5631 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 10-29-97 22 5632 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire (Not present) Special Enforcement Counsel 4 PAUL LEIMAN, Esquire SCOTT SCHWARTZ, Esquire 5 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire (Not present) 6 and BRYAN VEIS, Esquire (Not present) of: Office of Thrift Supervision 7 Department of the Treasury 1700 G Street, N.W. 8 Washington, D.C. 20552 (202) 906-7395 9 ON BEHALF OF RESPONDENT MAXXAM, INC.: 10 FRANK J. EISENHART, Esquire 11 of: Dechert, Price & Rhoads 1500 K Street, N.W. 12 Washington, D.C. 20005-1208 (202) 626-3306 16 13 DALE A. HEAD (in-house) 14 Managing Counsel MAXXAM, Inc. 15 5847 San Felipe, Suite 2600 Houston, Texas 77057 16 (713) 267-3668 17 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 18 RICHARD P. KEETON, Esquire 19 KATHLEEN KOPP, Esquire of: Mayor, Day, Caldwell & Keeton 20 1900 NationsBank Center, 700 Louisiana Houston, Texas 77002 21 (713) 225-7013 22 5633 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 (Not present) 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 5634 1 2 EXAMINATION INDEX 3 Page 4 DAVID GRAHAM 5 Examination by Mr. Leiman................5639 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 5635 1 P-R-O-C-E-E-D-I-N-G-S 2 (9:00 a.m.) 3 4 THE COURT: Good morning. Be seated, 5 please. 6 MR. LEIMAN: Your Honor, if it pleases 7 the Court. 8 THE COURT: We'll be on the record. 9 Mr. Rinaldi? 10 MR. RINALDI: I just thought I'd sort 11 of give the Court a status of where we are in the 12 course of the hearing. Today, we are going to 13 start into another phase of the factual 14 presentation or the evidentiary presentation that 15 relates to the real estate transactions. 16 The attorneys that will be presenting 17 the case to the Court will be largely Mr. Paul 18 Leiman and Mr. Scott Schwartz. I don't think they 19 have appeared before; so, I just introduced them 20 to the Court. 21 Our expectation is that Mr. Gerald 22 Williams will be back on Friday and that when we 5636 1 recommence after the break, there will be some 2 additional presentation regarding mortgage-backed 3 and the portion of the case that Mr. Guido was 4 dealing with. 5 But for the next couple of days, we'll 6 be introducing for the first time the real estate 7 materials. In that regard, we have made an effort 8 with the other side to try to stipulate to the 9 admission of a number of documents. To date, we 10 have not completed the process of agreeing to the 11 stipulation of the admissibility of certain 12 documents, but we feel confident that at least 13 some of them will be able to stipulate to and it 14 will expedite the proceeding. And as we come to a 15 resolution of that issue amongst ourselves, we'll 16 certainly keep the Court apprised of that. 17 So, with that, we'll begin the 18 presentation of the real estate. 19 MR. EISENHART: Your Honor, may I just 20 make one request in response to what Mr. Rinaldi 21 said? We knew obviously today that they were 22 going into the real estate case, and they had 5637 1 previously given us a list of real estate 2 witnesses. If I heard him correctly, though, they 3 plan after the break not to continue on with the 4 real estate case but, rather, to go into some 5 other areas. 6 My request -- and this is really for 7 the benefit of those of us who are going to be 8 going back to Washington during the break -- would 9 be that they try to give us some indication this 10 week of who they are going to go into when they 11 get back because, quite frankly, I was trying last 12 night to think of what files I had to take home 13 with me and what I heard this morning just pretty 14 much moots the list that I had made up last night. 15 But we really need to know because those of us who 16 go back to Washington have most of our files down 17 here and we can't intelligently prepare if we 18 don't find out till next weekend. 19 MR. RINALDI: Well, Your Honor, we will 20 make every effort to apprise them of who we think 21 we'll put on in the weeks to come. Part of the 22 problem associated with all of this is the one 5638 1 that's plagued us throughout the hearing, and that 2 is availability of witnesses. Many of the people 3 that deal with the mortgage-back security part of 4 the case do not remain in the Houston area and, as 5 a result, they have to come from out town and it's 6 more difficult to plan their appearance. In 7 contrast, most of the people that deal with the 8 real estate transaction are local and it's a 9 little bit easier to schedule them in and out. 10 But I will certainly consult with Ken Guido and 11 Richard Stearns and try to ascertain what, if any, 12 witnesses regarding mortgage-backs will be taken 13 up when we recommence that first week. 14 MR. EISENHART: Thank you, Your Honor. 15 That's all I need. 16 THE COURT: Are there any attorneys 17 appearing today that haven't entered appearances? 18 MR. DUEFFERT: Your Honor, I'm Paul 19 Dueffert. I've appeared a couple of times. I'm 20 back for real estate. 21 MS. KOPP: Your Honor, I'm Kathleen 22 Kopp with Mayor, Day, Caldwell & Keeton. 5639 1 MR. SCHWARTZ: Your Honor, I'm Scott 2 Schwartz with the Office of Thrift Supervision. 3 MR. LEIMAN: Your Honor, as Mr. Rinaldi 4 indicated, I'm Paul Leiman, attorney with OTS. 5 THE COURT: Okay. Are you ready to 6 call a witness? 7 MR. LEIMAN: I'd like to call my first 8 witness, Mr. David Graham, please. 9 10 11 DAVID GRAHAM, 12 13 called as a witness and having been first duly 14 sworn, testified as follows: 15 16 THE COURT: Be seated, please. 17 18 EXAMINATION 19 20 Q. (BY MR. LEIMAN) Sir, would you state 21 your name for the record? 22 A. David R. Graham. 5640 1 Q. And where do you live? 2 A. Houston. 3 Q. Are you presently employed? 4 A. Yes, I am. 5 Q. And where do you work? 6 A. I work with Coastal Bank. It's an SSB 7 state savings association. 8 Q. Where is that? 9 A. It's a Houston-based association. 10 Q. What's your job there? 11 A. I head up all real estate lending for 12 the association. 13 Q. And what is your title? 14 A. Executive vice president. 15 Q. Do you have an immediate supervisor? 16 A. Yes. A gentleman named Gary Garrett. 17 Q. And what is Mr. Garrett's title? 18 THE COURT: Can you speak up a little 19 bit? 20 MR. LEIMAN: Sure. 21 Q. (BY MR. LEIMAN) What is Mr. Garrett's 22 title? 5641 1 A. He's also an executive vice president. 2 Q. Would you briefly -- I'd like to go 3 through your employment history. 4 What position did you hold 5 immediately -- were you employed prior to going to 6 Coastal Bank? 7 A. Prior to going to Coastal Bank, I was 8 doing independent consulting. 9 Q. All right. And when did you start with 10 Coastal Bank? 11 A. I started May 13th, 1988. 12 Q. And prior to starting with Coastal, you 13 said you were doing independent consulting? 14 A. For about a year from July of '87 to my 15 employment with Coastal Bank, I was doing 16 independent consulting. 17 Q. What were you consulting on? 18 A. I was working on other S&Ls, working 19 with their problem portfolios, did some work for 20 the State, commissioner of the S&L industry, and 21 did a little bit of work for the Federal Home Loan 22 Bank. 5642 1 Q. What kind of work did you do for the 2 Federal Home Loan Bank? 3 A. We just looked at a couple of loans 4 that were in a couple lenders' portfolio. 5 Q. And you said you looked at those loans. 6 What was the purpose of looking at the loans? 7 A. Basically, they contracted, I think, 8 the work with Gem Childress and I had teamed up 9 with Gem Childress and we were just analyzing the 10 value of the property. 11 Q. Who is Gem Childress? 12 A. Gem Childress was a gentleman I worked 13 with at United Savings for 11 years. 14 Q. And he was your partner in your 15 consulting business? 16 A. No. Actually, we had independent 17 companies; but we teamed up on several of the 18 jobs. 19 Q. All right. And one of the jobs you 20 teamed up on was the Federal Home Loan Bank? 21 A. Yes. If I recall correctly, Gem had a 22 contact there and they gave -- had us go look at a 5643 1 couple pieces of property. It was more Gem's. I 2 just helped him work. 3 Q. You didn't have a contract? 4 A. No, I did not. 5 Q. All right. You were just assisting 6 Mr. Childress? 7 A. Right. 8 Q. Okay. I'd like you to tell me 9 specifically, was that the Federal Home Loan Bank 10 of Dallas or was that the Federal Home Loan -- 11 A. Dallas. 12 Q. -- Bank of Dallas? 13 A. (Witness nods head affirmatively.) 14 Q. Okay. Do you remember the name of 15 the -- 16 A. No, I don't. 17 Q. -- asset? 18 A. No, I don't remember much about it at 19 all. 20 Q. Okay. You said did you some work for 21 the State of Texas. What was that? 22 A. Indirectly, they had already put a 5644 1 supervisor, whatever they called it at the time, 2 into Franklin Federal. And we had gone up there 3 to look at the portfolio of Franklin Federal and 4 ultimately contracted with Franklin Federal to do 5 quite a bit more work helping them try to evaluate 6 their portfolio. 7 Q. What's involved in evaluating a 8 portfolio? 9 A. Looking at the property, helping them 10 try to develop exit strategies. 11 Q. For my benefit, what is an exit 12 strategy in relation to property? 13 A. Well, I mean, it -- what kind of 14 market, who to sell it to, how to maybe structure 15 it to sell it better, does the deed you have need 16 to be broken up into individual tracks, that kind 17 of thing. 18 Q. Did you have experience dealing with 19 troubled assets? 20 A. In the Eighties, everyone did. 21 Q. Okay. And where did you gain your 22 primary experience dealing with troubled assets? 5645 1 A. Well, I gained most of it after I left 2 United. United had a few, but my experience came 3 primarily in consulting and then in Coastal Bank. 4 We were the first Southwest Plan shop and took 5 over a bunch of failed thrifts. So, my -- it was 6 limited before I got involved in consulting, but I 7 knew real estate. 8 Q. Who was the first Southwest Plan shop? 9 A. Coastal Bank. 10 Q. Okay. When did you -- you alluded to 11 the fact that you had worked at United Savings. 12 When did you start with United Savings Association 13 of Texas? 14 A. Best of my recollection, in '76 because 15 I think when I left in '87, I had been there 16 11 years. 17 Q. What was your first position at United 18 Savings Association of Texas? 19 A. I think I initially, when I first came 20 in, I was managing a small commercial construction 21 portfolio. 22 Q. Who hired you at United Savings? 5646 1 A. I think a gentleman named Walter Eads. 2 Q. And who exactly was Mr. Eads? What was 3 his position? 4 A. I don't remember the position at the 5 time. 6 Q. Did he deal with commercial loans? 7 A. Yes. Multi-family commercial. 8 Q. Were you hired specifically to deal 9 with multi-family commercial loans at United 10 Savings? 11 A. I guess, initially, that's primarily 12 what I -- what I dealt with because their 13 construction portfolio was primarily multi-family. 14 Q. Where were their multi-family projects 15 located? 16 A. Pretty much throughout Texas. 17 Q. Sorry? 18 A. Pretty much throughout Texas. 19 Q. And that would have been in 1976. 20 Right? 21 A. Yes. 22 Q. When you say "throughout Texas," can 5647 1 you be more specific? 2 A. Yeah. In lots of cities in Texas. I 3 mean, what do you mean by "specific"? We were in 4 Abilene. We were in Houston. We were in Austin. 5 We were in the Valley. I can't remember every 6 place. 7 Q. Dallas? 8 A. I don't think we were in Dallas. 9 Q. Okay. San Antonio? 10 A. Like I said, I can't remember. That 11 was 20 years ago. I just knew we had loans 12 throughout the State of Texas. 13 Q. What did you do prior to your being 14 hired at United Savings Association of Texas? 15 A. I was with Allied Bank of Texas. 16 Q. And how long had you been there? 17 A. About 19 months. 18 Q. What were you doing for them? 19 A. I was a loan officer in their real 20 estate lending department. 21 Q. What kind of loans were you dealing 22 with? 5648 1 A. Pretty much a variety there. We did 2 about anything that walked in the door. 3 Q. Was there a limit on the size of the 4 loans you dealt with? 5 A. I can't recall. 6 Q. Was it a branch office? 7 A. No. 8 Q. It was the main office? 9 A. Yes. 10 Q. And where is that located? 11 A. Where was it located? Downtown. 12 Q. In Houston? 13 A. Yes. 14 Q. And prior to that position, were you 15 also in banking? 16 A. Not banking. I was with a REIT, 17 R-E-I-T, real estate investment trust. 18 Q. Can you describe that position? 19 A. I was involved in the land development 20 loans and the construction loans there, also. 21 Q. When you say you were involved, what 22 specifically did you do? 5649 1 A. Serviced them mainly. Serviced the 2 loans. Helped underwrite them and primarily 3 service them. 4 Q. When you -- jumping forward from the 5 REIT back to your position at United Savings, what 6 did you do after you were working for Mr. Eads? 7 A. Mister who? 8 Q. Were you in another position? 9 A. Eads. 10 Q. Excuse me. Eads. 11 A. I went through -- the association grew 12 dramatically, and I went through a multitude of 13 different responsibilities. To delineate that in 14 exact record, I don't think I can. But as the 15 association grew, my responsibilities and my -- 16 the areas which I had responsibilities over grew. 17 Q. You say your responsibilities grew. 18 What were those responsibilities as you progressed 19 at United? 20 A. Managing larger portions of the 21 portfolio. 22 Q. What kind of portfolio? 5650 1 A. Originally lending portfolio and then 2 ultimately we got involved in the investment 3 portfolio, the activities of which we directly 4 invested in. 5 Q. You're talking about real estate, 6 aren't you? 7 A. Yes. 8 Q. Okay. Did you work with Mr. Childress 9 at United? I think you testified -- 10 A. Yes, I did. 11 Q. You did? And did you and Mr. Childress 12 work together? 13 A. For the last five years, we did. 14 Before that, we were independent -- different 15 operations. 16 Q. All right. And the last five years 17 when you were at United would have been from -- 18 A. It's either from '81 or '82 to '87, 19 that range. 20 Q. What happened in 1987? 21 A. We left. 22 Q. What were the circumstances under which 5651 1 you left? 2 A. We were terminated. 3 Q. And were you given a reason as to why 4 you were terminated? 5 A. They wanted to make a change in 6 directions. They wanted to try to get a more -- a 7 stronger marketing group in to try to deal with 8 some of the rising REO issues. It made sense to 9 us. 10 Q. You allude to rising REO issue. What 11 is that? 12 A. Well, that would be about '87, it 13 was -- apparently a lot of Houston properties were 14 struggling and we -- if I recall, the REO 15 portfolio was increasing somewhat. We weren't 16 going to be doing a lot of new deals which, I 17 think, were the better talent Gem and I brought to 18 the table. 19 And so, they wanted to bring in a group 20 that would have better luck at finding exit 21 strategies for some of these properties and work 22 with some of the trouble loans perhaps better than 5652 1 we could. They wanted to make a change and see if 2 it worked better; and, you know, like I said, we 3 understood. 4 Q. Mr. Graham, when did -- when did the 5 real estate portfolio for investments and loans 6 begin to become troubled at United Savings? 7 A. Well, it really depended on which city 8 you're talking about. It became problematic more 9 in the Valley and in Houston much earlier than the 10 state in general because they were entirely 11 different issues. 12 Q. What year would it have been -- first 13 of all, let me ask you: When you refer to the 14 Valley, what are you talking about? 15 A. The Valley of Texas: Harlingen, 16 San Benito, Brownsville. 17 Q. That's the Rio Grande Valley? 18 A. Yes. 19 MR. KEETON: Your Honor, would you ask 20 Mr. Leiman to speak up? It sounds like a private 21 conversation. I'm missing a few -- 22 THE COURT: Could you speak a little 5653 1 louder? 2 MR. LEIMAN: Certainly, Your Honor. 3 I'll do my best. 4 Q. (BY MR. LEIMAN) You stated that there 5 became -- the real estate portfolio was troubled 6 in the Valley as well as Houston earlier than in 7 other parts of Texas? 8 A. As I said, I said part of the portfolio 9 became more troubled in those areas. 10 Q. All right. 11 A. Not all of it, no. 12 Q. What year was it -- did it become 13 troubled in the Valley and Houston? 14 A. I don't know -- I mean, Houston was 15 more of a gradual issue. The Valley was tied to 16 the devaluation of the dollar, and I can't 17 remember the date of that. But that's when it 18 became apparent the Valley, Rio Grande Valley, was 19 going to be a more difficult place to operate in 20 because much of the sales were tied to Mexican 21 nationals who didn't have the economic wherewithal 22 to buy the Valley. Houston was a gradual thing. 5654 1 I mean, it occurred over time; and I can't tell 2 you when it started. 3 Q. I think you stated the devaluation of 4 the dollar. Did you mean the peso? 5 A. Excuse me. Yes. I apologize. 6 Q. Okay. I know it's difficult to 7 remember exact months and years; but when you're 8 talking about the Valley, would that -- would the 9 trouble in the portfolio at United Savings have 10 begun in the Seventies or in the Eighties? 11 A. Well, I mean, we had blips throughout 12 the Seventies that were short-term peaks; and you 13 had earlier peaks in the Eighties that were tied 14 to interest rates. I mean -- so, the portfolio 15 had a little scare all through that period, which 16 is the nature of the real estate business. You're 17 talking in reference to the crunch that really 18 occurred in the mid-Eighties, and I don't know 19 when that really started. 20 Q. Well, we'll get to the crunch in a 21 little while. But what I want to talk about first 22 is the gradual erosion of United Savings' 5655 1 portfolio. Now, if you could, try and tell me if 2 it was in the Seventies or the Eighties. 3 A. Well, there was nothing wrong with the 4 portfolio anytime during the Seventies. In the 5 early Eighties, it was still strong. 6 Q. When did it begin to decline? 7 A. Well, once again, I can't tell you a 8 date that it occurred. I mean, you're trying to 9 make this like a gradual downhill slope. I mean, 10 what happened to us in Houston was, more or less, 11 they turned off the lights; and then everything 12 started going bad. It wasn't -- wasn't something 13 that you could watch the down on the slope and 14 kind of figure out where you were on it. It was a 15 cliff. And by the time you realized you had 16 stepped over the cliff, the world had ended on you 17 in Houston. 18 Q. You stated a moment ago that in the 19 early Eighties, there was some problem in the 20 portfolio. Tell me about that. 21 A. Well, I mean, you're asking specifics. 22 I'm just saying the Valley, I know, became 5656 1 troubled because we no longer had buyers down 2 there. We had a couple small projects that took a 3 real bad beating because of that. They were 4 condominiums. 5 In Houston, we started to see a slight 6 overbuilding in apartments that, obviously, we 7 knew was going to become competitive. And it 8 affected the rents on all projects. Much of that 9 occurred after we quit building apartments. The 10 market continued to build and created some 11 depression in the apartment market first because 12 of the tax-free bonds. Everybody kept building. 13 So, we saw things happening that 14 created concern and created some trouble with some 15 projects. But once again, it wasn't the entire 16 portfolio. It was pieces of it that gave us some 17 concern. 18 Q. In addition to Houston, were there any 19 other cities where there were real estate projects 20 that gave you concern in the early Eighties? 21 A. Not -- not particularly, no. I can't 22 recall any. We really were concerned about those 5657 1 two markets primarily. 2 Q. The apartment overbuilding you're 3 referring to occurred in Houston in the early 4 Eighties, Mr. Graham? 5 A. More towards the mid. 6 Q. The mid-Eighties? 7 A. Yeah. 8 Q. '84, '85, '86, that time? 9 A. Well, whatever is called mid. It's not 10 in the first part of the year. It's not in the 11 earlier years, no. 12 Q. Okay. You described yourself as having 13 talent in the area of underwriting new projects 14 rather than in the field of dealing with, I think, 15 exit strategies which was -- which is a different 16 area; is that right? 17 A. Well, it's a different expertise. I 18 mean, at United, we never really had to have that 19 expertise. 20 Q. And the reason you didn't have to apply 21 the expertise of exit strategies was what? 22 A. Because we really didn't have any 5658 1 problems. 2 Q. That was during the entire -- your 3 entire tenure at United? 4 A. No. I mean, realistically, in '86 and 5 '87, more problems started appearing. 6 Q. Any problems appear in 1985? 7 A. I can't recall. I mean, other than 8 what I've already told you, I can't recall 9 anything specifically. 10 Q. Mr. Graham, let me ask you about this. 11 I'd like to ask you to describe for me -- I'm 12 going to tell you what I'm going to ask you about, 13 and then I'm going to ask you because I want to 14 give you a frame of reference. I'd like to ask 15 you about specifically the duties of your 16 positions, how they changed, if at all, while you 17 were at United; and secondly, I'd like to ask you 18 about the operation of the real estate department 19 at United. Okay? 20 MR. DUEFFERT: Your Honor, I would ask 21 if he would make questions rather than statements. 22 THE COURT: Let's have a question. 5659 1 MR. LEIMAN: Sorry? 2 THE COURT: Let's have your question. 3 Q. (BY MR. LEIMAN) Mr. Graham, describe 4 for me specifically what positions -- as 5 specifically as you can, the positions that you 6 had and as they changed from the time you started 7 till the time you left United. 