26316 1 UNITED STATES OF AMERICA BEFORE THE 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVINGS ASSOCIATION OF ) 5 TEXAS, Houston, Texas, and ) ) 6 UNITED FINANCIAL GROUP, INC., ) Houston, Texas, a Savings ) 7 and Loan Holding Company ) ) OTS Order 8 MAXXAM, INC., Houston, Texas, ) No. AP 95-40 a Diversified Savings and ) Date: 9 Loan Holding Company ) Dec. 26, 1995 ) 10 FEDERATED DEVELOPMENT CO., ) a New York Business Trust, ) 11 ) CHARLES E. HURWITZ, ) 12 Institution-Affiliated Party ) and Present and Former Director ) 13 of United Savings Association ) of Texas, United Financial Group,) 14 and/or MAXXAM, Inc.; and ) ) 15 BARRY A. MUNITZ, JENARD M. GROSS,) ARTHUR S. BERNER, RONALD HUEBSCH,) 16 and MICHAEL CROW, Present and ) Former Directors and/or Officers ) 17 of United Savings Association of ) Texas, United Financial Group, ) 18 and/or MAXXAM, Inc., ) ) 19 Respondents. ) 20 21 TRIAL PROCEEDINGS FOR OCTOBER 15, 1998 22 26317 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire 6 and BRYAN VEIS, Esquire of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 26318 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 REPORTED BY: 20 Ms. Marcy Clark, CSR 21 Ms. Shauna Foreman, CSR 22 . 26319 1 2 INDEX OF PROCEEDINGS 3 Page 4 CHARLES HURWITZ 5 Continued Examination by Mr. Keeton.....26320 6 Further Examination by Mr. Guido........26356 7 Further Examination by Mr. Rinaldi......26374 8 . 9 . 10 . 11 . 12 . 13 . 14 . 15 . 16 . 17 . 18 . 19 . 20 . 21 . 22 . 26320 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 THE COURT: Be seated, please. The 4 hearing will come to order. 5 Mr. Keeton, you may continue with your 6 cross-examination. 7 MR. KEETON: Thank you, Your Honor. 8 9 CONTINUED EXAMINATION 10 11 Q. (BY MR. KEETON) Mr. Hurwitz, did there 12 come a time when you resigned from the board of 13 UFG? 14 A. Yes, Mr. Keeton. 15 Q. Do you remember approximately when that 16 was? 17 A. It was in, I think, the first quarter 18 of 1988. 19 Q. If the record shows it was February of 20 '88, does that comport with your memory? 21 A. Yes. 22 Q. Why did you resign from the board? 26321 1 A. Art Berner, the general counsel of 2 United Financial, had informed me that he had had 3 a meeting with Neil Twomey and that under the 4 Southwest Plan which we wanted very much to win, 5 that for political reasons it would be better if I 6 had less involvement with United Financial at that 7 time. 8 Q. And when you say the Southwest Plan 9 that you wanted to win, give us an overview of 10 what that was. 11 A. Well, the Southwest Plan was -- it was 12 a restructuring of the savings and loan in the 13 Southwest because, as I had mentioned earlier, 14 that virtually all had failed. 15 Q. By this time, had you determined or 16 thought that USAT/UFG would need some sort of 17 restructuring or federal assistance in order to 18 continue? 19 A. Well, it would either need that or 20 certainly some infusion of new capital, like the 21 capital notes we had talked about. 22 Q. And the Southwest Plan appeared to be 26322 1 the way that that was going to happen? 2 A. Yes. 3 Q. And did -- you said "we were interested 4 in winning." Who is "we" in this instance? 5 A. MAXXAM. 6 Q. And what company were you interested in 7 acquiring under the Southwest Plan? 8 A. United Financial. 9 Q. Mr. Hurwitz, I've placed in front of 10 you a series of exhibits with that clip. These 11 have not yet been admitted, and we'll go through 12 them one at a time. But I am giving you, as I am 13 giving the Court and Mr. Langdon, all the exhibits 14 at once; and then we'll talk about them one at a 15 time. 16 If you would look first at 17 Exhibit B2466, is that the -- the cover letter 18 signed by you, sir, that contains the proposal for 19 the recapitalization of certain savings and loans? 20 A. Yes. 21 Q. And this document was forwarded to 22 Mr. Tom Lykos who you mentioned earlier? 26323 1 A. Yes. 2 Q. This is the original proposal that went 3 forward, as far as you know, from MAXXAM? 4 A. That's correct. 5 MR. KEETON: I offer 2466, B2466, 6 Your Honor. 7 MR. GUIDO: Your Honor, the OTS objects 8 to this document and the rest of the documents 9 that are in the packet going into the record. The 10 documents are documents that pertain to the 11 bidding that went on with regard to the 12 Southwest Plan that was the subject of the 13 5th Circuit litigation which the OTS gave 14 Your Honor copies of the materials. We argued at 15 the time that not only was it not material and 16 relevant to this proceeding but it had been 17 adjudicated in the prior proceeding and, 18 therefore, was inappropriate to raise in this 19 proceeding. 20 For that reason, we object to any of 21 these documents going into the record, Your Honor. 22 And we believe that the issue has been adjudicated 26324 1 by the 5th Circuit and, therefore, does not belong 2 in this proceeding. 3 MR. KEETON: Your Honor, whether the 4 issue he contends has been adjudicated or not, 5 this is part of the continuing saga of UFG and 6 USAT. We're still in 1988 in this issue. 7 THE COURT: All right. I'll receive 8 the document. I believe it's necessary for 9 completeness. 10 Q. (BY MR. KEETON) Let me ask you to 11 direct your attention next to the next exhibit, 12 Mr. Hurwitz, which is B2476, a letter dated 13 October 24, '88, to your attention from Mr. Gross. 14 This one appears to have probably come from the 15 UFG files; and therefore, Mr. Gross does not sign 16 that letter. 17 Take a moment to look at it. Do you 18 recall Mr. Gross responding to your initial 19 proposal to tell you about what USAT's role was 20 going to be in UFG? 21 A. Yes, I do. 22 Q. Did you receive this letter? 26325 1 A. I did. 2 MR. KEETON: I offer B2476, Your Honor. 3 MR. GUIDO: Same objection, Your Honor. 4 THE COURT: All right. Received. 5 Q. (BY MR. KEETON) The next exhibit, 6 Mr. Hurwitz, is B2481. It's a letter dated 7 October 25th, 1988, addressed to Mr. Jenard Gross. 8 This letter appears to be signed by you; is that 9 correct? 10 A. Yes. 11 Q. Is this your response to Mr. Gross' 12 letter that we've just seen? 13 A. Yes, it is. 14 MR. KEETON: I offer B2481, Your Honor. 15 MR. GUIDO: Same objection, Your Honor. 16 THE COURT: Received. 17 Q. (BY MR. KEETON) The next exhibit is 18 B2491. This is a letter dated October 31, 1988, 19 to Mr. Michael Patriarca on MAXXAM letterhead. 20 And -- well, I don't -- yeah. 21 On the second page, it appears to have 22 your name; but it looks like someone else signed 26326 1 for you. 2 A. Yes. That was Barry Munitz, correct. 3 Q. You recognize that -- 4 A. Well, it says "CH/BM." 5 Q. Okay. You recognize his initials 6 there? 7 A. I do. 8 MR. KEETON: I offer B2491, Your Honor. 9 MR. GUIDO: Same objection, Your Honor. 10 THE COURT: Received. 11 Q. (BY MR. KEETON) I want to pause a 12 moment at this letter. These letters have 13 continued to go back and forth relating to the 14 proposal or bid of MAXXAM in the Southwest Plan. 15 The first -- I want to direct your attention to 16 the first line where it says, "At the specific 17 request of Tom Lykos, with whom we met last Friday 18 afternoon in Washington, D.C., I am submitting the 19 attached detailed bid sheet as a supplement to the 20 letter of October 17," which is the first document 21 in this series. Right? 22 A. Yes. 26327 1 Q. Do you recall meeting with Mr. Lykos? 2 A. I do. 3 Q. Do you recall him saying anything other 4 than encouraging words so far as MAXXAM going 5 forward with its bid? 6 A. That's correct. He did. He was 7 encouraging. 8 Q. And last in this group is 9 Exhibit B2550. This is a letter dated 10 November 22nd, 1988, to Mr. Lykos. It appears to 11 be signed by you; is that correct? 12 A. Yes. 13 Q. And again -- 14 MR. KEETON: I offer that exhibit, 15 Your Honor. 16 MR. GUIDO: Same objection, Your Honor. 17 THE COURT: Received. 18 Q. (BY MR. KEETON) You sent this letter to 19 Mr. Lykos? 20 A. Yes. And I see there are copies to 21 Mr. Twomey, Patriarca, and Mr. Bradley. 22 Q. And, again, if you look at the first 26328 1 paragraph of the letter, on Page 1 it would appear 2 that in some fashion, you or members of your staff 3 had been in communication again with Mr. Lykos and 4 you were responding to his comments? 5 A. It does, indeed. 6 Q. And as far as you knew as of 7 November 22nd, MAXXAM was being considered as an 8 eligible bidder for the -- to acquire United 9 Savings? 