn't have any imaging\par \par 15 numbers on it. So, when you're directing to a\par \par 16 particular paragraph, you'll have to use the\par \par 17 numbers on the document.\par \par 18 MR. GUIDO: Yes, Your Honor.\par \par 19 Q. (BY MR. GUIDO) I would like to direct\par \par 20 your attention to the next-to-the-last page of the\par \par 21 document.\par \par 22 A. Please tell me again, please, the\par \par \par \par \page\par \par \par \par \par 25522\par \par 1 number.\par \par 2 Q. Tab 335, T4246. It was the two\par \par 3 documents that I gave you together.\par \par 4 A. Give me a hand here. Thank you.\par \par 5 Sorry.\par \par 6 Q. Look at the next-to-the-last page. See\par \par 7 where it makes reference to Smith Breeden senior\par \par 8 management meeting, Monday, September 15th?\par \par 9 A. Yes, sir.\par \par 10 Q. Okay. Do you see who it has listed as\par \par 11 attending: Mr. Hurwitz, Mr. Gross, you, and then\par \par 12 other people?\par \par 13 A. Yes.\par \par 14 Q. Do you recall attending a presentation\par \par 15 by Smith Breeden?\par \par 16 A. I do -- I remember at least one\par \par 17 discussion with Smith Breeden, yes.\par \par 18 Q. All right. And was that shortly before\par \par 19 Sandy Laurenson's arrival at USAT?\par \par 20 A. Well, I can't -- I think it was roughly\par \par 21 in that same period of time. I don't remember the\par \par 22 specific sequence.\par \par \par \par \page\par \par \par \par \par 25523\par \par 1 Q. Okay. I would like to now direct your\par \par 2 attention to Tab 870, which is the second document\par \par 3 I showed you.\par \par 4 THE COURT: What number is that,\par \par 5 Mr. Guido?\par \par 6 MR. GUIDO: That is A10666, Your Honor.\par \par 7 That is the document that has been described as\par \par 8 the Smith Breeden presentation of September 15th,\par \par 9 1986, in the record, Your Honor.\par \par 10 THE COURT: Thank you.\par \par 11 A. I have the document.\par \par 12 Q. (BY MR. GUIDO) Now, I would like to\par \par 13 direct your attention to Page 20 -- Page 9 of the\par \par 14 document where it talks about recommendations.\par \par 15 A. Mr. Guido, mine is not very legible;\par \par 16 but I can make it out, I think.\par \par 17 Q. I'm sorry. I think that some of these\par \par 18 have been faxed and copied and copied and copied.\par \par 19 A. Yeah. I think we banned this\par \par 20 typewriter.\par \par 21 Q. We had a discussion about a similar\par \par 22 typewriter in your deposition, didn't we?\par \par \par \par \page\par \par \par \par \par 25524\par \par 1 A. We did.\par \par 2 Q. Now, see under "immediate strategies,"\par \par 3 it says, "Take gains on portfolio to offset\par \par 4 operating losses"?\par \par 5 A. Yes. The first bullet, yeah.\par \par 6 Q. Now, what portfolio was Smith Breeden\par \par 7 hired to take a look at for USAT?\par \par 8 A. I'm not -- I'm not sure that I\par \par 9 remember. I don't remember.\par \par 10 Q. Was Smith Breeden a consulting firm\par \par 11 that specialized in risk-controlled arbitrages?\par \par 12 A. I don't know -- I remember them as a\par \par 13 consulting firm that talked about fixed income\par \par 14 securities, I think, from the east coast. I think\par \par 15 so. I think so.\par \par 16 Q. You think that they --\par \par 17 A. That the answer to your question is\par \par 18 "yes." I think so.\par \par 19 Q. That they were -- I think you said that\par \par 20 they were specializing in fixed income securities?\par \par 21 A. I vaguely remember that was one of\par \par 22 their areas of expertise. I don't know what else\par \par \par \par \page\par \par \par \par \par 25525\par \par 1 they did.\par \par 2 Q. Were they hired to look at the\par \par 3 mortgage-backed securities portfolio, or were they\par \par 4 hired to look at the high-yield bond portfolio?\par \par 5 A. My only recollection was their coming\par \par 6 to talk about the overall strategy. So, I don't\par \par 7 know. I remember them only in terms of broader\par \par 8 strategy conversation.\par \par 9 Q. You don't remember them doing\par \par 10 evaluations of the mortgage-backed securities\par \par 11 portfolios?\par \par 12 A. I don't remember that.\par \par 13 Q. Okay. You don't recall them being\par \par 14 retained to provide advice on the mortgage-backed\par \par 15 security portfolios?\par \par 16 A. As I said, I recall -- I pretty clearly\par \par 17 recall them being retained to provide general\par \par 18 facilitation of strategy conversations. I just\par \par 19 don't remember the specific topics.\par \par 20 Q. Okay. So, you don't recall the\par \par 21 portfolio that they were asked to advise about?\par \par 22 A. I just don't know which specific\par \par \par \par \page\par \par \par \par \par 25526\par \par 1 portfolio that first bullet would have been\par \par 2 referring to. I don't remember that.\par \par 3 Q. Now, I would like to direct your\par \par 4 attention to another document, which is at\par \par 5 Tab 871, which is T4250. It's dated 9/22/86.\par \par 6 9/22/86, T4250.\par \par 7 A. Do I have that? Thank you.\par \par 8 Q. Do you see where it has you as a\par \par 9 recipient to this memorandum?\par \par 10 A. I do vaguely, yes.\par \par 11 Q. Now, this is one of the memoranda, I\par \par 12 think, that we discussed in your deposition about\par \par 13 how difficult they are to read.\par \par 14 Do you recall that?\par \par 15 A. If it wasn't, it should have been,\par \par 16 yeah.\par \par 17 Q. I think you referred to these as\par \par 18 hieroglyphics in your deposition.\par \par 19 Do you recall that?\par \par 20 A. I'll stand by that.\par \par 21 Q. Now, I would like to direct your\par \par 22 attention to the third page of the document.\par \par \par \par \page\par \par \par \par \par 25527\par \par 1 Do you see under "earnings and growth\par \par 2 strategy"?\par \par 3 A. No. 31?\par \par 4 Q. Yes.\par \par 5 A. I see that title.\par \par 6 Q. Do you see where it saws "our actual\par \par 7 net worth"? Do you see that bullet point?\par \par 8 A. No. Which is it?\par \par 9 Q. It's -- look at the one --\par \par 10 A. Which indent?\par \par 11 Q. Look at the first five indents.\par \par 12 A. Okay.\par \par 13 Q. Can you read them?\par \par 14 A. I can't. I can read a couple of them.\par \par 15 Q. Okay. Let me read them for you.\par \par 16 A. Thank you.\par \par 17 Q. First bullet point, "Prospects for\par \par 18 positive GAAP and RAP earnings are poor in\par \par 19 something '87. Our actual net worth will be the\par \par 20 same as or below recorded net worth at the end of\par \par 21 the third and fourth quarters unless action is\par \par 22 taken."\par \par \par \par \page\par \par \par \par \par 25528\par \par 1 A. Is it -- okay. Is that "reported" or\par \par 2 "required"? Okay. I guess it doesn't --\par \par 3 Q. "Required."\par \par 4 A. I thought mine said "required."\par \par 5 Q. "We will need earnings and good net\par \par 6 worth in the third quarter as we still will be\par \par 7 bargaining with the examiners and looking for a\par \par 8 capital note issue."\par \par 9 Do you see that?\par \par 10 A. Yes.\par \par 11 Q. Do you know what the reference to\par \par 12 bargaining with the examiners was?\par \par 13 A. No. It doesn't ring a bell.\par \par 14 Q. Do you know what the capital note issue\par \par 15 is that's being discussed here?\par \par 16 A. I know that -- I think I know that at\par \par 17 some point, there was an attempt to increase\par \par 18 capital via some sort of instrument. I don't know\par \par 19 if that's the one that he's referring to. I\par \par 20 believe at one point there was a conversation\par \par 21 about that.\par \par 22 Q. And who was the underwriter that USAT\par \par \par \par \page\par \par \par \par \par 25529\par \par 1 was discussing that capital note issue with?\par \par 2 A. This one referred to --\par \par 3 Q. Uh-huh.\par \par 4 A. -- the one that I -- I remember a\par \par 5 conversation about a capital note issue. I don't\par \par 6 remember if they had gone that -- I simply don't\par \par 7 remember who that would have been or if they knew\par \par 8 who that was. I don't --\par \par 9 Q. Then it says, "There is a strong case\par \par 10 for taking portfolio gains in the third quarter in\par \par 11 order to shore up reserves in the capital\par \par 12 position."\par \par 13 Do you see that?\par \par 14 A. I see that.\par \par 15 Q. And it says, "Third quarter results\par \par 16 need to be close to those forecast in the\par \par 17 regulatory business plan."\par \par 18 Do you see that?\par \par 19 A. I do.\par \par 20 Q. Now -- then I would like to direct your\par \par 21 attention to the next page to various bullet\par \par 22 points there, and I would like to -- five points\par \par \par \par \page\par \par \par \par \par 25530\par \par 1 up where it says, "Quarter end actions will be\par \par 2 considered next Monday."\par \par 3 You can't read that?\par \par 4 A. I'm having a hard time. I see it\par \par 5 basically.\par \par 6 Q. Let me read it for you.\par \par 7 A. Thank you.\par \par 8 Q. "Quarter end actions will be considered\par \par 9 next Monday. We should take all MBS and liquidity\par \par 10 portfolio gains, monitor equity arbitrage results,\par \par 11 alert Joe as to the possibility of taking junk\par \par 12 bond gains, and track the profit and capital\par \par 13 positions closely."\par \par 14 Do you see that?\par \par 15 A. With your reading that to me, yes.\par \par 16 Q. Now, do you recall that there -- you\par \par 17 had discussions in the latter part of 1986\par \par 18 regarding taking gains out of the mortgage-backed\par \par 19 security portfolio?\par \par 20 A. Well, again, having you read that to me\par \par 21 and seeing, as I had said earlier to you, the\par \par 22 strategic planning committee -- I don't know what\par \par \par \par \page\par \par \par \par \par 25531\par \par 1 this one is called. The strategic group, by\par \par 2 whatever name they called it that day, was a group\par \par 3 that would come together. It did not have\par \par 4 operating responsibility.\par \par 5 So, the bullets you read to me sound\par \par 6 like suggestions he thought we ought to consider.\par \par 7 I would not have been able to tell you the time,\par \par 8 but I have no reason to believe this -- the date\par \par 9 looks like December 22nd, nineteen something. And\par \par 10 somewhere in nineteen something, that would have\par \par 11 been the conversation.\par \par 12 Q. Now, what you're saying is that it's\par \par 13 your reading of this that this is Doug Hansen's\par \par 14 suggestions?\par \par 15 A. For conversation. That is not\par \par 16 necessarily -- Doug Hansen would not have been in\par \par 17 a position to direct the institution. I don't\par \par 18 remember seeing this. I was copied on it, and I\par \par 19 remember conversations like this. My point simply\par \par 20 was that his role would have been to lay out an\par \par 21 agenda: Here are issues we ought to be\par \par 22 discussing.\par \par \par \par \page\par \par \par \par \par 25532\par \par 1 Q. So, you're viewing this as an agenda\par \par 2 and not his recordation of what transpired at a\par \par 3 strategic management committee? Is that what\par \par 4 you're saying?\par \par 5 A. That's what I -- again, that's what I\par \par 6 assumed it was.\par \par 7 Q. Okay. So, that's the assumption you're\par \par 8 making?\par \par 9 A. That is my assumption.\par \par 10 Q. Do you have any basis for that other\par \par 11 than your reading of this document?\par \par 12 A. I'm not even capable of reading this\par \par 13 document. So, I'm trying my best here -- I'm just\par \par 14 going by how I normally assumed these meetings\par \par 15 would work. But no, I have no independent ability\par \par 16 to tell you specifically what this is.\par \par 17 Q. The -- I would like to direct your\par \par 18 attention to a document that is in the record at\par \par 19 567, which is T4251. It's a memo from Mike Crow\par \par 20 to Jenard Gross and Gerald Williams dated 9/23/86.\par \par 21 A. Okay.\par \par 22 Q. Now, this document is from Mike Crow,\par \par \par \par \page\par \par \par \par \par 25533\par \par 1 who was the chief financial officer. Right?\par \par 2 A. Yeah. I mean, that was -- that was the\par \par 3 Mike Crow who was there, yes.\par \par 4 Q. And it's dated September 23rd, and it\par \par 5 goes to Jenard Gross and Gerry Williams. Right?\par \par 6 A. Yes.\par \par 7 Q. Those are decision makers in the\par \par 8 institution, are they not?\par \par 9 A. They are.\par \par 10 Q. And this memorandum sets out estimate\par \par 11 of gains that will be needed for quarterly\par \par 12 earnings. Right?\par \par 13 A. Yes. That's what it --\par \par 14 Q. Okay. It sets out where those gains\par \par 15 can come from on Page 2. Right?\par \par 16 A. That's what it looks like, yes.\par \par 17 Q. Does that document reflect that there\par \par 18 were discussions to take gains out of the\par \par 19 high-yield bond and mortgage-backed securities\par \par 20 portfolio to bolster quarterly profits?\par \par 21 MR. VILLA: Objection, Your Honor. I\par \par 22 don't understand the question. Ordinarily, you\par \par \par \par \page\par \par \par \par \par 25534\par \par 1 ask a question to a witness about a document that\par \par 2 was sent to him. I don't know whether he's asking\par \par 3 whether these people had discussions about this\par \par 4 issue. So, I think it's deliberately an ambiguous\par \par 5 question because he knows that the document wasn't\par \par 6 sent to the witness. I object because it is\par \par 7 ambiguous.\par \par 8 MR. GUIDO: I am sorry, Your Honor. It\par \par 9 is ambiguous, and I misstated it.\par \par 10 Q. (BY MR. GUIDO) Does this refresh your\par \par 11 recollection that around September of 1986,\par \par 12 discussions were being held about taking gains out\par \par 13 of the high-yield bond and mortgage-backed\par \par 14 securities portfolio to bolster quarterly profits?\par \par 15 A. I can't comment on more than what this\par \par 16 seems to say to me. And, again, I haven't looked\par \par 17 at it carefully. I don't see -- I don't see the\par \par 18 phrase "high-yield." I see junk bonds here. I\par \par 19 see mortgage-backed securities, but I don't know\par \par 20 which -- as you pointed out earlier, or I did, we\par \par 21 had all different kinds of mortgage-backed\par \par 22 securities. I don't see anything about "bolster."\par \par \par \par \page\par \par \par \par \par 25535\par \par 1 I mean, the cover note says, "The attached\par \par 2 schedule presents our best estimate of gains that\par \par 3 will be needed for quarterly earnings." That's\par \par 4 the kind of note I'm used to seeing on every board\par \par 5 on which I ever served. I don't know that it says\par \par 6 anything more to me than what it says.\par \par 7 Q. Fine. Take a look at two documents:\par \par 8 Tab 358, which is at A1417, and Tab 566, which is\par \par 9 at T4302.\par \par 10 A. Thank you. The first one?\par \par 11 Q. Take a look at Tab 348, A1417.\par \par 12 A. (Witness reviews the document.)\par \par 13 MR. NICKENS: 348 or 358?\par \par 14 MR. GUIDO: I think it's Tab 348.\par \par 15 MR. NICKENS: Is this it?\par \par 16 MR. GUIDO: Yeah, A1427.\par \par 17 MR. NICKENS: You're going to drive us\par \par 18 crazy.\par \par 19 MR. GUIDO: You're going to drive me\par \par 20 crazy. It's A1417.\par \par 21 A. I don't have a -- do I have --\par \par 22 Q. (BY MR. GUIDO) Hold on one second.\par \par \par \par \page\par \par \par \par \par 25536\par \par 1 A. Okay.\par \par 2 Q. Do you have A1417?\par \par 3 A. I have now A1417.\par \par 4 Q. Now, does that show you in attendance\par \par 5 at that meeting?\par \par 6 A. It doesn't show me -- it doesn't\par \par 7 mention my name, but I'm assuming since it was --\par \par 8 which probably is not even a good assumption as I\par \par 9 mentioned to you earlier. It doesn't show me in\par \par 10 attendance, but it's prior to the note that showed\par \par 11 when I left the committee.\par \par 12 Q. Does it show all members in attendance?\par \par 13 A. Yes. They sometimes didn't keep track\par \par 14 of me because -- I have no reason to believe I\par \par 15 wasn't there.\par \par 16 Q. Did that make mention to the\par \par 17 discussions regarding the sales of high-yield\par \par 18 bonds to generate gains?\par \par 19 A. If you ask me that question, you're\par \par 20 going to have to let me read it.\par \par 21 Q. Look at the paragraphs that make\par \par 22 reference --\par \par \par \par \page\par \par \par \par \par 25537\par \par 1 A. I don't know which paragraphs those\par \par 2 are.