8 A. Well, I'm going to be honest. I could 9 tell you what I was doing when I left United. To 10 ask me to tell you what did I over 11 years at 11 United with each position is ludicrous. I just 12 can't tell you that. I don't recall. I can't 13 tell you what I did in Coastal Bank nine years ago 14 when I started. I mean, it's changed that much. 15 And it's -- you just don't recall that kind of 16 stuff, what I did and what -- I can tell you what 17 I did when I -- at my final tenure there. 18 Q. What did you do in your final tenure 19 there? 20 A. I was head of the commercial lending 21 and the real estate operation. I co-managed it 22 with Mr. Gem Childress. Our responsibilities were 5660 1 commercial loans and real estate investments that 2 United or UFC, United Financial Corporation, made 3 into real estate projects. 4 Q. Did you ever do any loan underwriting 5 during your tenure at United Savings? 6 A. Yes. 7 Q. When would that have been? 8 A. From the day I joined till the day I 9 left. 10 Q. Did you have a progression in the 11 amount of money that you were allowed to 12 underwrite in connection with real estate loans? 13 A. Oh, certainly. As the association 14 grew, our loans to one borrower limitation grew, 15 consequently, giving us more opportunity to do a 16 broader variety of lending. 17 Q. Mr. Graham, you stated you shared -- 18 I'm characterizing. You stated you shared the 19 reins of the real estate department with Gem 20 Childress. 21 Was there a division of labor between 22 you and Mr. Childress at the real estate 5661 1 department? 2 A. Yes. It changed over time. That, I do 3 recall. Initially, Jim's expertise was more in 4 land and land development. Mine was more in 5 lending. So, I knew better what income-producing 6 properties were. So, as far as the real estate 7 activities, Gem basically -- we made a rule of 8 thumb. He took everything from a foot above the 9 ground and below, which meant he did land deals. 10 And I did everything above the land, joint 11 ventures and apartments and so forth. That worked 12 for a while until we kept expanding throughout the 13 state and it became difficult for us to travel 14 like that. 15 So, we then ultimately divided up and 16 we started understanding each other's role a 17 little bit better. We then divided it up. At 18 what point in time, I don't know; but we divided 19 it up where I took different regions and he took 20 different regions to try to save on traveling and 21 try to have a better flavor for the cities that we 22 were actually functioning in. 5662 1 Q. What cities did you function in? 2 A. I had part of Houston, San Antonio, and 3 Austin. 4 Q. And where did he function? 5 A. He had Dallas, Fort Worth, part of 6 Houston; and I think he did some of the Valley. 7 Q. Did anybody work for you at United 8 Savings? 9 A. At different times, different people, 10 yes. 11 Q. How many people did you supervise at 12 United Savings in 1984? 13 A. Oh, in '84, I have no idea. 14 Q. '85? 15 A. I don't know until -- I may be lucky to 16 tell you, when I left, who I was supervising. I 17 mean, we had different people come in; and it 18 grew. It shrunk. It grew. It shrunk. When I 19 left, we probably had eight. 20 Q. You supervised eight persons? 21 A. Yes. That's my guess. 22 Q. Okay. And did you share the 5663 1 supervision with -- 2 A. Yes. 3 Q. -- Mr. Childress? 4 A. Yes, I did. 5 Q. What were the positions that the other 6 persons held that you supervised? 7 A. Some were pure servicing. Some were 8 origination. I don't remember titles. Some of 9 them were more exclusively on land transactions. 10 Some helped on income tract activity. I can't 11 tell you exactly what everybody did, no. 12 Q. Did you have any analysts working for 13 you? 14 A. What do you -- what's your definition 15 of "analyst"? 16 Q. Did you have anybody who would analyze 17 the financial aspects of proposed real estate 18 loans? 19 A. Yes. 20 Q. Okay. And who was that? 21 A. Depending on timing. You know, 22 everybody did a little bit of it. We had -- 5664 1 Raymond Chilton, I think, did some. Jenni Jones 2 did some. David -- can't think of his last 3 name -- did some. There may be one or two others. 4 Those are names that pop up. 5 Q. What about analysts that worked on 6 reviewing appraisals? 7 A. We didn't have specific people who 8 concentrated on appraisal views. 9 Q. Do you recollect what the educational 10 background or the employment background, for that 11 matter, of Chilton, Jones, or the other person you 12 alluded to was? 13 A. Not specifically. I know Raymond 14 Chilton had been -- worked for -- I knew him 15 longer. So, he had worked for several developers 16 throughout the state and had pretty much extensive 17 background from the development side. All I knew 18 about David -- once again, David Wiley maybe -- I 19 don't know. He and Jenni Jones had strong 20 educational backgrounds. I think one of them 21 worked for a broker for a while; so, he knew the 22 market real estate. But that's the best I can 5665 1 recall. 2 Q. The other people that worked for you 3 would have been in the servicing department and 4 bookkeeping; is that right? Things like that? 5 A. No. We didn't -- we really didn't have 6 any bookkeeping. The accounting department did 7 all the bookkeeping for us. We had people who 8 actually serviced the loans. We probably had 9 other people in and out at different times in the 10 department that had other roles, maybe involved in 11 some lending, maybe involved in some underwriting. 12 You're asking me a snapshot; and I'm telling you, 13 the best I can recall, that snapshot. This was a 14 moving picture. 15 Q. Are you familiar with the name Michael 16 Crow? 17 A. Yes. 18 Q. Did Michael Crow ever have anything to 19 do with accounting or bookkeeping? 20 A. Well, he was in that area; but I mean, 21 he supervised accounting and bookkeeping. Well, I 22 mean accounting. Bookkeeping, I think, is a 5666 1 misnomer. 2 Q. He supervised the accounting 3 department? 4 A. Well, all financial sides. 5 Q. Mr. Graham, when you started at United 6 Savings, who was the president of the institution? 7 That would have been in 1981. 8 A. I understand. I'm just trying to think 9 of the answer. I guess -- I mean, I'm trying to 10 put a perspective. I guess Mr. Bentley was the 11 president at the time I started. 12 Q. What was Mr. Bentley's first name? 13 A. I don't know if he had a first name. 14 It's C.E. Bentley. His nickname is Sonny. 15 Q. Do you know anything about the 16 ownership of United Savings at the time that you 17 took your first position there in '81? 18 A. Yeah, a little bit. It was -- the 19 primary shareholder type were -- two primary 20 shareholders. One was C.E. Bentley, and the other 21 one was a gentleman named Rex Baker. 22 Q. I may have misstated. I think you 5667 1 said -- did you say you started in 1981? 2 A. No. '74. 3 Q. '74? 4 A. No. '76. 11 years. I had been there 5 11 years. So, I started in '76. 6 Q. Okay. That was my mistake. I misspoke 7 about that. And that was when Bentley and 8 Baker -- 9 A. That doesn't change the answer to the 10 question I just gave you. 11 Q. Of course. That's when Mr. Bentley and 12 Mr. Baker owned the institution? 13 A. Yeah. Rex Baker started the 14 institution of Southwest Savings and had purchased 15 Abilene Savings, of which Mr. Bentley was the 16 primary shareholder. So, they became kind of 17 co-equal shareholders in the company. 18 Q. Did there come a time when the 19 ownership changed after Bentley and Baker? 20 A. At some point in time -- and I don't 21 remember the dates once again -- we were acquired 22 by Kaneb Services. 5668 1 Q. How do you spell that? 2 A. K-A-N-E-B. 3 Q. Is that an oil-related firm? 4 A. It is an oil-related firm or was oil 5 related firm. 6 Q. After Kaneb acquired United Savings 7 Association of Texas, what became of Mr. Baker? 8 A. He basically became uninvolved in the 9 operation of the association. 10 Q. And what about Mr. Sonny Bentley? 11 A. He stayed on as chairman. 12 Q. And did there come a time after the 13 acquisition by Kaneb that the ownership changed of 14 United Savings again? 15 A. Yes. 16 Q. Do you know what year, roughly, that 17 was? 18 A. Well, it was the early Eighties. I 19 can't do you better than that. That's the best of 20 my recollection. 21 Q. At that time in the early Eighties when 22 the ownership changed again, do you know who the 5669 1 acquiring entity was? 2 A. Yeah. I mean, it was -- I think it was 3 MCO. I can't remember exactly which one. But 4 they bought a piece of the stock away from Kaneb 5 at the same time they acquired First Savings of 6 Houston. It was kind of an all one-time type 7 deal. 8 Q. In your mind, is there anyone that you 9 link with the ownership of MCO? 10 A. Oh, honestly, yes. Charles Hurwitz. 11 Q. We'll be talking about that in a 12 moment. 13 A. I don't doubt it. 14 Q. You said there might have been another 15 entity in addition to MCO. Were you referring to 16 Mr. Hurwitz as the other -- 17 A. No. I just -- what I meant by "the 18 other entity," he had several companies which kind 19 of operated under his umbrella. And I'm not sure 20 which one, truthfully, was the acquirer. That's 21 what I meant by "the other entity." 22 Q. I see. Did they all seem to be one 5670 1 company under Hurwitz in your mind? 2 A. Well, I think he had interest in a lot 3 of companies. 4 Q. Who do you understand was running those 5 companies? 6 A. When you say "running," I guess you 7 have to define that. 8 Q. Leading those companies, setting policy 9 for those companies. 10 A. Well, I mean, if you're trying to get 11 me to say that I thought Charles ran those 12 companies, I don't know if he ran the companies. 13 I know he, as any major shareholder, had influence 14 and was in the policy-making decision. I didn't 15 know enough about the companies, independently of 16 what ours was, to know what role he had or not. 17 Q. So, you had no belief as to whether or 18 not Mr. Hurwitz set policy? 19 A. I think -- 20 MR. DUEFFERT: This has been asked and 21 answered, I think, about two or three times. 22 MR. EISENHART: Your Honor, I'm not 5671 1 sure I understand why the witness' belief as to 2 whether Mr. Hurwitz ran these companies or not 3 would be relevant. We've had many days of precise 4 testimony from people actually involved in those 5 companies as to who did what. And I'm not sure 6 why this witness' belief is that important. 7 THE COURT: Well, I think we'd better 8 get to whether he has any reasons for his belief. 9 MR. LEIMAN: Your Honor, if I might 10 respond to the objection and -- which deals with 11 the relevance of the issue specifically. One of 12 the elements that we are going to attempt to show 13 through this witness -- and I'm laying a 14 foundation for it -- is the fact that Mr. Hurwitz 15 was directly involved with most of the principal 16 real estate loans of the 1980s and that he was 17 directly involved. And that was the reason for my 18 questioning, and I was laying a foundation in that 19 regard. 20 May I continue? 21 THE COURT: Yes, you may. 22 MR. LEIMAN: Thank you. 5672 1 MR. NICKENS: Your Honor, for the 2 record, I would like to renew the running 3 objection that we discussed earlier concerning 4 whether there were pleadings to support this line 5 of questions in light of Mr. Leiman's statement as 6 to its purpose. 7 THE COURT: All right. 8 MR. LEIMAN: May I go on, Your Honor? 9 THE COURT: Yes, you may. 10 Q. (BY MR. LEIMAN) Mr. Graham, having 11 heard the objections and my response to them, I'm 12 not trying to get you to say anything. I'd just 13 like you to tell me -- 14 MR. KEETON: Your Honor, this is not 15 colloquy. It's question and answer. Mr. Leiman 16 may think it's a deposition, but it's a trial. 17 Would he ask questions instead of give lectures to 18 the witness? 19 Q. (BY MR. LEIMAN) Mr. Graham, let me 20 ask you again: Did you have a belief as to 21 whether Charles Hurwitz set policy for the 22 companies you referred to in your answer a few 5673 1 minutes ago? 2 A. As I said before, I have absolutely no 3 idea. I wasn't involved in those companies and 4 just have no frigging idea. 5 I apologize. I'll try to use English 6 from now on. 7 Q. Would you describe for me what the -- 8 what you understood the philosophy of real estate 9 lending and investment to be under the Sonny 10 Bentley era? 11 A. Is that a question? 12 Q. Yes. 13 A. What was the question? "You 14 understand," you said. I mean, that's not a 15 question there. 16 Q. Would you describe for me what you 17 understood the real estate lending and investment 18 policy to be under the Sonny Bentley era? 19 A. I think the lending policy was 20 consistent throughout my entire tenure. Once 21 again, as you pointed out, we had the luxury as we 22 grew to do a little larger loans. We were always 5674 1 looking for good construction, good multi-family, 2 good commercial loans to lend on. Our real estate 3 philosophy may have altered a little bit. 4 Mr. Bentley, whose background basically was 5 Abilene and, more or less, small town, tended to 6 do a little different kind of real estate project. 7 He liked more the blue collar project, do 8 subdivisions without streets and utilities where 9 people had to put in their own septic tanks. It 10 reflected more of his background. 11 And so, that was -- we did more of that 12 type project under his regime. 13 Q. You did multi-family lending, too, 14 under his regime? 15 A. Oh, yes. Very aggressively. 16 Q. Did you do any acquisition loans, real 17 estate loans? 18 A. Yes. 19 Q. Where did you do those? 20 A. Well, we probably did some throughout 21 the state. Predominantly Houston, but we probably 22 did them in the Valley, Rio Grande Valley, Dallas, 5675 1 San Antonio, Houston, Austin. We did a little bit 2 everywhere. 3 Q. Do you remember the size of the loans? 4 A. Not specifically; but once again, the 5 size was dictated as we went along by the loans to 6 one borrower limits. As we got bigger loans to 7 one borrower limits, we had a chance to do larger 8 projects. And a lot of times, we would have done 9 larger projects if we had the latitude. We just 10 didn't. 11 Q. Can you tell me, if you remember, what 12 the largest project that you were personally 13 involved in under the Bentley era would have been? 14 A. No. 15 Q. You have no idea? 16 A. That's what I said, yeah. 17 Q. It wouldn't have been $30 million, 18 would it? 19 A. Since I have no idea, I can't answer 20 that. I just don't know. 21 Q. Okay. You believe, however, that the 22 loan amount was limited to the loan -- by the 5676 1 loans to one borrower limitation? 2 A. Yes. 3 Q. What is the loans to one borrower 4 limitation, Mr. Graham? 5 A. What is it? 6 Q. Yes. 7 A. Today, it's 15 percent of net worth. 8 What it was then, I don't recall, what the 9 regulatory requirement was at that time. 10 Q. It's a regulatory requirement? 11 A. Yes. 12 Q. Okay. At the time that you're 13 referring to during the Bentley era for loans to 14 one borrower requirement, who established the 15 loans to one borrower requirement? 16 A. That was established by numbers. I 17 mean, it was a given number based off your size 18 and net worth, et cetera. 19 Q. Okay. And was there a particular 20 agency that set that? 21 A. I guess the Federal Home Loan Bank. I 22 don't know. 5677 1 Q. Mr. Graham, was there a compliance 2 officer at United Savings Association of Texas 3 during the Bentley era? 4 A. I can't recall. 5 Q. You weren't the compliance officer, 6 were you? 7 A. No. 8 Q. What about during the Hurwitz era? 9 Were you the compliance officer? 10 MR. KEETON: Your Honor, I'm going to 11 object to the characterization of "the Hurwitz 12 era." If he wants to define it and then use it, 13 which I'm going to object to -- but I still want 14 him to say it out there. 15 THE COURT: It's a little 16 conclusionary, I think, Mr. Leiman. Can you use 17 another term? 18 MR. LEIMAN: I'll lay additional 19 foundation, Your Honor. 20 Q. (BY MR. LEIMAN) With regard to 21 lending and investment policy at United Savings 22 Association of Texas, after Charles Hurwitz and 5678 1 his companies -- MCO or one of the others 2 companies, as you described it, acquired the 3 institution -- 4 MR. KEETON: I object, Your Honor. 5 It's very clear in the record they didn't acquire 6 the institution. Mr. Leiman, if he had been here 7 for the last 30 days, would know that. All they 8 are trying to do is muddy up a record. It's 9 already enough for them to make the allegation, 10 but for him to seed his questions with factual 11 inaccuracy is wrong. 12 MR. LEIMAN: Your Honor, if I may 13 respond, the witness has defined the period of 14 time as the Sonny Bentley period and then the 15 period that the acquisition of -- when MCO bought 16 stock in the institution from Mr. Bentley and 17 Mr. Baker and that stock was purchased by 18 companies that were owned or controlled by 19 Mr. Hurwitz. 20 MR. KEETON: Well, Your Honor, 21 Mr. Bentley continued as president for a good 22 number of years after that event, as we already 5679 1 know. Then Mr. Williams was president. Then 2 Mr. Gross was president. Mr. Bentley was always 3 the president. Mr. Hurwitz was never anything but 4 the chairman of UFG. 5 Now, why does he want to define 6 something in a way that is misleading and 7 inaccurate? And they did not buy the institution. 8 MR. DUEFFERT: Your Honor, we're only 9 asking for kind of a suitable level of actual 10 precision of the questions. 11 THE COURT: All right. I think you 12 can -- he defined when MCO bought stock. Let's 13 leave the question of control or whatever out, and 14 we'll go from that point on. 15 Q. (BY MR. LEIMAN) After MCO acquired or 16 bought stock -- initially bought stock in United 17 Savings Association of Texas, do you know -- 18 MR. DUEFFERT: Your Honor, I'd ask 19 Mr. Leiman to clarify that question, as well. 20 MR. LEIMAN: Your Honor, if I might, I 21 was merely trying to use your characterization. 22 THE COURT: I know. The stock may have 5680 1 been the holding company. 2 MR. LEIMAN: Your Honor, I thank you 3 for the clarification. I understand that the 4 stock was acquired in the holding company, 5 United Financial Group. I'm not certain that this 6 particular witness, in his time, focused on all of 7 the different classifications and tiers of the 8 financial world; but I will make an effort to be 9 more precise in my questioning. Hopefully the 10 witness will understand. 11 Q. (BY MR. LEIMAN) When the acquisition 12 of stock in United Financial Group occurred by 13 MCO, who was the compliance officer at United 14 Savings Association of Texas? 15 A. Well, first, let's -- since we're all 16 clarifying something, I didn't characterize this 17 as Bentley's era and Hurwitz' era. Your questions 18 were asked a way that my response related to those 19 questions. I have yet to categorize either era 20 that way. So, let's get something straight. The 21 witness did not say that. 22 The other part is when I left, they had 5681 1 a gentleman named Mike -- started with C. I can't 2 remember his last name. When he started, I don't 3 know. But he was a compliance officer, I think, 4 at my departure. When he started, I just don't 5 know. 6 Q. So, apart from that person, you have no 7 idea who the compliance officer was at United 8 during any time in your tenure? 9 A. I don't know if we had a formal 10 compliance officer other than that gentleman. 11 Q. And you don't know when he started? 12 A. No, I don't know. 13 Q. During your tenure at United Savings 14 Association of Texas, was compliance with Federal 15 Home Loan Bank Board regulations an issue that you 16 were frequently concerned with? 17 A. Consistently. 18 Q. And if you had questions about 19 interpretations of the regulations, to whom would 20 you go? 21 A. Peat Marwick typically. 22 Q. Sorry? 5682 1 A. Peat Marwick & Mitchell. 2 Q. Can you recall, roughly, how frequently 3 you telephoned or contacted Peat Marwick & 4 Mitchell for interpretations of the Federal Home 5 Loan Bank Board regulations? 6 A. I mean, I can't tell you specifically 7 how often. I know that when we had an issue that 8 came up that we had some doubt on, either on the 9 structure or what we were posing, we would call 10 them to be sure that it was conforming. There 11 were times that we were -- we had to change or 12 back off doing something because they would 13 indicate to us that it would not pass the 14 accounting test. 15 Q. Peat Marwick & Mitchell, at the time, 16 what was their role at United Savings? 17 A. They were outside auditors. 18 Q. Did you primarily consult them in 19 connection with accounting issues or all 20 regulatory issues? 21 A. Well, accounting and often regulatory. 22 They were familiar with regulatory statutes. 5683 1 Accounting was primarily a lot of cases. If it 2 didn't work in accounting, then we wouldn't care 3 if it worked regulatory. We weren't going to do 4 the deal. 5 So, accounting was the first question. 6 Did it pass the accounting test? And then often, 7 if we had other doubts, we'd go further and say, 8 "How does that figure into regulatory issues?" 9 Q. What do you mean by "Did it pass the 10 accounting test?" 11 A. We saw in the mid-Eighties a lot of 12 opportunity. People would bring us proposals 13 where they would want to buy our REO and we would 14 lend them money. They had a lot of clever 15 schemes, none of which we ever did because every 16 time we took it to Peat Marwick, they would say, 17 "That can't be booked as a sale. It doesn't 18 work." 19 So, we used them frequently to, you 20 know, try to verify that something we looked at, 21 if we did it, would pass their test so it wouldn't 22 be reversed in examination. 5684 1 Q. You refer to examination. What are you 2 talking about? 3 A. Well, I'm talking examination, audit, 4 both. We didn't want to do something that, when 5 we had our annual audit or our annual examination, 6 they would say, "You can't do that." We wanted to 7 know up front. If we can't do it, we're not going 8 to do it. 9 Q. Who annually would examine United 10 Savings? 