10 A. Yes. 11 Q. Now, we're at the end of November as 12 far as these letters are concerned. We know that 13 the ultimate award, as far as you learned, 14 happened near the end of December, correct? 15 A. That's correct. 16 Q. And did you have any further 17 conversations yourself with Mr. Lykos -- 18 A. I did. 19 Q. -- prior to the award? 20 A. I did. 21 Q. All right. You've mentioned parts of 22 that, but let's take it slowly. Tell me about -- 26329 1 what conversation or conversations did you have 2 with Mr. Lykos? 3 A. I was in California completing the 4 acquisition of Kaiser Aluminum, and I got a call 5 from Mr. Lykos informing me that we were not the 6 high bidder and wanted to know if we would like to 7 raise our bid. I asked him how much more it would 8 take, and he said that he wasn't in a position to 9 tell me that. And based on that, I told him that 10 we would pass and wouldn't raise our bid. 11 He told me that he would like to offer 12 some other savings and loans to us to purchase. 13 Q. This was in that same conversation? 14 A. Yes. And he would send me a letter to 15 that effect and said that, you know, he 16 appreciated our hard work and effort in this 17 endeavor but that they had given it to someone 18 else because of the higher price. 19 Q. Over these many months, had MAXXAM 20 worked hard in putting together what ultimately 21 became its bid? 22 A. Well, as you can see through the 26330 1 papers, if one wants to take the time to read 2 this, you have to have economic analysis. It 3 took, you know, many, many dollars to put together 4 these proposals and a tremendous amount of human 5 resource. A lot of thought went into it. 6 Q. I want to direct your attention, 7 please, to a document that I also placed in front 8 of you that's not part of that group because it's 9 already been admitted. It is Exhibit B2667. It's 10 found at Tab 1890. 11 A. (Witness reviews the document.) 12 Q. Do you have that document, Mr. Hurwitz? 13 A. I do. 14 Q. Take a moment and refresh yourself on 15 it. 16 A. (Witness reviews the document.) Okay. 17 Q. Is this the letter that Mr. Lykos sent 18 following the conversation when you were in 19 California? 20 A. Yes, it is. 21 Q. Was it sent shortly after that 22 conversation, as far as you know? 26331 1 A. I don't remember the date in December 2 that I had the conversation; but it certainly was 3 in that short time frame, in December of 1988. 4 This is dated December 30th. 5 Q. Correct. And did the letter fit what 6 Mr. Lykos had told you in his phone call? 7 A. Yes, pretty much so. 8 Q. And in what major ways? 9 A. Well, what he told me on the phone was 10 that we were not the high bidder; and it doesn't 11 state that in this particular letter. But he does 12 go on to say that if we are interested in 13 participating in the Southwest Plan, that there 14 are other opportunities and to please let him 15 know. 16 Q. It does or does not state that in the 17 letter? 18 A. It does state that. 19 Q. When you said you were not the high 20 bidder? 21 A. No, I don't see where it says that we 22 were not the high bidder. 26332 1 Q. Look at the first paragraph, if you 2 would, about two-thirds of the way down. He 3 doesn't use the "high bidder" words, but doesn't 4 he use words to that effect? 5 A. Yes. 6 Q. What words does he use? 7 A. It says, "We have determined it's less 8 advantageous to the FSLIC than other proposals." 9 The other slight difference, I would say, is he 10 was more explicit in saying that we didn't put as 11 much money on the table as someone else and would 12 we like to raise ours, certainly leading me to 13 believe that if we had of raised our bid, they 14 maybe would have accepted it if it had been higher 15 than someone else's. Maybe that's what it means. 16 I'm not arguing the fact that it doesn't say the 17 thing, but the conversation was slightly 18 different. I think it means exactly the same 19 thing. 20 Q. Did there come a time when you had 21 reason to doubt the sincerity of what Mr. Lykos 22 says in this letter? 26333 1 A. Yes. Some eight years later, we got a 2 document in discovery over this lawsuit from 3 Steptoe & Johnson, a law firm, that had the 4 minutes of the meeting. 5 MR. GUIDO: Your Honor, we object to 6 this line of questioning for the same reasons as 7 previously. This is exactly the issue that was 8 raised in the 5th Circuit now, Your Honor; and the 9 Court ruled in that case that it was inappropriate 10 to do so. I think it indicated that the argument 11 was -- we are so far beyond the pale that it was 12 not appropriate grounds for the Court to reopen 13 the litigation in that case; and the Court 14 dismissed the petition which raised exactly this 15 issue, Your Honor. 16 MR. KEETON: There may have been -- 17 MR. GUIDO: The documents are already 18 in the record, Your Honor. We have a standing 19 objection to this line of questions. 20 THE COURT: All right. Denied. 21 A. The document stated, Your Honor, that 22 we bid, using their definition, $100 million more 26334 1 than the other bids. 2 Q. (BY MR. KEETON) And yet -- 3 A. It's pretty incredible to me that 4 something like that could happen. 5 Q. Mr. Hurwitz, I neglected yesterday in 6 speaking about you and your family -- we talked 7 mostly about business or some family things. 8 I want to drop back for a moment and 9 ask you to tell the Court -- and I know this is 10 never easy to do, but I think it's important for 11 some background here. Tell the Court about what 12 activities of a civic philanthropic or other 13 nature you and Mrs. Hurwitz, Barbara, have been 14 involved in just over the last four or five years. 15 What are the major places you've 16 concentrated on? 17 A. Well, we -- my wife and I truly believe 18 that we should put back into society. The city 19 and the state and the country have been very 20 generous to us, and we do participate. We not 21 only have an open pocketbook, but we work very 22 hard in the community. In the last several years, 26335 1 M.D. Anderson Hospital, of which my wife and I 2 have both been on the board, asked us to have an 3 event with John and Nellie Connolly. John was the 4 former governor. He died a couple of years ago. 5 And I believe it was the most successful event in 6 the history of Houston. M.D. Anderson is 7 certainly one of the major cancer hospitals in the 8 world today. It's a fabulous organization. 9 We had talked earlier that one of the 10 directors of United Financial was Charles 11 LeMaistre, and he was the president of 12 M.D. Anderson. 13 Q. In addition, you don't just put a 14 fundraiser like that on in one day, do you? 15 A. No. They take, obviously, a tremendous 16 amount of time. As I said, we -- we just don't 17 contribute money but we contribute to making these 18 things work. 19 Q. And both of you have been on the board 20 of M.D. Anderson? 21 A. Yes. 22 Q. Okay. 26336 1 A. And some other activities that we've 2 been involved in, several weeks ago we had an 3 affair here in Houston for the Holocaust Museum of 4 which Houston has a museum that started about 5 three or four years ago. My wife and I chaired 6 that. And I brought Stephen Spielberg down 7 because of his contributions by making Schindler's 8 List and other movies. If not the biggest, the 9 top two or three largest events like this ever 10 held in Houston. We had 1800 people at the George 11 Brown and a lot of work and effort. 12 So, it's more than just giving money, 13 which I think we're generous in giving money; but 14 it's a lot of work, as well. 15 On the education side, my wife went 16 back a few years ago and -- to get her master's 17 degree at St. Thomas University, a Catholic 18 university here. And I think she got her master's 19 degree. I think she's the oldest graduate they 20 have ever had. 21 Q. I do divorce work, too, Mr. Hurwitz, 22 but not for you. 26337 1 A. But out of that, she was awarded 2 earlier this year the Distinguished Alumni Award. 3 But we have the Hurwitz lecture series there, 4 which we bring in CEOs; and it's been very 5 popular. We actually got the idea from George and 6 Ronia Kozmetsky because they have a lecture series 7 in Austin for a number of years at the University 8 of Texas. 