\par \par 3 Q. I'm sorry. Go ahead. Go ahead and\par \par 4 read the document.\par \par 5 A. Okay. (Witness reviews the document.)\par \par 6 I have read the two pages.\par \par 7 Q. Does it make any reference to the\par \par 8 identification of high-yield bonds to be sold to\par \par 9 generate gains?\par \par 10 A. "Mr. Huebsch and Mr. Walt Stabell\par \par 11 discussed the high-yield bond portfolio. A report\par \par 12 was prepared by Mr. Huebsch and ordered attached\par \par 13 to the minutes of the meeting."\par \par 14 Are you asking me to read that report?\par \par 15 Q. Does the report make any mention of\par \par 16 sales to generate gains?\par \par 17 A. I have no idea. Do you want me to read\par \par 18 it?\par \par 19 Q. Is it attached to the minutes?\par \par 20 A. I have about 10 pages attached to this.\par \par 21 Are you asking me to read this attachment?\par \par 22 Q. No. We'll let the attachment speak for\par \par \par \par \page\par \par \par \par \par 25538\par \par 1 itself.\par \par 2 A. How?\par \par 3 Q. You were in attendance at this meeting?\par \par 4 A. Well, it doesn't mention my name. I\par \par 5 tended to be at investment committee meetings\par \par 6 before I specifically left the committee; so, I'm\par \par 7 assuming that I was there.\par \par 8 Q. Now, take a look at the next document\par \par 9 that I showed you, which is at Tab 566 which is\par \par 10 T4302. That makes reference to investment\par \par 11 committee meetings, does it not?\par \par 12 A. Well, hold on. (Witness reviews the\par \par 13 document.) Okay. I've looked at the single --\par \par 14 Q. I think you may have multiple copies of\par \par 15 the --\par \par 16 A. I have multiple copies of this memo.\par \par 17 It must be important.\par \par 18 Q. Does that make reference to the sale of\par \par 19 high-yield bonds to generate gains?\par \par 20 A. Yes.\par \par 21 Q. Okay.\par \par 22 A. Well, quarterly earnings, yeah.\par \par \par \par \page\par \par \par \par \par 25539\par \par 1 Q. What is the significance of quarterly\par \par 2 earnings for gains, Dr. Munitz?\par \par 3 A. I don't see the gains. The\par \par 4 significance of quarterly earnings is that it\par \par 5 would be standard practice to talk about, in any\par \par 6 company, an earnings pattern. I'm assuming that\par \par 7 that would have -- I may be missing something. I\par \par 8 don't know what the significance of quarterly\par \par 9 earnings is other than quarterly earnings. This\par \par 10 is something you would talk about all the time.\par \par 11 Q. Quarterly earnings are earnings that\par \par 12 are reported by the company publicly if it's a\par \par 13 publicly traded company. Right?\par \par 14 A. Usually quarterly.\par \par 15 Q. And if it's an insured depository\par \par 16 institution, it's within the thrift financial\par \par 17 reports, is it not?\par \par 18 A. Again, I would have assumed quarterly\par \par 19 earnings, in my sense of quarterly earnings, are\par \par 20 discussed and reported wherever one would\par \par 21 appropriately do so.\par \par 22 Q. Well, is there any special significance\par \par \par \par \page\par \par \par \par \par 25540\par \par 1 to quarterly profits as opposed to monthly\par \par 2 profits, for example?\par \par 3 A. Well, there are some filings at some\par \par 4 types of institutions that have a formal, legal\par \par 5 quarterly requirement.\par \par 6 Q. Okay. Thank you.\par \par 7 I would like -- does that document\par \par 8 refresh your recollection that the institution,\par \par 9 USAT, was making sales out of its high-yield bond\par \par 10 and mortgage-backed securities portfolios to\par \par 11 bolster quarterly profits?\par \par 12 A. Again, the -- in the combination of the\par \par 13 documents that you have shown to me, I've read\par \par 14 what it says, that there were -- I don't know\par \par 15 about bolster. There were discussions about\par \par 16 quarterly earnings, and different strategies were\par \par 17 used at different quarters to generate those\par \par 18 earnings. That's what I recall.\par \par 19 Q. But there were discussions to look at\par \par 20 various portfolios to ascertain whether or not\par \par 21 there were gains that could be realized to bolster\par \par 22 quarterly profits?\par \par \par \par \page\par \par \par \par \par 25541\par \par 1 A. Yes.\par \par 2 Q. Is that fair?\par \par 3 A. Yeah.\par \par 4 Q. Now, did you ever raise any questions\par \par 5 about whether or not that was appropriate in the\par \par 6 risk-controlled arbitrage mortgage-backed\par \par 7 securities portfolios?\par \par 8 A. Did I personally?\par \par 9 Q. Uh-huh.\par \par 10 A. I don't know. I --\par \par 11 Q. Okay.\par \par 12 A. I have no memory of whether I would\par \par 13 have or not.\par \par 14 Q. Okay. Now, let's go to Tab 544 at\par \par 15 A1407, which is the investment committee minutes\par \par 16 of 9/3/1986.\par \par 17 A. Thank you.\par \par 18 Q. This document shows that all members of\par \par 19 the committee were present.\par \par 20 Do you see that?\par \par 21 A. I do.\par \par 22 Q. Now, I would like to direct your\par \par \par \par \page\par \par \par \par \par 25542\par \par 1 attention to Page 2, the first four paragraphs on\par \par 2 Page 2 of that. The page starts, "Mr. Phillips\par \par 3 then discussed the association's mortgage-backed\par \par 4 securities portfolio."\par \par 5 A. Uh-huh. (Witness nods head\par \par 6 affirmatively.) I've read those four paragraphs.\par \par 7 Q. Now, do you know what the reference to\par \par 8 value trades was in that first paragraph?\par \par 9 A. Which paragraph?\par \par 10 Q. The first paragraph makes reference to\par \par 11 value trades.\par \par 12 A. Okay. Boy, I might have at some point;\par \par 13 but I -- I don't now know what that means. I\par \par 14 don't know.\par \par 15 Q. Do you know what the reference to the\par \par 16 committee is that's mentioned there in that\par \par 17 paragraph?\par \par 18 A. Other than what it says there, I don't\par \par 19 know anything further. I don't recall anything\par \par 20 further about that now.\par \par 21 Q. You don't recall the creation of a\par \par 22 subcommittee for trading purposes at USAT in its\par \par \par \par \page\par \par \par \par \par 25543\par \par 1 mortgage-backed security portfolio?\par \par 2 A. There is some -- when you say that, I\par \par 3 have some vague recollection; but it probably more\par \par 4 than anything has just been formed by your having\par \par 5 me read this sentence. I don't have any separate\par \par 6 recollection of that detail.\par \par 7 Q. Let's take a look at the fourth\par \par 8 paragraph there, now, for another topic. It says,\par \par 9 "The committee then discussed at length the\par \par 10 concept of a total return versus a yield\par \par 11 portfolio."\par \par 12 A. I see that sentence.\par \par 13 Q. Do you recall having a discussion about\par \par 14 the distinction between a total return and a yield\par \par 15 portfolio?\par \par 16 A. If I was -- if I was there and if they\par \par 17 had it and if I had a sense of that distinction,\par \par 18 it's not one that I could talk thoughtfully about\par \par 19 now.\par \par 20 Q. Well, you talked about a portfolio that\par \par 21 was managed to generate a net interest spread, did\par \par 22 you not, in your testimony earlier today?\par \par \par \par \page\par \par \par \par \par 25544\par \par 1 A. I believe earlier today I referred to\par \par 2 assuming that the underlying assumption of that\par \par 3 activity was to manage a spread.\par \par 4 Q. How does that distinguish from a total\par \par 5 return portfolio? Do you know?\par \par 6 A. I'm not sure that I do.\par \par 7 Q. Do you see the reference in the second\par \par 8 paragraph to Smith Breeden making a presentation?\par \par 9 A. Yes.\par \par 10 Q. When Smith Breeden was hired by USAT,\par \par 11 it, one, made a presentation as referred to in\par \par 12 this paragraph. And I think I showed you some\par \par 13 earlier documents. Right?\par \par 14 A. Yes.\par \par 15 Q. Here it makes reference to\par \par 16 mortgage-backed securities. Do you see that in\par \par 17 the first paragraph, "being managed by a committee\par \par 18 consisting of Mr. Phillips, Mr. Crow, Hansen, and\par \par 19 Bruce Williams with the advice and consent of\par \par 20 Smith Breeden"?\par \par 21 A. Yeah. Yeah.\par \par 22 Q. Does that refresh your recollection\par \par \par \par \page\par \par \par \par \par 25545\par \par 1 that Smith Breeden was hired to advise USAT on its\par \par 2 mortgage-backed securities portfolio?\par \par 3 A. Only in the sense that it says that. I\par \par 4 have no reason to question whether that -- it\par \par 5 seems right. I don't know.\par \par 6 Q. You don't have any independent\par \par 7 recollection?\par \par 8 A. Not beyond what we were saying a little\par \par 9 while ago.\par \par 10 Q. Now, I would like to direct your\par \par 11 attention to Tab 379, which is B1212. This is a\par \par 12 memo from Doug Hansen to Mike Crow, Joe Phillips,\par \par 13 and Bruce Williams regarding the mortgage-backed\par \par 14 security trading committee. And at the same time,\par \par 15 I would like you to take a look at Tab 380, which\par \par 16 is A1409.\par \par 17 A. You mean you want me to do that next?\par \par 18 This one first and then this one?\par \par 19 Q. The two of them.\par \par 20 A. Okay. (Witness reviews the document.)\par \par 21 Q. Now --\par \par 22 A. Whoa, whoa. I haven't even gotten\par \par \par \par \page\par \par \par \par \par 25546\par \par 1 through the first page. (Witness reviews the\par \par 2 document.) Okay. I've read the first one. Let\par \par 3 me -- (witness reviews the document.)\par \par 4 Q. Now, I've given you 3080, A1409,\par \par 5 because of your comment that there were meetings\par \par 6 that you were not in attendance at. And I'm going\par \par 7 to ask you some questions about the subcommittee,\par \par 8 the mortgage-backed security trading committee, a\par \par 9 point made there and a point that is made in the\par \par 10 investment committee minutes. And I want to probe\par \par 11 your recollection of certain matters.\par \par 12 A. Okay. Now, again, I haven't had a\par \par 13 chance to look at this. But the only thing to\par \par 14 your point, 1409 indicates that I was not there.\par \par 15 Q. That's correct. I've just given you\par \par 16 the document to make the record clear.\par \par 17 A. I'm sorry. You said probe your\par \par 18 recollection.\par \par 19 Q. I understand.\par \par 20 A. So, I've not looked at -- I have not\par \par 21 looked at this one then.\par \par 22 Q. That's fine.\par \par \par \par \page\par \par \par \par \par 25547\par \par 1 A. Got it.\par \par 2 Q. That's fine. I'm just giving you both\par \par 3 of these documents because there's some paragraphs\par \par 4 in there that I want to direct you to to probe\par \par 5 your recollection of matters.\par \par 6 A. Not of the meeting that I wasn't --\par \par 7 Q. Not of the meeting. Certain topics\par \par 8 that were discussed at those meetings. The first\par \par 9 document that I want to direct your attention to\par \par 10 is B1212.\par \par 11 A. Okay.\par \par 12 Q. And that is to look at the last -- the\par \par 13 last two paragraphs of B1212 on Page 1.\par \par 14 A. This is -- again, this is also a\par \par 15 meeting at which I was not, so --\par \par 16 Q. That is correct.\par \par 17 A. All right. (Witness reviews the\par \par 18 document.) Okay.\par \par 19 Q. Okay.\par \par 20 A. I've looked at those two paragraphs.\par \par 21 Q. Now, do you recall that there was a\par \par 22 change in how USAT was required to account for\par \par \par \par \page\par \par \par \par \par 25548\par \par 1 gains on sales of its mortgage-backed security\par \par 2 portfolio?\par \par 3 A. Looking at these two paragraphs, it\par \par 4 jogs a recollection; and I think it's the\par \par 5 reference in the second -- I guess the first\par \par 6 sentence of the last paragraph that with the new\par \par 7 accounting treatment, gains and losses on trades\par \par 8 are recognized immediately.\par \par 9 Q. Right.\par \par 10 A. So, I'm assuming that means that with\par \par 11 the old accounting treatment, they weren't\par \par 12 necessarily recognized immediately.\par \par 13 Q. Do you recall that there was a change\par \par 14 in the accounting treatment?\par \par 15 A. I vaguely recollect some -- and I don't\par \par 16 know whether it's attached to that one. I recall\par \par 17 some change in accounting, one of which was\par \par 18 accompanied by some complex conversation inside\par \par 19 Peat Marwick. But I don't know if this is the\par \par 20 one. So, I have a vague recollection of a change\par \par 21 in accounting treatment.\par \par 22 Q. Now, do you -- it also says that "with\par \par \par \par \page\par \par \par \par \par 25549\par \par 1 the tradeoff, with the change," okay --\par \par 2 A. There is a tradeoff. Is that what\par \par 3 you're saying?\par \par 4 Q. See where it says there is a tradeoff?\par \par 5 A. I see that.\par \par 6 Q. Do you recall that there was a\par \par 7 discussion about the tradeoff between one-time\par \par 8 earnings gains or losses and changes in the\par \par 9 recurring net interest margin subsequent to the\par \par 10 accounting change?\par \par 11 A. I don't -- I don't have any useful\par \par 12 sense right now of that level of detail, no, sir.\par \par 13 Q. Now -- so, you don't know whether or\par \par 14 not there was a discussion about the impact of\par \par 15 taking one-time earnings gains as opposed to the\par \par 16 recurring net interest margin at USAT?\par \par 17 A. If there ever was a -- I'm sorry. Can\par \par 18 you read me that -- can somebody read me that\par \par 19 question again?\par \par 20 Q. I'll rephrase the question for you.\par \par 21 A. Okay.\par \par 22 Q. You don't recall any discussions on the\par \par \par \par \page\par \par \par \par \par 25550\par \par 1 significance of one-time earnings gains as a\par \par 2 tradeoff to the impact on recurring net interest\par \par 3 margins?\par \par 4 A. Any discussions anywhere at any time?\par \par 5 Q. With regard to the mortgage-backed\par \par 6 securities portfolios.\par \par 7 A. Not related to these two -- I recall\par \par 8 vaguely --\par \par 9 Q. At or about September --\par \par 10 A. Between the board, the strategic\par \par 11 planning group, management people, I have a sense\par \par 12 that there were regular discussions about\par \par 13 strategic choices, interest rate implications,\par \par 14 some of the issues mentioned here.\par \par 15 Q. Well, in -- from September through\par \par 16 December of 1986, were sales made out of the\par \par 17 mortgage-backed security portfolio at USAT to\par \par 18 generate quarterly profits?\par \par 19 A. I don't know.\par \par 20 Q. You don't know? You don't have any\par \par 21 recollection?\par \par 22 A. You're asking me about a period -- I\par \par \par \par \page\par \par \par \par \par 25551\par \par 1 don't know. I mean, those are days 12 years ago\par \par 2 on specifics that weren't my responsibility\par \par 3 directly; and so, I don't know.\par \par 4 Q. Okay. But you did participate in the\par \par 5 creation of the investment committee. You sat in\par \par 6 on the investment committee?\par \par 7 A. Well, you showed -- you just showed me\par \par 8 an item which you didn't get me through past, for\par \par 9 me, the most relevant paragraph, which is the one\par \par 10 saying that on September 18th, there was an\par \par 11 investment committee meeting at which I was not\par \par 12 present.\par \par 13 Q. All right. Let's move on to another\par \par 14 set of documents. Let's look at Tab 353, which is\par \par 15 A1422. This is the 12/15/86 investment committee\par \par 16 minutes.\par \par 17 A. (Witness reviews the document.)\par \par 18 Q. Now, the text in the first paragraph\par \par 19 says, "A joint meeting of the investment committee\par \par 20 of UFG and USAT was held on December 15th, '86,\par \par 21 and all members of the committee were present."\par \par 22 You were a member of the committee at\par \par \par \par \page\par \par \par \par \par 25552\par \par 1 this time, were you not?\par \par 2 A. I was.\par \par 3 Q. Now, do you see further down it says,\par \par 4 "Ms. Sandy Laurenson then presented a review of\par \par 5 the mortgage-backed security portfolio"?\par \par 6 A. Yes.\par \par 7 Q. Now I would like to direct your\par \par 8 attention to a document -- mine has -- do you have\par \par 9 US Bates stamp numbers on the right-hand corner at\par \par 10 the bottom?