11 A. I guess the FSLIC or OTS, Federal Home 12 Loan Bank. I'm not sure who technically they 13 reported to. 14 Q. And audits were done by Peat Marwick? 15 A. That is correct. 16 Q. Apart from accounting issues, can you 17 name any other issues that you ever took to 18 Peat Marwick that dealt with the regulations? 19 A. Not specifically, no. 20 Q. You mentioned a minute ago "REO." 21 What's REO? 22 A. Real estate assets. I mean, it's 5685 1 foreclosed property, typically. 2 Q. You're referring to REO being 3 foreclosed property. Foreclosed by whom? 4 A. Well, by the association. 5 Q. So, would it be right to say, then, 6 that REO is -- are loans that have gone bad and 7 the institution has taken them over? 8 A. That's correct. 9 Q. Do you recollect what specific kinds of 10 deals were brought to you in the mid-Eighties 11 regarding REO? 12 A. Generally. I mean, I can't give you a 13 specific example because, typically, we didn't 14 look at them long because we knew after the first 15 couple of tests that we couldn't do these type of 16 deals. But somebody would want to buy -- would 17 want us to lend them money to buy the REO and then 18 they -- lend them money on a property. They would 19 turn around and take some of the money to buy REO. 20 It was a sham, and we didn't do it. Typically, 21 the REO was single-family and some multi-family 22 that they wanted to buy. 5686 1 Q. And that was REO that the institution 2 had in its portfolio. Right? 3 A. That's correct. 4 Q. Do you have a recollection as to the 5 size of the REO assets in the portfolio of the 6 institution in the mid-Eighties? 7 A. No. 8 Q. Do you know if the REO assets of United 9 Savings Association increased between 1984 and 10 1986? 11 A. Oh, it increased, yes. 12 Q. Do you remember what the percentage 13 increase was from 1984 to '86? 14 A. No, because a lot of that was 15 single-family. I really didn't have any track of 16 what was happening in the single-family portfolio. 17 Q. With regard to the structure at United 18 Savings Association of Texas, do you happen to 19 know whether or not United Savings Association of 20 Texas was owned by a holding company? 21 A. Yeah, I believe it was. 22 Q. Okay. And what was the name of the 5687 1 holing company? 2 A. United Group Financial. United 3 Group -- United Financial Group. 4 Q. UFG? 5 A. Yeah. Some acronym. 6 Q. And UFG is the entity that you were 7 referring to earlier that MCO had purchased some 8 stock in? 9 A. Apparently, that's what they purchased 10 a share of, yes. 11 Q. Do you know if United Financial Group 12 owned any other savings and loans besides United 13 Savings? 14 A. Best of my recollection, not. But I 15 mean, I didn't know much about UFG. 16 Q. Were you ever asked to provide 17 information regarding the real estate portfolio 18 for reports that UFG made? 19 A. I can't recall. I don't think so. 20 Q. Were you ever asked to provide any 21 reports whatsoever regarding the real estate 22 portfolio? 5688 1 A. I guess you'd have to be kind of more 2 specific what you mean by "reports." I mean, we 3 did internal reports, yes. 4 Q. Okay. What do you mean "internal 5 reports"? 6 A. Well, we did different reports showing 7 what activity had been booked. Most of the 8 reports we did were generated by accounting, 9 though; not by us. 10 Q. Where would accounting get its 11 information? 12 A. From their files. 13 Q. And did you provide information to 14 their files? 15 A. Well, I think initially when we closed 16 the loan, we did. And if we had subsequent draws 17 on there, as we did the draws, we would update 18 their files; and they would update their files. 19 Q. Do you remember if you provided 20 information to accounting with regard to real 21 estate owned? 22 A. Yes. 5689 1 Q. You did? Mr. Childress did, too. 2 Right? 3 A. That's correct. 4 Q. Why did you do that? 5 A. Well, that was operational procedure. 6 Q. Was there any particular person to whom 7 you provided the information? 8 A. Well, I mean, I think -- I can't 9 remember the lady who ran the real estate 10 operation. It changed. We had different people 11 at different times. But we would have given it to 12 her or provided it to one of her staff members. I 13 can't remember. I mean, different people got 14 different information. 15 Q. But the person you provided it to 16 worked in accounting. Right? 17 A. That's correct. 18 Q. Do you know the name Karen Wymans? 19 A. She didn't work in accounting. She 20 worked in our area. 21 Q. And what was her job? 22 A. Basically, she serviced loans in our 5690 1 portfolio. 2 Q. Can you be more descriptive as to what 3 the nature of that job was? 4 A. Well, I mean, if a draw request came 5 in, she booked the activity and supervised the 6 disbursement of the check. And she did a lot -- 7 she supervised a lot of single-family loans that 8 were that way and some of the construction loans 9 that were that way. 10 Q. With regard to the books and records of 11 United Savings Association of Texas, do you have 12 an opinion as to whether the books and records 13 were in -- as to who kept the books and records 14 with regard to real estate? 15 A. Once again, what do you mean by "books 16 and records"? I mean, that's vague. 17 Q. Who kept the files on the real estate 18 loans, Mr. Graham? 19 A. Our department kept the files on the 20 real estate loans. 21 Q. Okay. When you say "your department," 22 you're referring to the real estate department. 5691 1 Right? 2 A. That's correct. 3 Q. Was there an entity known as UFC? 4 A. Yes, there was. 5 Q. And when did that entity come into 6 existence? 7 A. As far as I know, it always was in 8 existence. 9 Q. Did you have a position at UFC? 10 A. Yes. 11 Q. What was your position? 12 A. Probably vice president. I don't 13 recall. 14 Q. When were you vice president of UFC, 15 Mr. Graham? 16 A. I have no idea when that first 17 occurred. 18 Q. Might you have been the president of 19 UFC at some time? 20 A. No. I don't believe I ever was. 21 Q. Do you know who the president was? 22 A. I have no idea. No, I do not know. 5692 1 Q. Who supervised you as the vice 2 president of UFC? 3 A. Well, I mean, UFC was a subsidiary 4 that -- in which real estate activity -- the real 5 estate investment flowed through. It really was 6 under the umbrella of the overall aspects of what 7 we were doing in United Savings. So -- and you 8 didn't report to somebody directly as a UFC 9 officer. 10 Q. You didn't report to anybody? 11 A. No. I mean, I don't even know who -- I 12 mean, different times, they had different people 13 that were in that operation. At one time, 14 Mr. Bentley was in it. I assume Gerald Williams 15 was in it at one time. I don't recall who was 16 always in there. You know, we had meetings 17 periodically; but it wasn't an operating entity 18 like United Savings that operated on a day-to-day 19 basis. 20 Q. Was it a subsidiary of United Savings? 21 A. I don't remember if it was a subsidiary 22 of United Savings or UFG. I don't recall which it 5693 1 was. 2 Q. And you don't remember what the 3 specific purpose of it was? 4 A. The specific purpose was to have a 5 vehicle with which we could make equity 6 investments. 7 Q. What's an equity investment? 8 A. Where we put our money in a project and 9 took an ownership interest. 10 Q. Were all equity investments at United 11 Savings Association of Texas run through UFC? 12 A. I can't answer that. The majority of 13 them. But all of them, I can't say. 14 Q. But to your memory, the majority were 15 run through UFC? 16 A. To my memory, yes. 17 Q. Meaning some funding was provided 18 through UFC to those equity investments. Right? 19 A. That's correct. 20 Q. What was your role in connection with 21 funding equity investments that were done through 22 UFC? 5694 1 A. Well, I mean, if we did a real estate 2 project, it wasn't a whole lot different than if 3 we did a real estate project in United Savings. 4 We analyzed it and we evaluated it, and if we 5 decided to go into it as a partner, then we 6 contributed our funds either up front or pari 7 passu to the partner putting in his funds and we 8 viewed the progress of the project and determined 9 when funds were needed. 10 Q. Would United Savings Association of 11 Texas have also been -- would that have been a 12 partner of UFC in any investments, real estate 13 investments? 14 A. When you say "a partner," they may have 15 made the loans. I don't think they were ever a 16 partner in the definition of a partnership, no. 17 Q. So, UFC made loans in connection with 18 various real estate investments that UFC put 19 equity into; is that right? 20 A. Some yes. Some no, yes. 21 Q. Do you recall any specific transactions 22 in which United Savings Association of Texas made 5695 1 a loan to -- or in connection with an equity 2 investment of UFC? 3 A. Pretty much most of the apartment joint 4 ventures we did in the early Eighties under these 5 housing bond issues were in that form. United 6 Savings made a loan. UFC, as well as the partner, 7 put in the equity. So, I would say most of the 8 joint ventures under the bond issues were done in 9 that form. 10 Q. That was the early Eighties? 11 A. Yes, sir. 12 Q. What about the mid-Eighties? 13 A. Well, I think we still continued to use 14 that technique. Other than, you know, the Norwood 15 which we can talk about later, I can't think of a 16 specific project off the top of my head. 17 Q. You mentioned Norwood. What are you 18 referring to there? 19 A. It's one of the ones I said we were 20 going to talk about later. 21 Q. Tell me what you remember about the 22 Norwood project. 5696 1 A. That's kind of generalized. I mean, if 2 you want a general answer, it was a real estate 3 project in Austin in a major intersection. It 4 started off as a loan that ultimately was 5 converted to a joint venture in which we were a 6 partner with some Austin developers. 7 Q. Who's "we"? 8 A. "We" being partners was UFC. 9 Q. I'm sorry. I don't understand your 10 answer, Mr. Graham. Who is "we"? You mean United 11 Savings? 12 A. Well, you said, "Who is 'we'?" We -- I 13 said we ended up being partners. United Financial 14 ended up being partners. United Savings ended up 15 being a lender. 16 Q. In connection with the Norwood project? 17 A. That's correct. 18 Q. In Austin? 19 A. That's correct. 20 Q. And the history of the Norwood project, 21 I think you said, involved some loans; is that 22 right? 5697 1 A. Yeah. Well -- yeah, loans. 2 Q. When were those loans made? 3 A. I think in '84. 4 Q. When you refer to 1984, is that when 5 you refer to the mid-Eighties beginning? 6 A. I'm not picking a date. I'm just 7 giving you a generalization. I mean, you can 8 determine what "mid" and "late" and "early" are. 9 I'm just saying -- when I said "mid-Eighties," I 10 was trying to say it wasn't early Eighties. I 11 don't know. I'm not going to pick a date and say 12 June 1st is becoming the mid-Eighties. 13 Q. I'm just trying to find out what you 14 mean when you say "mid-Eighties." What years are 15 you talking about, Mr. Graham? 16 A. Apparently, I'm vague. I don't know. 17 I'm just saying -- 18 Q. You don't know what you're talking 19 about? 20 A. I don't know what I mean by "mid." I'm 21 saying that's a term I use generally. I don't 22 have a specific date that it starts on. 5698 1 THE COURT: I don't think this is 2 getting anywhere. Let's move on. 3 Q. (BY MR. LEIMAN) You referred to the 4 period when Mr. Bentley was president during the 5 same time when Mr. Rex Baker was a shareholder in 6 United Savings. I guess you said about 1976? 7 A. When I joined, yes. 8 Q. You referred to that -- the kind of 9 lending that was done at that time frame as blue 10 collar lending. Right? 11 A. No. That's not -- once again, that's 12 not what I said. You asked the question: Prior 13 to Mr. Hurwitz's involvement or his companies' 14 involvements in United, what kind of ventures 15 would you do under Mr. Bentley? 16 Back in the early Seventies, we did very 17 few. It wasn't until the late Seventies or early 18 Eighties that we started doing more real estate 19 ventures. So, that -- and when we started doing 20 that in those periods, that was my response. We 21 didn't necessarily do it in 1976. 22 Q. You did it after '76? 5699 1 A. Yes. Sometime later, we started 2 getting more involved in real estate ventures. I 3 just want to be clear. 4 Q. Okay. Was that after MCO had acquired 5 a stock position in United Financial Group? 6 A. What was after they acquired? 7 Q. That you started doing more real estate 8 ventures. 9 A. No. I think we started doing more 10 as -- when we entered the Eighties in general. 11 Kaneb encouraged us to do more. The economy was 12 booming, and we were encouraged to do more. 13 Q. Did that ever -- did that increase 14 after MCO acquired an interest in United Financial 15 Group? 16 A. Well, I think it increased somewhat in 17 that the characteristic of what we did changed a 18 little bit. 19 Q. What do you mean? 20 A. I think we looked for longer-term, 21 well-situated properties that we felt had 10-, 22 12-year kind of economic return to them rather 5700 1 than, you know, out-of-the-way projects that would 2 have two- or three-year flips. You know, we took 3 a different posture. We took the posture we saw 4 that was working for other associations, for 5 example, and tried to do larger, better deals. 6 Q. You refer to larger and better deals. 7 What size projects did you begin doing after 8 Mr. Hurwitz acquired an -- I'm sorry -- after MCO 9 acquired an interest in United Financial Group? 10 A. I don't think we had a size 11 requirement. We had a goal requirement to find 12 deals that made sense, and the size then came with 13 them. I mean, if it was a good 4-million-dollar 14 deal, we'd do it just as readily as a good 15 40-million-dollar deal. It's based on our 16 determination if it's a good deal. 17 Q. Do you ever remember doing any 18 40-million-dollar deals prior to MCO acquiring an 19 interest in United Financial Group? 20 A. No. 21 Q. How about 30-million-dollar deals? Did 22 you do any of those before MCO acquired an 5701 1 interest in United Financial Group? 2 A. We may have done real estate loans 3 close to that. I don't know if we did a joint 4 venture or a real estate investment that large at 5 the time, no. 6 Q. During your tenure at United Savings, 7 what was the largest real estate loan that you can 8 recollect ever being involved in? 9 A. Park 410 West. 10 Q. What was the size of that real estate 11 loan? 12 A. I think it was 70 million. 13 Q. When did that loan -- when was that 14 loan made? 15 A. The loan -- the loan, I think, was '75 16 or early '76. 17 Q. Sorry? 18 A. Late '75 or early '76, to the best of 19 my recollection. Early -- 20 Q. '75 or '76? 21 A. No. '85 or '86. I'm tired. '85, '86. 22 Sorry. 5702 1 Q. Okay. To your knowledge, was that the 2 largest loan United Savings had ever made? 3 A. Yes. 4 Q. Do you recall what the -- whether there 5 was a loan that -- what the second largest loan 6 United ever made was that you were involved in? 7 A. That I was involved in? 8 Q. Yeah. 9 A. Probably either the Norwood loan or the 10 Grand Financial Plaza office building in LA. I 11 can't remember which one. 12 Q. Mr. Graham, do you remember who brought 13 the Norwood project to United Savings? 14 A. You mean the developer? 15 Q. Yes, sir. 16 A. Tommy Gordon. 17 THE WITNESS: Can I ask a question, 18 sir? Can I get some water? 19 20 (Discussion off the record.) 21 22 Q. (BY MR. LEIMAN) Mr. Graham, Tommy 5703 1 Gordon was the developer that was associated with 2 the Norwood loan? 3 A. Yes. 4 Q. On behalf of United Savings Association 5 of Texas, was there anyone who was involved with 6 bringing Mr. Gordon to United? 7 A. Oh, I think probably his initial 8 contact was with -- was Mr. Gross because he knew 9 Mr. Gross. 10 Q. Okay. You say Mr. Gross. Is that 11 Mr. Jenard Gross? 12 A. Yes, sir. 13 Q. When did you first meet 14 Mr. Jenard Gross? 15 A. Well, I mean, in his role with United? 16 I had met him I think a couple of times prior to 17 his joining United Savings. 18 Q. Okay. And when you say it was prior to 19 his joining United Savings, what was the context 20 of when you met him? 21 A. Oh, probably socially and probably in 22 real estate gatherings. At one point, a good 5704 1 friend of mine worked for him; and I think I met 2 him through that gentleman. 3 Q. Was Mr. Gross involved in real estate, 4 to your knowledge? 5 A. Oh, yes. 6 Q. What was he -- what was the nature of 7 his involvement in real estate? 8 A. Oh, he was a very successful 9 apartment -- well, I will be nice -- is a very 10 successful apartment builder and had -- I think 11 had some experience with a savings and loan and 12 probably other real estate ventures. He was 13 primarily known as a very successful apartment 14 developer. 15 Q. Is Mr. Gross in the courtroom today? 16 A. Oh, yes, sir. 17 Q. Do you see him? 18 A. Yes, sir. 19 Q. Would you point him out? 20 A. (Witness indicates) 21 Q. He's in the first row? Is that it? 22 A. Yes. 5705 1 Q. Okay. And when you say that you knew 2 him as a successful apartment developer, where 3 do -- do you know where he developed apartments? 4 A. I mean, I know the ones he probably 5 developed in Houston. I mean, I know some of 6 those. He probably did them in all the state, 7 maybe all over the country. I didn't know all of 8 his portfolio. But I mean, he was highly 9 respected; and I knew some of the developments he 10 had done in Houston. 11 Q. So, it wouldn't be right to call him 12 simply a Houston apartment developer? He did them 13 all over America? 14 A. Well, I said he may have done some. I 15 don't know if he was extensive all over America. 16 I just don't think he probably limited himself to 17 Houston only. That's my guess. I may be wrong. 18 Q. Okay. But how did you know him? You 19 knew him as a Houston developer? 20 A. Yes. 21 Q. Did Mr. Gross ever have a position with 22 United Savings Association of Texas? 5706 1 A. Yes. At one point, he was president, I 2 believe. 3 Q. Did he hold any other positions at 4 United Savings? 5 A. Not that I recall, no. 6 Q. Was he ever a consultant at United 7 Savings? 8 A. Well, when he initially came on, he 9 wasn't technically an officer. So you may -- I 10 may assume he was a consultant at that point. I 11 don't recall whether we had a specific contract 12 with him. I wasn't involved; so, I don't know. 13 Q. Prior to becoming president of United 14 Savings, Mr. Graham, do you know if he was a 15 consultant? 16 A. As I said, he was -- it was presented 17 to us that he was there to help us. Now, whether 18 he was a consultant or whether he had a formal 19 agreement, I don't know. I wasn't privy to that. 20 All I know is he came on board in a non-officer 21 capacity to assist. 22 Q. Do you know what the circumstances were 5707 1 of him coming on board prior to becoming president 2 to assist? 3 A. As I told you, I wasn't privy to any of 4 that. 5 Q. So, you don't know how he was recruited 6 to be -- 7 A. No. 8 Q. -- an assistant? 9 A. No, I don't. 10 Q. Prior to his becoming president of 11 United Savings, did you have occasion to meet with 12 him? 13 A. Well, once he came on board as whatever 14 he was, yes. 15 Q. And what did you meet with him about 16 before -- when he came on as you call it, whatever 17 he was? 18 A. Well, I think we talked in length about 19 our portfolio, how we much -- how we do things, 20 how we -- what our goals are. I mean, just the 21 generalization. He was there to kind of get a 22 feel for how we operated. 5708 1 Q. Do you remember if Mr. Gross offered 2 you any advice? 3 A. Oh, I don't doubt he did. I don't 4 recall what it was, but we were receptive to 5 Jenard's involvement. 6 Q. Why were you receptive to Jenard's 7 involvement? 8 A. In deference to him being here, we had 9 great respect for him. 10 Q. And is that because of his reputation 11 as a developer? 12 A. Yes, it was. 13 Q. Do you know if Mr. Gross has ever been 14 involved in projects other than apartment 15 buildings? 16 A. As I said before, no, I don't. 17 Q. Do you remember if there was a time 18 when Mr. Gross became an officer of United Savings 19 Association of Texas? 20 A. I thought I answered that. I thought 21 he was president. 22 Q. Okay. Do you remember when that was? 5709 1 A. Not datewise, no. 2 Q. Where was your office at United Savings 3 Association of Texas? 4 A. On the sixth floor of the MCO building. 5 Q. I'm sorry. The sixth floor of what? 6 A. The MCO building. 7 Q. And where was that? 8 A. 5718 Westheimer. 9 Q. After Mr. Gross became the president of 10 United Savings, where was his office? 11 A. Two offices south of me. 12 Q. That sounds like it's a great distance: 13 "Two offices south." You mean down the hall? 14 A. Well, it wasn't a hall. It was a big 15 open area, but we had both outside offices. There 16 was my office, another office, and then his 17 office. 18 Q. Okay. What about Mr. Childress? Was 19 his office near your office? 20 A. Yeah. We -- our office -- my office, 21 two open secretaries, and his office. 22 Q. After Mr. Gross became president of 5710 1 United Savings, did you have occasion to have 2 informal discussions with him? 3 A. Yes. 4 Q. How frequently? 5 A. Well, I mean, we all had informal 6 discussions among ourselves, Gem and I, our staff. 7 Jenard would drop in and visit. We would drop in 8 and bring him up to date. We operated pretty 9 informally as a company in that respect. 10 Q. Daily, you would have these 11 discussions? 12 A. Well, if he was there daily. I mean, 13 we would do it weekly, several times a week. I'm 14 not going to say it's daily. 15 Q. Did you ever have any reluctance in 16 dropping in on Mr. Gross? 17 A. Oh, none whatsoever. 18 Q. And what would be the purpose of your 19 dropping in on Mr. Gross in his office? 20 A. Could be a multitude of things. 