9 Just recently, my son Shawn that's here 10 and Barbara, we had worked on -- it's a school 11 from the 5th grade to the 8th grade. It's called 12 KIP. And it's to take children from the -- the 13 lower levels of Houston society. The goal is to 14 maybe get -- the ones who get to the 9th grade and 15 drop out, to see if these children can be educated 16 and get them a college education. These are all 17 Ivy League teachers. It's really a grassroots 18 kind of thing. They have to sign a contract with 19 their parents that they will come to school at 20 7:30 in the morning and stay until 5:00 in the 21 afternoon. They have to work half a day on 22 Saturdays, and they have to take a month out of 26338 1 the summer. And it's -- it's an extraordinarily 2 rewarding thing that these children which are 3 underprivileged ranged in the top 10 percent in 4 the State of Texas testing. 5 Q. But these aren't necessarily 6 supergifted kids to start with? 7 A. No, they are not. They were part of 8 the Houston Independent School District until this 9 year, and they needed their own school because 10 they had outgrown it. My son Shawn worked on a 11 strategic plan and the financing. And we got the 12 State of Texas and the City of Houston and some 13 banks and the former mayor of Houston, Bob Lanier; 14 and I put in the equity to create the school. 15 Q. I know of at least one other major 16 project you may have contributed money to, but I 17 know your wife contributed a lot of time to it. 18 It's in between the Holocaust Museum and the 19 hospital? 20 A. Yes. Hermann Park, which is, I say, 21 Houston's answer to Central Park. It's the 22 biggest park here. We were involved in that, and 26339 1 my wife -- not only did we contribute again, but 2 she lead a group to raise money for new golf 3 courses and to fix it up. 4 Q. These are public golf courses? 5 A. At last count, it raised over 6 $27 million for that. 7 Q. And at least in her case, she's 8 probably worked every day on that project for 9 several years, hasn't she? 10 A. Yeah. 11 Q. Let me turn, Mr. Hurwitz, to a few more 12 things; and we'll be through. OTS Enforcement in 13 this case has charged that MAXXAM, Federated, and 14 yourself have violated net worth maintenance 15 obligations or failed to live up to net worth 16 maintenance obligations that you owed to USAT, 17 UFG. 18 You're aware of that? 19 A. I am. 20 Q. What's your response to that, 21 Mr. Hurwitz? 22 A. Well, we clearly didn't violate that 26340 1 net worth maintenance. 2 Q. Had MAXXAM or Federated or even you 3 ever been called upon to fulfill some net worth 4 maintenance obligation until this case was 5 brought? 6 A. No. 7 Q. Did you ever sign a net worth 8 maintenance agreement at any time? When I say 9 "you," I'm talking about Federated, MAXXAM, or 10 yourself. 11 A. No. I was never asked to. 12 Q. And at any time, did anyone ever tell 13 you that because you had the preferred stock or 14 the Drexel option, that meant that automatically 15 you had a net worth maintenance obligation? 16 A. No. 17 Q. Had any regulator ever said that, told 18 that to MAXXAM or Federated, what would you have 19 done? 20 A. We would have come back into 21 compliance, and there were many ways to do that. 22 If they had thought that, by owning the preferred 26341 1 or having an option or anything like that, we 2 would have sold them. And certainly complied with 3 the law. The first time I learned about anything 4 like this was in a lawsuit in 1995, you know, many 5 years later. 6 Q. Another allegation that OTS Enforcement 7 has brought is that there was, in fact, an 8 arrangement, an agreement, a quid pro quo, 9 whatever, whereby Drexel, by being offered the 10 opportunity to sell bonds or maybe do the repos 11 with USAT, would in turn favor MAXXAM or do 12 something special for MAXXAM that it otherwise 13 would not do. 14 What's your response to that? 15 A. Well, that's just ludicrous. Of 16 course, it didn't happen. As I've testified, I 17 had never asked anybody at United Financial or any 18 company I've ever been involved with to do any 19 business with any particular person. That's not 20 something I would do. 21 Q. And you mentioned earlier today or 22 yesterday that when it came time for Weingarten 26342 1 Realty to go out and use an underwriter, who was 2 it that you thought and suggested to the board 3 management of Weingarten Realty? 4 A. Well, as I stated yesterday, I told 5 them that I thought Goldman Sachs because they had 6 a certain expertise in REITs. In my view, they 7 were the best underwriter for Weingarten Realty. 8 Q. And we have seen that there were 9 instances where Salomon Brothers did something 10 with USAT, Smith Breeden, people like that? 11 A. Yeah. 12 Q. Was that any quid pro quo that MAXXAM 13 got any benefits from? 14 A. No. 15 Q. And, again, had anyone ever suggested 16 that doing business with Drexel by USAT was in 17 some way improper to you during any of the time 18 that you were associated with UFG? 19 A. Well, not until the Government wanted 20 to find some charges in 1995. I read that. But 21 certainly not before that. 22 Q. And kind of for the last time, what, in 26343 1 fact, was your role since you said you didn't tell 2 people what bonds to buy or anything at UFG during 3 the time you were associated with it, Mr. Hurwitz? 4 A. Well, Mr. Keeton, I think I tried to 5 state yesterday that I thought that my role -- 6 again, it changed a little bit; but as chairman of 7 the holding company, my role was one of a 8 strategic planner. I worked with the so-called 9 strategic plan which evolved over a long period of 10 time. I was, obviously, very interested in making 11 sure that the right people were in the right job. 12 And Barry Munitz, that was here in the court 13 before, and I spent a lot of time talking about 14 the factor of the right people in the right spot. 15 I would like to think as chairman of the holding 16 company -- this didn't always happen, and it 17 doesn't happen either in my household now or in 18 MAXXAM -- that if I make a suggestion, it's 19 necessarily carried out. I would like to think 20 that people at least listen if I have something to 21 say. And people would come to me on a regular 22 basis and they would ask me questions on 26344 1 investments or any other thing like that and I was 2 always available to talk. 3 As we showed in a chart yesterday, the 4 directors of this company were, in some cases, 5 people I had heard of; in some cases, I hadn't; in 6 some very few cases, people I knew. The same with 7 the personnel that evolved in United Financial. 8 But it was, in my opinion, a good group of people. 9 I thought that the plan that evolved which is -- 10 and it wasn't that one person had an idea. It was 11 a committee that shaped an idea. It was a good 12 plan. 13 Q. You've answered this, but I want to 14 make sure there's no mistakes. 15 Did you ever attempt to have USAT make 16 a particular high-yield bond purchase from Drexel 17 in order to benefit MAXXAM? 18 A. No. 19 Q. And I guess I should ask, since we saw 20 it yesterday: Did you ever ask or insist that 21 USAT do some repos with Drexel in order to benefit 22 MAXXAM or Federated? 26345 1 A. No. 2 Q. Did you ever have a personal loan from 3 USAT during the time of your association? 4 A. I did not. 5 Q. Did your wife or sons or their wives 6 have any personal loans? 7 A. No. 8 Q. Did you have any airplanes you caused 9 them to buy so you could fly around the country or 10 anything? 11 A. No. 12 Q. Other than the two bonuses and some 13 amount of a director's fee, did you get anything 14 out of USAT? 15 A. No. 16 Q. Mr. Hurwitz, were you asked during the 17 stages of this investigation to produce your 18 personal -- all your personal financial records 19 for a period of years as well as personal 20 financial records of your wife, children, trusts, 21 anything like that? 22 A. I don't recall exactly what was asked, 26346 1 but anything that was asked we certainly produced. 2 Q. Was that done without a subpoena? 3 A. Yes. 4 Q. And did you give two depositions during 5 the course of this without a subpoena? 6 A. I did. 7 Q. Did you ever hold back any of the 8 records? 9 A. No. 10 Q. We've been in this case since it was 11 filed. It's something on the order of three 12 years. If we backdate to the FDIC case, it's a 13 little over three years. The investigation has 14 gone on since, really, '88. So, that's almost ten 15 years. 16 Let's direct ourselves to the bringing 17 of this action itself. What's been the effect of 18 bringing this action on MAXXAM? 