\par \par 11 A. Yes. They are sort of vague. The top\par \par 12 one is US305150.\par \par 13 Q. Go to 5157.\par \par 14 A. Okay.\par \par 15 Q. That's the third page of what has been\par \par 16 testified to as Sandy Laurenson's report to the\par \par 17 committee.\par \par 18 A. Okay.\par \par 19 Q. Do you recall receiving such reports,\par \par 20 seeing reports like this?\par \par 21 A. Vaguely, yes.\par \par 22 Q. Where Sandy Laurenson reported on the\par \par \par \par \page\par \par \par \par \par 25553\par \par 1 activities of the previous week in the\par \par 2 mortgage-backed security portfolios. Right?\par \par 3 A. This seems familiar.\par \par 4 Q. Now, do you know what any of those\par \par 5 columns refer to there? Do you see the column\par \par 6 that says "portfolio"?\par \par 7 A. Yes.\par \par 8 Q. See where it says "investment"?\par \par 9 A. Yes.\par \par 10 Q. Do you know what that refers to?\par \par 11 A. I'm assuming it refers to the list of\par \par 12 in the next column.\par \par 13 Q. The MBS is in the next column. Do you\par \par 14 know the significance of the characterization\par \par 15 "investment"?\par \par 16 A. No.\par \par 17 Q. Do you see the column headed "MBSs"?\par \par 18 Do those appear to be descriptions of securities?\par \par 19 A. Some of them seem familiar under the\par \par 20 column of MBSs, mortgage-backed securities; and it\par \par 21 looks to be a list of mortgage-backed securities.\par \par 22 Q. Do you know what this -- the next\par \par \par \par \page\par \par \par \par \par 25554\par \par 1 column is referring to where it says "principal"\par \par 2 where it has parens and then it has numbers that\par \par 3 are not in parens?\par \par 4 A. No.\par \par 5 Q. Do you know what the column "swap and\par \par 6 gain" refers to?\par \par 7 A. No.\par \par 8 Q. Do you know what market yield refers to\par \par 9 in parens?\par \par 10 A. No.\par \par 11 Q. Did you ever know?\par \par 12 A. The only thing I can say with a fair\par \par 13 degree of confidence is that I probably knew more\par \par 14 than I know right now.\par \par 15 Q. Do you see the column that says\par \par 16 "accounting" and the dollar sign?\par \par 17 A. Yes.\par \par 18 Q. Do you know what that refers to?\par \par 19 A. Specifically in this context, no.\par \par 20 Q. Do you know what the turnover was in\par \par 21 the mortgage-backed security portfolio from\par \par 22 September through December of 1986?\par \par \par \par \page\par \par \par \par \par 25555\par \par 1 A. No.\par \par 2 Q. Did you ever know?\par \par 3 A. I don't know.\par \par 4 Q. I would like to direct your attention\par \par 5 to another document which is Tab 354, which is\par \par 6 A1423. This is one of those meetings where you\par \par 7 were not in attendance again; and so, I will skip\par \par 8 this and move to another -- another meeting.\par \par 9 And that is -- I would like to direct\par \par 10 your attention to the investment committee minutes\par \par 11 of January 21, 1987, which is at A1426, Tab 357.\par \par 12 This document says all members of the committee\par \par 13 were present.\par \par 14 Do you see that?\par \par 15 A. I do. I'm assuming it's in the period\par \par 16 before I officially departed, yes.\par \par 17 Q. Now, I would like to direct your\par \par 18 attention to -- yours has US3 Bates stamp numbers\par \par 19 starting with 5220 on the first page?\par \par 20 A. Yeah, uh-huh.\par \par 21 Q. Look at 5226.\par \par 22 A. Is that this?\par \par \par \par \page\par \par \par \par \par 25556\par \par 1 Q. Right, which is the difficult font\par \par 2 again.\par \par 3 A. Can you read this?\par \par 4 Q. I can read some of it.\par \par 5 Do you see in the left-hand corner, it\par \par 6 says, "MBS settled portfolio January 20, 1987"?\par \par 7 A. I don't, but if you -- is that in the\par \par 8 top upper left?\par \par 9 Q. Top upper left.\par \par 10 A. I see "settled portfolio." I can't --\par \par 11 well, I'll -- if you can tell me that's what it\par \par 12 says, that's fine.\par \par 13 Q. Looking at this document and looking at\par \par 14 the agency -- see the column "agencies"? Is that\par \par 15 referring to mortgage-backed securities?\par \par 16 A. I can't see it.\par \par 17 Q. The second column?\par \par 18 A. Okay. That says "agency."\par \par 19 Q. Do you see that?\par \par 20 A. I do now.\par \par 21 Q. Looking down that column, isn't that\par \par 22 describing mortgage-backed securities?\par \par \par \par \page\par \par \par \par \par 25557\par \par 1 A. I don't know.\par \par 2 Q. Okay. You don't know.\par \par 3 Look at the next page, which is\par \par 4 US35227. Do you see the term at the very top in\par \par 5 the middle that says "sales"?\par \par 6 A. I see that word, yes.\par \par 7 Q. Look over in the left-hand column. Do\par \par 8 you see where it says "investment," under\par \par 9 "portfolio," the far left-hand column? See "INVST\par \par 10 period"?\par \par 11 A. Yes.\par \par 12 Q. Look at the dollar amounts in the third\par \par 13 column under "total investments."\par \par 14 Do you see that?\par \par 15 A. My third column over says something\par \par 16 like "premium" or "discount."\par \par 17 Q. I'm sorry. Starting -- the first\par \par 18 column being the word "investment" at the top.\par \par 19 Then you have the description of the security,\par \par 20 agency. Okay?\par \par 21 A. Whatever, yes.\par \par 22 Q. And then the third says "face." Do you\par \par \par \par \page\par \par \par \par \par 25558\par \par 1 see that?\par \par 2 A. Yes.\par \par 3 Q. And do you see down at the bottom --\par \par 4 this is in thousands. It says 1,018,589,000.\par \par 5 Do you see that?\par \par 6 A. I do.\par \par 7 Q. That shows sales. Then look at the\par \par 8 next page. It's US352218 which at the top says\par \par 9 "purchases."\par \par 10 Do you see that?\par \par 11 A. Yes.\par \par 12 Q. Do you see under -- look at the portion\par \par 13 that deals with "INVST" again.\par \par 14 Do you see that?\par \par 15 A. Yes.\par \par 16 Q. It shows under the face amount for\par \par 17 total investments on this page 591,475,000?\par \par 18 A. I can't read the number, but I see a\par \par 19 number.\par \par 20 Q. Now -- in the period September through\par \par 21 December of 1986, do you have any idea what the\par \par 22 magnitude of the turnover was for the\par \par \par \par \page\par \par \par \par \par 25559\par \par 1 mortgage-backed security investment portfolio at\par \par 2 USAT?\par \par 3 A. No.\par \par 4 Q. This doesn't refresh your recollection?\par \par 5 A. No. I don't begin to understand what\par \par 6 this says.\par \par 7 Q. Okay. Let's turn to another page in\par \par 8 the document. It's 5224. See under the\par \par 9 sensitivity analysis, that paragraph?\par \par 10 A. I see that, uh-huh.\par \par 11 Q. See where it says the MBS portfolio\par \par 12 when combined with the interest rate swaps are\par \par 13 favorably positioned for further rate declines?\par \par 14 A. I see that sentence.\par \par 15 Q. Now, do you know what the phrase\par \par 16 "favorably positioned for further rate declines"\par \par 17 refers to?\par \par 18 A. No.\par \par 19 Q. Do you know what it means to have a\par \par 20 portfolio that's favorably positioned for interest\par \par 21 rate declines?\par \par 22 A. I don't know -- I've heard different\par \par \par \par \page\par \par \par \par \par 25560\par \par 1 conversations about interest rate impact on\par \par 2 portfolios, but I don't know what the phrase\par \par 3 "favorably positioned" means.\par \par 4 Q. I would like to direct your attention\par \par 5 to the Bates stamp 5225, which is the second page,\par \par 6 the page following the one that has the "favorably\par \par 7 positioned for interest rate declines."\par \par 8 Do you see where it says "liquidation\par \par 9 value, MBS portfolio"?\par \par 10 A. Yes.\par \par 11 Q. Now, see where it has the column\par \par 12 "yields unchanged"?\par \par 13 A. "Yields unchanged."\par \par 14 Q. And yields up 100 basis points and\par \par 15 yields down 100 basis points?\par \par 16 A. Yes.\par \par 17 Q. Do you know what this chart is\par \par 18 referring to?\par \par 19 A. Other than what it -- I don't know\par \par 20 anything more than what it says.\par \par 21 Q. Well, what does it say to you?\par \par 22 A. It seems to be a description of the\par \par \par \par \page\par \par \par \par \par 25561\par \par 1 liquidation value of some mortgage-backed security\par \par 2 portfolio as of -- or dated January 1 --\par \par 3 January 21, 1987. It shows different kinds of\par \par 4 mortgage-backed securities, residuals, and\par \par 5 something above residuals. I don't know what that\par \par 6 is.\par \par 7 Q. Well, do you know what the column\par \par 8 "yields unchanged, yields up 100 basis points,\par \par 9 yields down 100 basis points" refers to?\par \par 10 A. I'm assuming it refers to interest\par \par 11 rates.\par \par 12 Q. Changes in interest rates, Mr. Munitz?\par \par 13 A. I don't know that. I mean, they are\par \par 14 all -- I mean, yields -- I don't know whether it\par \par 15 means changes in interest rates or changes in\par \par 16 yields. That is, if the yield -- that column says\par \par 17 what happens if yields are down 100 basis points.\par \par 18 I don't see any reference to interest rates.\par \par 19 Maybe I made a bad assumption. Maybe it's more\par \par 20 about what happens if yields go up and down 100\par \par 21 basis points, not interest rates.\par \par 22 Q. You mean yield on the portfolio, the\par \par \par \par \page\par \par \par \par \par 25562\par \par 1 mortgage-backed security portfolio? Is that what\par \par 2 you're saying?\par \par 3 A. Well, I don't know because there's -- I\par \par 4 mean, as I said, I don't know what these bottom\par \par 5 pieces are. So, I don't know whether that\par \par 6 includes all the pieces or whether this is an\par \par 7 analysis of changing yield patterns for some\par \par 8 mortgage-backed security portfolio.\par \par 9 Q. Did you ever know?\par \par 10 A. As I said earlier, I probably knew more\par \par 11 about this sitting there and hearing people\par \par 12 describe and explain it 11 and a half years ago\par \par 13 than I know about it right now.\par \par 14 Q. So, we would have to rely on the\par \par 15 testimony of the people who have testified who\par \par 16 managed that portfolio for the meaning of that\par \par 17 chart that says "liquidation analysis"?\par \par 18 A. I don't know how to -- I don't know\par \par 19 what you would rely on. If I were -- I relied on\par \par 20 the people who were hired to be the thoughtful\par \par 21 people in this functional area.\par \par 22 Q. And who was that at the time?\par \par \par \par \page\par \par \par \par \par 25563\par \par 1 A. January 21, 1987, for a mortgage-backed\par \par 2 security portfolio would have been Ms. Laurenson.\par \par 3 I don't know where Mr. Phillips was then.\par \par 4 Mr. Crow, Mr. Gross certainly, Bruce Williams.\par \par 5 People -- people like that, I suppose.\par \par 6 Q. Now, was -- let me rephrase that.\par \par 7 Is a decision to have a portfolio that\par \par 8 would make money if interest rates moved in one\par \par 9 direction as opposed to the other a policy\par \par 10 decision, from your perspective?\par \par 11 A. In some settings, it is. In some\par \par 12 settings, it isn't. It depends upon the --\par \par 13 Q. Let's take an insured depository\par \par 14 institution. If you make a decision in that\par \par 15 institution that you are going to be more\par \par 16 favorably positioned if interest rates decline\par \par 17 than if they increase, is that a policy decision?\par \par 18 A. I'm just not sure. It's a -- it seems\par \par 19 to me the sort of decision that is somewhere\par \par 20 between investment committee, management team,\par \par 21 board, auditors, examiners, regulators,\par \par 22 disclosures, that at some level and at some\par \par \par \par \page\par \par \par \par \par 25564\par \par 1 context, general issues about investment process\par \par 2 would have been discussed, disclosed, examined.\par \par 3 Q. You were on the investment committee.\par \par 4 Right?\par \par 5 A. I think we've established that I was a\par \par 6 member of the investment committee for a period of\par \par 7 time.\par \par 8 Q. And you were there to provide policy\par \par 9 direction to that committee, were you not?\par \par 10 A. No. I think what I said was I was\par \par 11 there to try to be sure that as it was getting\par \par 12 started, that there were people there who were\par \par 13 capable of providing policy discussion.\par \par 14 Q. Let's take a look at another document,\par \par 15 which is B1580, which is at Tab 1659, and T4266\par \par 16 (sic), which is at Tab 1660.\par \par 17 A. (Witness reviews the document.)\par \par 18 THE COURT: Would you state that second\par \par 19 number again, Mr. Guido?\par \par 20 MR. GUIDO: Yes, Your Honor. T4366,\par \par 21 which is at Tab 1660.\par \par 22 A. Is that the first one? I have two\par \par \par \par \page\par \par \par \par \par 25565\par \par 1 here.\par \par 2 Q. (BY MR. GUIDO) The first one was B1580,\par \par 3 and the second one was T4366.\par \par 4 A. Which one do I start with?\par \par 5 Q. Start with B1580.\par \par 6 A. Okay. (Witness reviews the document.)\par \par 7 Okay.\par \par 8 Q. B1580 is a memorandum from Art Berner\par \par 9 directed to Charles Hurwitz, you, Mr. Gross, and\par \par 10 Mike Crow dated April 22, 1987.\par \par 11 Do you see that?\par \par 12 A. Yes.\par \par 13 Q. And do you see the point -- Point 3 on\par \par 14 the memo?\par \par 15 A. On the first page?\par \par 16 Q. On the first page about tactics and\par \par 17 strategies that were based on perceptions of\par \par 18 interest rate movements.\par \par 19 A. I do.\par \par 20 Q. And now take a look at T4366, which is\par \par 21 the Jenard Gross memo to the members of the\par \par 22 strategic planning committee dated April 27th,\par \par \par \par \page\par \par \par \par \par 25566\par \par 1 1987.\par \par 2 Do you see the first paragraph that\par \par 3 says, "What keeps evolving at investment committee\par \par 4 meetings is the obvious point that we do not have\par \par 5 any strategic plan or policy with regard to\par \par 6 interest rates"?\par \par 7 A. Yes, I see that.\par \par 8 Q. Then I would like to direct your\par \par 9 attention to T4364, which is at Tab 877. This is\par \par 10 a memorandum from Mike Crow to Charles Hurwitz,\par \par 11 Jenard Gross, Barry Munitz, and Art Berner. If\par \par 12 you look at Page 2 of the document, it's dated\par \par 13 5/1/87. It says "United Financial Group\par \par 14 restatement and overview of the problem."\par \par 15 Do you see that?\par \par 16 A. Yes.\par \par 17 Q. I would like to direct your attention\par \par 18 to the very last page where it talks about\par \par 19 alternatives.\par \par 20 A. I haven't read this, but --\par \par 21 Q. It talks about "an alternative is a\par \par 22 possible further expansion of United MBS." Do you\par \par \par \par \page\par \par \par \par \par 25567\par \par 1 see that in the top paragraph on the last page?\par \par 2 A. "The alternative that is possible is\par \par 3 further expansion of the United MBS."\par \par 4 Q. It says, "Among others, the following\par \par 5 issues have to be addressed before expansion can\par \par 6 take place."\par \par 7 Do you see that?\par \par 8 A. Uh-huh. (Witness nods head\par \par 9 affirmatively.)\par \par 10 Q. See the Point 2? It says, "An almost\par \par 11 black box lack of understanding of these\par \par 12 securities. This area is very complex and is\par \par 13 obviously not mastered by the Wall Street firms.\par \par 14 It is naive to think UFG is on a parity level of\par \par 15 understanding with Wall Street."\par \par 16 Do you see that?\par \par 17 A. I do.\par \par 18 Q. After reading those three memorandum,\par \par 19 do you believe that you had the -- established the\par \par 20 initial framework for mortgage-backed security\par \par 21 activities at USAT and had the right people in\par \par 22 place?\par \par \par \par \page\par \par \par \par \par 25568\par \par 1 A. At the time of the initial framing, the\par \par 2 right people in place?\par \par 3 Q. At the time that you wrote the memo on\par \par 4 May 19, 1987, having read these three memorandum\par \par 5 together --\par \par 6 MR. KEETON: Your Honor, I couldn't\par \par 7 hear a word of that mumble.\par \par 8 MR. GUIDO: Sorry, Your Honor. I'll\par \par 9 rephrase it.\par \par 10 THE COURT: Speak a little louder.