21 Sometimes it was just to kick around something new 22 that came in, if he was interested. Wanted to 5711 1 talk about what was going on with things we were 2 working on. Jenard is easy to talk to. So, I 3 used him as a sounding board as often as I could. 4 Q. Did you use him as a sounding board in 5 connection with the Norwood project? 6 A. Well, I think we all were somewhat 7 knowledgeable about his involvement, yes. 8 Q. Did Mr. Gross offer you advice about 9 the Norwood project? 10 A. I mean, like I said, we probably talked 11 about it. I can't tell you specifically what the 12 conversations involved, but I know we probably 13 discussed it, yeah. 14 Q. You said that Mr. Gross, on behalf of 15 United Savings, would have brought the Norwood 16 project -- 17 A. I didn't say that. I said that Tommy 18 Gordon probably called Jenard since he knew Jenard 19 personally. I didn't know Tommy that well at the 20 time. So, his probably initial contact was with 21 Jenard. I don't know if Jenard sought the loan 22 out or Tommy called him. I can't answer that. 5712 1 Q. But you remember that being prior to 2 Mr. Gross being president of the institution? 3 A. I didn't say that either. I don't know 4 when it occurred relative to his presidency. 5 Q. Mr. Graham, do you know the 6 circumstances under which Mr. Gross was brought on 7 to United Savings Association of Texas? 8 A. You know, I thought I answered that. 9 No. I mean, I don't. He was there to assist us 10 and give us some guidance. And I've already 11 answered that. 12 Q. Have you ever -- have you ever had a 13 belief as to how Mr. Gross came to United Savings? 14 MR. BLANKENSTEIN: Object. 15 MR. KEETON: The same thing. Asking 16 for speculation. I object to the form of the 17 question. 18 THE COURT: Sustained. 19 MR. LEIMAN: Your Honor, I'm not asking 20 him for speculation. I'm asking him if he has 21 ever held a belief in that regard. 22 MR. KEETON: I may believe in a lot of 5713 1 things, but it's still speculation. 2 MR. BLANKENSTEIN: He testified that he 3 didn't know the circumstances on which Mr. Gross 4 joined the institution. 5 THE COURT: If he doesn't have any 6 knowledge, I don't know how he can have a belief. 7 Q. (BY MR. LEIMAN) Let me ask the 8 question a little differently. 9 Have you ever given sworn testimony in 10 connection with a belief that you had regarding 11 how Mr. Gross was -- came to be an employee of 12 United Savings? 13 MR. KEETON: Your Honor, what may or 14 may not have gone on in depositions where we may 15 or may not have been present has nothing to do 16 with the testimony in this court. I object to the 17 form of the question. He's asking the second 18 degree away from the same question you just 19 sustained the objection to. 20 THE COURT: All right. I'll sustain 21 the objection. We'll take a short recess. 22 5714 1 (A short break was taken 2 at 10:30 a.m.) 3 4 THE COURT: We'll be back on the 5 record. Mr. Leiman, you may continue. 6 (10:56 a.m.) 7 Q. (BY MR. LEIMAN) Mr. Graham, what was 8 the role of Charles Hurwitz in connection with 9 real estate lending and policy at United Savings? 10 A. Well, Charles basically met with us to 11 talk about the deals we were working on. He gave 12 input of what areas we thought we ought to 13 concentrate on, areas we thought were good for us 14 to invest in. It was generally -- he never came 15 and sat down and said, "This is what we're going 16 to do." We usually had group meetings and talked 17 about what directions we wanted to go, what 18 directions he thought would be advantageous and, 19 you know, it was kind of an informal-type 20 approach. 21 Q. After -- during that time period when 22 Mr. Hurwitz would meet with you and 5715 1 Mr. Childress -- is that right? 2 A. Well, I mean, Gem may be in meetings. 3 Jenard may be. Jerry Williams may be. It was, 4 like I said, kind of who was there. We sat around 5 and talked about it. 6 Q. When that -- when did that begin? 7 A. Oh, sometime after his company had a 8 position in United Savings. When exactly after 9 that, I don't know. How quick, I don't know. 10 Q. Did it become apparent after, as you 11 described it, his company got a position in United 12 Savings that lending would become more aggressive 13 at United Savings? 14 A. I don't think we necessarily became 15 that much more aggressive. I think -- like I 16 said, I think a change in direction a little bit. 17 We looked for a little different type of 18 opportunity. We also had access to some -- to 19 different type developers that we were not -- did 20 not have a relationship with before. 21 Q. What do you mean? 22 A. Well, I think both Jenard as well as 5716 1 Charles brought some relationships of very 2 successful developers that we really hadn't had a 3 chance to do business with. So, it gave us some 4 opportunities we hadn't had before. And so, there 5 is some projects we had not been involved with 6 before. 7 Q. Who was the leadership at United 8 Savings? 9 A. When you say "leadership," what 10 specifically -- 11 Q. Who do you think the leadership of 12 United Savings was in 1984? 13 A. In '84, it's kind of hard to say. If 14 you can get closer to my end, I can probably give 15 you a better answer. 16 Q. 1985. 17 A. Like I said, '87 and '86, I mean, 18 obviously, probably the predominant voices were 19 Jenard and Charles, but that's for their position. 20 Q. Was there an interest in doing 21 high-profile projects at United after -- during 22 the -- that period of time? 5717 1 A. Well, the high-profile projects tended 2 to be the well-located projects, tended to be the 3 ones that were longer term in scope. You 4 generally have high-profile locations on good 5 access, good roads, strong intersections, 6 whatever, where, you know, it would mean a lot 7 more to a lot of people. They would see it. They 8 would know it. So, high profile in that respect, 9 yes. I think we tried to do that type of project 10 as opposed to one up on the back woods someplace. 11 Q. Based on your discussions and 12 experiences with Mr. Hurwitz, do you believe that 13 Mr. Hurwitz was leading USAT in its approach to 14 growth being real estate oriented? 15 A. I think we probably looked at real 16 estate opportunities a little more broadly, a 17 little bit more receptive. I don't think it was 18 necessarily aggressive. It was receptive. We 19 considered it good opportunities and we looked at 20 them. 21 Q. Did Mr. Hurwitz and Mr. Gross set the 22 tone for lending at United Savings? 5718 1 A. I mean, obviously, as I said before, 2 their voices had some merit. But I think both I 3 and Gem Childress also welcomed the opportunity to 4 do some better quality projects and deal with some 5 higher profile, more successful developers. 6 Q. Mr. Hurwitz took an active role at 7 United Savings? 8 A. Once again, what do you mean by "active 9 role"? 10 Q. Did he meet with you? 11 A. Yeah. 12 Q. Did he meet with you and suggest 13 projects? 14 A. I don't think he necessarily -- unless 15 somebody brought a specific project to his 16 attention that he asked us what did we think, I 17 don't think he went out and sought specific 18 projects, no. 19 Q. Mr. Graham, would you ever have done a 20 project -- let me lay some foundation for this. 21 Strike the last -- 22 MR. BLANKENSTEIN: Your Honor, can you 5719 1 ask Mr. Leiman to keep his voice up? I'm losing 2 some of his questions. 3 MR. LEIMAN: I'm doing the best I can, 4 Your Honor. I'll be shouting soon. 5 Q. (BY MR. LEIMAN) Mr. Graham, you 6 stated earlier that the largest project that you 7 had ever been involved with at United Savings was 8 a 70-million-dollar loan? 9 A. That's correct. 10 Q. All right. And that was Park 410. 11 Right? 12 A. Yes. 13 Q. Did you support the making of that 14 loan? 15 A. Yes. 16 Q. Did Mr. Gross support the making of 17 that loan? 18 A. I think everybody did, yes. 19 Q. Did Mr. Hurwitz support the making of 20 that loan? 21 A. Yes. 22 Q. Would that loan have been made without 5720 1 Mr. Hurwitz' concurrence in it being made? 2 A. That's speculation. Chances are if he 3 was vehemently against it, probably not. But I'm 4 speculating on that response. 5 Q. Let's talk about the size of loans and 6 risk associated with it and, specifically, I'd 7 like you to tell me whether or not you think, as 8 an underwriter, a loan underwriter, whether risk 9 goes up as dollar amounts go up in connection with 10 a loan. 11 A. Well, it depends on how the loan is 12 structured. I mean, I'd rather do a large loan 13 with -- well-structured than ten bad, small loans. 14 I mean, you're asking me to answer something that 15 all pieces aren't there. Yes, it could; but it 16 could not necessarily either. It depends on 17 what -- relative to what. 18 Q. Mr. Graham, did you have any concern 19 about the $70 million you put -- 70-million-dollar 20 size of the Park 410 loan? 21 A. At the time we did it, I did not. 22 Q. In terms of the operation of the real 5721 1 estate department, did you believe it was part of 2 your job to assess whether or not the risk would 3 have an effect upon United Savings? 4 A. Well, I think it's intrinsic when you 5 look at something you know if it's a bad deal it's 6 going to have an effect. Now, whether I, in my 7 role, called it into the overall risk factors in 8 the association, no. 9 Q. So, whose role was it to call it into 10 the risk factors of the association? 11 A. I think that's why you had a loan 12 committee. That's why you probably had people on 13 there that were broader -- Mike Crow, other 14 people -- that could look at it and say, you know, 15 "This is a risk that is something other than real 16 estate." 17 Q. Was that Mr. Crow's job, to assess the 18 risk? 19 A. Well, I think that's one of his inputs. 20 Q. Was it Mr. Gross' job to assess the 21 risk? 22 A. I think everybody on the committee -- I 5722 1 mean, I can't answer specifically, but I think 2 that everybody that had a broader view of how the 3 association ran probably had that also as a 4 criteria when approving something. 5 Q. Did Mr. Hurwitz associate large loans 6 with being a player in the real estate market in 7 Texas? 8 A. No. Once again, I think the large 9 loans tend to come -- tended to develop, and we 10 just sort of were looking for better locations and 11 better borrowers because the land cost associated 12 with doing something on a well-located 13 thoroughfare or with highway access was 14 substantially greater than the land cost of doing 15 something in east Texas off the beaten track. So, 16 you intrinsically had more dollars at risk. 17 Q. You had more dollars at risk when, 18 Mr. Graham? 19 A. I mean, not a risk. Any loan is a 20 risk. But I mean, you had more dollars involved 21 in a project when you did something that was 22 well-placed and had a maturity to it that had -- 5723 1 if you went to an intersection that is successful 2 or it has the highway and all that stuff, you're 3 going to pay more for that land than if you go 4 someplace else way away. 5 Q. What role do you think -- were you 6 finished with your answer? 7 A. Yeah, I am. 8 Q. What role do you think appraisals play 9 in loan underwriting? 10 A. They are one piece of the puzzle. 11 Q. An important piece of the puzzle or 12 not? 13 A. I think they -- yeah. I think they are 14 an important piece; but I mean, they are not the 15 only one that we lay our criteria on, no. 16 Q. What other factors would you lay your 17 criteria on in underwriting loans, Mr. Graham? 18 A. Our own internal review of it, our 19 knowledge of the market, our knowledge of the 20 borrower, and the structure of the loan. 21 Q. How would you get your knowledge of the 22 market? 5724 1 A. Most of the markets we were in, quite 2 frankly, we were knowledgeable about. If we went 3 to someplace we had never done business before, it 4 would take some time. But the markets we 5 generally stayed in -- Austin, San Antonio, 6 Houston, Dallas, other parts of Texas -- we had 7 been doing loans in those markets for 10, 8 12 years. We knew them. We understood them. 9 Q. I don't understand your answer, 10 Mr. Graham. What do you mean you knew them? How 11 did you know them? Where did you get your 12 information about the markets? 13 A. If you -- if you're lending in a market 14 and you're actively in the market, you 15 intrinsically know about the market. I don't know 16 how else to tell you. I mean, if you're there and 17 you look at a lot of deals -- and we saw a lot of 18 deals in a lot of markets -- you see what's 19 happening in the market. You're not unfamiliar 20 with what the competition is, what the other 21 lenders are doing, what the other developers are 22 doing. You know that. You see it. 5725 1 Q. Did you keep book on other lenders? 2 A. No. 3 Q. So, how did you get your information, 4 apart from observing it in other markets? 5 Where -- did you write it down anywhere? 6 MR. DUEFFERT: Your Honor, there is a 7 level of argumentation here that I think is 8 inappropriate. He's asking questions in a very 9 abstract level and seemingly becoming angry 10 because he has to get abstract answers. 11 MR. LEIMAN: Your Honor, what I'm 12 asking him to describe for me is how he underwrote 13 loans, how real estate loans were underwritten at 14 United. 15 THE COURT: I don't think that was your 16 question. 17 THE WITNESS: I don't either. 18 THE COURT: Why don't ask you him that 19 one? 20 Q. (BY MR. LEIMAN) How were loans 21 underwritten at United Savings? 22 A. Well, basically, there were three 5726 1 agreements in underwriting a loan: Underwriting 2 the borrower, underwriting the structure of the 3 deal, and underwriting the market which the deal's 4 in. And you analyze each of those three, and 5 those pieces all come together as a determination 6 of whether or not you like the deal or don't like 7 the deal. 8 Q. Okay. And you're telling me, 9 Mr. Graham, and telling the Court that the way in 10 which you would get market data would be how, in 11 underwriting a loan such as Park 410? How did you 12 get your market data? 13 A. On Park 410, some of it we were 14 familiar with. Some of it the borrower provided. 15 And some of it, we probably looked at other 16 studies. We looked at Realtor reports. There is 17 a number of ways you can get information. 18 Q. I'm going to write them down. Realtor 19 reports. What's -- 20 A. You can write them down. I'm just 21 telling you there are a number of ways you can get 22 it. You can talk to Realtors. You can check 5727 1 sales activity. You can call other lenders, other 2 brokers, and find out what they know about the 3 market. You can look at appraisals. You can look 4 at old reports. You can do a lot of different 5 things. 6 Q. With regard to the Park 410 loan, did 7 you rely upon anybody in particular to -- with 8 regard to the San Antonio market? 9 A. We probably talked to different people. 10 We were very, very familiar with the market. We 11 had been looking for a long time over there for an 12 opportunity we thought was sound and we could make 13 a long-term investment. 14 So, we had seen a lot of activity. We 15 had turned down a lot and lot of opportunity on 16 the north side of town. So, we were somewhat 17 familiar with the market. 18 Q. Why did you turn down activity on the 19 north side of town? 20 A. We thought the price for the land that 21 had escalated to such a point that it really 22 wasn't a place we wanted to be. 5728 1 Q. Did you have an understanding as to why 2 the price on the north side of San Antonio had 3 escalated? 4 A. Well, it basically was the hottest part 5 of town and it was overbuilt and over -- I guess 6 it was too much enthusiasm about it. Everybody 7 tended to want to be up there, and they drove the 8 price much too high. 9 Q. When you say "too much enthusiasm," are 10 you referring to speculation on land prices? 11 A. Yes. 12 Q. So, you looked elsewhere. Right? 13 A. Yes. 14 Q. Where did you look? 15 A. Really, every -- all the other 16 quadrants in the city. 17 Q. Specifically, what quadrant did you 18 settle on? 19 A. Well, we settled on the -- well, 20 basically west quadrant. 21 Q. Why did you settle on the west 22 quadrant? 5729 1 A. We actually didn't settle. I mean, 2 that's -- we had an opportunity that came to us 3 that then we felt comfortable with. And so, we 4 proceeded on that opportunity, which was in the 5 west quadrant. 6 Q. What was the opportunity that was 7 brought to you? 8 A. Initially, we had a chance to buy a 9 tract of land that was in Alamo Savings' REO 10 portfolio. And we had bid on it as an 11 association. We started the process through 12 various letters of intent to try to buy the 13 property outright for our own portfolio. 14 Q. And what happened? 15 A. We went through several exchanges of 16 letters of intent to the point where we thought we 17 had a deal. And we met with them and, at that 18 time, found out we weren't even close to having 19 what deal. So, we terminated discussions and went 20 about our business. 21 Q. You say you -- you referred to "we met 22 with them." Who are you talking about? 5730 1 A. Gem Childress and I met with them, and 2 we asked Mr. Stanley Rosenberg to come on our 3 behalf as an attorney because we thought we were 4 close enough we may be negotiating specific points 5 of a contract. 6 Q. Who's Stanley Rosenberg? 7 A. Stanley Rosenberg is a lawyer and real 8 estate developer in San Antonio who we had done 9 some business with before. We had used his law 10 firm for some real estate transactions, and we 11 were familiar with him. 12 Q. How did you become familiar with 13 Stanley Rosenberg? 14 A. Well, two ways. One is that when we 15 acquired a property, acquired an S&L in 16 San Antonio, I think he had some loans or an 17 activity with them and we learned of him in that 18 way. We also got to know him from Charles. He 19 was a friend of Charles Hurwitz. 20 Q. Do you know if he was a close friend of 21 Charles Hurwitz? 22 A. Yes, he was a close friend. 5731 1 Q. So, what happened after you went to a 2 meeting at Alamo and you were unable to buy the 3 property? Then what happened? 4 A. At some period later, we were 5 approached by Stanley Rosenberg that he had a 6 group that was interested in buying the property 7 and they were allowing him to be a partner in the 8 property and wanted to know if we wanted to be his 9 partner in that partnership. 10 Q. And what happened then? 11 A. We chose to be his partner and take a 12 25 percent position. 13 Q. You say "we chose." Who are you 14 referring to? 15 A. The investment committee. 16 Q. And who was on the investment committee 17 that voted in favor of -- 18 A. You'd have to show me or remind me. I 19 mean, I know -- I think probably Jerry Williams, 20 Sonny Bentley, Gem and I, and maybe one or two 21 others. I can't remember. 22 Q. Would you have taken a 25 percent 5732 1 position with Mr. Rosenberg's group without the 2 concurrence of Jenard Gross? 3 A. I mean, at that time, I don't know if 4 he had a voice in making those determinations for 5 us or not. I can't recall. 6 Q. What about Mr. Hurwitz? 7 MR. DUEFFERT: Objection. He's calling 8 for speculation. 9 THE COURT: Denied. You may answer. 10 THE WITNESS: Okay. Thank you. 11 A. I don't know. I mean, I think Charles 12 probably gave us an opinion, but I don't know 13 whether or not -- if he really didn't like it that 14 we were doing it, probably, realistically, we 15 wouldn't have done it if he disliked it immensely. 16 Q. (BY MR. LEIMAN) I'm sorry. I didn't 17 understand it. You would not have done it? 18 A. If he was adamant about it, we probably 19 would have would have passed on it, yes. 20 Q. Okay. Did you talk to Mr. Hurwitz 21 about the opportunity with Stanley Rosenberg? 22 A. I assume I did, yes. 5733 1 Q. You weren't sure about Mr. Gross and 2 whether or not he approved? 3 A. That is correct. 4 Q. I'll just show you an exhibit, 5 Mr. Graham, T7069. 6 MR. LEIMAN: Your Honor, we've prepared 7 a notebook of appraisal documents that I intend to 8 use in the examination of this witness and likely 9 will be used throughout this real estate case. 10 I'm only asking this particular witness about this 11 particular appraisal, 7069. And I'd like to be -- 12 could I hand this up to you? 13 THE COURT: Yes. How many copies of 14 that do you have? 15 MR. LEIMAN: There is one copy of this 16 notebook, and the other side -- the respondents 17 have been provided with copies already. 18 THE COURT: Okay. I like to have two 19 copies of each of your exhibits. 20 MR. LEIMAN: All right. 21 MR. DUEFFERT: And, Your Honor, 22 although we have a copy of the exhibits inside of 5734 1 it, I would request one copy of the notebook for 2 us to inspect just so we see the organization of 3 it. 4 THE COURT: Do you have a copy for 5 Mr. Dueffert? 6 MR. LEIMAN: We have previously 7 provided these. We will provide him a notebook if 8 he would like one. 9 THE COURT: Well, he asked for one. 10 MR. LEIMAN: Your Honor, if you would 11 prefer, I'll take it out of the notebook and 12 simply give you this one appraisal that we intend 13 to question about now. It's just four appraisals 14 in there. 15 THE COURT: Well, that's fine. I like 16 the notebook. 17 THE WITNESS: Do you have one left for 18 me? 19 Q. (BY MR. LEIMAN) I have one left for 20 you. I haven't forgotten about you, Mr. Graham. 21 My first question to you, Mr. Graham, 22 is: Have you seen this document before? 5735 1 A. I think as I told you before, I don't 2 recall. 3 Q. And when would you have told me before 4 that you didn't recall having seen this before? 5 A. I think in a sworn statement. 6 Q. Your sworn testimony in Washington, 7 D.C.? 8 A. Yes. 9 Q. Okay. If you will, look with me at 10 Page 51 of this document. You testified earlier 11 about speculative land activity on the north side 12 of San Antonio. Right? 13 A. That's correct. 14 Q. All right. Would the period of that 15 speculative activity have included March 1980 16 through 1985, 1986? 17 A. What was the dates again, sir? 18 Q. 1980 through 1986. 