19 A. Well, I've certainly given a lot of 20 thought to that question; and I think it's had a 21 lot of effects. One is money. The cost of 22 defense of this is over $20 million, plus the 26347 1 amount of money that we invested and lost, and 2 plus tremendous opportunity costs. Some of these 3 very good investments that were made in United 4 Financial would have been purchased in what is now 5 called MAXXAM. And those, of course, are in 1980 6 dollars, not today's dollars. So, the monetary 7 cost has been very significant. 8 Q. Beyond the monetary cost, what kind of 9 effects has it had on you and the other people as 10 far as you're concerned? 11 A. Well, I think the -- 12 Q. I interrupted something. 13 You said something about opportunity 14 costs. What did you mean when you said that? 15 A. Well, the time, you know, hopefully 16 that we have some talents of how to run businesses 17 and do things. So, that certainly wasn't 18 available. And a lot of the dollars that we have 19 tied up could have been more productive. 20 To answer your other question, on the 21 people side, going through the defendants, Ron 22 Huebsch, which I see today on a regular basis, I 26348 1 can tell you it's -- it's had a big toll on him. 2 We've been together for in excess of 25 years. 3 He's a wonderful person. I don't think anybody 4 enjoys being sued by the United States Government. 5 It's a pretty awesome feeling. We had a towing 6 agreement, I think, for seven years. And we 7 notified the Government that we were not going to 8 extend it, and that's when we got sued. So, this 9 has happened since then. 10 But Mr. Huebsch is going to retire. 11 He's 67 years old at year end. But, certainly, 12 part of the decision for him to retire is because 13 of this lawsuit. 14 Michael Crow, which I don't see -- I've 15 run into him maybe a couple of times or had an 16 opportunity to talk to him. His whole life has 17 changed because there's certain jobs he can't get 18 because of this lawsuit that is pending, and it's 19 an unhappy feeling. 20 All of these people, in my own 21 judgment, are good people. They are honest 22 people, and I would be proud to be in business 26349 1 with any of them or anything else. 2 Art Berner, which was general 3 counsel -- I thought Art was a very good general 4 counsel, Law Review from NYU. He was a hard 5 worker. He used to get in at 3:00 or 4:00 o'clock 6 in the morning. Good guy. I've been informed, 7 even though I don't see Mr. Berner anymore, not 8 for any other reason other than the fact that I 9 just don't seem to run into him, can't work in 10 certain types of regulatory law that has to do 11 with banking regulations. That's what he was 12 before. So, that's too bad. 13 Jenard Gross, again, I have a great 14 admiration for Mr. Gross. He's a wonderful 15 person. As you can see from what they 16 affectionately called the Jenard-O-Grams which he 17 seemed to write on a regular basis, he was a very 18 hands-on person that cared deeply about the -- 19 about United Savings. And, certainly, he had a 20 great effect on that relationship. 21 Barry Munitz, I was best man in Barry's 22 wedding. It's -- I have a very slight 26350 1 relationship with Barry today. He lives in 2 California, and he gets the brunt of being called 3 a financial crook and things like that which has 4 hurt him. He's an enormously able person, and 5 he's certainly been able to survive. He was the 6 chancellor of the largest college in the United 7 States. Now he's chairman of the Getty Museum. 8 Barry may have the best job in the world of giving 9 away $200 million a year. It's had a toll on 10 Barry personally. A large -- very large toll. He 11 and I had those discussions. 12 Dr. Kozmetsky, we talked about. I 13 would say -- and if this is an exaggeration, it's 14 very slight. I would say in the last 30 years 15 since George and I have been doing business 16 together, that for the first 25 of those years, 17 that we either saw each other or talked at least 18 five days a week. We traveled all over the world 19 together. It's a wonderful relationship. And I 20 got a call from George's family asking what I 21 could do to make sure he wasn't sued in this case. 22 And very teary-eyed family members. George had 26351 1 received the highest peacetime award that the 2 President of the United States can give. And at 3 the time -- he just turned 81 about two weeks ago; 4 so, maybe he was 78 or 79 at the time. And he did 5 not want to be sued by the United States 6 Government, as none of us want to. And I would 7 have done anything to make sure that George wasn't 8 sued. He was asked to come to Washington on 9 several occasions and was told that they wouldn't 10 sue him if he would pay them $5 million. He 11 informed me that he did not believe in extortion. 12 They called him back a year later and said that 13 they wouldn't sue him if he would pay them 14 $1 million, and he didn't -- 15 MR. GUIDO: Your Honor, I object to 16 this. This is hearsay, and I think that this has 17 something to do with another government agency and 18 may involve settlement negotiations. I find it to 19 be, you know, one, as a violation of the rules. I 20 don't know how Mr. Hurwitz even knows this 21 information with regard to settlement 22 negotiations. It seems to me he's now talking 26352 1 about matters that were related to him by a family 2 member of Mr. Kozmetsky. If Mr. Kozmetsky was on 3 the stand, he would have been asked these 4 questions himself. I believe this is not only 5 hearsay but may intrude on 408 privileges that 6 another government agency has. 7 MR. KEETON: Another government agency 8 who gets any funds out of this suit and who's 9 paying those people's expenses all the way 10 through. That's the "another government agency," 11 right and left hand. 12 MR. GUIDO: Your Honor, my objection 13 stands. 14 THE COURT: I'll deny the objection. 15 A. At any rate, Your Honor, Dr. Kozmetsky, 16 as we know, wasn't sued. In the authorization to 17 sue, which we got a copy of, it says in there that 18 Dr. Kozmetsky wasn't sued because he was too rich 19 and too famous to sue. 20 MR. GUIDO: Your Honor, I object again. 21 This is now talking about an authorization to sue 22 that has nothing to do with the OTS. It is 26353 1 another government agency, and I believe that that 2 is another piece of litigation that Mr. Hurwitz 3 has and that it does not belong in this 4 litigation. 5 MR. KEETON: It is an FDIC memorandum, 6 Your Honor. 7 THE COURT: All right. We've heard it. 8 Can we move along? 9 MR. KEETON: Yeah. 10 Q. (BY MR. KEETON) Go ahead, Charles. 11 A. So, I wish that for all of these people 12 that if that's the criteria not to sue somebody, 13 that they were rich and famous. 14 Q. How about the effect on you? 15 A. I wish that all of these defendants 16 maybe were richer and more famous, if that's the 17 criteria to bring a suit. 18 Q. Has it affected you at all? 19 A. Sure. You know, it's affected my 20 family a lot and myself. It's a hardship. You 21 know, you live with it; and you do what you have 22 to do. I did nothing wrong. No one in this case 26354 1 did anything wrong. The Government -- they hired 2 a Houston law firm, paid them $5 million, and 3 spent three years to decide whether they should 4 bring this lawsuit. 5 MR. GUIDO: Your Honor, may I have a 6 standing objection to this whole line? 7 THE COURT: All right. 8 A. And it was determined they shouldn't, 9 that there was no self-dealing, and what they 10 should do is they should try to work out some 11 modest amount of money and not bring this lawsuit. 12 It says in the authorization to sue that there is 13 a 70 percent chance of a summary judgment; and it 14 says even if they don't get a summary judgment, 15 that they have a most modest case at best. 16 At the same time, the general counsel 17 is giving speeches to Congress and other people 18 stating unless they have a 50 to 60 percent chance 19 of winning a lawsuit, it shouldn't be brought with 20 good economics. It absolutely violates what they 21 are saying. 22 And on top of that, Your Honor, there 26355 1 was a letter from Leon Panetta which was then the 2 chief of staff of the President of the United 3 States, writing the FDIC -- 4 MR. GUIDO: Objection, Your Honor. 5 It's again hearsay, and it's again pertaining to 6 something that is not a part of this proceeding. 7 THE COURT: Denied. 