\par \par 11 Q. (BY MR. GUIDO) At the time you wrote\par \par 12 this memorandum, B1626, which is your resignation\par \par 13 letter -- do you remember that?\par \par 14 A. Okay.\par \par 15 Q. -- which was May 19, 1987, which you\par \par 16 testified about, you resigned because you had the\par \par 17 right people in place, you had the right framework\par \par 18 in place, and you didn't think you were needed any\par \par 19 longer.\par \par 20 Do you recall that?\par \par 21 A. I recall the memo, sure.\par \par 22 Q. Having read these three memoranda,\par \par \par \par \page\par \par \par \par \par 25569\par \par 1 including Mike Crow's memorandum that there's a\par \par 2 black box lack of understanding of the\par \par 3 mortgage-backed securities portfolio, do you think\par \par 4 that your description of why you resigned is\par \par 5 accurate?\par \par 6 A. Well, I can only reflect -- I wrote the\par \par 7 memo. I believe what I wrote is the reason for\par \par 8 why I was not any longer a key, useful person to\par \par 9 that committee in terms of getting it started. I\par \par 10 think in looking at particularly the Berner --\par \par 11 well, all three of the memos.\par \par 12 I mean, clearly there were now people\par \par 13 who were thinking, who were examining, who were\par \par 14 asking hard questions, who were seeking advice,\par \par 15 who were talking with auditors, with accountants.\par \par 16 That was what I had been asked to do, get that\par \par 17 conversation started and provide a framework, not\par \par 18 to provide all the answers or certainly not for me\par \par 19 to provide clarity and understanding.\par \par 20 So, for me, many of these comments\par \par 21 reflect very clearly that we had thoughtful,\par \par 22 caring people who kept asking and kept examining\par \par \par \par \page\par \par \par \par \par 25570\par \par 1 and kept seeking advice.\par \par 2 Q. And you concluded that they had a black\par \par 3 box lack of understanding?\par \par 4 A. This is -- I'm not going to comment on\par \par 5 a memo from Mike Crow. I see this as nothing more\par \par 6 or less than a statement from Mike Crow. I don't\par \par 7 know that it's right or wrong.\par \par 8 Q. Okay. Let's move to another topic --\par \par 9 THE COURT: Mr. Guido, how much more do\par \par 10 you have?\par \par 11 MR. GUIDO: I probably have half an\par \par 12 hour, maybe 45 minutes.\par \par 13 THE COURT: All right. We'll adjourn\par \par 14 until 1:30.\par \par 15\par \par 16 (Whereupon, a lunch break was taken\par \par 17 from 12:07 p.m. to 1:35 p.m.)\par \par 18\par \par 19 THE COURT: Be seated, please. We'll\par \par 20 be back on the record.\par \par 21 Mr. Guido.\par \par 22 Q. (BY MR. GUIDO) When we broke, I was\par \par \par \par \page\par \par \par \par \par 25571\par \par 1 just moving into the area of the accountants. And\par \par 2 I would like to -- the first paragraph I was\par \par 3 showing you was a document which was the 10K for\par \par 4 December 31, 1986, which is A3022. It's Tab 719.\par \par 5 Now, you were a director of United\par \par 6 Financial Group, were you not, Dr. Munitz?\par \par 7 A. Yes, sir.\par \par 8 Q. And you signed the 10Ks that were filed\par \par 9 by United Financial Group, did you not?\par \par 10 A. I believe so.\par \par 11 Q. Take a look at the Bates stamp OFD12913\par \par 12 on the document that you have before you.\par \par 13 MR. EISENHART: Your Honor, may we have\par \par 14 a page reference for that? I think some of our\par \par 15 copies don't have the Bates stamp numbers on them.\par \par 16 MR. GUIDO: It's the last page, 67, of\par \par 17 the document before the exhibits. I think it says\par \par 18 Page 67. It's one of the signature pages.\par \par 19 A. I've got it.\par \par 20 MR. GUIDO: Mr. Eisenhart?\par \par 21 MR. EISENHART: I have it. Thank you.\par \par 22 Q. (BY MR. GUIDO) That shows that you\par \par \par \par \page\par \par \par \par \par 25572\par \par 1 signed the document on March 17, 1987?\par \par 2 A. Yes, sir.\par \par 3 Q. Now I would like to direct your\par \par 4 attention to Page 29 --\par \par 5 A. Of the --\par \par 6 Q. Of the document itself, which is\par \par 7 OFD12875. I'm sorry. Some people don't have that\par \par 8 number; and others of us can't read the fine\par \par 9 print, Dr. Munitz.\par \par 10 A. Okay.\par \par 11 Q. Look at the second paragraph -- the\par \par 12 first full paragraph at the top of the page of\par \par 13 Page OFD12875 which talks about the growth of the\par \par 14 institution in recent years.\par \par 15 A. (Witness reviews the document.) Okay.\par \par 16 Q. Have you had a chance to read that\par \par 17 paragraph?\par \par 18 A. I've read that paragraph, yes.\par \par 19 Q. Now, when you signed the 10K, what was\par \par 20 your practice in terms of reviewing the document\par \par 21 itself?\par \par 22 A. I would have looked at either a draft\par \par \par \par \page\par \par \par \par \par 25573\par \par 1 that was close to a final or the final version. I\par \par 2 would have listened to whatever presentation was\par \par 3 made by the -- I would not have been a drafter of\par \par 4 it. I would have listened to a presentation about\par \par 5 it when it was made, assumed then that the -- that\par \par 6 the proper disclosure was made, that it was sent\par \par 7 where it was supposed to go. And, basically, that\par \par 8 was it.\par \par 9 Q. And what was your understanding of what\par \par 10 the requirements were under the Securities and\par \par 11 Exchange Act when you signed that document? What\par \par 12 were you vouching for?\par \par 13 A. I'm not sure I can -- I'm not sure I\par \par 14 can comment legally on what the requirement was.\par \par 15 Q. What was your understanding as to the\par \par 16 requirement why you were required to sign the\par \par 17 document?\par \par 18 A. As a member of the board, I had\par \par 19 ultimate responsibility for what was being said in\par \par 20 it.\par \par 21 Q. Now, I would like to direct your\par \par 22 attention to Tab 569, which is T4320. This is a\par \par \par \par \page\par \par \par \par \par 25574\par \par 1 set of the Doug Hansen -- do you only have one\par \par 2 page?\par \par 3 A. I have a single page.\par \par 4 Q. Okay.\par \par 5 A. 4320?\par \par 6 Q. Right.\par \par 7 A. Yeah, I have a single page.\par \par 8 Q. Now, this is another one of those\par \par 9 Doug Hansen memoranda regarding the strategic\par \par 10 planning committee meeting notes. This is\par \par 11 December 17th, 1986; and it's addressed to you,\par \par 12 Mr. Hurwitz, Mr. Gross, and others who sat in on\par \par 13 the strategic planning committee.\par \par 14 Do you see that?\par \par 15 A. I see that, yes.\par \par 16 Q. Now, look at Item No. 8. I know it's\par \par 17 difficult to read these. I have had the advantage\par \par 18 that respondents' counsel have typed up the\par \par 19 rendition and also having witnesses who had better\par \par 20 eyesight. If you can't read that, I'll be happy\par \par 21 to read that to you.\par \par 22 A. I would appreciate your reading it.\par \par \par \par \page\par \par \par \par \par 25575\par \par 1 Q. Item No. 8 says, "High-yield bonds. In\par \par 2 quarter 1987, we should grow with BB bonds\par \par 3 250 million phased in. Need to look at bond and\par \par 4 CD zeros. Need to decide duration of funding."\par \par 5 Then it says, "Economic spread to date has been\par \par 6 360 basis points; this has been reduced to 220 on\par \par 7 an accounting basis due to profit taking."\par \par 8 Then look at Item No. 9. Can you read\par \par 9 that one?\par \par 10 A. No. You'll have to read that one.\par \par 11 Q. "MBS: Should grow up to an additional\par \par 12 500 million in the sub in 1987 with minimum 100\par \par 13 basis point real spread. Economic spread to date\par \par 14 is 45 basis points. This will give an accounting\par \par 15 spread of minus 108 basis points in 1987 due to\par \par 16 profit taking."\par \par 17 Do you see that?\par \par 18 A. Yes.\par \par 19 Q. Does that refresh your recollection\par \par 20 that in between December and September of 1986,\par \par 21 sales were made out of the high-yield bond\par \par 22 portfolios and mortgage-backed securities\par \par \par \par \page\par \par \par \par \par 25576\par \par 1 portfolio to generate gains to bolster quarter\par \par 2 profits?\par \par 3 A. First of all, again, as I said before,\par \par 4 that was a very long question. Some of the\par \par 5 phrases you've just used I don't see in here.\par \par 6 And secondly, it refreshes my memory\par \par 7 only to the extent that you just read it to me.\par \par 8 Third, I never know with -- some of\par \par 9 these are notes going into a meeting. Some of\par \par 10 these are notes that look like minutes from a\par \par 11 meeting. So, I don't know what was then decided.\par \par 12 The strategic planning committee was not an\par \par 13 operating committee that had responsibility for\par \par 14 making decisions.\par \par 15 So, on all of those grounds, I have to\par \par 16 answer your question "no."\par \par 17 Q. Did the strategic planning committee\par \par 18 have oversight over the investment committee?\par \par 19 A. No.\par \par 20 Q. Okay. Now -- but whether or not these\par \par 21 are minutes of a meeting that occurred, what was\par \par 22 discussed at a meeting, or Doug Hansen reporting\par \par \par \par \page\par \par \par \par \par 25577\par \par 1 facts to you and the other members, it does point\par \par 2 out that with regard to the high-yield bonds, that\par \par 3 the spread has been reduced to 220 on an\par \par 4 accounting basis due to profit taking, does it\par \par 5 not?\par \par 6 A. All I know is what you just read to me.\par \par 7 Q. You don't know anything -- that doesn't\par \par 8 refresh your recollection with regard to these two\par \par 9 memos?\par \par 10 A. No, sir.\par \par 11 Q. Did the accountants raise any questions\par \par 12 with you during this 1986-1987 time period\par \par 13 regarding the proper accounting for the\par \par 14 mortgage-backed security portfolio and\par \par 15 documentation of transactions in that portfolio?\par \par 16 A. The in-house accountants or the out --\par \par 17 Q. Peat Marwick accountants.\par \par 18 A. Peat Marwick?\par \par 19 Q. Yeah.\par \par 20 A. I don't -- in the time frame which\par \par 21 you've stated in the topic, I don't remember a\par \par 22 particular conversation with them defined by that\par \par \par \par \page\par \par \par \par \par 25578\par \par 1 period.\par \par 2 Q. Do you recall any questions being\par \par 3 raised by Peat Marwick with USAT with regard to\par \par 4 the turnover in its mortgage-backed security\par \par 5 portfolio?\par \par 6 A. The only specific conversation I recall\par \par 7 is the one I think we talked a little bit about\par \par 8 this morning where it related to one set of\par \par 9 transactions. I'm not sure I remember which ones.\par \par 10 I remember a pretty strong disagreement between\par \par 11 the Peat Marwick accountants who had been giving\par \par 12 us guidance about the accounting for certain\par \par 13 transactions and their superiors in Washington or\par \par 14 New York who reversed the decision of the local\par \par 15 Peat Marwick people.\par \par 16 Q. Didn't that involve the June 1986\par \par 17 financials and the restatement of the\par \par 18 March 31st -- March 30th financials?\par \par 19 A. As I said earlier, I'm just not sure.\par \par 20 I remember the strangeness of that difference of\par \par 21 opinion. I just don't remember specifically what\par \par 22 transaction or set of transactions that dealt\par \par \par \par \page\par \par \par \par \par 25579\par \par 1 with. That is a time I remember questions coming\par \par 2 from Peat Marwick both to their colleagues and to\par \par 3 us about the accounting transactions like this or\par \par 4 I think like this.\par \par 5 Q. Was one of the accountants' concerns\par \par 6 that was raised with you was the portfolio being\par \par 7 managed for its intended purposes?\par \par 8 A. Again, at this point, having said just\par \par 9 now that I don't remember specific conversations\par \par 10 with them, much less the period of time they would\par \par 11 have occurred, we were in such ongoing regular\par \par 12 exchange with our accountants, I just don't know\par \par 13 when, what issue would have been addressed, or\par \par 14 what the particular issue was.\par \par 15 Q. Well, did the accountants raise with\par \par 16 you questions about whether or not you were\par \par 17 managing the portfolio to maintain a spread as\par \par 18 opposed to managing it like the equity arbitrage\par \par 19 portfolio to generate gains?\par \par 20 A. Well, again, I vaguely remember\par \par 21 conversations with them about the nature of\par \par 22 different transactions and how one would account\par \par \par \par \page\par \par \par \par \par 25580\par \par 1 for them. If by "raised questions with me," do\par \par 2 you mean -- or "with us," I wouldn't have been the\par \par 3 one they would have been talking to, other than as\par \par 4 a member of the board -- if you mean did they\par \par 5 raise questions in the sense of "tell us now what\par \par 6 you're doing and how this works and we'll tell you\par \par 7 what we think the proper accounting is" or if you\par \par 8 mean "we've seen what you've done and we have a\par \par 9 question about them" --\par \par 10 Q. We've seen what you've done, and we\par \par 11 have a question about them.\par \par 12 Do you recall that --\par \par 13 A. That, I do not recall.\par \par 14 Q. I would like to show you Exhibit B1410\par \par 15 which is at Tab 910, which is the Joe Parsons memo\par \par 16 of January 5, 1987. It's Exhibit B1410, Tab 910.\par \par 17 Do you see the second paragraph in the\par \par 18 document? It says --\par \par 19 A. You need to go slower here. I've never\par \par 20 seen this. It doesn't show that I ever did see\par \par 21 it. If you're going to ask me questions about it,\par \par 22 let me look at it for a minute, please. (Witness\par \par \par \par \page\par \par \par \par \par 25581\par \par 1 reviews the document.) Okay. I've had sort of an\par \par 2 overview.\par \par 3 Q. Do you see the audit concern there?\par \par 4 A. In the first page?\par \par 5 Q. Yeah, the first page, the second\par \par 6 paragraph.\par \par 7 A. Yes.\par \par 8 Q. Do you see where it says that\par \par 9 Peat Marwick has noted a considerable amount of\par \par 10 activity in the high-yield bond and\par \par 11 mortgage-backed securities portfolio that raises\par \par 12 concerns?\par \par 13 A. Well, I see the paragraph, yeah.\par \par 14 Q. Okay. Was that raised with you?\par \par 15 A. I don't ever remember seeing this\par \par 16 document.\par \par 17 Q. Did Mr. Crow ever discuss with you or\par \par 18 members of the investment committee that\par \par 19 Peat Marwick had raised questions about the proper\par \par 20 accounting for the mortgage-backed security\par \par 21 portfolio?\par \par 22 A. Well, in a very quick reading of a\par \par \par \par \page\par \par \par \par \par 25582\par \par 1 document I've never seen, on Page 3, those four\par \par 2 indented bullets sound something like comments\par \par 3 that Mike Crow made or would have made to us; but\par \par 4 I have no earthly idea whether it related to this\par \par 5 memo. It sounds vaguely familiar as to sorts of\par \par 6 things he would have said to us were sound\par \par 7 practice. And, again, I assume -- since it at\par \par 8 some point must have been resolved.\par \par 9 Q. Now, when you say he would have raised\par \par 10 with you as sound practice, are you testifying\par \par 11 that he did raise those with you; or are you just\par \par 12 assuming that your knowledge of Mike Crow, he must\par \par 13 have raised those things with you?\par \par 14 A. I wouldn't even say "must." I cannot\par \par 15 testify at this point that I know he did.\par \par 16 Q. So, you don't know if it was raised\par \par 17 with you?\par \par 18 A. Right.\par \par 19 Q. Now, did you have any discussions with\par \par 20 either Art Berner or Jenard Gross in which they\par \par 21 discussed with you that there was not enough\par \par 22 detail and clarity about the nature of the MBS\par \par \par \par \page\par \par \par \par \par 25583\par \par 1 portfolio and particular decisions that were being\par \par 2 made with regard to that portfolio?