19 A. Maybe a little later. '82 through '86, 20 yeah. 21 Q. Okay. Now, with regard specifically to 22 the Park 410 property, in underwriting the Park 5736 1 410 loan, would it have been important to you to 2 know the sales history of the property? 3 A. It would have -- it would be one 4 ingredient we would look at, yes. 5 Q. Would it have been an important 6 ingredient? 7 A. Not necessarily. Depending on what we 8 found. 9 Q. Okay. Now, looking at Page 51 of this 10 appraisal document -- 11 A. Yes. 12 Q. -- it sets forth here a sales history 13 of the Park 410 property; is that right? 14 A. That is correct. 15 Q. Can you tell me what the property was 16 selling for in March of 1980, looking the first 17 paragraph, on a per acre basis, sir? 18 A. 7,000 -- $8,700.00 per acre. 19 Q. Okay. And how many acres was -- was 20 the entire Park 410 property -- what eventually 21 became the Park 410 property at that time? 22 A. Run that by because they are talking 5737 1 about 1500 acres here and that was not what the 2 whole -- 3 Q. Do you see where it says in the first 4 paragraph, Mr. Graham, the parent tract of the 5 appraised property, being Park 410, was the Essar 6 Ranch? 7 A. Yes. 8 Q. And it says "In March 1980, a joint 9 venture bought that ranch, 1533 acres, from the 10 Slick Estate." 11 A. That's correct. 12 Q. And the purchase price was $8,700 an 13 acre. About $13.3 million. Right? 14 A. Right. For 1533 acres. 15 Q. All right. Now, look at the next 16 paragraph. 17 A. Uh-huh. 18 Q. In August of 1981, the property was 19 again sold. But at that time, it was reduced down 20 to a 420-acre parcel. Right? 21 A. That's correct. 22 Q. And that sold for how much per acre? 5738 1 A. 13,497. 2 Q. For a total consideration of that 3 particular tract of how much? 4 A. $5,788,946. 5 Q. And looking at the next paragraph, the 6 next sale of this property, in August of 1983 -- 7 A. Yes. 8 Q. -- 427 acres was again sold? 9 A. Yes. 10 Q. This time, it was about two years 11 later. And what did it sell for then? 12 A. 13,426,410. 13 Q. And that's about $31,000 an acre. 14 Right? 15 A. Yes. 16 Q. And finally, in the latest sale that's 17 reflected in this particular exhibit in this 18 appraisal, it talks about the property being sold 19 for a contract -- a sales price of how much? 20 A. 39,017,699. 21 Q. And if you look on the next page, does 22 it talk about the date of that sale? I'd refer 5739 1 you to about a third of the way down. 2 A. Is that the March '85? 3 Q. Yes. 4 A. Okay. 5 Q. Was United Savings involved at all in 6 the purchase from Alamo Savings at $39 million? 7 A. That seems relatively what the price 8 was, that range. I can't remember specifically 9 the price. 10 Q. Let's take a step back. Can you 11 tell -- now, you mentioned a few minutes ago that 12 Stanley Rosenberg was involved with a joint 13 venture that purchased the Park 410 property. 14 Right? 15 A. Yes. 16 Q. And you stated that United had -- 17 United Savings had acquired an interest in 18 Mr. Rosenberg's interest. Right? 19 A. Actually, United Financial Corporation 20 did, UFC. 21 Q. Are you certain of that? 22 A. No. 5740 1 Q. Okay. Well, we'll -- 2 A. Apparently, I was wrong. 3 Q. Well -- 4 A. I just thought that was typical. 5 Q. Looking here at the sales history of 6 this appraisal, do you believe that this sales 7 history going from a price of $8,700 an acre and 8 subsequently to $13,497 an acre and later to 9 $31,000 an acre in less than three years and then 10 subsequently to a much higher price per acre, does 11 that, in your mind, constitute speculative land 12 activity? 13 MR. DUEFFERT: Your Honor, it's unclear 14 whether he's asking about what the witness thought 15 back at the time or whether he's trying to turn 16 him into an expert witness and ask for his current 17 opinions. I don't think the second category is 18 appropriate. 19 MR. LEIMAN: Your Honor, if I may 20 respond, Mr. Graham is a loan underwriter. He was 21 a loan underwriter back then. He's a loan 22 underwriter right now. He works for Coastal Bank. 5741 1 I think he's qualified to -- 2 THE COURT: Well, I think we have to 3 make a record on -- as of when his opinion is 4 being expressed. Is it today or was it then? I 5 think we have to make a record. I'll allow either 6 one, but we have to hear it. 7 Q. (BY MR. LEIMAN) Well, I'd like to 8 know what your opinion is today, Mr. Graham. 9 A. I don't think it's going to be a whole 10 lot different than then maybe. The first sale 11 you're talking about was 1500 acres. The second 12 sale was 430 roughly acres. You can't tell from 13 here and I can't tell without reading more of the 14 appraisal, but if that 430 was the premier 15 frontage, it's going to have significantly greater 16 value than the back portion that was no longer 17 involved in the sale. 18 So, that jumped from '87 to 13 seems 19 very natural assuming, once again, with the little 20 facts I have here -- I don't know, but if you have 21 a big tract and you sell a good piece off of it, 22 it's going to be at a substantially higher value 5742 1 than the whole tract. Someplace in here, 2 Sea World was announced and the highway was 3 announced and that has significant bearing on the 4 improved value of land. If you're on a tract of 5 land and they are going to have a highway next to 6 you, you're going to see a substantial increase in 7 value in your property. 8 When I was touring the land flips, I 9 was more or less implying that the land -- that 10 nothing new was happening in the marketplace. 11 People were just buying it because it was there. 12 Here, I think some things had happened. Now, 13 maybe -- maybe the price -- and today, it looks 14 like it was too great a jump. Who knows? But 15 there were some things that happened that did 16 dictate change in value of this property at that 17 time. 18 Q. Do you know when Sea World was 19 announced? 20 A. Not specifically. 21 Q. Do you believe that the increase in the 22 price paid from August of 1981 to August of 1983 5743 1 represents speculative land activity? Today, do 2 you believe that? 3 A. Not, once again, if there are 4 circumstances happening in the marketplace that 5 dictated natural increases in value or changes in 6 the configuration of the tract that generated 7 natural appreciations in value. The fact that the 8 property goes up rapidly doesn't mean it's 9 speculation. 10 Q. And are you speaking now as you believe 11 it to be today? 12 A. I think it's still applicable today. 13 Q. And you believe the same thing in 1985? 14 A. I believe pretty much the same thing. 15 I mean, I don't know all the facts of this 16 appraisal. I haven't read the whole appraisal. 17 As I said, I've never seen it. But based on what 18 I see here, yes, I believe it. 19 Q. And would the sales history as laid out 20 in this appraisal have been important prior to 21 getting involved with Mr. Rosenberg and Park 410? 22 Would you have wanted to know it? 5744 1 MR. DUEFFERT: Calls for speculation. 2 I object. 3 THE COURT: Denied. You may answer. 4 THE WITNESS: Okay. Thanks. 5 A. I can't -- I don't know if I would or 6 not, to be honest. If we really felt good about 7 the property and we were comfortable with the 8 value of the property at the time it was presented 9 to us, I don't know if we would, though. 10 Q. (BY MR. LEIMAN) It would not have 11 been a critical -- 12 A. May not have been. 13 Q. It wouldn't have been a critical 14 element in the loan -- 15 A. It's not one of the primary critical 16 elements, no. 17 Q. Let me show you another exhibit, 18 Mr. Graham. It's at T7049. 19 THE COURT: Are you going to move into 20 evidence T7069? 21 MR. LEIMAN: Your Honor, he said he 22 didn't see that particular -- he's not familiar 5745 1 with the exhibit. He said he didn't see it. So, 2 I won't move the admission of it. 3 THE COURT: All right. Do the 4 respondents have an objection to it? 5 MR. DUEFFERT: Your Honor, I'd prefer, 6 if he's going to show the witness these documents, 7 that we have a chance to move them into evidence. 8 I actually was going to say we had no objection to 9 admitting them. 10 MR. LEIMAN: Your Honor, in that 11 regard, we'll offer it into evidence. 12 MR. DUEFFERT: No objection. 13 THE COURT: Received. 14 Q. (BY MR. LEIMAN) Mr. Graham, I'm going 15 to hand you Exhibit 7049, which is an investment 16 presentation in connection with Park 410 property 17 in San Antonio. 18 A. Yes, sir. 19 Q. Have you seen this document before? 20 A. Yes. 21 Q. When was the first time you saw it? 22 A. Sometime during the period where we 5746 1 were underwriting this. I don't remember the 2 date. 3 Q. All right. Looking at the second page 4 of this exhibit, the date on it is February 19th, 5 1985. 6 Does that refresh your memory as to 7 when you would have seen it? 8 A. Yeah. It tells me I saw it sometime 9 after February 19th, 1985. 10 Q. All right. And what were the 11 circumstances under which you saw it? 12 A. Well, I imagine this was presented to 13 us as part of the information package that we 14 received from the borrower at his request. 15 Q. Did you ever attend an investment 16 presentation in connection with Park 410 in 17 San Antonio? 18 A. Yes. 19 Q. Where was that presentation made? 20 A. I think at a restaurant called the 21 Argyle. 22 Q. Who went with you? 5747 1 A. Specifically, I know that Mr. Hurwitz, 2 Mr. Gross, Mr. Childress, myself, and probably 3 Mr. Williams were there. Anybody else, I can't 4 recall. 5 Q. Do you know why they went? 6 A. I think we had everybody who had a 7 voice in voting on this thing to get very familiar 8 with it because of the size and the magnitude. We 9 wanted everybody to be familiar. 10 Q. It says here on the second page of this 11 exhibit "Gulf Management Resources, Inc." It 12 talks about a confidential investment 13 presentation. 14 Who was Gulf Management 15 Resources, Inc.? 16 A. It was the group that Stanley was a 17 partner with, the ones that came in after us to 18 acquire the tract. They are a Dallas-based group. 19 You know, they had done other developments. I 20 don't know what else you want. 21 Q. When you say that they came in after 22 you, you mean -- 5748 1 A. What I'm saying is you had said that 2 somebody had made an offer to buy the tract and 3 Stanley had approached us. These are the 4 gentlemen who made the offer. 5 Q. In connection with the investment 6 presentation at -- in San Antonio at the Argyle 7 Restaurant, if you would look with me at Page 13 8 of the exhibit, did GMR, in making its 9 presentation, present information on costs and 10 sales and profit? 11 A. I'm pretty sure they did, yes. 12 Q. All right. Look with me, please, under 13 1.4.3 under "costs." 14 A. Yes. 15 Q. It references a land cost of 16 $42 million. Right? 17 A. That is correct. 18 Q. And a land-related cost of 700,000 -- 19 A. Correct. 20 Q. -- for a total of 427? 21 A. Correct. 22 Q. It refers to infrastructure at 6 and a 5749 1 half million and general and administrative at 2 $3,005,000. Right? 3 A. Uh-huh. (Witness nods head 4 affirmatively.) 5 Q. All right. Now, the next line talks 6 about financing. Right? 7 A. Yes. 8 Q. All right. That financing line states 9 what? 10 A. 12 million 627. 11 Q. And what did you understand that to be? 12 A. Fees, interest, reserve, interest 13 securing the loan. 14 Q. And that was the expectation of whom in 15 connection with this investment? 16 A. What do you mean by "whom"? 17 Q. Who projected this figure? 18 A. The borrower. 19 Q. And the borrower thought the financing 20 cost would be $12,627,000. Right? 21 A. In this projection, yes. 22 Q. Okay. And that the total cost related 5750 1 to the development would be $64,832,000. Right? 2 A. Yes. 3 Q. Okay. Now, look at the sales figures. 4 A. Yes. 5 Q. What does it refer to by way of gross 6 proceeds? 7 A. 114 million plus. 8 Q. And what does it refer to as cost of 9 sales? 10 A. 7 million. 11 Q. So, the net proceeds are 107,274,000. 12 Right? 13 A. Yes. 14 Q. All right. That would come down -- if 15 you come down to the next line, profit reference, 16 there at the bottom. 17 A. Yes. 18 Q. What does it show as the net profit 19 pre-tax? 20 A. 42 million plus. 21 Q. When you were deciding whether or 22 not -- strike that. 5751 1 When you and Mr. Hurwitz and Mr. Gross 2 and Mr. Williams and the other members of your 3 party at the Argyle Restaurant were deciding 4 whether or not to participate with Mr. Rosenberg 5 in this investment, what did you think of the 6 potential profit figure? 7 A. I guess I'm confused about what you 8 mean, "What did you think?" I mean, we thought it 9 was a profitable venture. I mean, now, are you 10 referring to a specific number or what? We 11 thought it was a profitable venture. 12 Q. Did you believe that the projections 13 were accurate? 14 MR. DUEFFERT: Your Honor, I think 15 there is confusion on the record. There is no 16 foundation that this structure represents the 17 actual deal that USAT was looking at at that time. 18 I think Mr. Leiman's question inappropriately 19 assumes that it was. 20 THE COURT: Okay. Can you clarify? 21 Q. (BY MR. LEIMAN) Was this what you 22 were presented with at the Argyle Restaurant? 5752 1 A. Well, I'll answer the same way I think 2 the objection was. You're presented early with a 3 lot of things in the transaction. Things 4 solidify, and numbers change. This projection was 5 attractive to us enough to pursue it, yes. 6 Whether or not we thought that number, 42 million, 7 was realistic, we may have some doubts about it; 8 but we may -- in our own minds, we may think, 9 "37 million. That's a lot of money." We would be 10 happy with it. Numbers change as you go through 11 the underwriting process. Costs change. 12 Q. Why do numbers change, Mr. Graham? 13 A. Well, I mean, as we go through it, you 14 may find that you want to do something a little 15 different with a road and that will cost more 16 money. You may want to change some layouts and so 17 forth. Nothing that, you know -- you're taking a 18 snapshot of doing an underwriting process and 19 evaluating into a final loan. It's moving targets 20 all the way through it. 21 Q. Let me show you Exhibit No. 7045. 22 MR. DUEFFERT: Your Honor, I'd ask that 5753 1 OTS move that exhibit into evidence. 2 MR. LEIMAN: Your Honor, we offer the 3 exhibit. 4 MR. DUEFFERT: No objection. 5 THE COURT: Received. 6 MR. LEIMAN: 7049 is offered, and I 7 guess it's accepted. 8 Q. (BY MR. LEIMAN) Mr. Graham, I've 9 handed you Exhibit No. 7045, which is a letter of 10 intent to Robert Arburn, general partner, Alamo 11 Savings Association, et al. 12 A. Yes. 13 Q. You recognize this letter? 14 A. Yes. 15 Q. Is that your signature on the third 16 page of the letter? 17 A. Yeah. 18 Q. Why did you write this letter? 19 A. Well, we were interested in buying the 20 property. 21 Q. This is the Park 410 property? 22 A. Well, at that time, it wasn't Park 410. 5754 1 It was just a tract of -- well, I guess it was 2 Park 410 West. It was a property that we had been 3 presented and we looked at it and thought it would 4 be a piece of property we wished to own. So, we 5 initially went in there and tried to buy it on our 6 own account. 7 Q. Okay. Look with me at the bottom of 8 Page 3 on the left-hand side of the document. 9 There is a date there: September 27th, 1984. 10 Would that be the date that you wrote 11 this letter? 12 A. Yeah. 13 Q. Yes? 14 A. Yes. 15 Q. Okay. How much did you offer the 16 seller of this property as a purchase price? 17 A. 35 million. 18 Q. How did you conclude $35 million as an 19 offering price for the property? 20 A. I can't recall. They had asked for 21 more, but I don't recall why we came up with 22 35 million. 5755 1 Q. Is it fair to say that's the amount you 2 thought it was worth? 3 A. No. It's fair to say that's the amount 4 we were willing to offer. I mean, we may have 5 been willing to go up higher, but this was a 6 letter of intent. Doesn't mean we're stuck on 7 this number. 8 Q. Do you recall going up higher? 9 A. I don't recall. I don't know if we 10 ever got far enough along to get to that issue 11 because they had a lot of problems. 12 Q. Do you remember whether or not you were 13 willing to pay $42 million for the property? 14 A. I don't recall what we'd be willing to 15 pay for it. 16 Q. Now, in connection with the letter of 17 intent, is this one of the letters that preceded 18 the denial of Alamo's rejection of your offer? 19 A. Yes. 20 Q. All right. Who did Alamo ultimately 21 sell the property to? 22 A. I assume they ultimately sold it to the 5756 1 GMR group, Gulf Resources. 2 Q. All right. And do you know why Gulf 3 Management Resources was making an investment 4 presentation? 5 A. Now, wait a minute. Now, you just 6 jumped real fast. Investment presentation to who 7 and on what investment presentation? 8 Q. Well, Mr. Graham, you said you went to 9 an investment presentation in San Antonio in 10 connection -- that was put on by GMR. Right? 11 A. Yeah. But we had been in discussions 12 with them at some point in time by the time we 13 went to that investment presentation. 14 Q. Okay. And why were they making an 15 investment presentation? 16 A. They were -- at this point, I think, we 17 had already determined we wanted to be a lender as 18 opposed to a partner. And we were to negotiate 19 the loan and they were making a presentation on 20 the development phase of that property, which 21 would be the collateral for the loan. 22 Q. Is it your recollection, Mr. Graham, 5757 1 that you were considering becoming a lender in 2 1985? 3 A. You know, once again, I'm not going to 4 tell you I remember all the dates. I remember at 5 one point, we went into as a partner. We chose, 6 during that period in which we were a partner, to 7 convert our position to a loan with a profit 8 participation. Now, the timing of that, when we 9 passed that position on to the borrower, I can't 10 tell you specifically dates. But that's how it 11 evolved. 12 Q. What did you understand the Park 410 13 property was going to be developed into? 14 A. Commercial land. 15 Q. Look with me at Page 16 of the 16 document, please. 17 A. Which document? 18 Q. The one that you should have there. I 19 think it's No. 7049, the investment -- 20 A. Okay. What page? 21 MR. DUEFFERT: Your Honor, once again, 22 I would ask that the OTS move in Exhibit T7045 5758 1 into evidence. 2 MR. LEIMAN: We move it into evidence, 3 Your Honor. 4 THE WITNESS: Can we go back to your 5 question? What page? 6 MR. DUEFFERT: No objections. 7 THE COURT: All right. T7045 is 8 received. 9 THE WITNESS: Paul, 16? 10 Q. (BY MR. LEIMAN) Uh-huh. 11 A. Okay. 12 Q. Look at Paragraph 1.6.2. 13 A. Yes. 14 Q. When you refer to the Park 410 property 15 being used as commercial property, is this what 16 you're talking about? Retail, multi-family, 17 office, office/showroom, R&D? 18 A. That's correct. 19 Q. Also says "hotel, restaurant, related 20 supportive activities like guest services"? 21 A. "Commercial" is a generic term for 22 anything that's not residential, single-family, 5759 1 one to four residential. 2 Q. Mr. Graham, in connection with -- or 3 subsequent to this investment presentation, do you 4 remember doing any independent research regarding 5 the Park 410 property? 6 A. I assume we probably did, but I can't 7 recall specifically what we did. 8 Q. You assume you did. Well, what would 9 you have done? Would you have requested a 10 feasibility study in connection with the property? 11 A. I don't know if we would have or 12 whether the borrower would have provided us with 13 one at the time. We'd also, like I said, talk -- 14 we would physically have gone over and looked at 15 the market, seen what was in the market, you know, 16 look at what buildings were available, what -- we 17 would talk to a lot of different people. We would 18 have done a lot of different things, but I can't 19 tell you specifically what we did. 20 Q. Looking at this investment 21 presentation, 7049, do you see anywhere in this 22 document a feasibility study presented by -- 5760 1 A. No. 2 Q. -- GMR? 3 A. No. 4 Q. Look with me, if you will, at the Bates 5 number on this one. It's near the back. It's 6 CN086311. 7 A. Now, what is the number again? What 8 are the last three numbers? 9 Q. 311. 10 A. Paul, you're going to have to show me 11 where this is. Oh, I've got it now. Okay. 12 Q. See the top of the page where it refers 13 to IPIC investment history? 14 A. Uh-huh. (Witness nods head 15 affirmatively.) 16 Q. Do you know who IPIC is? 17 A. No. I don't recall. 18 Q. At the time, did you know who IPIC was? 19 A. I don't recall if I did or not. 20 Q. Reading along with me here, it says "In 21 February 1982, IPIC formed a joint venture 22 (Culebra Land Company), with other middle-eastern 5761 1 interests based in San Antonio and Grieshaber and 2 Roberts." 3 Do you see that? 4 A. Yes. 5 Q. Did you do any due diligence to find 6 out who IPIC was made up of? 7 A. No. 8 Q. Apart from the presentation that you 9 attended in San Antonio and the information 10 contained in this document, did you do any 11 research or due diligence to find out who GMR was? 12 A. Yeah. We had talked to -- they gave us 13 some names to call, particularly at Trammel Crow, 14 and I talked to my friends associated with Trammel 15 Crow in Dallas and they had high regards for them. 16 They had done some joint ventures with them. 17 That's the only part I recall. 18 Q. Did you get my other information other 19 than telephoning your friends? 20 A. We may have. That's the only portion I 21 recall. 22 Q. At the time, did you obtain information 5762 1 regarding the financial wherewithal of IPIC? I'm 2 sorry. GMR. 3 A. I think we did, but I don't recall 4 exactly what. 5 Q. Would that have been in your loan file? 6 MR. DUEFFERT: Your Honor, at this 7 point, I think we're getting a hopelessly muddled 8 record. As I understand it, there was a joint 9 venture that USAT entered into in March of 1985. 