8 A. -- stating to the FDIC that they would 9 like to have more redwood trees and they don't 10 want to put it in the budget and they can't afford 11 it. There was a deposition of an FDIC staff 12 attorney saying that this is the most politicized 13 lawsuit that he had ever seen in his 22 years. I 14 forgot how many Senators and how many Congressmen 15 and how many Secretaries of Interior and 16 Secretaries of Agriculture and the White House had 17 been over to talk with them before this lawsuit 18 was brought. We have learned in this process that 19 there were meetings with environmental groups at 20 the White House before this lawsuit was brought on 21 what they called a debt for nature. 22 One can't help but wonder, you know, 26356 1 what is this all about? 2 I'm through, Mr. Keeton. 3 MR. KEETON: I'm through, too, 4 Mr. Hurwitz. Thank you. 5 THE COURT: Does the OTS have some 6 redirect? 7 MR. GUIDO: Yes, Your Honor. 8 9 FURTHER EXAMINATION 10 11 Q. (BY MR. GUIDO) Mr. Hurwitz, we 12 discussed -- remember the exhibit, Lazard 19, the 13 list of the high-yield bond underwritings that 14 Drexel had underwritten for MAXXAM and 15 MAXXAM-related entities? 16 Do you recall that? 17 A. I do. 18 MR. GUIDO: And I would like to -- at 19 this time, Your Honor, I would like to introduce 20 the prospectuses for those underwritings into the 21 record, if I may. 22 MR. KEETON: No objection, Your Honor. 26357 1 THE WITNESS: Your Honor, would you 2 mind if my wife and son could sit up here? 3 THE COURT: All right. We'll take a 4 short recess. 5 6 (Whereupon, a short break was taken 7 from 9:54 a.m. to 10:16 a.m.) 8 9 THE COURT: Be seated, please. We'll 10 be back on the record. 11 Mr. Guido, you may continue with your 12 redirect. 13 MR. GUIDO: Your Honor, at this point 14 in time, we would like to move the admission of 15 the documents that we had given to counsel a few 16 days ago which are the backup documents for the -- 17 what's referred to as the Lazard 19 exhibit. 18 T9029 is the first one, which is the 19 150-million-dollar MAXXAM group, Inc. issue. It's 20 dated May 21, 1985, which is the first document. 21 THE COURT: Just to move things along, 22 they seem to be numbered sequentially from 9029 to 26358 1 9035; is that correct? 2 MR. GUIDO: That's correct. 3 THE COURT: There's no objection to 4 receiving -- 5 MR. KEETON: No objection, Your Honor. 6 THE COURT: All right. Received. 7 Q. (BY MR. GUIDO) Now, you were asked some 8 questions, Mr. Hurwitz, about the board of 9 directors of various entities that you've been 10 affiliated with prior to United Financial Group. 11 Do you recall those questions that 12 Mr. Keeton asked you? One, I think, was the 13 mutual fund that you established; and you 14 discussed the board of directors? 15 A. Yes. 16 Q. Now, the -- let me focus you back onto 17 the board of United Financial Group and United 18 Savings Association of Texas. 19 They held, I think you testified, joint 20 board meetings; is that correct? 21 A. Yes. 22 Q. Now, were completed transactions that 26359 1 had been either approved by the strategic planning 2 committee or the executive committee presented to 3 the board of directors of USAT for its 4 ratification? 5 MR. KEETON: I object, Your Honor. 6 He's mixed two different committees. I'm not sure 7 "either approved completed transactions" -- I 8 don't believe the strategic planning committee, 9 any testimony said they approved it. What the 10 executive committee might have done, I don't 11 remember. 12 MR. GUIDO: Let me separate out the 13 question. 14 THE COURT: All right. 15 Q. (BY MR. GUIDO) Do you know of any 16 instances whether the board of directors of USAT 17 approved transactions by ratification of an act 18 that had previously occurred? 19 A. I don't recall that. 20 Q. Do you know whether the board of 21 directors of USAT had approved transactions after 22 they had been consummated? 26360 1 A. I don't recall. 2 Q. Were there any board of director 3 members other than you and Mr. Munitz who 4 participated in the meetings of the strategic 5 planning committee? 6 A. Any other directors of UFG, was that 7 your question? 8 Q. Yes. 9 A. Jenard Gross. 10 Q. Other than Jenard Gross, you, and Barry 11 Munitz? 12 A. I don't think so. 13 Q. Now, did any other directors of USAT 14 other than Mr. Gerald Williams and Jenard Gross 15 attend the strategic planning committee meetings? 16 A. I think we listed the members of that. 17 I don't recall any. 18 Q. Now, with regard to one of the 19 underwritings that -- I think it was the May 20 underwriting for MAXXAM Group which is at T9029. 21 It's the 150-million-dollar issuance of May of 22 1985, May 21st of 1985 that Mr. Keeton asked you 26361 1 about. You indicated that you had some 2 conversations with an underwriter regarding his 3 knowledge or lack thereof of MAXXAM or MAXXAM 4 Group, Inc.'s interest in a savings and loan. 5 Do you recall that testimony? 6 A. No, I don't. 7 Q. You don't recall that you testified 8 that you had a conversation with a Drexel 9 underwriter who didn't even know that MCO or 10 MAXXAM held an interest in the savings and loan? 11 A. Yes, yes. 12 Q. Who was that underwriter? 13 A. Ken Moelis. 14 Q. And who was he? 15 A. He was co-director of corporate finance 16 of Drexel Burnham. 17 Q. And in what context did you have that 18 conversation? 19 A. I don't recall. 20 Q. Do you recall anything else about the 21 conversation? 22 A. I don't. 26362 1 Q. Can you spell his name for the record? 2 A. I think it's M-O-E-L-I-S, I think. 3 Q. Now, I would like to direct your 4 attention to another document that you were asked 5 questions about -- I asked you questions about, 6 and that's A3023. And Mr. Keeton asked you 7 questions about it. Particularly, Page 51 of the 8 document. 9 MR. KEETON: Seeing which document it 10 is, Your Honor, I asked no questions about this 11 document. 12 MR. GUIDO: A3023, Mr. Keeton, is the 13 chart of the reverse repurchase agreements. 14 MR. KEETON: I beg your pardon. I did. 15 I had one page Xeroxed. 16 THE COURT: All right. Let's move on. 17 Q. (BY MR. GUIDO) Now, with regard to -- 18 do you remember Mr. Keeton asked you questions 19 about the interest rates, the average rates that 20 were listed there? 21 A. Yes. 22 Q. Do you know why the rates differ? 26363 1 A. I don't. 2 Q. During the period of time between 3 September and December of 1987, had the stock 4 market crashed? 5 A. Between what period? 6 Q. Between September and December of 1987, 7 had the stock market crashed? 8 A. Yes. 9 Q. Were interest rates very volatile 10 during that period of time? 11 A. Yes. 12 Q. Did they shift by at least 100 basis 13 points? 14 A. I don't recall that. 15 Q. But it was quite a dramatic shift, as 16 you recall? 17 A. I believe there was a shift. 18 Q. Do you recall the dates any of these 19 reverse repurchase agreements were entered into? 20 A. I don't. 21 Q. Now, Mr. Keeton left off in his 22 questions -- the second part, see at the bottom it 26364 1 says "dollar repurchase agreements"? 2 Do you see that? It says "Drexel 3 Burnham Lambert" under the "counter-party" 4 section. 5 A. Yes. 6 Q. Did you participate in negotiations of 7 dollar repurchase agreements with Drexel Burnham 8 Lambert? 9 A. No. 10 Q. Now, you testified, I think, that you 11 resigned in September of 1988 -- I mean February 12 of 1988 from the board. 13 Do you recall that testimony? 14 A. I do. 15 Q. I would like to show you Tab 1254, 16 which is A1520, which is the minutes of the board 17 of directors -- 1245, excuse me, is the tab 18 number. 19 I would also like to show you a 20 document which is -- we've had marked as T9036, 21 which is a memorandum from Jenard Gross to you and 22 others dated June 9th, 1988. 26365 1 First, I would like to ask you to take 2 a look at A1520. 3 Do you have that in front of you? 4 A. I do. 5 Q. Look at the first paragraph of the 6 document. It says -- these are the minutes of the 7 investment committee of July 13th, 1988. It says, 8 "A meeting of the investment committee was held on 9 July 13th, '88. All members of the committee were 10 present. Also present was Mr. Charles Hurwitz." 11 If you had resigned as a director of 12 UFG, why were you attending an investment 13 committee meeting in July of 1988, four months 14 later? 15 A. From time to time, I would go to 16 investment meetings and other meetings that United 17 had. I was invited. And if I was in town, I 18 would certainly try to go. As you may recall, we 19 were hopeful to be the winner of the 20 Southwest Plan; and it was in my interest to know 21 what was going on. 22 Q. Now, I would like to direct your 26366 1 attention to T9036, which is a memo from Jenard 2 Gross to you and others dated June 9th, 1988. 