\par \par 3 A. Well, I could be confused about a\par \par 4 couple of dates. But I think sometime earlier\par \par 5 today, you showed me a memo or two, one from\par \par 6 Mr. Gross and one from Mr. Berner. I hope I'm not\par \par 7 confusing that with something we looked at\par \par 8 yesterday, but I thought two of the exhibits you\par \par 9 showed me were memos from Mr. Crow or Mr. Gross to\par \par 10 a group that included me making some of the points\par \par 11 it sounds like you just made.\par \par 12 Q. I'm not asking you about the memos that\par \par 13 I showed you. I'm asking you whether or not you\par \par 14 had conversations with them in which they\par \par 15 indicated to you that there wasn't enough detail\par \par 16 and clarity about the nature of particular\par \par 17 decisions being made with regard to\par \par 18 mortgage-backed securities or on the overall MBS\par \par 19 pattern?\par \par 20 A. They would have been triggered in\par \par 21 some -- yes. The reason why I linked them was\par \par 22 that some of them I'm almost certain at this point\par \par \par \par \page\par \par \par \par \par 25584\par \par 1 were either triggered by or led to the memos that\par \par 2 you showed me this morning.\par \par 3 Q. And do you recall that there -- Jenard\par \par 4 Gross in particular had raised questions about the\par \par 5 1986 time period, early 1987 time period, with you\par \par 6 that the reports that were being given to the\par \par 7 investment committee by Sandy Laurenson didn't\par \par 8 describe sufficiently the nature and the purposes\par \par 9 of the transactions that she was engaged in in the\par \par 10 mortgage-backed security portfolio?\par \par 11 A. But for my inability to say\par \par 12 specifically the date, yes. I just can't say -- I\par \par 13 very much recall conversations like that. I'm\par \par 14 just not sure at this point precisely when the\par \par 15 date was.\par \par 16 Q. Sandy Laurenson was hired in October of\par \par 17 1986. Right?\par \par 18 A. Sounds about right.\par \par 19 Q. And she was let go in February of 1988.\par \par 20 Right?\par \par 21 A. That, I don't remember either, exactly\par \par 22 how she left or the date; but that sounds roughly\par \par \par \par \page\par \par \par \par \par 25585\par \par 1 in that period.\par \par 2 Q. Do you know why she left?\par \par 3 A. Well, I'm not sure at this point why\par \par 4 exactly she was let go or left. I remember there\par \par 5 was a day she was no longer there.\par \par 6 Q. Now, you indicated that Mr. Gross and\par \par 7 Mr. Berner had questions about the completeness of\par \par 8 her report or the specificity and detail of her\par \par 9 report to ascertain what the purposes of the\par \par 10 nature of the transactions were. Right?\par \par 11 A. And the clarity.\par \par 12 Q. Right. Okay. Now, who was the\par \par 13 secretary of the investment committee?\par \par 14 A. I think the answer to that is Art\par \par 15 Berner, but I'm not sure.\par \par 16 Q. Okay. Art Berner raises questions\par \par 17 about the clarity of Sandy Laurenson's report with\par \par 18 you. Right?\par \par 19 A. Yes.\par \par 20 Q. Why didn't he, when he drafted the\par \par 21 minutes, make the minutes contain the clarity that\par \par 22 he thought was required?\par \par \par \par \page\par \par \par \par \par 25586\par \par 1 MR. VILLA: Objection. I can't imagine\par \par 2 how any person --\par \par 3 THE COURT: Sustained.\par \par 4 MR. VILLA: -- could answer that\par \par 5 question.\par \par 6 Q. (BY MR. GUIDO) Did Mr. Berner attempt\par \par 7 to summarize the purposes and the nature of the\par \par 8 transactions because he felt that Sandy\par \par 9 Laurenson's reports were not clear with regard to\par \par 10 the nature and the purposes of the transactions?\par \par 11 MR. VILLA: Objection. Again, we're\par \par 12 asking why Mr. Berner -- we had Mr. Berner. If he\par \par 13 wanted the answer to those questions, he should\par \par 14 have asked Mr. Berner.\par \par 15 MR. GUIDO: I didn't ask him why. I\par \par 16 asked him whether or not he did and whether this\par \par 17 witness knows.\par \par 18 THE COURT: All right. Denied. Can\par \par 19 you answer that?\par \par 20 A. I believe one of the memoranda that I\par \par 21 was shown earlier has Mr. Berner attaching the\par \par 22 full Sandy Laurenson report. And my sense was --\par \par \par \par \page\par \par \par \par \par 25587\par \par 1 or maybe it was reflected in one of the\par \par 2 memoranda -- that one of the reasons why he was\par \par 3 doing that was to say, "I'm not sure I understand\par \par 4 all the details."\par \par 5 So, for the sake of completeness of the\par \par 6 minutes for those rest of you who are looking at\par \par 7 it or, indeed, for examiners, for accountants,\par \par 8 others who will look at the minutes, I'm going to\par \par 9 put the whole report in. That's my best memory of\par \par 10 what was happening there.\par \par 11 Q. (BY MR. GUIDO) I thought you just\par \par 12 testified that Art Berner told you there wasn't\par \par 13 enough detail and clarity in those reports.\par \par 14 A. I think what I just said was what he\par \par 15 was doing, to my sense, was the best that he\par \par 16 could. He summarized the details. He would ask\par \par 17 questions. I don't remember, as a board member,\par \par 18 being in conversations with our own auditors or,\par \par 19 indeed, with Bank Board regulators who were\par \par 20 looking at these minutes and these reports and\par \par 21 being asked as a board member about this level of\par \par 22 detail. So, I assumed that those people who were\par \par \par \par \page\par \par \par \par \par 25588\par \par 1 charged with this responsibility were carrying\par \par 2 them out.\par \par 3 Q. My question for you was: Did Art\par \par 4 Berner tell you that there wasn't enough clarity\par \par 5 to ascertain the nature and purposes of the\par \par 6 transactions in Sandy Laurenson's report? And I\par \par 7 think you testified "yes." Right?\par \par 8 MR. VILLA: I'll object. Why don't you\par \par 9 ask him the question. You've recharacterized his\par \par 10 testimony three times. Ask the question and let\par \par 11 him answer it instead of telling him what his\par \par 12 testimony was.\par \par 13 A. I don't know. What is the question at\par \par 14 this point?\par \par 15 Q. (BY MR. GUIDO) The question is: Did\par \par 16 Art Berner tell you that there wasn't sufficient\par \par 17 clarity in Sandy Laurenson's reports to ascertain\par \par 18 the nature and purposes of the transactions?\par \par 19 A. At a certain point in time. He\par \par 20 didn't -- it wasn't a longitudinal issue\par \par 21 necessarily. What I said was I remember at least\par \par 22 one exchange with Mr. Berner where he expressed to\par \par \par \par \page\par \par \par \par \par 25589\par \par 1 me a concern about the clarity of the reports.\par \par 2 Q. You don't know whether the nature of\par \par 3 the reports have changed subsequent to his\par \par 4 expression of concern?\par \par 5 A. That, I don't know.\par \par 6 Q. Now, I would like to ask you some\par \par 7 questions about Mr. Williams' and Sandy\par \par 8 Laurenson's testimony.\par \par 9 Gerald Williams testified at Page 6390\par \par 10 of the transcript that --\par \par 11 A. I'm sorry. Is that something I have?\par \par 12 Q. No. Would you like a copy of that?\par \par 13 A. I guess it depends on what you're going\par \par 14 to ask me. I just didn't know if you had given it\par \par 15 to me.\par \par 16 Q. I'll give you a copy of the transcript.\par \par 17 A. Thank you.\par \par 18 Q. Mr. Williams was asked a series of\par \par 19 questions about --\par \par 20 MR. VILLA: Your Honor, if we had known\par \par 21 these pages were going to be brought up, we would\par \par 22 have brought it. Do you have an extra copy for us\par \par \par \par \page\par \par \par \par \par 25590\par \par 1 to see?\par \par 2 MR. GUIDO: Yes.\par \par 3 MR. VILLA: Thank you.\par \par 4 THE COURT: What's your question,\par \par 5 Mr. Guido?\par \par 6 Q. (BY MR. GUIDO) My question is -- would\par \par 7 you take a look at the last -- Page 6390 after\par \par 8 Mr. Williams was shown a number of documents, he\par \par 9 was asked the question of whether or not -- "Does\par \par 10 this refresh your recollection that sales were\par \par 11 made out of the mortgage-backed security\par \par 12 risk-controlled arbitrage portfolio to generate\par \par 13 quarterly earnings?"\par \par 14 ANSWER: "Mortgage-backs?"\par \par 15 QUESTION: "Yes."\par \par 16 ANSWER: "Yes."\par \par 17 Now, do you have any information that\par \par 18 this Court should have to contradict Mr. Williams'\par \par 19 testimony.\par \par 20 MR. KEETON: Your Honor, I'm going to\par \par 21 object and maybe cut short a whole lot of other\par \par 22 things. He's been asked this question. He told\par \par \par \par \page\par \par \par \par \par 25591\par \par 1 what he knew. Now we're going to read excerpts\par \par 2 from Mr. Guido's favorite parts of the testimony\par \par 3 in this case. There will be a time for it, but\par \par 4 it's not now.\par \par 5 THE COURT: I'm not sure any value is\par \par 6 served by asking one witness to comment on\par \par 7 another's testimony.\par \par 8 MR. GUIDO: Your Honor, this is a\par \par 9 respondent in the case; and I'm giving him an\par \par 10 opportunity to respond to what other people have\par \par 11 said about these matters.\par \par 12 MR. KEETON: I've never heard of a rule\par \par 13 that said because you're a respondent, the Rules\par \par 14 of Evidence just go out the window. He was asked\par \par 15 this specific question two or three times and\par \par 16 answered two or three ways. I'm saying to bring\par \par 17 up another witness' testimony just because he's a\par \par 18 respondent and saying "Now you're going to get a\par \par 19 chance to comment on it" is improper.\par \par 20 THE COURT: All right. I'll sustain\par \par 21 it.\par \par 22 Q. (BY MR. GUIDO) Let me ask you another\par \par \par \par \page\par \par \par \par \par 25592\par \par 1 question. Do you know of any fact that would\par \par 2 explain why the comptroller of USAT did not know\par \par 3 that sales were being made out of the\par \par 4 risk-controlled arbitrage mortgage-backed security\par \par 5 portfolio to bolster quarterly profits?\par \par 6 MR. KEETON: I object to the form of\par \par 7 the question. Who is, quote, "the controller"?\par \par 8 It sounds like we have some CIA operation now.\par \par 9 MR. VILLA: I object. Why don't we ask\par \par 10 the witness what he knows instead of asking what\par \par 11 Mr. Berner was thinking or what the comptroller\par \par 12 knew or didn't know. I mean, this has been --\par \par 13 I've refrained from commenting on this\par \par 14 examination, but it's really extraordinary. If he\par \par 15 asks this person what he knows about underlying\par \par 16 events as opposed to trying to charge other\par \par 17 testimony from other witnesses in the case, maybe\par \par 18 we could make some headway instead of falling\par \par 19 backwards.\par \par 20 MR. KEETON: I apologize, Your Honor.\par \par 21 My colleague said he said comptroller. Again, the\par \par 22 light speech or the mumble, I didn't hear it\par \par \par \par \page\par \par \par \par \par 25593\par \par 1 right.\par \par 2 MR. GUIDO: I thought I said\par \par 3 comptroller, Your Honor. Let me rephrase the\par \par 4 question, Your Honor.\par \par 5 THE COURT: All right.\par \par 6 Q. (BY MR. GUIDO) Was Jim Wolfe the\par \par 7 comptroller of USAT during the period of time that\par \par 8 you were at USAT?\par \par 9 A. First of all, I don't remember the\par \par 10 time -- Jim Wolfe worked at USAT. I don't\par \par 11 remember the time frame, and I don't remember --\par \par 12 he was in the financial area. I don't remember\par \par 13 his title.\par \par 14 Q. Okay. Was he in the accounting\par \par 15 department?\par \par 16 A. He was in the broad financial area. I\par \par 17 can't tell you exactly when and doing precisely\par \par 18 what.\par \par 19 Q. Okay. So, you don't know whether he\par \par 20 was the comptroller of USAT?\par \par 21 A. I think -- right. I just said I do not\par \par 22 know what his title was when.\par \par \par \par \page\par \par \par \par \par 25594\par \par 1 Q. Do you know what the role of a\par \par 2 comptroller is in an organization?\par \par 3 A. I think I have a fair sense of the\par \par 4 financial responsibilities that go with being the\par \par 5 comptroller.\par \par 6 Q. What is that?\par \par 7 A. They are involved generally with the\par \par 8 monitoring and the oversight of a range of\par \par 9 financial activities within a broader portfolio of\par \par 10 financial responsibilities at an organization.\par \par 11 Q. And would you expect the comptroller to\par \par 12 know whether or not transactions are being\par \par 13 properly accounted for?\par \par 14 A. I think, by and large, depending upon\par \par 15 the organization and the nature of the\par \par 16 transaction, I would expect the comptroller to\par \par 17 have a fair sense of what was going on.\par \par 18 Q. Now, I would like to shift to another\par \par 19 topic, if I may; and that is that the -- did you\par \par 20 ever have any discussions with Jenard Gross\par \par 21 regarding his view of what the benefits would be\par \par 22 to the shareholders of UFG if USAT were to survive\par \par \par \par \page\par \par \par \par \par 25595\par \par 1 the economic downturn in the Texas economy?\par \par 2 A. I remember a lot of conversations with\par \par 3 Mr. Gross about USAT's surviving the Texas\par \par 4 economy. I don't at this point recall a specific\par \par 5 conversation -- if I understand your question --\par \par 6 that was limited necessarily to the shareholders\par \par 7 of UFGI, but I know Mr. Gross felt strongly about\par \par 8 surviving.\par \par 9 Q. And do you recall that in those\par \par 10 conversations, that you discussed the question of\par \par 11 being the last thrift to be left standing?\par \par 12 A. Well, I recall Mr. Gross feeling\par \par 13 strongly that the problems facing the state of\par \par 14 Texas and the Texas economy and financial\par \par 15 institutions were ultimately cyclical in nature\par \par 16 and that if we could keep a strong group together\par \par 17 and act as wisely and as accountably as possible,\par \par 18 that he would like us to be -- if there were only\par \par 19 one left standing, that it ought to be United.\par \par 20 Q. And what would be the benefits of being\par \par 21 the one left standing?\par \par 22 A. Why would you not want to be the one\par \par \par \par \page\par \par \par \par \par 25596\par \par 1 left standing?\par \par 2 Q. I'm just asking you what the benefits\par \par 3 would be.\par \par 4 A. Well, if the choice was either to\par \par 5 survive and prosper or not, people would stay\par \par 6 employed. The economy of the local area would\par \par 7 benefit from the fact that they were employed.\par \par 8 The shareholders of the entity that was\par \par 9 responsible for it would achieve value. Those\par \par 10 customers and clients who engaged the institution\par \par 11 would continue to benefit from it. I'm sure there\par \par 12 are others.\par \par 13 Q. Did you discuss -- let me show you a\par \par 14 document that we've marked as T9025. T9025 is a\par \par 15 memo from Jenard Gross to Art Berner, Charles\par \par 16 Hurwitz, Barry Munitz, and Gerry Williams dated\par \par 17 May 6th, 1986. Now, I'm going to particularly\par \par 18 address your attention to the next-to-the-last\par \par 19 paragraph of the memorandum, but --\par \par 20 A. On the second page?\par \par 21 Q. -- I would like you to read it because\par \par 22 I'm going to ask you whether or not you recall it.\par \par \par \par \page\par \par \par \par \par 25597\par \par 1 A. Okay. (Witness reviews the document.)\par \par 2 Okay.\par \par 3 Q. Okay. Do you remember that Jenard\par \par 4 Gross raised questions with you with regard to\par \par 5 issues that came up regarding the supervisory\par \par 6 people at the Federal Home Loan Bank in 1986?\par \par 7 A. I don't remember this specific memo and\par \par 8 timing; but I remember general conversations with\par \par 9 Mr. Gross of this tone, yes.\par \par 10 Q. Okay.\par \par 11 MR. GUIDO: I move the admission of\par \par 12 T9025, Your Honor.\par \par 13 MR. VILLA: No objection.\par \par 14 THE COURT: Received.\par \par 15 Q. (BY MR. GUIDO) I would like to direct\par \par 16 your attention now, Mr. Munitz, to the last\par \par 17 sentence on the second-to-the-last paragraph on\par \par 18 the last page. It says, "I thought that Rick\par \par 19 Milinor did an excellent job and Dave Kirkpatrick\par \par 20 came up with a great idea suggesting that we give\par \par 21 them some resumes of the people who have come on\par \par 22 board in the last two years since we had an\par \par \par \par \page\par \par \par \par \par 25598\par \par 1 examination so they would know where we are coming\par \par 2 from or maybe even since we acquired the\par \par 3 institution."