10 There was a loan that USAT entered into in April 11 of 1986. Mr. Leiman, I think, is conflating due 12 diligence done for the purposes of entering into 13 the joint venture with due diligence that was done 14 for purposes of making the much larger loan, and I 15 would ask that the questions have a suitable, 16 again, level of precision as to time line. 17 THE COURT: I believe the last question 18 had to do with the financial circumstances of GMR. 19 MR. LEIMAN: That's right. It did, 20 Your Honor. 21 MR. DUEFFERT: But he was asking 22 about -- he's showing documents that have to do 5763 1 with presentations for purposes of joining a joint 2 venture and then asking about underwriting a loan 3 and those are two different areas in the case. 4 And I don't think the witness has had a chance to 5 really develop that. 6 THE COURT: All right. Well, let's 7 keep it simple. 8 MR. LEIMAN: Your Honor, I'd like to 9 hand you a different exhibit, 7052. 10 Q. (BY MR. LEIMAN) Mr. Graham? 11 A. Yes. 12 Q. Are you familiar with Exhibit T7052? 13 A. Yes. 14 Q. And how did you gain familiarity with 15 it? 16 A. I read it once before in the sworn 17 deposition. 18 Q. Did you write 7052? 19 A. Yes, sir. 20 Q. You did? 21 A. Yes. 22 Q. And the date of this document was 5764 1 March 28th, 1985? 2 A. That's correct. 3 Q. All right. What's the purpose of this 4 document? 5 A. To confirm our understanding of how the 6 relationship between Stanley Rosenberg and United 7 Savings would occur when we entered into the 8 partnership with him as a partner. 9 Q. Now, was this in connection with United 10 Savings' investment in the Park 410 property as 11 opposed to a loan? 12 A. Yes. 13 Q. And the year in which this investment 14 occurred was 1985. Right? 15 A. Yes. 16 Q. Now, if you would, look with me at this 17 document. I'll give you a moment to go over it. 18 MR. LEIMAN: Your Honor, we'd offer the 19 exhibit at this time. 20 MR. DUEFFERT: Your Honor, I'll object 21 on this one. It refers to an Exhibit A and 22 Exhibit B that are incorporated in the document. 5765 1 Those exhibits are not attached. I think we have 2 a copy that does have those attachments, and I'd 3 prefer that we proffer that one. 4 MR. LEIMAN: No objection. That would 5 be fine. 6 THE COURT: Well, do you have a copy 7 with the attachment? 8 MR. LEIMAN: I don't have a copy with 9 the attachments, but I will certainly review 10 Mr. Dueffert's copy. 11 MR. DUEFFERT: I think we can do it at 12 lunch; so, perhaps -- 13 THE COURT: All right. Let's defer 14 that until after lunch. 15 MR. LEIMAN: All right. 16 Q. (BY MR. LEIMAN) You wrote this 17 letter, though, Mr. Graham, didn't you? 18 A. Yes. 19 Q. You had a chance to read it over in the 20 past few minutes? 21 A. Yes. 22 Q. Was this intended as a complete 5766 1 document? 2 A. No. 3 Q. Why not? 4 A. Because the complete document was 5 actually a joint venture agreement. This was just 6 our understanding of what may be accomplished in 7 that document. 8 Q. So, what this -- tell me what this does 9 reflect, then. 10 A. I just did. It's -- 11 Q. You told me what it wouldn't reflect. 12 You said it would also have a joint venture 13 agreement. 14 A. Well, it may not have all the legal 15 annoyances that go along with a venture; but it 16 was not untypical, when we entered into something, 17 to have a letter of understanding so we'd at least 18 know we're on the same page. 19 Q. Who approved this letter of 20 understanding with Stanley Rosenberg after you 21 wrote it? 22 A. I don't think anybody -- may not have 5767 1 anybody look at it after I wrote it. 2 Q. Who would have approved United Savings' 3 participation in an investment with Stanley 4 Rosenberg prior to that investment taking place? 5 A. The investment committee. 6 Q. Okay. Would that have included 7 Mr. Gross? 8 A. As I told you before, we've been over 9 this once -- ground once before. I don't recall 10 whether he was on the committee at the time or 11 not. 12 Q. All right. Well, after lunch, we'll 13 show you some exhibits that may refresh your 14 memory about that. 15 A. That's fine. If you have something, 16 that's fine. I'm just telling you I don't recall 17 without seeing something. 18 Q. Let's look at Paragraph 2. Am I right, 19 Mr. Graham, that the way in which this agreement 20 would operate and the partnership would operate 21 with Mr. Rosenberg was that United Savings 22 advanced all the money; is that right? 5768 1 A. That's correct. 2 Q. And that was money provided through 3 Mr. Rosenberg? 4 A. Well, that was money provided for our 5 big percent of the ownership of which he was half 6 and we were half. 7 Q. What was the -- what does the document 8 talk about in connection with the amount of 9 profits that Mr. Rosenberg would have received in 10 connection with the agreement? 11 A. It doesn't talk about dollars. It 12 talks about how they are allocated. We get our 13 money first, and we split it 50/50 thereafter. 14 Q. So, Mr. Rosenberg would have gotten 15 50 percent of the profits after United had put up 16 the cost; is that right? 17 A. Well, we put up -- yeah. We put up -- 18 what basically it looks like here, we have 19 answered -- as a loan, we accrue interest on it. 20 We get that money back first; and then we divide 21 it equal, yes. 22 Q. What was left over? 5769 1 A. Yes. 2 Q. And Mr. Rosenberg's investment in that 3 regard in terms of cash would have been how much? 4 A. Minimal, if any. 5 Q. Okay. Look at Paragraph 4, please. 6 A. 4? 7 Q. Yes. 8 A. Okay. 9 Q. You talked a few minutes ago about the 10 way in which the funds would be split. Is this 11 the paragraph that talks -- that you were talking 12 about, Mr. Graham? 13 A. Yes. 14 Q. What expectation did you have that if 15 there were losses in connection with this venture 16 with Mr. Rosenberg, that Mr. Rosenberg would bear 17 his share of the loss as soon as -- did you have 18 an expectation? 19 A. I think that last line indicates that. 20 "These parties shall be liable to each other for 21 their share of their losses." 22 Q. And prior to entering into this 5770 1 agreement, did you obtain any documentation 2 concerning Mr. Rosenberg's financial status? 3 A. I think we had that already on file. I 4 think it was substantial. 5 Q. Was this an unusual kind of a 6 relationship? 7 A. Not whatsoever. 8 Q. Had United done it before? 9 A. We had done -- often, we had done 10 ventures where we put all the money up and the 11 borrower put up his expertise or the partner put 12 up his expertise. This was not unusual. 13 Q. Can you ever remember a time when 14 United had to go after its equity partner in one 15 of these kind of ventures? 16 MR. DUEFFERT: Object to vague and 17 unclear. I don't know what he means by "go 18 after." 19 Q. (BY MR. LEIMAN) Seek reimbursement. 20 A. I understand the question. I just 21 don't think I can recall specifically enough to 22 answer that question an example of what you're 5771 1 asking. 2 Q. You say that Mr. Rosenberg's financial 3 statements would have been on file; is that right? 4 A. That's -- I assume we had -- we're 5 familiar with it, but we had seen them prior to 6 this time. So, I assume they had something on 7 file. 8 Q. How old were the financial statements 9 you had on file? 10 A. I have no idea. 11 Q. Would you have inquired of Mr. Hurwitz 12 as to whether or not Mr. Rosenberg could make good 13 in the event there was liability or losses? 14 A. I don't think I'd ask that specific 15 question, no. 16 Q. Who would you have discussed this 17 agreement with prior to doing it besides the 18 investment -- 19 A. That's a different question. You're 20 asking different questions here. As far as the 21 financial, we -- I think we had tried to verify 22 that ourselves. As far as this agreement, once 5772 1 again, the investment committee was the one I 2 discussed the agreement with. 3 Q. When you took this to the investment -- 4 you said you didn't take this agreement to the 5 investment committee. Right? 6 A. No. This agreement reflects the 7 decision of the investment committee. 8 Q. So, they had approved this -- the 9 concept prior to this being entered into? 10 A. Yes. 11 Q. Was everyone on the investment 12 committee aware of what Mr. Rosenberg's financial 13 status was? 14 A. I can't answer for everyone, no. 15 Q. Did you make a presentation to them 16 about his financial status? 17 A. I imagine they discussed it. 18 Q. Do you remember discussing it? 19 A. I don't remember, but I don't remember 20 not either. 21 Q. What was your practice in connection 22 with these kind of investment opportunities? Was 5773 1 it to discuss the financial status of the 2 co-venturer? 3 A. I think we typically wanted to know 4 whether or not, yeah, he had any strength, yes. 5 Q. When you say "strength," what do you 6 mean? 7 A. Financial strength. 8 Q. Were you comfortable with Stanley 9 Rosenberg managing your interest -- managing 10 United Savings' interest in the Park 410 joint 11 venture? 12 A. Yes. 13 Q. Why? 14 A. Stanley was a very qualified, very 15 knowledgeable real estate investor, along with 16 being an attorney. So, we were very comfortable 17 with his ability to represent us. 18 Q. How did you know he was a knowledgeable 19 and successful real estate investor? 20 A. Stanley -- I mean, this is not the 21 first time we had known Stanley. We had talked to 22 him and he had presented some stuff, some of which 5774 1 we had not chose to do. We had also -- when we 2 found a project, we'd often call on him and ask 3 his opinion of that market and so forth. So, I 4 mean, we considered Stanley a source of 5 information as well as potential partner. 6 Q. Is that why there was -- strike that. 7 Apart from this agreement -- and I 8 guess Mr. Dueffert will offer two additional pages 9 later this afternoon. 10 Apart from this agreement, what other 11 safeguards were in place in connection with the 12 Rosenberg venture on 410 in 1985? 13 A. I have no idea what you're asking me. 14 Q. Was there any other documentation that 15 was created after this March 28, 1985 letter that 16 related to the venture in writing? 17 A. I thought there may be, but there may 18 not be. 19 Q. Did you create any additional 20 agreements or documents in connection with United 21 Savings' relationship with Stanley Rosenberg? 22 A. Apparently, I don't recall because I 5775 1 don't recall. 2 MR. LEIMAN: Your Honor, this is may be 3 a good place to take a pause till after lunch, at 4 which time I'd like to go into the loan that was 5 referred to. 6 THE COURT: All right. We'll adjourn 7 until 1:30. 8 9 (Luncheon recess taken at 11:59 a.m.) 10 11 THE COURT: Be seated, please. We'll 12 be back on the record. 13 MR. SCHWARTZ: Your Honor, as a 14 preliminary matter, Mr. Dueffert was kind enough 15 to provide us a complete copy of Exhibit 7052 with 16 attachments. It's marked as Exhibit B3822. I'd 17 like to substitute it at this time. 18 THE COURT: If there is no objection, 19 Exhibit B3822 is received. 20 MR. DUEFFERT: No objection. 21 MR. SCHWARTZ: Thank you, Your Honor. 22 MR. LEIMAN: We'll continue with the 5776 1 examination of Mr. Graham. 2 THE COURT: Mr. Leiman. 3 (1:35 p.m.) 4 Q. (BY MR. LEIMAN) Mr. Graham, you've 5 just been handed by my colleague a substitute 6 exhibit. I was asking you earlier about the 7 letter you had written to Stanley Rosenberg. This 8 letter has certain attachments to it. 9 Would you be kind enough to please just 10 look at the attachments and explain to us what 11 they are? 12 A. Well, Exhibit A is a legal description 13 of the property which will secure this venture. 14 And Exhibit B is apparently the joint venture 15 between Stanley Rosenberg and -- on his side with 16 his other partners. 17 Q. Would that be with GMR? 18 A. Apparently not with GMR. It's with -- 19 it indicates he has 90 percent ownership in here 20 and two other groups have 10 percent. So, it's 21 probably his venture he had before he talked to us 22 on his side only. 5777 1 Q. On his side only? 2 A. Yes. 3 Q. Was it your intention when you wrote 4 that -- the letter in 7052 of the former exhibit 5 to be bound by what's now Exhibit B3822, to be 6 bound by the Park 410 West joint venture agreement 7 that's shown here as Exhibit B? 8 A. I can't recall whether or not we were 9 going to be bound by this or this was one he had 10 at the time we made the decision to do ours. 11 Q. Had you and other members of the real 12 estate investment committee at the time determined 13 what the effect of what we're looking at here as 14 Exhibit B to Exhibit 3822 would have been? 15 A. Well, you assume that -- I mean, I 16 can't recall whether or not we then entered in 17 with this group 50/50 or whether we entered in 18 this venture with them. I think we probably had a 19 separate deal 50/50 and then he had this deal here 20 with them, that it was relevant to our deal with 21 him. 22 Q. By "him," you mean Stanley Rosenberg? 5778 1 A. By "him," I mean Stanley. 2 Q. So, Stanley's deal with United Savings 3 was a separate deal than the joint venture? 4 A. Best of my recollection. 5 Q. Okay. I'm now going to show you a 6 series of board of directors minutes. The first 7 one is A1098. I believe these have previously 8 been admitted. This is a board of directors 9 minute from August 29th, 1984? 10 MR. DUEFFERT: Do you have the tab 11 number? 12 MR. LEIMAN: No. That's not something 13 we would have. 14 MR. LANGDON: What's the exhibit number 15 again? 16 MR. LEIMAN: It's A1098. These were 17 the joint exhibits that had previously been 18 admitted. 19 MR. DUEFFERT: Mr. Leiman, do you have 20 a date for the exhibit? Would you describe it 21 for -- 22 MR. LEIMAN: Board of directors minutes 5779 1 for United Savings Association of Texas dated 2 August 29th, 1984. 3 MR. DUEFFERT: Mr. Leiman, I understand 4 that that set of minutes has not been admitted. 5 MR. LEIMAN: Apparently, that 6 particular joint exhibit has not been admitted 7 yet. I would like to hand to the clerk the "T" 8 version, which is the OTS version of this exhibit, 9 which is T7662. 10 MR. DUEFFERT: Your Honor, I will 11 correct the record. We have now found out it is 12 admitted at Tab 192, and I apologize for the 13 mistake. 14 MR. BLANKENSTEIN: Your Honor, I 15 believe we have it admitted as A10545. 16 THE COURT: That's consistent with our 17 records. 18 MR. LEIMAN: Your Honor, given the fact 19 that I hope we're now all on the same page, these 20 are the board of directors minutes of August 29th, 21 1984. 22 I've handed you a copy, Mr. Graham. 5780 1 THE WITNESS: Yes. 2 MR. LEIMAN: Mr. Langdon, the Court has 3 its copy of this? Thank you, sir. 4 Q. (BY MR. LEIMAN) If you would, look 5 with me at the second page of this exhibit. Do 6 you see your name appears? 7 A. Yes. 8 Q. All right. Does this refresh your 9 memory as to when you became a voting member of 10 the senior loan committee of United or when -- I'm 11 sorry -- when you were a member of the senior loan 12 committee of United? 13 A. Well, this doesn't necessarily mean 14 this is when I went on. This is a reaffirmation, 15 which we did periodically, when it changes. It 16 could mean when I first went on, but it doesn't 17 necessarily mean when I went on. 18 Q. So, Mr. Graham, this -- on August 29th, 19 1984, as of that date, you were on the senior loan 20 committee? 21 A. As of that date, yes. 22 Q. Now, if you would, look with me at the 5781 1 bottom of the page. And it states "In connection 2 with the resolution that any loan to one borrower 3 or guarantor in excess of $70 million shall be 4 presented to the board of directors for 5 consideration after receiving a favorable 6 recommendation of the senior loan committee." 7 Is that consistent with your 8 recollection of the limitation on the senior loan 9 committee's authority? 10 A. Yes. 11 Q. As of the date of this exhibit, 12 August 29th, 1984, Mr. Gross was not yet a member 13 of the senior loan committee; is that correct? 14 A. That's correct, by this. 15 Q. Did there come a time after August of 16 1984 that the senior loan committee and the real 17 estate investment committee essentially merged? 18 A. I don't know if they merged or we had 19 pretty much the same approval end of it, same 20 membership. I don't know if they were -- they 21 merged so much as they just had the same 22 membership. I can't recall whether it was an 5782 1 approved merger, but basically the membership was 2 similar. 3 Q. Okay. Mr. Graham, are you familiar 4 with R-41B? 5 A. Somewhat. I mean, I'm not an appraisal 6 expert; but I know it was a requirement of the 7 appraisal industry. 8 Q. Okay. What is R-41B? 9 A. Like I said, I don't have any idea of 10 the details of it. I just know it had to meet 11 R-41B requirements. 12 Q. And that relates to requirements 13 concerning appraisals; is that right? 14 A. Yes, uh-huh. 15 Q. Do you know if there are a portion of 16 the Federal Home Loan Bank bank board regulations 17 that requires that R-41B appraisals be -- or 18 mandates the use of R-41B appraisals? 19 MR. DUEFFERT: Object to the extent the 20 question calls for a legal conclusion. 21 THE COURT: Denied. 22 A. I know it was applicable. I'm not sure 5783 1 when it came into effect. 2 Q. (BY MR. LEIMAN) When R-41B came into 3 effect? 4 A. Right. 5 Q. Do you know whether or not an R-41B 6 appraisal would have been necessary before 7 entering into the Park 410 investment with Stanley 8 Rosenberg? 9 A. I don't think it was necessary to enter 10 into the investment side of it, no. 11 Q. What would R-41B appraisals be 12 applicable to? 13 A. I think it was applicable to the 14 lending side. 15 Q. I'd like to show you an October 22, 16 1984 letter of intent that's previously been 17 marked as T7047. You previously testified, 18 Mr. Graham, with regard to a letter of intent that 19 you had provided to Alamo Savings. 20 Is this another letter of intent? 21 A. Apparently so, yes. 22 Q. And was this in connection with your 5784 1 effort to -- with United's effort to purchase the 2 Park 410 property? 3 A. It is. 4 Q. And what was the purchase price stated 5 here, the price that you offered to purchase the 6 property at? 7 A. 37,250,000. 8 Q. Had you increased your offer at that 9 point in time? 10 A. Apparently, we had. 11 Q. And what was that in response to? 12 A. In response to them probably denying 13 our first offer. 14 Q. Is that your signature on the third 15 page? 16 A. Yes. 17 Q. What additional due diligence had 18 United done in connection with making this second 19 offer to Alamo in connection with this letter 20 of -- with this offer to purchase? 21 A. You're missing the point. There may 22 not be any more due diligence done initially. We 5785 1 may have figured 40 million is what we would have 2 paid for it. We're not going to offer 40 million 3 the first go-round. We offered what we thought 4 was a low-ball offer, hoping they would take it. 5 I mean, that's typically how you start these real 6 estate transactions. They came back, I assume, 7 with a higher offer; and we offered again. We're 8 still trying to find some level we're comfortable 9 with being in. It doesn't mean we have less 10 comfort than before. It just means we're trying 11 to negotiate the best possible price, regardless 12 of what we think it's worth. 13 Q. So, you were holding back your best 14 offer? Is that it? 15 A. Well, I think every time you make an 16 offer, you hold back your best offer. 17 Q. And in connection with your best offer, 18 I think you stated earlier that you had -- you and 19 the real estate investment committee had concluded 20 that it was -- that there were certain factors 21 that you wanted to go through. One was the 22 marketing factor, right, in San Antonio? And what 5786 1 were the other two? 2 A. Now, once again, that's -- you're 3 quoting a different question. I was responding to 4 what it takes to make a good decision on a loan. 5 And that was the borrower and his side of the 6 coin, the marketing aspect of it, and the real 7 estate deal itself and the structure of the real 8 estate were the three ingredients in underwriting 9 a real estate lending opportunity. I don't think 10 I ever went back and said that -- in response to 11 what you're saying, that -- responding to that 12 question before. 13 Now, if you want to ask it, I'll 14 respond to it; but I don't think I responded to 15 that question before. 16 Q. What else did you do in connection with 17 making the offer? 18 A. Other than what? I mean, we liked the 19 tract. We were comfortable with the tract. Like 20 I said before -- and I'll say again -- we probably 21 talked to a bunch of people, looked around, spent 22 some time over there looking at the market, the 5787 1 property in that neighborhood, what had been 2 recently built, the trends in that neighborhood. 3 There was some environmental being built in that 4 neighborhood. We liked the impact of Sea World. 5 And we periodically took some residential studies 6 like, I think, the Metro study was a study we used 7 to take. And we just took all those ingredients 8 and felt comfortable with this piece of property. 9 Q. You said earlier that the property was 10 in Alamo's REO? 11 A. Correct. 12 Q. What were the circumstances under which 13 Alamo had reobtained the property? 14 A. I have absolutely no idea. 15 Q. You didn't believe that that was 16 important to find out, why the previous borrower 17 had defaulted? 18 A. No. 19 Q. Why not? 20 A. It doesn't affect your evaluation of 21 the land. The borrower could have been bankrupt 22 and not paid his interest and the association had 5788 1 to take it back for that reason. We were only 2 concerned with whether or not that tract was a 3 good investment for us. History has some 4 relevance, but not significant. 5 MR. LEIMAN: Your Honor, I offer T7047. 6 MR. DUEFFERT: No objections. 7 THE COURT: Received. 8 Q. (BY MR. LEIMAN) Mr. Graham, did there 9 ultimately come a time when Alamo rejected your 10 offers? 11 A. Often. 12 Q. It often rejected your offers? 13 A. Uh-huh. (Witness nods head 14 affirmatively.) 