3 MR. GUIDO: I would like to move the 4 admission of that document, Your Honor. 5 MR. BLANKENSTEIN: Your Honor, I 6 believe it's already in evidence under T9009 -- 7 A9009. 8 THE COURT: No. 9 MR. BLANKENSTEIN: T9009A. 10 THE COURT: It's already in the record. 11 MR. GUIDO: It's already in the record. 12 I apologize. 13 Q. (BY MR. GUIDO) This is a memorandum 14 that refers to a meeting of the strategic planning 15 committee dated June 9th, 1988. 16 Did you also participate in the 17 meetings of the strategic planning committee after 18 your resignation from the board of UFG? 19 A. Well, it looks like I attended this 20 meeting, yes. 21 Q. Now, you testified that -- let me 22 strike that. 26367 1 Was the reason that you attended these 2 meetings because of your involvement in the 3 Southwest Plan application at the time? Is that 4 what your testimony is? 5 A. Yes, and plus I liked these people. 6 And, hopefully, they may have thought I had 7 something to bring to whatever they were doing. 8 Q. Now, did you -- you testified about the 9 Southwest Plan and your involvement in that. 10 Who was the underwriter for the 11 securities that you were proposing to issue? 12 A. I don't recall. 13 Q. Did Merrill -- did you have discussions 14 with Merrill Lynch about the issuance of 15 subordinated debt? 16 A. I don't recall. 17 Q. Did you have discussions with Drexel? 18 A. I don't recall. 19 Q. Do you know who the underwriters were 20 that MAXXAM was dealing with with regard to that 21 issue? 22 A. I don't remember. 26368 1 Q. Do you recall whether the -- if one of 2 the underwriters that you had arrangements with 3 had decided that they didn't want to deal with you 4 because you had withdrawn from previous 5 negotiations with them about a subordinated debt 6 application as part of the Southwest Plan? 7 A. I don't recall that. 8 Q. Have you been involved in any 9 litigation other than this case involving a 10 put/call agreement? 11 A. Yes. 12 Q. Pardon? 13 A. I think there was, yes. There was a 14 zero coupon note, I think, that there was 15 litigation, which the litigation was later 16 dropped. 17 Q. Was that case settled? 18 A. No. It was dropped, I believe. 19 Q. You think it was just dropped. 20 Do you recall what the nature of the 21 put/call agreement was in that situation? 22 A. It had to do with a zero coupon note 26369 1 that -- before they changed the tax laws, that you 2 could have high accretion. So, the corporations 3 could deduct the amount of accretion each year. 4 That tax law was later changed. And it was 5 convertible into common stock, and I think 6 that's -- 7 Q. That was sometime in 1982, was it not? 8 A. I remember it sometime in the early 9 Eighties. It certainly could have been '82 or 10 '83. 11 Q. And you -- and who was -- do you recall 12 who the underwriter was? 13 A. Yes. Drexel Burnham. 14 Q. Did Drexel Burnham purchase the 15 interest? 16 A. Well, they were the underwriters of the 17 issue. 18 Q. And did they pay MAXXAM the money out 19 of their own funds for that zero coupon bond? 20 A. Well, I think any underwriter does that 21 on any transaction. 22 Q. Do you know whether or not Drexel 26370 1 Burnham was the beneficial owner of that zero 2 coupon bond? 3 A. No. 4 Q. You don't? 5 Do you know who purchased the zero 6 coupon bond? 7 A. I know at one time a company called 8 Clarendon Insurance out of Bermuda owned them. 9 Q. Is that the company that you entered 10 into the put/call agreement with? 11 A. I believe so. 12 Q. Did you negotiate that put/call 13 agreement through Drexel? 14 A. No. I think Ezra Levin negotiated that 15 with Clarendon, I believe. 16 Q. Was the litigation that involved that 17 put/call agreement litigation that alleged that 18 that was a way that you could gain control of 19 MAXXAM or MCO? 20 A. I don't recall what it was. I don't 21 think so. I think it had to do with whether we 22 had done it in time before the tax law changed, 26371 1 but I'm not clear on that. 2 Q. You don't recall? 3 A. No. 4 Q. Now, had you -- you testified about the 5 Southwest Plan and what transpired in the 6 Southwest Plan. 7 Did you -- have you reviewed the 8 minutes of the board in which they discussed the 9 Southwest Plan bidders for United Savings 10 Association of Texas? 11 A. I think I read it, but it's been some 12 years ago. 13 Q. What do you mean it was some years ago? 14 I mean, did you have access to the board minutes 15 prior to the last six months? 16 A. I think so. I got -- what I remember 17 reading is the Steptoe Johnson report. That's 18 what I was talking about. And I think I may 19 have -- 20 Q. So, your knowledge is based on the 21 so-called Steptoe Johnson report? 22 A. Yes. And that's been several years ago 26372 1 since I read that. 2 Q. Now, did you -- when the receivership 3 was appointed in December 30, 1988, did you 4 subsequently file an action challenging the 5 appointment of the receiver? 6 A. No, I don't think so. 7 Q. Did you discuss it with anyone? 8 A. I don't believe I did. 9 Q. Have you filed any goodwill claims with 10 regard to MAXXAM's ownership or your ownership of 11 UFG? 12 A. No, I don't think so. 13 Q. And when did you file the challenge to 14 the bidding process on December 30, 1988? 15 A. I think that was, I don't know, several 16 years ago maybe. I don't know that it was a 17 challenge to the bidding process. It was a 18 challenge to how it was awarded. Maybe that's the 19 same thing. 20 Q. Did you have an agreement with 21 Mr. Gross, Crow, and Bruce Williams that MAXXAM 22 would work jointly with them to recapitalize USAT 26373 1 in 1988? 2 A. No. We didn't have an agreement with 3 them. We would have certainly -- if we had of 4 won, we certainly would have invited that team to 5 come aboard; but I don't recall that we had an 6 agreement. 7 Q. So, you don't -- you don't recall 8 whether or not you had an agreement with them? 9 A. I don't. 10 Q. And the -- going back just one last 11 question before I turn it over to Mr. Rinaldi for 12 his area, the question with regard to the put/call 13 agreement that came up in the litigation, did the 14 question involve your use of the put/call 15 agreement to obtain additional shares of MCO or 16 MAXXAM? 17 A. I don't recall that. 18 Q. Okay. 19 MR. GUIDO: No further questions, 20 Your Honor. Mr. Rinaldi, I think, has a few 21 questions for this witness. 22 THE COURT: Mr. Rinaldi. 26374 1 MR. RINALDI: Yes, sir. 2 3 FURTHER EXAMINATION 4 5 Q. (BY MR. RINALDI) Your counsel showed 6 you several charts of the directors, and I would 7 like to go over those. So, if we could take a 8 look at B4345. 9 MR. RINALDI: Can we pull that? 10 MR. KEETON: It's right here. 11 MR. RINALDI: I think it's just as easy 12 to deal with the smaller copies. 13 14 (Discussion held off the record.) 15 16 Q. (BY MR. RINALDI) Now, I notice that at 17 the latter part of 1987 and the beginning of 1988, 18 there are a number of people that resigned from 19 the board. And we've gone through this -- you've 20 gone through this with your counsel. 21 I notice that at the beginning of 1988, 22 Paul Schwartz gets appointed to the UFG board. 26375 1 Do you see that? 2 A. I do. 3 Q. We've talked about Mr. Schwartz. He 4 was at this point -- what position did he hold 5 with MCO? 6 A. I can't tell you his title, but he was 7 a senior officer of MCO. 8 Q. Okay. And was he also an officer of 9 Federated? 10 A. No. 11 Q. Okay. And I notice that Mr. Schwartz 12 goes on the board at precisely the same time that 13 you leave the board; is that correct? 14 A. That's correct. 15 Q. So, is it fair to assume that 16 Mr. Schwartz took your place on the board? 17 A. I don't know that I would phrase it 18 that way. 19 Q. Well, how was it that Mr. Schwartz came 20 to be on the board? 21 A. I told Jenard Gross, the CEO, that I 22 was leaving the board. 26376 1 Q. Uh-huh. 2 A. And if he liked and if Paul Schwartz 3 was willing, if he wanted Paul as a director, that 4 he should visit with Paul. And I think they did 5 visit, and Paul was asked to go on the board by 6 Mr. Gross. 7 Q. So, you were the one that suggested 8 that Mr. Schwartz be considered to go on the board 9 upon your leaving? 10 A. I believe that's right. 11 Q. Now, I notice that a number of other 12 people had left. And Mr. Arthur Berner and 13 Michael Crow went on the UFG boards. 14 How did that come about, sir? 15 A. I don't recall. 