\par \par 4 Do you see that?\par \par 5 A. Yeah, I see that.\par \par 6 Q. Okay. Were the four of the addressees\par \par 7 shareholders of UFG?\par \par 8 A. You mean Berner, Hurwitz, Munitz,\par \par 9 Williams?\par \par 10 Q. Yeah.\par \par 11 A. And Gross -- you're including Gross?\par \par 12 Q. "We can include Gross since we acquired\par \par 13 the institution." So, it's the addressees and the\par \par 14 person sending the memo?\par \par 15 A. Again, I can't tell you who owned\par \par 16 shares in what. The other reason for my\par \par 17 hesitation is I took the institution -- I assumed\par \par 18 that that was referring to the merger.\par \par 19 Q. So, you take that as referring to what\par \par 20 merger?\par \par 21 A. The Houston First/United merger, the\par \par 22 "ever since we acquired the institution." Just in\par \par \par \par \page\par \par \par \par \par 25599\par \par 1 my reading of it quickly, I thought he meant in\par \par 2 the last couple of years.\par \par 3 Q. My question for you is: Are any of\par \par 4 those five people shareholders at the time, to\par \par 5 your knowledge?\par \par 6 A. Of?\par \par 7 Q. Of UFG.\par \par 8 A. Well, I know that Mr. Gross was a\par \par 9 shareholder at some point. I don't know about\par \par 10 Mr. Berner and Mr. Williams. I believe I had\par \par 11 options at one point. And Mr. Hurwitz was the\par \par 12 chief executive officer of two institutions that\par \par 13 were shareholders.\par \par 14 Q. Pardon? Two?\par \par 15 A. Yes.\par \par 16 Q. And which institutions were those?\par \par 17 A. Federated and MCO.\par \par 18 Q. Okay. Now, do you know where\par \par 19 Mr. Gross' shares came from that you referred to?\par \par 20 A. Where they came from?\par \par 21 Q. How he acquired them. Excuse me.\par \par 22 A. I know at some point he had a loan to\par \par \par \par \page\par \par \par \par \par 25600\par \par 1 buy shares, but I don't know if those were the\par \par 2 only shares he owned or when he might have had\par \par 3 other shares. I don't know --\par \par 4 Q. Okay.\par \par 5 A. -- if that's what you mean by "where\par \par 6 they came from."\par \par 7 Q. So, you don't know how he acquired the\par \par 8 shares?\par \par 9 A. Other than I know that he -- I believe\par \par 10 that he bought some shares or had the right to buy\par \par 11 some shares that was linked in some way to a loan\par \par 12 that he had from the institution. It's a memory.\par \par 13 Q. And Gerald Williams, did he also have\par \par 14 shares?\par \par 15 A. I don't know.\par \par 16 Q. Okay. And was Charles Hurwitz an owner\par \par 17 of Federated, one of the shareholders of UFG?\par \par 18 A. Well, I think -- again, depending upon\par \par 19 this timing, as I said to Mr. Rinaldi yesterday,\par \par 20 Charles Hurwitz was the chairman and the chief\par \par 21 executive officer of Federated Development; and I\par \par 22 think we walked through in some detail yesterday\par \par \par \par \page\par \par \par \par \par 25601\par \par 1 that Federated Development owned a block of stock\par \par 2 in United Financial Group.\par \par 3 Q. Okay. And did Charles Hurwitz own a\par \par 4 block of stock of Federated?\par \par 5 A. Yes.\par \par 6 Q. In fact, at some point in time, he\par \par 7 owned 100 percent of it, did he not?\par \par 8 A. Well, that's why I looked at the date.\par \par 9 At some point in time, he and his family --\par \par 10 Federated went from being a publicly-held company\par \par 11 to a privately-held company, and he and his family\par \par 12 would have owned all the shares of Federated.\par \par 13 MR. GUIDO: Your Honor, I have no\par \par 14 further questions at this time.\par \par 15 One second, Your Honor. Let me consult\par \par 16 with co-counsel.\par \par 17 THE COURT: Do you want to recess\par \par 18 before we go?\par \par 19 MR. VILLA: Yes. Thank you,\par \par 20 Your Honor.\par \par 21 THE COURT: We'll take a short recess.\par \par 22\par \par \par \par \page\par \par \par \par \par 25602\par \par 1 (Whereupon, a short break was taken\par \par 2 from 2:13 p.m. to 2:30 p.m.)\par \par 3\par \par 4 THE COURT: Be seated, please. We'll\par \par 5 be back on the record.\par \par 6 I believe the direct-examination is\par \par 7 complete.\par \par 8 MR. NICKENS: Yes, Your Honor. At the\par \par 9 conclusion of Mr. Munitz' testimony, the OTS and\par \par 10 respondents would request a very brief bench\par \par 11 conference with the Court.\par \par 12 THE COURT: At the conclusion of --\par \par 13 MR. NICKENS: Mr. Munitz' testimony.\par \par 14 THE COURT: All right.\par \par 15 Mr. Villa, you may cross-examine.\par \par 16\par \par 17 EXAMINATION\par \par 18\par \par 19 Q. (BY MR. VILLA) Dr. Munitz, are you\par \par 20 married?\par \par 21 A. Yes, sir.\par \par 22 Q. What does your wife do?\par \par \par \par \page\par \par \par \par \par 25603\par \par 1 A. She was the deputy director, society\par \par 2 director of the Houston Grand Opera when we lived\par \par 3 here in Houston. She now directs, pro bono, a\par \par 4 project between a number of academic campuses and\par \par 5 Warner Brothers to train inner high school and\par \par 6 college students to become digital animators.\par \par 7 Q. You now live in California; is that\par \par 8 right?\par \par 9 A. We do.\par \par 10 Q. You mentioned the Getty Trust?\par \par 11 A. Yes, the J. Paul Getty Trust.\par \par 12 Q. I thought you might take a couple\par \par 13 minutes and tell us what it is and what your\par \par 14 position is there.\par \par 15 A. I'm the president and chief executive\par \par 16 officer of the trust, which is the holding\par \par 17 company, in effect. I report directly to the\par \par 18 board. Underneath it, there's a museum that's\par \par 19 just opened. The older museum has been now closed\par \par 20 for three years to remodel. There's a little\par \par 21 academic university, a conservation group which\par \par 22 works with people around the world to preserve\par \par \par \par \page\par \par \par \par \par 25604\par \par 1 cultural and artistic heritage and an education\par \par 2 institute that for these past 17 years has been\par \par 3 working on reintroducing the arts to public\par \par 4 schools who are often under budget cuts. The arts\par \par 5 are the first things to go to help them bring back\par \par 6 an arts curriculum for young people, particularly\par \par 7 in inner city schools. Each of those has a\par \par 8 director. Those directors report to me, and I\par \par 9 report to the board.\par \par 10 Q. What is the Getty Trust best known for?\par \par 11 A. I suspect most people know it for the\par \par 12 museum. There's only been one person in my job\par \par 13 for 17 years before me; and when he retired, there\par \par 14 was a lengthy search. When I came, it was just\par \par 15 about the time the new museum was opening; and\par \par 16 there's been an enormous amount of publicity about\par \par 17 this facility.\par \par 18 Q. How long have you held the position as\par \par 19 the chief executive officer of the Getty Trust?\par \par 20 A. I was appointed in July of 1997; and I\par \par 21 technically began in office at the end of\par \par 22 December, early January of '98.\par \par \par \par \page\par \par \par \par \par 25605\par \par 1 Q. And if you would tell us just very\par \par 2 briefly, what is the museum, the size and scope of\par \par 3 the museum? I think many of us may have seen the\par \par 4 publicity when it opened in December of 1997.\par \par 5 A. There are about 1200 employees overall.\par \par 6 That includes all the pieces that I mentioned.\par \par 7 Many of those are museum people and security for\par \par 8 the museum. This is the new site that's gotten\par \par 9 all the publicity was a ranch of some 700 acres.\par \par 10 590 have been preserved as greenbelt. 110 acres\par \par 11 have the buildings that house these different\par \par 12 entities, and the bulk of the footage is for the\par \par 13 museum. It's a collection started by Mr. Getty\par \par 14 and then carried forward: Classical, antiquities,\par \par 15 European furniture, and 18th and 19th century art\par \par 16 and a wonderful collection of photographs.\par \par 17 Q. How does the Getty Trust compare in\par \par 18 size to other charitable institutions devoted to\par \par 19 the arts?\par \par 20 A. If you limit it to charitable\par \par 21 institutions devoted to the arts, it's by far the\par \par 22 largest.\par \par \par \par \page\par \par \par \par \par 25606\par \par 1 Q. In the world?\par \par 2 A. Depending upon the currency rate of\par \par 3 exchange on any given day.\par \par 4 Q. Who do you report to at the Getty?\par \par 5 A. I report to the board. I am a board\par \par 6 member, but I report to them.\par \par 7 Q. Now, we know that you haven't been in\par \par 8 the courtroom or even in Houston for the trial;\par \par 9 and you told us that you flew in the night before\par \par 10 your testimony.\par \par 11 Perhaps you can tell us what other\par \par 12 activities you're involved in besides your\par \par 13 activities directly for the Getty.\par \par 14 A. Well, a number of them -- I talked a\par \par 15 little bit about them yesterday morning -- relate\par \par 16 really to the academic side of my history so that\par \par 17 I just try to keep doing a fair amount of work in\par \par 18 the educational sector. One of these pieces of\par \par 19 ours is an education institute that's easy to do.\par \par 20 I am chairing now for the mayor of Los Angeles a\par \par 21 special task force to look at the question of\par \par 22 bilingual education. This is a monstrously\par \par \par \par \page\par \par \par \par \par 25607\par \par 1 complicated question. The recent June legislation\par \par 2 in California passed a complex proposition which\par \par 3 dramatically transforms bilingual education. The\par \par 4 Los Angeles School District has children speaking\par \par 5 over a hundred different languages and the mayor\par \par 6 has asked me to put a task force together to help\par \par 7 the teachers and school children and teachers and\par \par 8 parents, many of whom are not English speakers,\par \par 9 confront these new guidelines that no one clearly\par \par 10 understands without disrupting the lives of\par \par 11 students in the process. I'm spending more and\par \par 12 more time on that task force.\par \par 13 Q. Do you get paid to work on that task\par \par 14 force?\par \par 15 A. No, no. Those things I'm mentioning\par \par 16 now are really things I don't get paid to do.\par \par 17 I've been the co-chair for some time of the\par \par 18 strategic planning committee of the public\par \par 19 television station in Los Angeles, KCET, which is\par \par 20 the biggest public television station by member in\par \par 21 the country and is going through dramatic\par \par 22 rethinking as the government has reduced its\par \par \par \par \page\par \par \par \par \par 25608\par \par 1 support for public television and public radio. I\par \par 2 have just finished several months ago -- I was a\par \par 3 member -- really, the vice chair of an 11-person\par \par 4 commission established by Congress, 10 appointees\par \par 5 from the Congress, one appointee from the White\par \par 6 House. The last seat was the seat that I had.\par \par 7 Its task was to study why colleges and\par \par 8 universities were becoming so expensive. I don't\par \par 9 know if you had a chance to read the paper this\par \par 10 morning. In several of the newspapers was a\par \par 11 report of the aftermath as the President signed\par \par 12 the education bill. A number of the\par \par 13 recommendations in there were developed by our\par \par 14 task force to try to strengthen student lending,\par \par 15 reduce costs, reduce overhead. We held hearings\par \par 16 around the country, several in Washington,\par \par 17 interviewed hundreds of people over the course of\par \par 18 about a year's work. I got to that in part\par \par 19 because two years ago as I was beginning the\par \par 20 transition -- probably before the formal search\par \par 21 started at the Getty, I was the chair of the\par \par 22 American Education Council in Washington. That's\par \par \par \par \page\par \par \par \par \par 25609\par \par 1 the ultimate group which does all of the policy\par \par 2 exchange with Congressional committees, the White\par \par 3 House, and others on interests that effect\par \par 4 colleges and universities. I was the chair of\par \par 5 that board. I served on that board for many\par \par 6 years. I probably ought to stop there.\par \par 7 Q. Besides these established commissions\par \par 8 and boards to which you devote your time, do you\par \par 9 also devote some portion of your time to public\par \par 10 speaking and ad hoc groups that have asked you to\par \par 11 speak or to work on educational projects in\par \par 12 America?\par \par 13 A. Well, yes. Again, I'll -- maybe I'll\par \par 14 separate -- obviously, there's some public\par \par 15 speaking that goes with the responsibility of the\par \par 16 Getty. I would literally tomorrow have a number\par \par 17 of those. I do a fair amount of public speaking.\par \par 18 For example, after the Cost Commission was\par \par 19 finished, there were endless invitations to come\par \par 20 and meet with different colleges and universities,\par \par 21 boards and trustees, families and communities to\par \par 22 talk about the impact of the recommendations on\par \par \par \par \page\par \par \par \par \par 25610\par \par 1 getting them through college. I think -- I may\par \par 2 have mentioned earlier that I'm a Brooklyn College\par \par 3 graduate. When I went to Brooklyn College, it was\par \par 4 free. I lived at home. It was the only college I\par \par 5 could have afforded to go to. The University of\par \par 6 California, Illinois, Chicago -- the story of my\par \par 7 academic life is trying to recreate the story of\par \par 8 my life, in effect. This may be a bad day to say\par \par 9 what I am and what I'm not.\par \par 10 If it was not for the Brooklyn College\par \par 11 and the chances of an inner city child of a very\par \par 12 bizarre family to be able to get through, that was\par \par 13 my access to the world. My dedication since being\par \par 14 a professional has been to try to provide it for\par \par 15 others.\par \par 16 Q. And what was the goal of the Cost\par \par 17 Commission?\par \par 18 A. The fundamental charge to the\par \par 19 commission from the Congress was to reduce the\par \par 20 increased costs and then to make suggestions for\par \par 21 literally reducing the cost of colleges and\par \par 22 universities for the next generation of students\par \par \par \par \page\par \par \par \par \par 25611\par \par 1 so that -- the way I approached it as the\par \par 2 vice chair of the commission was to be sure that\par \par 3 the next generation of America's youngsters and\par \par 4 part-time and older people have the privilege that\par \par 5 I had. I don't know whether Speaker Gingrich, who\par \par 6 was ultimately responsible to this commission,\par \par 7 would have said it the same way; but interestingly\par \par 8 enough, I think it wouldn't have been that far\par \par 9 removed.\par \par 10 Q. How many days a week do you devote to\par \par 11 very -- activities both at the Getty and these\par \par 12 other public service activities?\par \par 13 A. Well, if you'll grant me too many weeks\par \par 14 that are seven-day work weeks of one sort or\par \par 15 another, boy, probably one and a half to two days\par \par 16 a week, not necessarily the Saturdays and Sundays.\par \par 17 But I would say on an average -- it changes\par \par 18 dramatically: What's meeting, what isn't. If you\par \par 19 looked across a year, in the last year, one to two\par \par 20 days a week were on the non -- whether it was\par \par 21 non-CSU or non-Getty directly activities.\par \par 22 Q. And does that take into account your\par \par \par \par \page\par \par \par \par \par 25612\par \par 1 work for the Getty -- how many days a week do you\par \par 2 work if you add everything together?\par \par 3 A. If my spouse were on the stand and\par \par 4 under oath, as many days as you gave her in the\par \par 5 week, I'm afraid she would claim I was working.\par \par 6 Most of those are six- or seven-day weeks.