15 Q. All right. I'm going to show you a 16 document, T7048, which is a November 20, 1984 17 letter from Alamo Savings directed to Stanley 18 Rosenberg. 19 Mr. Graham, would Mr. Rosenberg have 20 forwarded a copy of this letter to you? 21 A. I can't recall. I really don't recall. 22 Q. So, you don't remember receiving a copy 5789 1 of Alamo returning your -- the letter of intent? 2 A. No. Well, I don't know if I received a 3 copy. I know -- if this was after the last 4 meeting, because I don't think I received anything 5 after our final meeting with them, but I probably 6 received things prior to that final meeting. The 7 final meeting, we didn't think -- it was dead and 8 we left and I don't think we ever received 9 anything from them. This may have been earlier 10 because they are still talking about a portion of 11 it in cash and a portion in terms. And if I 12 recall our final meeting, they wanted all cash. 13 Q. Do you know what the ultimate terms 14 were in which Alamo sold the Park 410 property? 15 A. I can't recall, but it wasn't -- I 16 don't think it was similar to the terms we were 17 offerring. 18 Q. Was it an all cash offer, an all cash 19 price? 20 A. No. It had a short term. I think it 21 had, like, a nine-month note and then all cash. 22 MR. LEIMAN: At this time, Your Honor, 5790 1 I'd like to offer the exhibit. 2 MR. DUEFFERT: No objections. 3 THE COURT: All right. T7048 is 4 received. 5 MR. LEIMAN: I believe the following 6 board of directors minutes were previously 7 admitted under Exhibit No. A1102, which would be 8 "T" number 7486, which are the board of directors 9 minutes of February 14th, 1985. 10 MR. DUEFFERT: I understand that that 11 is at Tab No. 128. 12 MR. LEIMAN: Mr. Langdon, has this 13 previously been admitted? 14 MR. LANGDON: It has. 15 Q. (BY MR. LEIMAN) Mr. Graham, have you 16 previously seen this February 14th, 1985 board of 17 directors minutes? 18 A. I may have -- may or may not have. I 19 didn't look at all of them. 20 Q. Mr. Graham, if you would look with me 21 at Page No. 4. 22 A. Yes, sir. 5791 1 Q. And if you would, in the second full 2 paragraph, it states that "On motion by Dr. Munitz 3 and second by Mr. Winters, Mr. Gross was elected 4 chairman of the board and chief executive officer 5 of the association." 6 A. Yes, sir. 7 Q. Is that consistent with your memory as 8 to the date on which Mr. Gross was elected 9 chairman of the board and CEO of United Savings? 10 A. Well, as I said, I don't remember; but 11 being -- apparently, this is when it happened. 12 Q. Do you think it was about February of 13 1985? 14 A. It was whenever this occurred. 15 Q. And if you would, look at Page 6 of the 16 exhibit. It refers to the real estate and 17 commercial lending committee. 18 A. Yes. 19 Q. Mister -- 20 A. Not committee. Department. 21 Q. Department? 22 A. Yes. 5792 1 Q. Your name appears there, as does 2 Mr. Childress'? 3 A. Right. But that's not the committee. 4 Q. I'm sorry? 5 A. That's not the committee. That's the 6 name of the officers within the department. 7 Q. And you and Mr. Childress were officers 8 in this department? 9 A. All this does is give -- reaffirm 10 titles for the company. 11 Q. And looking at Page 7 of the exhibit, 12 there is a resolution dealing with who was elected 13 as voting members of the senior loan committee of 14 United Savings. Right? 15 A. Yes. 16 Q. And on the following page, Page 8, you 17 are named. Right? 18 A. Yes. 19 Q. And Mr. Graham -- and Mr. Gross is 20 named, isn't he? 21 A. Correct. 22 Q. Along with other members: Lovett, 5793 1 Baker, Sonny Bentley, Mr. Breland, Crow? 2 A. Right. 3 Q. Jackson, Patterson? 4 A. Correct. 5 Q. Of the group that's named here, by the 6 end of 1985, which of these persons were no longer 7 on the committee -- 8 A. How are you supposed to remember that? 9 There are some that aren't, but I can't tell you 10 by the end of -- who had left and who had stayed, 11 you know. 12 Q. Looking at Page 9 of the exhibit, under 13 C -- 14 A. Under which one? 15 Q. C. 16 A. Okay. 17 Q. It states that "Any loan to one 18 borrower in excess of $70 million." You see that? 19 A. Yes. 20 Q. And this reiterates what we saw in the 21 previous year's minutes. Right? 22 A. It does. 5794 1 Q. And that the amount -- the upper amount 2 of the loan was $70 million that could be made by 3 the senior loan committee without the approval of 4 the board of directors. Right? 5 A. Right. 6 Q. Page 16 of this exhibit. Under No. 12, 7 the resolution concerning the real estate and 8 joint venture committee? 9 A. Yes. 10 Q. Mr. Williams, Mr. Gross, Mr. Childress, 11 Mr. Crow, and yourself were all named to that 12 committee? 13 A. And Mr. Childress, yes. 14 Q. What other requirements were there in 15 connection with real estate joint venture 16 projects? Are they stated here? Look at the 17 bottom of the page. 18 A. This just outlines kind of the approval 19 process, what goes to the board, what stays -- was 20 in the committee authority. 21 Q. Am I right, Mr. Graham, that any real 22 estate or joint venture project that involves a 5795 1 total equity or debt exposure to the association 2 of $2 and a half million or more should require 3 prior board ratification? 4 A. That's what it says here, yes. 5 Q. Was that your understanding in 1985? 6 A. I guess the best of my understanding at 7 that time, yeah. 8 Q. What did you believe the exposure was 9 in connection with the Park 410 joint venture with 10 Stanley Rosenberg? 11 A. 2 million. 12 Q. How did you reach that conclusion? 13 A. That's what we put in it. 14 Q. Did you know that before you put that 15 into it? 16 A. What do you mean, before I put it into 17 it? 18 Q. How did you know that that was the 19 amount of the exposure of United Savings? 20 A. Best of my recollection, we had one 21 initial disbursement to make up front. 22 Q. And that there were no additional -- 5796 1 possibilities of additional funds being 2 contributed by United Savings? 3 MR. DUEFFERT: Your Honor, he is 4 confusing concepts again. I think exposure is 5 something that you're required to put in. He's 6 talking about possibilities now and, obviously, 7 anything is possible. 8 THE COURT: Well, maybe you can elicit 9 from the witness -- 10 A. Well, at this point, I can't recall. 11 But I mean, if we had to do more, maybe we had to 12 go back to the board for that point. By the time 13 we went in it, we were only exposed to whatever 14 that initial contribution was. 15 Q. (BY MR. LEIMAN) Mr. Graham, was there 16 some document that limited the liability of United 17 Savings in connection with the Rosenberg joint 18 venture for Park 410? 19 A. I can't recall. But I mean, my 20 understanding, we were a limited partner, which 21 means we're limited by the money we put in. 22 MR. LEIMAN: Since it's already been 5797 1 admitted, I will not move yet again for its 2 admission. However, I would like to address the 3 witness to Exhibit No. 1110, which is "T" 4 Exhibit 7583. 5 THE WITNESS: Do I have it? 6 MR. BLANKENSTEIN: Mr. Leiman, can you 7 identify the document by date and title? 8 MR. LEIMAN: It's a February 13th, 1986 9 board of directors minutes. I think the delay, 10 Your Honor, is in connection with finding the tab 11 number. 12 MR. DUEFFERT: We're ready to go. 13 MR. LEIMAN: What is the tab number? 14 MR. BLANKENSTEIN: Oh, 133. 15 MR. DUEFFERT: I think the record 16 should reflect that we are talking here about the 17 board of the USAT and not UFG; is that correct? 18 MR. LEIMAN: Yes, that's right. 19 MR. DUEFFERT: And I believe that was 20 also true with regard to the prior minutes we went 21 through? 22 MR. LEIMAN: Yes. 5798 1 MR. DUEFFERT: Thank you. 2 Q. (BY MR. DUEFFERT) Mr. Graham, these 3 are the February 13th, 1986 USAT board of 4 directors minutes? 5 A. Yes, sir. 6 Q. Page 3 of the exhibit reflects that 7 Mr. Gross was on the executive committee and was 8 chairman and continued as chairman and CEO of the 9 institution; isn't that right? 10 A. By these -- by this, yes. 11 Q. Okay. The real estate and lending 12 department was still constituted, as it had been 13 the previous year, with Mr. Childress and you as 14 officers? 15 A. Correct. 16 Q. The senior loan committee composition 17 had changed as shown on Page 7? 18 A. Correct. 19 Q. You were on it, Mr. Crow, Mr. Gray, 20 Mr. Gross, Mr. Patterson, and Gerald Williams; is 21 that right? 22 A. Correct. 5799 1 Q. Loan to one borrower, internal limit of 2 $70 million is shown on Page 8. See Paragraph C? 3 70 million; is that right? 4 A. Yes, sir. 5 Q. Real estate and joint venture committee 6 consisted of yourself, Mr. Childress, Mr. Crow, 7 Mr. Williams, and Mr. Gross. Right? 8 A. Where are you? 9 Q. I'm sorry. It's Page 15. 10 A. That is correct. 11 Q. The requirement that any joint ventures 12 be brought before the real estate and joint 13 venture committee continued in effect as shown on 14 Page 16 in the second full paragraph under the 15 resolution? 16 A. That's correct. 17 Q. And any real estate and/or joint 18 venture project that involves a total equity or 19 debt exposure to the association of $2 and a half 20 million or more shall require prior board 21 ratification"; isn't that right? 22 A. That's what it says, yes, sir. 5800 1 Q. I'd like to ask you some questions 2 about "T" number 7051. It's a March 18th, 1985 3 real estate investment committee document 4 concerning 427.388 acres. It's "T" number 7051. 5 Mr. Graham, did you prepare this 6 document? 7 A. I believe I did. 8 Q. The document I have handed you, if you 9 look at the third page of the exhibit, has your 10 signature? 11 A. Of the exhibit? Are you talking about 12 the exhibit? 13 Q. Yes, sir. 14 A. This one? 15 Q. Yeah. The third page of 7051. 16 A. Oh, the third page of the entire 17 exhibit, not of the attachment? I'm sorry. 18 Q. Right. 19 A. Okay. 20 Q. That's your signature, isn't it? 21 A. Well, I'm not on the third page. I'm 22 on the fourth page. 5801 1 Q. You're quite right. I am so sorry. 2 You're right. I apologize. 3 A. No problem. 4 Q. Fourth page. Is that your signature? 5 A. Yes, it is. 6 Q. I notice that there are no other 7 signatures on that exhibit; is that right? 8 A. That's correct. 9 Q. Were there ever -- was there any 10 discussion in connection with this action? 11 A. Yes, sir. 12 Q. And to your recollection, did Mr. Gross 13 approve of the action contained in this 14 March 18th, '85 memo? 15 A. Well, I know the committee approved of 16 it. I'm not sure who was there at the time; but I 17 mean, I know the committee -- it was in and the 18 committee approved it. 19 MR. DUEFFERT: Your Honor, the record 20 should reflect that, under Mr. Bentley, a copy of 21 this document with all the signatures was admitted 22 into evidence. 5802 1 THE COURT: What exhibit number was 2 that? 3 MR. DUEFFERT: I'm trying to find it 4 right now. 5 MR. LANGDON: A1643. 6 MR. DUEFFERT: Thank you. 7 MR. LEIMAN: Mr. Langdon, that was 8 A1643? 9 MR. LANGDON: Correct. 10 MR. DUEFFERT: Tab No. 159. 11 A. This is still the same. The one he 12 just gave me is still the same with only my 13 signature. 14 MR. LEIMAN: Your Honor, evidently, 15 Mr. Dueffert's system has not revealed a copy with 16 his signature -- with all the signatures. 17 MR. DUEFFERT: We'll make copies of it, 18 Your Honor. Apparently -- I believe originally 19 one was introduced with only one signature and we 20 then located one with all the signatures. It was 21 supposed to have been swapped. I don't believe 22 all were swapped in. This is a document we 5803 1 discussed last week. 2 THE COURT: It is numbered A1643. 3 MR. DUEFFERT: A new document was 4 numbered A1643 to reflect all the signatures, and 5 we're having a copy made right now. 6 THE COURT: All right. Let's proceed 7 on that. 8 Q. (BY MR. LEIMAN) Mr. Graham, does this 9 March 18th, 1985 memorandum and note of the real 10 estate investment committee reflect the substance 11 of the transaction with Mr. Rosenberg? 12 A. Yes, it does. 13 Q. Mr. Graham, is there anywhere in this 14 document any limitation on liability that United 15 Savings would have in connection with the 16 Rosenberg venture? 17 A. Other than the fact that it was a 18 non-liability note that the venturer took back, I 19 mean, you could quit funding at any point if you 20 lose what you had in it. That may not have been 21 stated in here, but that was my recollection. 22 Q. I take it your answer then is, no, 5804 1 there is nothing stated in here that would limit 2 the liability? 3 A. That's one way to say it. But I mean, 4 once again, that doesn't mean that was the case. 5 Q. Do you have a recollection as to what 6 the ultimate amount of money that United put into 7 the Park 410 West joint venture with 8 Mr. Rosenberg? 9 A. Not in that venture, no. 10 Q. Do you know if it was less than 11 $10 million? 12 A. Oh, in this venture, yes. 13 Q. It was less? 14 A. Yes. 15 Q. Was it less than 5? 16 A. I'm pretty sure it was, but I can't 17 recall the number. 18 Q. I'll show you what's been marked "T" 19 Exhibit 7009, which is an April 2, 1985 letter to 20 Mr. Stanley Rosenberg from David Graham concerning 21 the Park 410 property. 22 Mr. Graham, is that your signature on 5805 1 the second page of Exhibit 7009? 2 A. Yes. 3 Q. You wrote this letter, didn't you? 4 A. Yes. 5 MR. LEIMAN: Your Honor, I'd offer 6 T7009 into evidence. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. LEIMAN) By April 2nd, 1985, 10 had United committed to involvement with 11 Mr. Rosenberg in the partnership? 12 A. Excuse me. I'm sorry. I was still 13 reading. Go ahead. Ask the question again, 14 please. 15 Q. By April 2nd of 1985, United Savings 16 had already committed to the partnership with 17 Mr. Rosenberg for 410. Right? 18 A. Yes. We had approved it at this point. 19 Q. The reference in Paragraph 1 states "We 20 need to finalize a partnership agreement between 21 us." 22 As of the date of this, it hadn't 5806 1 happened yet, had it? 2 A. No. You don't finalize it until after 3 you approve it. 4 Q. Paragraph 3 states "Since this is one 5 of the few ventures that United does not either 6 control or participate in the day-to-day 7 activities on the development, please be sure I'm 8 copied on all documents which pass through your 9 office relative to this property." Right? 10 A. Correct. 11 Q. And why did you do that? 12 A. I think it's self-explanatory. 13 Q. You wanted to be fully informed as to 14 what was going on with the project. Right? 15 A. Yes. 16 Q. To the best of your knowledge, were you 17 provided with all documents? 18 A. I mean, I was never -- I never thought 19 I wasn't, no. 20 Q. I'll show you Exhibit T7055 which is an 21 April 2, 1985 letter from yourself to Mr. Wickliff 22 concerning Park 410 West property. 5807 1 MR. DUEFFERT: I'm sorry, Mr. Leiman. 2 Would you repeat the number again? 3 MR. LEIMAN: Yes. 7055. 4 Q. (BY MR. LEIMAN) Mr. Graham, is that 5 your initials at the top of the page? 6 A. Yes, it is. 7 Q. Did you prepare this memorandum? 8 A. Yes, I did. 9 Q. Do you remember sending it to Greg 10 Wickliff? 11 A. I mean, I apparently did, yes. 12 MR. LEIMAN: Your Honor, I offer 7055. 13 MR. DUEFFERT: No objections. 14 THE COURT: Received. 15 Q. (BY MR. LEIMAN) Mr. Graham, United 16 Savings -- I'm sorry. The reference here is to 17 United issuing a 2-million-dollar letter of credit 18 for its position. 19 To whom did United offer -- issue a 20 letter of credit? 21 A. I assume Alamo, but that's just my 22 assumption. I can't recall. The seller. Whoever 5808 1 the seller was. 2 Q. You go on to state in this letter, 3 "This tract will be developed over the next two 4 years as significant flood plane work and utility 5 work is underway." Is that right? 6 A. Yes. 7 Q. Was it your understanding that the 8 partnership with Mr. Rosenberg would last two 9 years? 10 A. I mean, I think what we had was a 11 window of opportunity. We could stay in the deal 12 or get out of the deal. And I don't know how long 13 the partnership ran while we had that window of 14 opportunity. But we saw it as a window of 15 opportunity, that we could either stay in or get 16 out later. 17 Q. All right. And the window of 18 opportunity you describe here is a two-year 19 period. Right? 20 A. I assume that's the case, yes. And if 21 that says it in here, I missed it. 22 Q. Okay. Let me point you to it. It's my 5809 1 fault. It's in the middle of the first paragraph. 2 A. Well, the -- saying the tract would be 3 developed in the next two years doesn't mean 4 that's necessarily when the window of opportunity 5 was. We may have had a shorter fuse than that. I 6 don't recall. 7 Q. What do you mean by "a shorter fuse"? 8 A. I mean our time frame within the 9 venture may have been a year or may have been nine 10 months until which we had to close into the actual 11 purchase of the land. I can't recall. But it 12 doesn't mean that two years was the criteria. 13 This just means what was going to happen over the 14 next two years. 15 Q. Did you expect that United Savings 16 would have been involved with the property for at 17 least two years? 18 A. I think going in, we were open to 19 whether or not we were or were not going to be 20 involved. 21 Q. I'd like to question the witness about 22 7057. It's an April 16th, 1985 letter from 5810 1 Mr. Graham to Mr. Rosenberg concerning Park 410. 2 Mr. Graham, is that your signature on 3 the bottom of the page? 4 A. Yes. 5 Q. Do you have any reason to think you 6 didn't send this letter to Mr. Rosenberg? 7 A. No. 8 MR. LEIMAN: Your Honor, I offer 9 Exhibit T7057. 10 MR. DUEFFERT: Your Honor, I don't 11 think we have any objections, although I'm curious 12 as to the handwritten notes on this version. I 13 don't know for they arose from Mr. Graham. 14 THE COURT: Can you explain the 15 handwritten notes, Mr. Leiman? 16 MR. LEIMAN: Your Honor, I can't. I 17 know they are not -- they are not mine and they 18 weren't put on by me. I can ask the witness if -- 19 A. They are not mine, no. 20 Q. (BY MR. LEIMAN) Are they in your 21 hand? 22 A. No. 5811 1 MR. LEIMAN: Well, if we disregard the 2 handwritten notes on this exhibit, Mr. Dueffert, 3 would you continue to -- I mean, I'm not sure you 4 have an objection to it at this point, but would 5 you object to the admission without the 6 handwritten notes? 7 MR. DUEFFERT: I would have no 8 objection to the document without the handwritten 9 notes. 10 MR. LEIMAN: All right. We so offer 11 it. 12 THE COURT: The document is received 13 disregarding the handwritten notes unless somebody 14 has a clean copy that we can substitute. 15 Received. 16 Q. (BY MR. LEIMAN) Mr. Graham, looking 17 at the third from the last sentence in the first 18 full paragraph on this page starting with "due 19 to," would you explain what you mean by the 20 following: "Due to the magnitude of the 21 development loan on this tract, there are not many 22 lenders who would be interested in or have the 5812 1 capability to provide the financing other than 2 United." 3 What did you mean when you wrote that? 4 A. Well, other than Gibraltar, University 5 Savings, and a couple of Dallas large S&Ls, it was 6 just too big a deal under their loans to one 7 borrower limits. And so, we thought we had kind 8 of a low captive audience here, so to speak. We 9 liked the deal. We wanted to do the deal and we 10 were trying to -- and let them know that we were 11 probably as likely a candidate as anybody. 12 Obviously, large banks could do it, too. 13 Q. Now, when you say that you wanted to do 14 the deal, are you referring to United Savings 15 wanting to do -- make a loan on this property? 16 A. We wanted to look at the opportunity to 17 make a loan. We wanted to have the right of first 18 refusal to have that opportunity. 19 Q. Did you discuss that concept with 20 members of the senior loan committee? 21 A. Certainly, yes. Yes. 22 Q. You discussed it with Mr. Gross? 5813 1 A. I discussed it with everybody at one 2 point. 3 Q. Did you discuss it with Mr. Hurwitz? 4 A. I already answered that. I discussed 5 it with everybody at one point. 6 Q. I understand that you -- when you refer 7 to "everybody," I think -- 8 A. Basically, by the committee. 9 Q. All right. And does -- 10 A. With the exception of Mr. Crow maybe. 11 Q. All right. 12 A. But he was not generally in the loop of 13 day-to-day real estate discussions. 14 Q. All right. So, in April, around the 15 time of April 1985, you would have talked about 16 the possibility of a loan in connection with the 17 Park 410 property that you had been previously -- 18 that you were already involved with as a 19 partnership basis? 20 A. That's correct. 21 Q. And you would have talked to Mr. Gross 22 and you would have talked to Mr. Hurwitz and, with 5814 1 the exception of Mr. Crow, probably 2 Jerry Williams? 3 A. Yes. 4 Q. Okay. What did you mean when you say 5 in this letter, "There are not many lenders who 6 would be interested in" -- 7 A. Because of the size. 8 Q. You mean the size of the loan would 9 have been -- 10 A. Too big for them. 11 Q. And what would have been the concern 12 about size? 13 A. Legally, they couldn't do it. 14 Q. Is that because Gibraltar didn't 15 have -- 16 A. No. I didn't say -- I said earlier 17 other than Gibraltar, United -- I mean, University 18 and some large banks and some large S&Ls in 19 Dallas. I excluded them in that list earlier when 20 I said most -- it was too big for most. 21 Q. All right. Well, I understand. But 22 Mr. Graham, what I'm trying to find out about is: 5815 1 Was that -- was the fact that you thought it was 2 too large predicated on the fact that it would 3 have violated some regulatory requirement such as 4 loan to one borrower that you referred to earlier 5 or simply there would have been too much risk for 6 those shops? 7 A. Loan to one borrower. It's just too 8 big for most shops. 9 Q. But you and the persons that we talked 10 about earlier concluded that it was just not too 11 big for United Savings? 12 MR. DUEFFERT: Your Honor, I'm 13 objecting to the repetitive nature of the 14 questions at this point. 