16 Q. Do you recall that Mr. Berner and 17 Mr. Crow had entered into employment contracts 18 with UFG while you were the chairman of the board 19 that required that they go on the UFG board if 20 asked to do so? 21 A. I don't remember that. 22 Q. Did you ask them to do so? 26377 1 A. To do what? 2 Q. To go on the board. 3 A. No. 4 Q. Okay. Would you take a look at 5 Exhibit -- let's see -- T805 -- well, let me just 6 ask you this: So, as a consequence of your 7 leaving and the other directors that are indicated 8 here leaving, the board at the beginning of 1988 9 consisted of Mr. Arthur Berner; and he was an 10 insider. Right? 11 A. That's right. 12 Q. And Mr. Michael Crow, he was an 13 insider, correct? 14 A. That's right. 15 Q. And Mr. Paul Schwartz, he was at least 16 an affiliated party, was he not? 17 A. I don't know that I would call him an 18 affiliated party. 19 Q. Well, he was affiliated with MAXXAM; 20 and MAXXAM was the entity that owned almost 24 21 plus percentage of the entity? 22 A. Well, does that make it affiliated? 26378 1 Q. Well, maybe that's a technical term; 2 but let's go on. 3 Who else was on the board? Mr. Gross; 4 is that correct? 5 A. Whatley, looks like, was on the board. 6 Q. And Whatley would have been an outside 7 director, correct? 8 A. Yes. 9 Q. And Mr. Munitz. And he, again, was an 10 individual that had been appointed to the board or 11 brought to the board by MCO, correct? 12 A. Yes. 13 Q. So that of all the remaining board 14 members, of which there were six, only one of them 15 was an outside director, correct? 16 A. Well, during that period, we had 17 lost -- I believe at some point in there, we had 18 lost our directors' insurance, as well. So, it 19 was pretty hard to keep directors. 20 Q. Is that the reason that you left, 21 because you didn't have insurance, sir? 22 A. No. 26379 1 Q. Okay. Was that the reason -- did you 2 have discussions with other people as to why they 3 were leaving? 4 A. You know, I don't. I think when I got 5 off the board -- was that the same time that Burt 6 Borman got off the board? 7 Q. It was. It indicates that you and 8 Mr. Borman, as well as -- well, Mr. Silverman, I 9 guess, got off slightly later but only slightly. 10 Do you see that? 11 A. Yes. 12 Q. Did you have any discussion with them 13 when you got off the board? 14 A. I remember discussions with Burt 15 Borman. 16 Q. Did he indicate to you his reason for 17 getting off the board? 18 A. No. I think he said that -- I don't 19 recall. 20 Q. Once you and Mr. Borman and 21 Mr. Silverman left, then the majority of the board 22 were insiders, correct? 26380 1 A. Well, there was Gross, Munitz, Whatley, 2 Crow, Berner. I would say so. 3 Q. And as you moved further into 1988 and 4 discussions -- I think you just testified a moment 5 ago that as discussions regarding the 6 Southwest Plan came up, this is the group of 7 people that you were dealing with. Right? 8 A. I don't know what that means. What do 9 you mean "dealing with"? 10 Q. When a question arose with respect to 11 the Southwest Plan and your involvement, the 12 people you would go to to talk about it were the 13 insiders that were then running USAT, correct? 14 A. Most probably. 15 Q. And I think you testified a while ago 16 that you attended several board meetings because, 17 quote, you had an interest in knowing what was 18 going on; is that correct? 19 A. That's correct. I don't know about 20 board meetings. I think there were strategic 21 meetings or something else. I don't remember 22 board meetings. 26381 1 Q. But you testified a moment ago you did 2 attend some at least informal meetings of the 3 strategic planning committee? 4 A. I did, yes. 5 Q. Throughout this period of time, you 6 were being constantly advised of the progress of 7 the Southwest Plan so that you could put in a bid, 8 weren't you? 9 A. Well, I don't know that I was 10 constantly advised; but I was informed, I would 11 say. 12 Q. Let me ask you this: Are you telling 13 me Mr. Schwartz didn't keep you apprised of what 14 was going on with respect to the Southwest Plan? 15 A. I didn't say that at all. 16 Q. Well, did he? 17 A. I was very busy, and I don't know that 18 I was constantly advised or anything to do with 19 United. 20 Q. You're hanging up on a word there, 21 "constantly." 22 You were kept apprised or advised with 26382 1 respect to what was going on with respect to the 2 Southwest Plan? 3 A. I was. 4 Q. And Mr. Munitz, that was his job, 5 wasn't it, to keep you advised? 6 A. Well, he had a lot of jobs. He did 7 keep me advised. 8 Q. That was one of them, wasn't it? 9 A. Yes. 10 Q. Once you were off the board of UFG, it 11 was also his job to keep you advised about UFG. 12 Right? 13 A. Well, I think we talked about it a lot 14 less, but sure. 15 Q. Was that also a role that Mr. Schwartz 16 would play, keeping you apprised of what was going 17 on at UFG? 18 A. I don't know if it was or not. 19 Q. And Mr. Berner kept you apprised of 20 what was going on at UFG and USAT, didn't he? 21 A. I don't recall that, that he did. 22 Q. You're telling me that he didn't send 26383 1 you memos periodically about his conversations 2 with the regulators and what was going on with 3 respect to the Southwest Plan? 4 A. I think he may have. 5 Q. In fact, there's a number of memos in 6 the record -- in fact, you made reference to one 7 the other day? 8 A. That was before this period. 9 Q. During this period, there are any 10 number of memos sent to you by Mr. Berner telling 11 you exactly what was going on with respect to the 12 Southwest Plan, didn't he? 13 A. There may have been. 14 Q. That was so you could have all the 15 available information to formulate a bid on the 16 Southwest Plan? 17 A. We were interested and did formulate a 18 bid. 19 Q. Did any of the other bidders have privy 20 to all that inside information that was being 21 passed along to you? 22 A. Sure. Larry Connell worked very 26384 1 closely with the other side and gave them all the 2 information. 3 Q. You know that to be a fact because 4 Mr. Connell told you? 5 A. I knew it as a fact at the time. I 6 wouldn't be surprised if he hadn't told me that. 7 They worked with everybody in the company, sure. 8 Q. It was your intention, if MAXXAM 9 obtained the bid, to retain Mr. Berner, to retain 10 Mr. Crow, and to retain Mr. Munitz at the 11 surviving institution; is that correct? 12 A. I don't know that we totally thought 13 that out, but I would be surprised if we wouldn't 14 because we thought they were very competent 15 people. 16 Q. In fact, you had committed to them that 17 in the event that MAXXAM were to prevail, they 18 would honor all the contracts of UFG and USAT, 19 correct? 20 A. I don't know that that's the case. 21 Q. I think that's -- let me just ask you 22 one final question because there is a slight 26385 1 overlap on these boards. 2 I take it that the questions I asked 3 you with respect to the -- to the board membership 4 of USAT, the answers would be the same? You 5 recommended that Mr. Gross talked to Mr. Schwartz 6 about putting him on the board? 7 A. Yes. 8 Q. So, when we end up at the end at USAT, 9 there's a slightly different constituency. 10 I notice that Michael Crow isn't on the 11 board. 12 A. I do see that. 13 Q. Michael Crow is on the UFG board but 14 not on the USAT board. 15 Do you know why Mr. Crow didn't go on 16 the USAT board? 17 A. I don't. 18 Q. So, the USAT board was only composed of 19 five individuals. There would have been 20 Mr. Gross, and he was an insider; is that correct? 21 A. He was chairman of the board, chief 22 executive officer. 26386 1 Q. Right. Then there was Mr. Munitz, who 2 likewise was an insider; is that fair? 3 A. Well, he worked -- he got paid by the 4 savings and loan. 5 Q. Then there's Mr. Whatley, who was an 6 outsider; and then there's Paul Schwartz, who was 7 with MCO that you had recommended, correct? 8 A. When you say "recommended," I mean, I 9 told you the story -- 10 Q. Well, we know. 11 Who you had referred Mr. Gross to? 12 A. Right. 13 Q. Then there's Arthur Berner. So, at 14 least three of these people were insiders; that 15 is, Mr. Gross, Mr. Berner, and Mr. Munitz. And 16 then there's Mr. Schwartz, who -- I'm not sure 17 he's an affiliate of MCO. 18 And the only outsider would have been 19 Mr. Whatley at this point in time, correct? 20 A. Correct. 21 Q. And was the group, as you recall it, 22 that was -- the board of directors of USAT at this 26387 1 time, were they generally in favor of MAXXAM 2 obtaining USAT in the receivership? 