\par \par 7 Q. And, again, are you paid for these\par \par 8 other activities that you've gone into?\par \par 9 A. The ones that I mentioned are my sort\par \par 10 of gift. Maybe that's not the right word. That's\par \par 11 my commitment.\par \par 12 Q. Do they pay -- do they pay your\par \par 13 expenses in all circumstances?\par \par 14 A. Not all. Some. Cost Commission\par \par 15 covered expenses. Some others, basically part of\par \par 16 the commitment is that that's what I give to it.\par \par 17 Q. So, you would pay your expenses to fly\par \par 18 across country for various activities?\par \par 19 A. Yeah.\par \par 20 Q. Prior to taking your position at the\par \par 21 Getty and after leaving MAXXAM and UFG, what was\par \par 22 your job? We're talking about the '90-'91 time\par \par \par \par \page\par \par \par \par \par 25613\par \par 1 period up to '97.\par \par 2 A. In April of '91, I was appointed to the\par \par 3 chancellorship of the California State University\par \par 4 system. I began that job on the 1st of August\par \par 5 1991. I was not familiar with California --\par \par 6 there's a very strict hierarchy to the public\par \par 7 higher education system in California. Everything\par \par 8 on the public side falls into three categories.\par \par 9 There are 106 two-year colleges. There are eight\par \par 10 campuses in the medical center at the University\par \par 11 of California. That's pretty much the University\par \par 12 of Texas, Texas A&M, Rice level. All the other\par \par 13 colleges are the state university system which is\par \par 14 where I was. That's the second chance, older\par \par 15 student, part-time student, nontraditional\par \par 16 student, first generation student, struggling\par \par 17 student out of high school, people going at night,\par \par 18 people commuting by technology from literally the\par \par 19 Oregon border to the Mexico board. 23 campuses by\par \par 20 the time I left. 345,000 students.\par \par 21 Q. Now, I'm sure you've noted the\par \par 22 suggestion in some of the questioning yesterday\par \par \par \par \page\par \par \par \par \par 25614\par \par 1 that you proposed and approved employment\par \par 2 contracts that would enrich you. So, I would like\par \par 3 to ask you, Dr. Munitz: Have you had\par \par 4 opportunities to join the public sector, the\par \par 5 private sector since 1990 --\par \par 6 A. Well --\par \par 7 Q. -- as a CEO or --\par \par 8 A. Or even before 1990. Have other people\par \par 9 approached me about going into corporate life?\par \par 10 Q. Yes, sir.\par \par 11 A. Yeah. I mean, that would have happened\par \par 12 by -- by the time I was at MAXXAM and Federated\par \par 13 for four or five years, I was an interesting kind\par \par 14 of person nationally because not that many people\par \par 15 have both corporate and academic experience.\par \par 16 There were lots of corporations that were getting\par \par 17 much more involved in educational issues, some of\par \par 18 them literally totally in education. And the\par \par 19 executive recruiting firms or corporations would\par \par 20 approach me directly. If you're asking me could I\par \par 21 have gone into private industry, that would have\par \par 22 been, I think, relatively simple.\par \par \par \par \page\par \par \par \par \par 25615\par \par 1 Q. Did you take any of those positions?\par \par 2 A. No.\par \par 3 Q. Why didn't you, sir?\par \par 4 A. Well, my sense -- I hope it comes out\par \par 5 the right way. I always saw my life in higher\par \par 6 education in the public sector. I think I\par \par 7 mentioned some exchange yesterday. When I came to\par \par 8 MAXXAM, then MCO and Federated, I was very lucky\par \par 9 in that I had been in administration very early.\par \par 10 I was convinced that to run a complex institution\par \par 11 like a California State university system in this\par \par 12 day and age, you would be a lot better off if you\par \par 13 knew how the private side worked, as well. When I\par \par 14 went to MAXXAM and Federated, whenever it was that\par \par 15 I would have gone at that stage, my sense was that\par \par 16 at some point, doing as well as I could do for\par \par 17 whatever that company was, I was going to wind up\par \par 18 back in the public sector giving back. So, it\par \par 19 wouldn't have made any sense for me to leave\par \par 20 MAXXAM and Federated and go to another\par \par 21 corporation.\par \par 22 Q. Do you have a sense, sir, as to whether\par \par \par \par \page\par \par \par \par \par 25616\par \par 1 you would have enriched yourself more had you left\par \par 2 MAXXAM and Federated to go into another private\par \par 3 company as opposed to going to the California\par \par 4 State University system?\par \par 5 A. California State University was a\par \par 6 public institution governed by all the public\par \par 7 regulations of California. I was treated very\par \par 8 well there, as I am here. The grocery bills are\par \par 9 paid and life is reasonably fine, but there's\par \par 10 no -- the offers that were coming to me at the end\par \par 11 of the Eighties were from companies like the ones\par \par 12 you see in Arizona that now run the University of\par \par 13 Phoenix and others. If you follow any of their\par \par 14 stock performance -- I don't know if this is good\par \par 15 or bad. But the California State University\par \par 16 really didn't have a thriving stock option plan.\par \par 17 So, it's not just what you were making\par \par 18 each year. It's whether you had a growth in value\par \par 19 or any sense of equity. So, clearly, it would\par \par 20 have been a difference. It was a different life.\par \par 21 It wasn't the life I wanted. It would have been a\par \par 22 different life.\par \par \par \par \page\par \par \par \par \par 25617\par \par 1 Q. Do you think it would have been a more\par \par 2 lucrative life financially?\par \par 3 A. It's hard to imagine that it would not\par \par 4 have been a financially more --\par \par 5 Q. Looking back over your life and career,\par \par 6 is there any one area to which you have devoted\par \par 7 your attentions over the years?\par \par 8 A. Well, if -- I probably referred to it\par \par 9 in a way, Mr. Villa. The common thing for me has\par \par 10 been opportunity. I was very lucky. I was very\par \par 11 very lucky. And so, it's an opportunity I would\par \par 12 just like to provide for others.\par \par 13 Q. Now, putting aside any MAXXAM-related\par \par 14 companies, have you been a member of the board of\par \par 15 directors -- a member of a board of directors of\par \par 16 any other public company over the last, say, 10\par \par 17 years?\par \par 18 A. I'm currently a board member of two\par \par 19 New York Stock Exchange companies. I was a member\par \par 20 of a third in California before I took the second\par \par 21 one. So, there would have still been two; but\par \par 22 there was a third publicly-held company in\par \par \par \par \page\par \par \par \par \par 25618\par \par 1 California as I was arriving at California State\par \par 2 University. I was, obviously, a member of several\par \par 3 publicly-held companies as they related to MAXXAM\par \par 4 and Federated; and I think I mentioned yesterday I\par \par 5 was a member of the Charter Bank board which was a\par \par 6 publicly-held company before that.\par \par 7 Q. Apart from these companies, sir, have\par \par 8 you been approached to become a member of the\par \par 9 board of any other companies?\par \par 10 A. When I was hired both at the California\par \par 11 State University system and the Getty, the board\par \par 12 and I agreed together that we would restrict -- I\par \par 13 had really a choice. I could do the sorts of\par \par 14 things I was describing to you or I could serve on\par \par 15 a number of corporate boards. Again, because I\par \par 16 had been in both worlds, I get approached a lot\par \par 17 about going on corporate boards. I get approached\par \par 18 a lot about going on corporate boards, less lately\par \par 19 because I think I've finally gotten the signal\par \par 20 clear up to executive recruiters that do this sort\par \par 21 of thing that they just need to talk to other\par \par 22 people.\par \par \par \par \page\par \par \par \par \par 25619\par \par 1 Q. Can you give me an estimate over the\par \par 2 last five years of how many corporate boards\par \par 3 you've been asked to serve on?\par \par 4 A. Over the last five years?\par \par 5 Q. Right.\par \par 6 A. 10, 12.\par \par 7 Q. What corporate boards are you currently\par \par 8 on?\par \par 9 A. I serve on the California New York\par \par 10 Stock Exchange company called Sun America, and\par \par 11 Sally Mae, which is the student loan group. But\par \par 12 now it's gone through a legal transformation. It\par \par 13 was a government-sponsored entity, and I went on\par \par 14 its board when it was transformed into a full\par \par 15 New York Stock Exchange publicly-held entity now\par \par 16 called Sally Mae. Like Fannie Mae, except in the\par \par 17 student lending business.\par \par 18 Q. Why did you choose Sally Mae out of the\par \par 19 dozen or so for which you had been approached?\par \par 20 A. It probably goes back to the same\par \par 21 thing. Sally Mae is as if you cared a great deal\par \par 22 about people owning a home. It may have been a\par \par \par \par \page\par \par \par \par \par 25620\par \par 1 naive connection, but Sally Mae is a very\par \par 2 intriguing institution because it's a\par \par 3 publicly-held business but it's in the business of\par \par 4 providing that same opportunity about which I was\par \par 5 talking earlier. So, for me, it seemed a good\par \par 6 priority.\par \par 7 Q. Now, let's focus -- let me ask you,\par \par 8 sir: Do you serve on any committees, or have you\par \par 9 served on any committees of these publicly-held\par \par 10 corporations where you were on the board?\par \par 11 A. I do the current ones, I guess. On the\par \par 12 Sally Mae board, I serve on two committees: The\par \par 13 compensation committee and the operations\par \par 14 committee, which is basically the strategic\par \par 15 planning and in-house operations. And at Sun\par \par 16 America, I serve currently on the nominating\par \par 17 committee, the leadership development nominating\par \par 18 committee, and the audit committee.\par \par 19 Q. Let's focus very briefly on your -- the\par \par 20 decisions to join MAXXAM or MCO and the\par \par 21 decision -- ultimate decision to leave it.\par \par 22 In 1982, were you looking to leave\par \par \par \par \page\par \par \par \par \par 25621\par \par 1 academic life?\par \par 2 A. I wasn't at that point anxious\par \par 3 specifically to leave the University of Houston.\par \par 4 But as I talked a bit yesterday, I had been\par \par 5 spending some time doing work both with academic\par \par 6 boards and with corporate boards. And I had in my\par \par 7 mind that there was coming a chapter to put that\par \par 8 profit side building block in place.\par \par 9 Q. Did you believe, then, it was a\par \par 10 permanent -- you didn't believe it was a permanent\par \par 11 shift over to the private sector when you joined\par \par 12 MCO; is that right?\par \par 13 A. No, I didn't.\par \par 14 Q. At some point, did you come to the\par \par 15 conclusion that you would prefer to return to\par \par 16 academic life?\par \par 17 A. Well, I mean, I always had the sense,\par \par 18 Mr. Villa, that that return was inevitable. There\par \par 19 was a time when I began to feel or realize that\par \par 20 opportunities were emerging. My own age in the\par \par 21 search process in academic life is a very\par \par 22 complicated one, very different than a corporate\par \par \par \par \page\par \par \par \par \par 25622\par \par 1 search, review committees, screening committees.\par \par 2 I began to worry a little about being sure I\par \par 3 wasn't losing the opportunity. I was still\par \par 4 working at that time with some colleges and\par \par 5 universities trying to help when I could, and it\par \par 6 was tasty. Yes, there came a time when I began to\par \par 7 think more seriously about time to get back.\par \par 8 Q. Did this alarm clock go off before USAT\par \par 9 closed or was put into receivership on\par \par 10 December 30, 1988?\par \par 11 A. Oh, that would have started in '82 -- I\par \par 12 don't know what the -- the snooze alarm started\par \par 13 ringing about '85 or '86.\par \par 14 Q. You didn't go back into not-for-profit\par \par 15 or educational activities at that time, though,\par \par 16 did you, sir?\par \par 17 A. No, no. I really couldn't do that.\par \par 18 Q. Why not? Why did you stay?\par \par 19 A. Well, I think we were talking about\par \par 20 this a bit these past couple of days. First of\par \par 21 all, I really did believe in the institution. I\par \par 22 really did believe that it was going to turn\par \par \par \par \page\par \par \par \par \par 25623\par \par 1 around and that we had the right people to make it\par \par 2 turn around and that there were people there who\par \par 3 were there because of me. Not exclusively, but I\par \par 4 participated in trying to recruit them. I\par \par 5 believed in them. They talked to me. I would\par \par 6 have had a hard time walking out on them.\par \par 7 Q. Now, sir, you were asked, I think,\par \par 8 about the employment contract that you and\par \par 9 Mr. Gross received, the USAT employment contract\par \par 10 that you and Mr. Gross received in mid-1988.\par \par 11 Do you remember that?\par \par 12 A. Yes, sir.\par \par 13 Q. Would you have left if they hadn't\par \par 14 offered you that employment contract?\par \par 15 A. Left the institution?\par \par 16 Q. Yes, sir.\par \par 17 A. No.\par \par 18 Q. Now, we talked a little bit about that\par \par 19 USAT employment contract. To your knowledge, did\par \par 20 you receive any money, either salary or bonus,\par \par 21 executive bonus plan, or severance money where\par \par 22 USAT bore the financial cost?\par \par \par \par \page\par \par \par \par \par 25624\par \par 1 A. USAT?\par \par 2 Q. Yes, sir.\par \par 3 A. No, not to my knowledge.\par \par 4 Q. We talked very briefly -- I think you\par \par 5 were questioned briefly about the time period from\par \par 6 1987 into 1988.\par \par 7 Sir, do you recall during that time\par \par 8 period having any discussions with any USAT\par \par 9 officers about them leaving the association for\par \par 10 other jobs?\par \par 11 A. Not about me. Not about my leaving.\par \par 12 Q. Now we're shifting to the -- to the\par \par 13 Bruce Williams/Jim Wolfes of the world generally.\par \par 14 A. Yes.\par \par 15 Q. Why don't you tell the Court about\par \par 16 those discussions.\par \par 17 A. Again, as I said earlier, pretty much\par \par 18 part of my job -- several people at that time have\par \par 19 referred to me as the house shrink. I don't know\par \par 20 if that was good or bad. Certainly one of the\par \par 21 compensation consulting firms said I was playing a\par \par 22 role that usually companies paid outside\par \par \par \par \page\par \par \par \par \par 25625\par \par 1 consultants to play. I would have been the one\par \par 2 that someone worried about their future would have\par \par 3 come to. Did they come to say, "If you don't do\par \par 4 this, I'm out of here"? No, that's usually not\par \par 5 the way it worked. A lot of the key senior people\par \par 6 would knock on the door, ask for a cup of coffee,\par \par 7 or want to have a drink at the end of the day and\par \par 8 get some sense from me as to why stay, to say\par \par 9 where were we headed, what were we doing, how did\par \par 10 I feel their situation was, how were they doing,\par \par 11 did we believe in them, was it worth their\par \par 12 staying.\par \par 13 It was at a time when we were being\par \par 14 told by others that we had a good, strong\par \par 15 leadership team. And so, basically, it was just\par \par 16 an awful lot in the years that you mentioned, a\par \par 17 great deal of hand-holding conversation.\par \par 18 Q. In your experience as administrator,\par \par 19 sir, if you failed to respond to those kinds of\par \par 20 warnings from your staff, what happens?\par \par 21 A. Well, you know, you don't -- it's not\par \par 22 like you get threatened and you get blackmailed.\par \par \par \par \page\par \par \par \par \par 25626\par \par 1 What happens is you come in one morning and\par \par 2 somebody tells you they have great news for you\par \par 3 but not necessarily wonderful news for you and for\par \par 4 the sake of their family and kids and profession,\par \par 5 they have taken another offer. It's not -- what\par \par 6 you do is you realize that they are gone.