3 A. I believe that to be the case; but I 4 know that they had talked to the other group, as 5 well. 6 Q. Well, I guess my question to you is: 7 Did you have discussions with them, and did they 8 indicate to you a preference? 9 A. I don't recall that. 10 Q. You don't recall telling them that it 11 would be preferential to have MAXXAM take over 12 USAT as opposed to the Ranieri Wilson group? 13 A. That's right. I don't remember that. 14 MR. RINALDI: I have no further 15 questions, Your Honor. 16 THE COURT: Any recross? 17 MR. KEETON: No, Your Honor. 18 THE COURT: I didn't ask the other 19 respondents if they had questions. I assume they 20 did not. 21 MR. EISENHART: We're not shy, 22 Your Honor. 26388 1 MR. NICKENS: No questions, Your Honor. 2 MR. BLANKENSTEIN: No questions, 3 Your Honor. 4 MR. GUIDO: Your Honor, the OTS rests 5 its case at this time. 6 We have a procedural matter which we 7 would like to address with the Court with regard 8 to documents that have not been admitted into the 9 record. 10 Mr. Nickens and I -- Mr. Hurwitz, thank 11 you very much for your testimony. 12 THE COURT: Mr. Hurwitz, you may step 13 down. Thank you. 14 MR. GUIDO: Your Honor, at this point 15 in time, the OTS rests its case. We have been 16 having discussions with opposing counsel regarding 17 the inclusion in the record of documents that have 18 been on the exhibit lists that have not been 19 introduced. In review, in preparation for the 20 close this week, I was able to ascertain there are 21 a number of investment committee minutes, 22 executive committee minutes, and board minutes 26389 1 that may be useful to the Court to be included in 2 the record. 3 We've had discussions with opposing 4 counsel about a stipulation that would allow the 5 OTS to move the admission of those documents 6 during the break. And Mr. Nickens has informed me 7 that he hasn't finalized the stipulation with his 8 co-counsel as yet, but we do intend -- the OTS 9 would like to have the opportunity to move to 10 supplement the record or add to the record 11 documentary evidence which are primarily going to 12 be minutes of the various governing boards of USAT 13 and UFG and some of the SEC filings that have been 14 made -- that have not been included in the record 15 but have been alluded to at different points in 16 time during the course of the testimony, 17 Your Honor. 18 So, we would like to rest with the 19 opportunity to include in the record those 20 additional documents. And at the time, we would 21 make a written filing of that and give the 22 respondents an opportunity to indicate whether or 26390 1 not they had any opposition to that, Your Honor. 2 MR. NICKENS: Your Honor, we have had 3 such discussions. Our concern is that this might 4 lead or grow to something larger than it now 5 appears to be; that is, just a cleaning up of the 6 record for documents that we would not have 7 objection to and that there might be an effort to 8 expand the issues, bring other witnesses, or to 9 otherwise get into things that we think have 10 already been settled. 11 So, we propose a written stipulation so 12 that everyone would understand what we regard as 13 the narrow aspects of this request for which I 14 don't believe we would have an objection; that is, 15 things like board minutes, executive committee 16 minutes, things of that nature. We would be -- we 17 would object and do object to expanding it beyond 18 that. 19 But what we would propose is that we be 20 allowed a short period of time in which to work 21 out a stipulation. And in the absence of a 22 stipulation, that if for some reason or another, 26391 1 the parties wouldn't be able to agree, that we 2 would submit an order to the Court expressing 3 precisely the circumstances under which the OTS, 4 if any, would be able to reopen their case in 5 chief. 6 THE COURT: All right. I suggest that 7 you attempt to work out a stipulation. In the 8 absence of a stipulation, I'm not inclined to add 9 additional documents. 10 MR. GUIDO: Very fine, Your Honor. We 11 are -- we understand that, and we've been 12 negotiating with counsel with regard to that. 13 We're only talking about a narrow set of governing 14 documents, Your Honor. 15 THE COURT: All right. Ms. Clark? 16 MS. CLARK: Your Honor, one quick 17 housekeeping matter. During the testimony of 18 Vivian Carlton, we offered Exhibit A11039. There 19 was a problem with the copying of one page. So, 20 Your Honor admitted the document subject to us 21 providing a clean copy. And I would like to offer 22 the Court clean copies of that document at this 26392 1 time and ask Ms. Richardson to make sure that the 2 official Court records contain a clean copy of the 3 document. Mr. Veis has had an opportunity to 4 review the document and confirm that it is a 5 proper version of the document. It was previously 6 admitted at Tab 1282. 7 MR. VEIS: That's correct, Your Honor. 8 I have reviewed the document. It's acceptable to 9 the OTS. 10 THE COURT: All right. Fine. We'll 11 receive the substituted exhibit. 12 MR. NICKENS: One other housekeeping 13 matter, Your Honor. 14 With regard to the official exhibits, 15 we would like representatives from both the OTS 16 and the respondents to be able to quality control, 17 go through those. We have noticed there are some 18 missing exhibits that need to be located and put 19 back in place. There are some instances where 20 some of our copies of exhibits have made their way 21 into the folders that we have noticed as late as 22 yesterday. 26393 1 So, we believe it would be -- it is 2 necessary for us, in order to get our records 3 straight, to have representatives from both sides 4 meet together and go through these exhibits to 5 make sure that we all know what we have or what we 6 may be missing at this point. 7 MR. GUIDO: Your Honor, we've had 8 discussions with the court reporting service with 9 regard to having an area that can be made 10 accessible to both representatives of the 11 respondents and representatives of the OTS to 12 review the documents. And we will jointly work 13 out that procedure with the court reporting 14 service if that's acceptable to Your Honor. 15 THE COURT: The documents would be 16 under the custody of the court reporters during 17 the recess? 18 MR. GUIDO: Yes. 19 THE COURT: If there is access, it will 20 be joint access by the parties? 21 MR. GUIDO: It will be joint access by 22 the parties. That's what both Mr. Nickens and I 26394 1 are proposing to do. 2 THE COURT: Fine. Are there other 3 matters? 4 MR. GUIDO: I think that covers all of 5 the matters. 6 THE COURT: Looks like the next session 7 will commence on February 9th. I believe that's a 8 Tuesday. We'll leave the 8th open for 9 preparation. 10 MR. NICKENS: Thank you, Your Honor. 11 THE COURT: We'll adjourn. 12 13 (Whereupon at 10:55 a.m. 14 the proceedings were recessed.) 15 . 16 . 17 . 18 . 19 . 20 . 21 . 22 . 26395 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Marcy Clark, the undersigned Certified 5 Shorthand Reporter in and for the State of Texas, 6 certify that the facts stated in the foregoing 7 pages are true and correct to the best of my ability. 8 I further certify that I am neither 9 attorney nor counsel for, related to nor employed 10 by, any of the parties to the action in which this 11 testimony was taken and, further, I am not a 12 relative or employee of any counsel employed by 13 the parties hereto, or financially interested in 14 the action. 15 SUBSCRIBED AND SWORN TO under my hand 16 and seal of office on this the 15th day of 17 October, 1998. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-99 21 . 22 . 26396 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Shauna Foreman, the undersigned 5 Certified Shorthand Reporter in and for the 6 State of Texas, certify that the facts stated 7 in the foregoing pages are true and correct 8 to the best of my ability. 9 I further certify that I am neither 10 attorney nor counsel for, related to nor employed 11 by, any of the parties to the action in which this 12 testimony was taken and, further, I am not a 13 relative or employee of any counsel employed by 14 the parties hereto, or financially interested in 15 the action. 16 SUBSCRIBED AND SWORN TO under my hand 17 and seal of office on this the 15th day of 18 October, 1998. 19 _____________________________ SHAUNA FOREMAN, CSR 20 Certified Shorthand Reporter In and for the State of Texas 21 Certification No. 3786 Expiration Date: 12-31-98 22