\par \par 7 Q. Now, sir, this case and its predecessor\par \par 8 have been around for a long time. I would like to\par \par 9 ask you as my last question: How has this case\par \par 10 affected your life and your career?\par \par 11 A. Well, on the career, I've been blessed\par \par 12 with two wonderful jobs since MAXXAM and\par \par 13 Federated. So, you're not going to get from me\par \par 14 that this case has stood in the way of being\par \par 15 successful. Could I have done without all the\par \par 16 newspapers articles every time I was appointed to\par \par 17 a new job about the allegations of ripping off the\par \par 18 federal government, could I have done without\par \par 19 having to extract my wife with security, campus\par \par 20 security from people holding S&L criminal signs,\par \par 21 yeah. Would life have been somewhat better\par \par 22 without that harassment? I think that's fair to\par \par \par \par \page\par \par \par \par \par 25627\par \par 1 say.\par \par 2 MR. VILLA: Thank you, Dr. Munitz. I\par \par 3 have no other questions.\par \par 4 THE COURT: Do any of the other\par \par 5 respondents have questions for the --\par \par 6 MR. BLANKENSTEIN: No questions,\par \par 7 Your Honor.\par \par 8 MR. EISENHART: I have no questions,\par \par 9 Your Honor.\par \par 10 THE COURT: Does OTS have any redirect?\par \par 11\par \par 12 (Discussion held off the record.)\par \par 13\par \par 14 MR. RINALDI: Mr. Munitz, I just\par \par 15 have --\par \par 16\par \par 17 FURTHER EXAMINATION\par \par 18 \par \par 19 Q. (BY MR. RINALDI) I have just a few\par \par 20 follow-up questions, sir.\par \par 21 After the receivership, when USAT went\par \par 22 into receivership, did you immediately leave UFG?\par \par \par \par \page\par \par \par \par \par 25628\par \par 1 A. No. I was -- I think Mr. Berner and I\par \par 2 became the two -- really, I guess the only two\par \par 3 people trying to see -- just to see if we could\par \par 4 handle the transition and the aftermath.\par \par 5 Q. But there was really nothing left of\par \par 6 UFG because its principal subsidiary, which was\par \par 7 USAT, had been taken away, correct?\par \par 8 A. That certainly wasn't what I was being\par \par 9 told by the regulators and our lawyers. There\par \par 10 was -- there were lawsuits filed. There were\par \par 11 issues about net worth maintenance. There were\par \par 12 regulatory questions. There were accounting\par \par 13 questions. There were receivership interpretation\par \par 14 questions. There were ongoing relationships with\par \par 15 UFGI. My sense was that there was a great deal to\par \par 16 do. And I -- as a matter of fact, I remember some\par \par 17 conversations with the regulatory representatives\par \par 18 where Mr. Berner and/or I would say, "We're going\par \par 19 to continue to do this and this is what we're\par \par 20 getting paid to do and are you sure you're\par \par 21 comfortable?" And repeatedly, the signal back was\par \par 22 absolutely, yes.\par \par \par \par \page\par \par \par \par \par 25629\par \par 1 Q. I wasn't asking you was there anything\par \par 2 to do. I was asking you whether the entity UFG\par \par 3 had lost its principal subsidiary so where it had\par \par 4 been a 7-billion-dollar or 6-billion-dollar\par \par 5 institution, it now was a relatively tiny\par \par 6 corporation with a relatively small amount of\par \par 7 assets, was it not?\par \par 8 A. It was a very different organization.\par \par 9 Q. Okay. Did you remain on there for some\par \par 10 period of time?\par \par 11 A. I began -- I stayed through the '89\par \par 12 year pretty intensely, began then to phase down in\par \par 13 the '90 year, and then basically --\par \par 14 Q. Now, at that point in time, were you\par \par 15 also continuing to be an employee of UFG and --\par \par 16 I'm sorry -- of MCO and Federated?\par \par 17 A. I was --\par \par 18 Q. Did you continue to have a relationship\par \par 19 with those two entities?\par \par 20 A. Yes, a relationship.\par \par 21 Q. How would you characterize that\par \par 22 relationship?\par \par \par \par \page\par \par \par \par \par 25630\par \par 1 A. I was a trustee of Federated. I had\par \par 2 basically the vice chair of the board\par \par 3 responsibility at then MAXXAM, no longer MCO\par \par 4 Holdings. MAXXAM.\par \par 5 Q. Over time, did your obligations at UFG\par \par 6 begin to wind down?\par \par 7 A. Yes.\par \par 8 Q. As they wound down, did you then become\par \par 9 more involved with Federated than MCO again?\par \par 10 A. Not all that much. Somewhat with a\par \par 11 couple of projects, but it was pretty clear by\par \par 12 then that I was moving on.\par \par 13 Q. And I think when I spoke to you the\par \par 14 other day, you had indicated that one of the\par \par 15 principal reasons that you had been hired by MCO\par \par 16 was to help out Mr. Hurwitz with at least UFG; and\par \par 17 once UFG was winding down, you didn't feel that\par \par 18 there was much left for you to do at MCO?\par \par 19 A. I don't know whether it was to help out\par \par 20 Mr. Hurwitz. It was that by then, the nature of\par \par 21 MCO-MAXXAM had changed very dramatically right\par \par 22 around the receivership time or before that.\par \par \par \par \page\par \par \par \par \par 25631\par \par 1 MAXXAM had made a very, very large and complicated\par \par 2 acquisition in which I was not much involved with:\par \par 3 Kaiser Aluminum. I had been spending so much of\par \par 4 my time, relatively speaking, at United that\par \par 5 basically a space had been created. And there was\par \par 6 a -- there came a time when the key operating\par \par 7 person at MAXXAM retired, and that was\par \par 8 basically -- whether I had been offered that job\par \par 9 was basically the signal to me as to whether or\par \par 10 not they were interested.\par \par 11 As I said to Mr. Villa, by then, I was\par \par 12 already beginning to talk to people about if\par \par 13 opportunities come up back in the public sector,\par \par 14 count on me now. I would like to be considered.\par \par 15 And so, Mr. Hurwitz concluded on his side and I\par \par 16 concluded on my side that it didn't make sense to\par \par 17 suddenly come back in a major way at MAXXAM.\par \par 18 Q. And when you went back into the\par \par 19 academic side and indicated to people that you\par \par 20 were interested in coming back into academia, did\par \par 21 the fact that you had served on the boards of UFG\par \par 22 and USAT, did that prevent you from -- from\par \par \par \par \page\par \par \par \par \par 25632\par \par 1 seeking new employment?\par \par 2 A. Yes. Absolutely, yes.\par \par 3 Q. So, you were unable to obtain a\par \par 4 position as a result of the fact that USAT had\par \par 5 failed?\par \par 6 A. Well, I don't know that it was as a\par \par 7 result of the fact that USAT had failed. There\par \par 8 were several positions in which I was very much\par \par 9 interested that I was excluded from.\par \par 10 Q. Excluded by whom?\par \par 11 A. By the search committee.\par \par 12 Q. But the federal -- I mean, the FDIC did\par \par 13 not take some direct action to intervene, did\par \par 14 they?\par \par 15 A. Is filing a lawsuit direct action?\par \par 16 Q. I don't know. When did the FDIC file a\par \par 17 lawsuit?\par \par 18 A. Well, I don't know exactly when it was;\par \par 19 but it was during the course of all the early\par \par 20 negotiation in the '89 and '90 period when\par \par 21 conversations were going back and forth and there\par \par 22 was a lot of publicity about savings and loans.\par \par \par \par \page\par \par \par \par \par 25633\par \par 1 The introductory conversation and then finally the\par \par 2 lawsuit -- I don't know whether that was pre- or\par \par 3 post-California State University. But during that\par \par 4 period in the '89-'90 period when I would begin to\par \par 5 talk to search committees, I'm not at all saying\par \par 6 directly did the FDIC do something; but to your\par \par 7 question, did service at a savings and loan and\par \par 8 its holding company make a difference, yes.\par \par 9 Q. But you were able to become the\par \par 10 chancellor of probably the largest educational\par \par 11 system in the United States, were you not?\par \par 12 A. Oh, yeah, yeah, happily.\par \par 13 Q. And now, in the aftermath of all that,\par \par 14 while that litigation is still pending, I believe,\par \par 15 and, indeed, this litigation is still pending, you\par \par 16 were able to obtain probably I believe, from what\par \par 17 you say, the highest position at probably the\par \par 18 largest eleemosynary institution of the United\par \par 19 States for preservation of the arts. Right?\par \par 20 A. A wonderful job, yes.\par \par 21 Q. After -- at or about the time USAT was\par \par 22 going through its -- going through the 1988\par \par \par \par \page\par \par \par \par \par 25634\par \par 1 period, were there other thrifts in Houston that\par \par 2 were failing?\par \par 3 A. I think so.\par \par 4 Q. And as a result of that, were there a\par \par 5 number of unemployed thrift executives available\par \par 6 in the Houston area?\par \par 7 A. Of the caliber that we felt we had at\par \par 8 United, I didn't think very many.\par \par 9 Q. Were you familiar with the pool of\par \par 10 available people in the Houston area?\par \par 11 A. Very.\par \par 12 Q. And were there a number of people\par \par 13 available, sir?\par \par 14 A. Were there a number of people available\par \par 15 theoretically? Yes.\par \par 16 Q. Who had experience running a\par \par 17 traditional thrift?\par \par 18 A. Not very many of them of the caliber\par \par 19 and experience for which we were looking.\par \par 20 Q. Sir, I just have one final question.\par \par 21 And that is: As a result of your service with\par \par 22 MCO, Mr. Villa had made some reference of the fact\par \par \par \par \page\par \par \par \par \par 25635\par \par 1 of how you had flown across country without -- on\par \par 2 voluntary missions for people for -- on your own\par \par 3 expense.\par \par 4 With respect to this proceeding, is\par \par 5 there any agreement between you and MCO or MAXXAM,\par \par 6 its successor, regarding the expenses associated\par \par 7 with this matter?\par \par 8 A. My expenses have been covered for this\par \par 9 matter.\par \par 10 Q. And in the event that any kind of\par \par 11 adverse action is taken from a monetary\par \par 12 standpoint, what is the nature of the relationship\par \par 13 between you and MCO? Is there an indemnification\par \par 14 provision that would provide for MCO to indemnify\par \par 15 you if there were any monetary allegations or\par \par 16 findings?\par \par 17 A. I'm not sure of the detailed\par \par 18 relationship, but I think I remember -- and by my\par \par 19 service now -- that all indemnification is limited\par \par 20 by the definition of whatever regulatory entity\par \par 21 covers it. So, I don't know. I don't know what\par \par 22 my exposure is.\par \par \par \par \page\par \par \par \par \par 25636\par \par 1 Q. Well, when you went on the board of UFG\par \par 2 and you went on the board of USAT, isn't it, in\par \par 3 fact, true that MAXXAM had a policy where officers\par \par 4 and directors of MCO -- had a policy that officers\par \par 5 and directors of MCO who served on boards of\par \par 6 entities in which they had an interest, that they\par \par 7 would indemnify those individuals against\par \par 8 potential liability that they might incur as a\par \par 9 result of their service on behalf of MCO?\par \par 10 A. I just assumed that -- having talked to\par \par 11 other boards members, as I said earlier -- that\par \par 12 every indemnification policy with which I've ever\par \par 13 had any experience on these boards is governed by\par \par 14 the jurisdiction in which they serve. As I\par \par 15 remember, therefore, they have -- depending upon\par \par 16 what the jurisdiction is -- all kinds of\par \par 17 limitations and restrictions.\par \par 18 Q. In connection with this litigation,\par \par 19 you've never discussed this with your counsel as\par \par 20 to whether you have a right to seek\par \par 21 indemnification back against MCO in the event that\par \par 22 some adverse financial conclusion is reached in\par \par \par \par \page\par \par \par \par \par 25637\par \par 1 this or other litigation?\par \par 2 MR. VILLA: I'll object.\par \par 3 THE COURT: Sustained.\par \par 4 Q. (BY MR. RINALDI) Sir, do you have an\par \par 5 agreement with MCO regarding indemnification?\par \par 6 A. I believe that I have some agreement.\par \par 7 Q. It's just that you're not familiar with\par \par 8 all of the details of what's included in the\par \par 9 agreement. Is that a fair statement?\par \par 10 A. Yes. I don't know about the "just";\par \par 11 that is, it's a fair statement to say I don't know\par \par 12 all the details. I don't know what the "just"\par \par 13 refers to.\par \par 14 MR. RINALDI: Thank you very much.\par \par 15 MR. VILLA: No questions.\par \par 16 THE COURT: Thank you, Dr. Munitz. You\par \par 17 may step down.\par \par 18 MR. GUIDO: Your Honor, I think\par \par 19 Mr. Nickens made a request for a conference.\par \par 20 THE COURT: Do you want this on the\par \par 21 record?\par \par 22 MR. NICKENS: No, Your Honor.\par \par \par \par \page\par \par \par \par \par 25638\par \par 1 THE COURT: We'll be off the record.\par \par 2\par \par 3 (Whereupon, a short break was taken\par \par 4 from 3:09 p.m. to 3:11 p.m.)\par \par 5\par \par 6 THE COURT: Back on the record. We'll\par \par 7 be back on the record.\par \par 8 MR. GUIDO: Your Honor, we would like\par \par 9 to -- our next witness is not available until\par \par 10 tomorrow morning. And so, what we would like to\par \par 11 suggest to the Court is that we break for the\par \par 12 evening now; and we will bring our next witness on\par \par 13 tomorrow morning, if that meets with your\par \par 14 approval, Your Honor.\par \par 15 THE COURT: All right. We'll adjourn\par \par 16 until tomorrow at 9:00.\par \par 17\par \par 18 (Whereupon at 3:11 p.m.\par \par 19 the proceedings were recessed.)\par \par 20 .\par \par 21 .\par \par 22 .\par \par \par \par \page\par \par \par \par \par 25639\par \par 1 STATE OF TEXAS\par COUNTY OF HARRIS\par 2\par REPORTER'S CERTIFICATION\par 3 TO THE TRIAL PROCEEDINGS\par \par 4 I, Marcy Clark, the undersigned Certified\par \par 5 Shorthand Reporter in and for the State of Texas,\par \par 6 certify that the facts stated in the foregoing\par \par 7 pages are true and correct to the best of my ability.\par \par 8 I further certify that I am neither\par \par 9 attorney nor counsel for, related to nor employed\par \par 10 by, any of the parties to the action in which this\par \par 11 testimony was taken and, further, I am not a\par \par 12 relative or employee of any counsel employed by\par \par 13 the parties hereto, or financially interested in\par \par 14 the action.\par \par 15 SUBSCRIBED AND SWORN TO under my hand\par \par 16 and seal of office on this the 8th day of October,\par \par 17 1998.\par \par 18 ____________________________\par MARCY CLARK, CSR\par 19 Certified Shorthand Reporter\par In and for the State of Texas\par 20 Certification No. 4935\par Expiration Date: 12-31-99\par 21 .\par \par 22 .\par \par \par \par \page\par \par \par \par \par 25640\par \par 1 STATE OF TEXAS\par COUNTY OF HARRIS\par 2\par REPORTER'S CERTIFICATION\par 3 TO THE TRIAL PROCEEDINGS\par \par 4 I, Shauna Foreman, the undersigned\par \par 5 Certified Shorthand Reporter in and for the\par \par 6 State of Texas, certify that the facts stated\par \par 7 in the foregoing pages are true and correct\par \par 8 to the best of my ability.\par \par 9 I further certify that I am neither\par \par 10 attorney nor counsel for, related to nor employed\par \par 11 by, any of the parties to the action in which this\par \par 12 testimony was taken and, further, I am not a\par \par 13 relative or employee of any counsel employed by\par \par 14 the parties hereto, or financially interested in\par \par 15 the action.\par \par 16 SUBSCRIBED AND SWORN TO under my hand\par \par 17 and seal of office on this the 8th day of October,\par \par 18 1998.\par \par 19 _____________________________\par SHAUNA FOREMAN, CSR\par 20 Certified Shorthand Reporter\par In and for the State of Texas\par 21 Certification No. 3786\par Expiration Date: 12-31-98\par 22\par \par \par \par \page\par }