15 MR. LEIMAN: I'll move on, Your Honor. 16 Q. (BY MR. LEIMAN) I'll show the witness 17 Exhibit T7060. It's a May 9th, 1985 letter 18 concerning Park 410 West joint venture and it's 19 addressed to Mr. Kenneth M. Gindy from Mr. David 20 Graham. 21 Mr. Graham, looking at Exhibit T7060, 22 is that your signature on the left-hand side of 5816 1 the page? 2 A. Yes, it is. 3 Q. Did you prepare this letter to 4 Mr. Gindy? 5 A. Yes. 6 MR. LEIMAN: Your Honor, I offer T7060. 7 MR. DUEFFERT: No objections. 8 THE COURT: Received. 9 Q. (BY MR. LEIMAN) Mr. Graham, by 10 May 9th, 1985, United Savings had been involved 11 with the Park 410 West joint venture partnership 12 through Mr. Rosenberg for a couple of months; is 13 that right? 14 A. Give or take. 15 Q. At this point, you were asking 16 Mr. Gindy to provide you with a copy of the 17 progress minutes; is that right? 18 A. Correct. 19 Q. What do you mean by "progress minutes"? 20 A. Well, they had meetings to determine 21 marketing, what they have contacted, how the plans 22 were going as far as what they were going to do 5817 1 with the property as far as streets, utilities, 2 and so forth. And everybody else was in 3 San Antonio. They generally had the meetings 4 there. I wanted copies of the minutes. 5 Q. You go on to say in the last sentence 6 of the first full paragraph that "Also, we would 7 like to receive directly copies of all plans, 8 engineering cuts, et cetera, that are produced and 9 distributed as part of this project." Is that 10 right? 11 A. Right. 12 Q. All right. In addition to plans and -- 13 what are engineering cuts, I guess? 14 A. I think at the time what I meant is 15 when they did changes and did small sampling of 16 what they were doing. 17 Q. And you would have also wanted copies 18 of appraisal documents and feasibility studies? 19 A. I assume if they were producing such 20 documents, but I don't know if they had at that 21 point. 22 Q. And marketing studies, as well? 5818 1 A. Or marketing information. 2 Q. Okay. And you wanted that for your own 3 files at United Savings. Right? 4 A. That's correct. 5 Q. I'll show the witness Exhibit T7061 6 which is a May 22, 1985 letter to Mr. Graham from 7 Kenneth M. Gindy. 8 This letter is addressed to you, 9 Mr. Graham, from Mr. Gindy, dated May 22nd, '85, 10 concerning the Park 410 West joint venture. 11 A. Yes. 12 Q. Did you receive a copy of this letter? 13 A. I assume I did. 14 MR. LEIMAN: Your Honor, I move that 15 T7061 be admitted. 16 MR. DUEFFERT: Your Honor, the record 17 should reflect that this is an unsigned version. 18 I don't know for a fact that the letter was 19 actually sent. If the witness does recall that he 20 received a version of it, I would have no 21 objections. 22 THE COURT: Can you tell us whether you 5819 1 received this document? 2 A. I can't tell you for sure I received it 3 or not. I mean, since I had a lot of documents, I 4 can't tell specifically whether I received this or 5 not. 6 MR. DUEFFERT: In this case, Your 7 Honor, I don't know if it can serve as notice of 8 as evidence of notice of anything else. I would 9 object to its admission. 10 MR. LEIMAN: Let me ask a question, 11 Your Honor, if I might, to clarify this. 12 Q. (BY MR. LEIMAN) Mr. Graham, were you, 13 to the best of your knowledge, placed on a 14 distribution list by Mr. Charles White in 15 connection with the Park 410 West joint venture? 16 A. Not to the best of my recollection. 17 Who is Charles White? The name rings a bell, but 18 I forgot. Was he with us or them? 19 Q. Mr. White would have been involved on 20 the GMR side. He would have been one of your 21 partners. 22 A. I can't recall whether or not I got it 5820 1 from him. 2 Q. Do you know if you were ever placed on 3 a distribution list in connection with the Park 4 410 West joint venture? 5 A. I may have been, but I don't remember 6 when. 7 Q. Well, with respect to the previous 8 exhibit that I showed you, Mr. Graham, which was 9 T7060, you specifically asked to be placed on a 10 distribution list. 11 A. Asking is one thing. Having it happen 12 is another. 13 Q. Do you remember not receiving any 14 documents that you had asked for? 15 A. Well, if I never received them, I may 16 not have known I didn't receive them. 17 Q. Right. Did you ever receive any 18 documents? 19 A. At times, periodically, yes. 20 Q. Okay. 21 A. Whether I got them all, I can't tell 22 you. 5821 1 Q. Right. Did you ever -- did you ever 2 follow up your letter of May 9th, 1985, 3 Exhibit 7060, with another letter to Mr. Gindy or 4 to Mr. White or any other member of your 5 co-venturers asking for additional documents? 6 A. I don't know if I followed up with a 7 letter. I may have called or something, but I 8 can't recall. I don't recall writing Mr. White. 9 Whether I followed up with a letter to Mr. Gindy, 10 I don't know. 11 MR. LEIMAN: Your Honor, we will 12 endeavor to find a signed copy of this letter and, 13 failing that, we expect to call Mr. Gindy as a 14 witness and I am sure he will be able to 15 authenticate the document. We continue to offer 16 it if you're inclined to accept it. 17 THE COURT: We'll await the 18 authentication. 19 Q. (BY MR. LEIMAN) I'm going to show 20 you, Mr. Graham, Exhibit T7062 which is a 21 May 28th, 1985 letter to Mr. Gindy from yourself 22 concerning the Park 410 West joint venture. 5822 1 That's your signature at the bottom of 2 the page, isn't it, Mr. Graham? 3 A. That is correct. 4 Q. And you have no reason to think that 5 you didn't send this letter to Mr. Gindy, do you? 6 A. No. 7 MR. LEIMAN: Your Honor, we offer 7062. 8 MR. DUEFFERT: No objection. 9 THE COURT: Received. Mr. Dueffert, 10 this doesn't serve as a foundation for the prior 11 exhibit that you objected to? Six days later. 12 MR. DUEFFERT: Your Honor, I'll 13 withdraw the objection. 14 THE COURT: All right. I'll also 15 receive T7061. 16 THE WITNESS: You want to go back? 17 Q. (BY MR. LEIMAN) No. It's 18 unnecessary, Mr. Graham. 19 Now, let's talk about this May 28th, 20 1985 letter, if we could. You state in the very 21 first sentence "I'm fully aware of the problem 22 with brokers who initially showed United this 5823 1 tract. However, I have also explained in great 2 detail to them both that United did not purchase a 3 tract." 4 Why did you write this? 5 A. Well, I mean, to respond, obviously, to 6 that letter from Mr. Gindy. If I recall correctly 7 that the brokers who first brought the tract to 8 us, Roland Carey and his partner in San Antonio, 9 because we were ultimately in the deal, felt we 10 purchased the tract. We did not purchase the 11 tract and we were simply trying to clarify to them 12 they had no claim for a brokerage fee. It's that 13 simple. 14 Q. In the second full paragraph, you state 15 that "I also pointed out that if United had 16 purchased the property, we would have owned 17 100 percent of the property and controlled its 18 development. Under the present structure, we only 19 own 50 percent of Stanley's 50 percent and have no 20 control of the property. This is certainly a 21 great -- a significant difference." Right? 22 A. Well, it's a significant difference 5824 1 being a fully -- owning it yourself, yes. What 2 I'm trying to show them, simply we were a passive, 3 limited partner in this thing. We didn't buy the 4 tract. 5 Q. What did you mean when you said you 6 have no control of the property? 7 A. Well, as I said before as you showed 8 me, Stanley had basically decisions. We were his 9 partner and, as I said before -- and you pointed 10 out in a document you provided me before the same 11 thing. That was one that we did not have as much 12 control over as we typically have. 13 Q. I believe you stated earlier that 14 members of the real estate investment committee 15 that you had spoken with in connection with the 16 partnership at Stanley Rosenberg were satisfied 17 with Stanley Rosenberg being the manager on behalf 18 of United Savings? 19 A. I don't think I said that. But 20 that's -- I think that was probably the feeling, 21 but I don't think I ever responded that clearly. 22 Q. Well, perhaps you'd like to elaborate 5825 1 in that regard. 2 A. Well, I mean, I think we entered the 3 venture. So, obviously, we were comfortable 4 enough with Stanley having that position, yes. 5 Q. All right. And in that regard, I 6 showed you earlier a letter that you had prepared 7 that capsulized the relationship, the partnership 8 relationship with Mr. Rosenberg. Right? 9 A. That's correct. 10 Q. And that contained the terms of the 11 relationship? 12 A. Correct. 13 Q. All right. Oh, by the way, looking at 14 the last sentence in this letter, it says "Thanks 15 for forwarding the copies of the checks to my 16 attention." 17 What does that refer to? 18 A. I have no idea. 19 Q. Okay. But apparently Mr. Gindy was 20 sending you documentation on that? 21 A. Well, he apparently sent me checks. 22 Q. I'll show the witness Exhibit T7063, 5826 1 please. It's a June 18th, 1985 letter from you, 2 Mr. Graham, to Kenneth Gindy. 3 Once again, Mr. Graham, that's your 4 signature at the bottom of the page? 5 A. That's correct. 6 Q. And you sent this letter to Mr. Gindy? 7 A. Yes. 8 Q. All right. 9 MR. LEIMAN: Your Honor, I move that 10 T7063 be admitted. 11 MR. DUEFFERT: No objection. 12 THE COURT: Received. 13 Q. (BY MR. LEIMAN) Mr. Graham, in this 14 letter to Mr. Gindy, you talk about the fact that 15 you're going to be visiting with Stanley about the 16 Northlake project. Why were you addressing this 17 letter to Mr. Gindy if you were going to be 18 meeting with Mister -- with Stanley -- is it with 19 Stanley Rosenberg you're talking about here? 20 A. Yes. 21 Q. Why did you address this to Mr. Gindy? 22 A. Well, he was -- he was the one actually 5827 1 doing the legal documents. 2 Q. For which project? 3 A. Park 410. 4 Q. Okay. And what about Northlake? Was 5 he also doing them for Northlake? 6 A. Northlake was a long -- had been a 7 project for some time. There was no legal 8 documents involved. 9 Q. Okay. Looking here at the second full 10 sentence, you state "In connection with the set of 11 legal documents associated with this transaction, 12 I really need them immediately as our auditors are 13 screaming at me for undertaking such an investment 14 without a complete file." 15 What auditors are you referring to in 16 this case? 17 A. I'm not sure. And, truthfully, they 18 may not have been screaming. You put that 19 language in there to scare the hell out of 20 somebody and get it done. We typically would 21 always use the term "we have to have this for the 22 examiners or auditors" to get people to respond 5828 1 more quickly. It's amazing how that gets 2 somebody's attention as opposed to saying, "I just 3 want them." 4 Q. If the documents weren't in the file, 5 would the auditors have known that this particular 6 investment existed? 7 A. Oh, yeah. We still had the file. We 8 still had letter agreements. We just didn't have 9 the final legal venture agreement is all we didn't 10 have. 11 Q. Okay. And where would the files for 12 this particular joint venture agreement have been 13 maintained? 14 A. In our office. 15 Q. Would those have been maintained at the 16 offices of UFC, United Financial Corporation? 17 A. No. United Savings. 18 Q. Okay. Were those files maintained 19 separately for UFC and United Savings? 20 A. Well, I think they were segregated 21 within the file room maybe, yes. But I mean, it 22 was all the same file room. 5829 1 Q. There was no UFC building, you're 2 saying? 3 A. No. 4 Q. It was just one file room? 5 A. Yes. 6 Q. Do you happen to know whether or not, 7 in June of 1985, United Savings was undergoing an 8 examination by Federal Home Loan Bank examiners? 9 A. No. 10 Q. How about the State of Texas, 11 department of S&L examiners? 12 A. I have no idea what was happening in 13 June of '85. 14 Q. And so, you might have been referring 15 to them or to Peat Marwick or -- 16 A. Or as I said before, I could have been 17 just been pulling a royal bluff. 18 Q. Okay. 19 MR. LEIMAN: Your Honor, I'd like to 20 inquire of the witness in connection with 21 Exhibit T7068. 22 Q. (BY MR. LEIMAN) Mr. Graham? 5830 1 A. Yes. 2 Q. T7068 purports to be a projected impact 3 on lodging demand generated by the proposed Sea 4 World study prepared evidently by Laventhol & 5 Horwath dated August 19th, 1985? 6 A. Appears to be, yes. 7 Q. Do you know if you ever received this 8 document? 9 A. I don't recall specifically, no. 10 Q. Mr. Graham, is this the kind of 11 information that you would want to know about in 12 connection with participating in Park 410 -- 13 A. It would be some of the things we'd be 14 looking for, yes. 15 Q. And in connection with Sea World, would 16 you have wanted to know what the number of 17 visitors would be? 18 A. It would have some bearing. 19 Q. And what about -- would you want to 20 know where those visitors would stay? 21 A. Yes. 22 Q. And is the reason for that because one 5831 1 of the plans in connection with the Park 410 2 project was to tentatively build a hotel on the 3 property; is that right? 4 A. Or hotels, motels. 5 Q. Would you have wanted to know that -- 6 I'm reading now from Page 5 -- that "It is 7 anticipated that the central business district 8 will capture the largest percentage of the Sea 9 World lodging demand due to the uniqueness of the 10 River Walk, location of the Alamo, and traditional 11 Spanish flavor found in the area which appeals to 12 the tourists? Would you have wanted to know that? 13 A. We would have liked to have their 14 opinion, yeah. 15 Q. Would that have deterred you to know 16 that from -- would that have deterred you from 17 further interest in the Park 410 project, to know 18 that most of the central business district was 19 going to receive most of the visitors -- 20 A. Well, I don't think we anticipated our 21 project getting the bulk of it anyway. I mean, we 22 just thought we would have some sites that would 5832 1 be attractive to motels/hotels on us. I mean, we 2 weren't going to do the whole damn thing in 3 hotels/motels. 4 Q. What did you think that the impact of 5 Sea World would be anyway? 6 A. Well, honestly, we underestimated it. 7 I mean, overestimated what it would be. We 8 thought it had a greater impact than it did. 9 Q. What do you mean? 10 A. I mean, from my personal opinion -- and 11 I'm speaking only for myself because I can't put 12 words in other people's minds, but I thought it 13 would have a greater impact than it ultimately did 14 on the -- that corridor in San Antonio. 15 Q. Were there other people who thought 16 that it would have a big impact? 17 A. I can't answer for other people. I'm 18 telling you I personally thought it would have a 19 greater impact than it did. 20 Q. Was that discussed at the real estate 21 investment committee? 22 A. I imagine we discussed it. It was one 5833 1 of the many things we discussed. 2 Q. Did you talk about it with Stanley 3 Rosenberg? 4 A. I thought he thought probably it would 5 have a greater impact than it did, too. 6 Q. Were you ever present when Stanley 7 Rosenberg discussed the matter with other members 8 of -- with Mr. Gross? 9 A. No. 10 Q. How about Mr. Hurwitz? 11 A. No. 12 Q. You wouldn't have been privy to those 13 discussions? 14 A. I wasn't if they had them, no. 15 Q. Okay. 16 MR. LEIMAN: Your Honor, I would offer 17 T7068. 18 MR. DUEFFERT: No objections. 19 THE COURT: Received. 20 Q. (BY MR. LEIMAN) I'd like to ask you 21 about another letter, Mr. Graham. This one is a 22 letter to Noel Simpson dated October 29th, 1985. 5834 1 And it's Exhibit No. 7072. 2 Mr. Graham? 3 A. Yes. 4 Q. Looking at Page 2 of Exhibit 7072, is 5 that your signature? 6 A. That is. 7 Q. All right. And this is an October 8 29th, 1985 letter to Noel Simpson concerning Park 9 410 West, San Antonio. You wrote this letter? 10 A. Yes, I did. 11 MR. LEIMAN: Your Honor, I would offer 12 7072. 13 MR. DUEFFERT: No objection. 14 THE COURT: Received. 15 Q. (BY MR. LEIMAN) What was the -- what 16 was the purpose of you writing this letter to 17 Mr. Noel Simpson? 18 A. Very simple. We were -- I was 19 attempting to try to get some mutual understanding 20 of what may -- what loan that -- on this property 21 could be structured, what would be the terms and 22 conditions mutually compatible. I have to point 5835 1 out this was not a commitment that I wasn't going 2 to go to the loan committee until we reached some 3 kind of understanding so I could make a 4 presentation. 5 Q. Before you prepared this letter and 6 sent it to Mr. Noel Simpson -- who is Mr. Simpson? 7 A. He's with Gulf Management Resources. 8 He was their -- I guess the head man. 9 Q. He was the principal there? 10 A. Well, the head person. I don't know 11 what role he had necessarily. I mean, I don't 12 know if he was part owner or what. He was the 13 person we dealt with. He was the head of the 14 group. 15 Q. Just so I know, was he an Englishman, 16 to your knowledge? 17 A. He had a good English accent. 18 Q. Okay. Before you sent this letter to 19 Mr. Simpson, who did you talk to about? 20 A. I don't know specifically, but I 21 probably talked to everybody. 22 Q. When you say "everybody" -- 5836 1 A. Once again, the same people. Everybody 2 who was involved in the real estate activity. You 3 generally didn't do anything without sitting down 4 and saying, "This is my thoughts. This is what I 5 plan to do. What do you think?" And I'd talk to 6 probably Jenard, Charles, Jerry, and Jim. 7 Q. Okay. Just give me some last names 8 there, for the record. 9 A. Jenard Gross, Charles Hurwitz, Gem 10 Childress, Jerry Williams. 11 Q. Did they give you their thoughts about 12 this? 13 A. I assume they did, yeah. 14 Q. You would have never sent a letter off 15 like this on your own, would you? 16 A. No. Not more than once. 17 Q. All right. I notice here that, among 18 other things, you asked for collateral of 100 19 percent joint and several liability of the 20 borrowing venture and individual joint ventures. 21 Am I right on that on the collateral? 22 A. On this letter, yes. 5837 1 Q. Okay. And you asked for additional 2 collateral in the form of $15 million in CDs or 3 irrevocable letters of credit. Right? 4 A. That is correct. 5 Q. Okay. And a profit participation, 6 35 percent? 7 A. That's correct. 8 Q. All right. Now, Mr. Graham, was this 9 an opening offer? 10 A. It was kind of our wish list. 11 Obviously, it wasn't what ended up, but we didn't 12 anticipate it being this. You're right. It's an 13 opening salvo at seeing what -- we're going to 14 start with what we like best. 15 Q. When you would start with what you 16 liked best, what do you mean? That this would be 17 ideal conditions? 18 A. Pretty much, yeah. 19 Q. Okay. 20 A. If they had accepted this, we would 21 have done this, yes. 22 Q. No hesitation? 5838 1 A. Well, we still had to go through the 2 approval process. 3 Q. Right. 4 A. Hesitation only a fact that this was 5 still a letter of intent at a loan level. 6 Q. I understand that. But these terms 7 would have been more than adequate? 8 A. Yeah. I think we would have done it 9 under these terms, yes. 10 MR. LEIMAN: Your Honor, I would like 11 to inquire of the witness at T7073. For the 12 record, Your Honor, I don't know if I offered the 13 last exhibit into evidence. I'd like to be 14 certain I did that. 7072. 15 Did I do that? 16 MR. DUEFFERT: No objection. 17 THE COURT: Received. 18 MR. LEIMAN: I'd like to apologize to 19 the Court and the witness and respondents' counsel 20 for the poor copy of this document. 21 Q. (BY MR. LEIMAN) What I would like to 22 do is first ask the witness if that is his 5839 1 signature on the second page. 2 A. That's about the only thing I can 3 identify, yeah. 4 Q. Okay. Can you read the date of the 5 letter? 6 A. Yeah. You start with the easy stuff. 7 December 9th, 1985. 8 MR. LEIMAN: Your Honor, I would offer 9 T7073 into evidence. 10 MR. DUEFFERT: Your Honor, I would ask 11 that perhaps OTS can provide, tomorrow morning, a 12 clean copy of this that we can actually read. I 13 don't think this would be appropriate for 14 evidence. 15 MR. LEIMAN: Your Honor -- 16 THE COURT: Do you know why this is 17 so -- 18 MR. LEIMAN: I don't know why. We've 19 sought on numerous occasions to get better copies 20 of this document. However, what I merely intend 21 to ask the witness about in this particular case 22 are those items that you can read, which are the 5840 1 loan amount of $79 million. 2 THE COURT: All right. I'll receive 3 the document if it's the best you can do. 4 A. I'll take your word that it's 79. 5 Q. (BY MR. LEIMAN) Now, at this point, 6 Mr. Graham, December 9th, 1985, you had already 7 had correspondence with Mr. Simpson. Right? 8 A. That's correct. 9 Q. Okay. Now, looking here at the 10 collateral, I notice that the level of collateral 11 has changed. In Item No. 2 at the top, 12 "20 percent of the principal guarantees will be 13 several if at least 90 percent of the loan is 14 guaranteed by either Stanley Rosenberg or Gulf 15 Resources Group." 16 A. Uh-huh. 17 Q. Okay? 18 A. Yes. 19 Q. Now, the prior exhibit, the 20 October 1985 letter in which you discuss a 21 75-million-dollar loan, you talked about joint and 22 several liability; isn't that right? 5841 1 A. That's correct. 2 Q. And here, it's several liability. 3 Right? 4 A. Right. 5 Q. And that would be a reduction in the 6 safety of the collateral. Right? 7 A. Could or could not be. I can't 8 specifically remember all the guarantees and what 9 the net worths were. So, it depends. 10 Q. Here you ask for a pledge of 11 $10 million in CDs or letters of credit that would 12 increase to $10,750,000 if funds held back are 13 released. 14 Do you see that? 15 A. Yes. 16 Q. And that's a reduction? 17 A. Somewhat, yes. 18 Q. Okay. Mr. Graham, would you, before 19 sending this letter to Mr. Simpson, have consulted 20 with the individuals that you mentioned earlier: 21 Mr. Hurwitz, Mr. Gross, Mr. Williams? 22 A. Yes, I would have. 5842 1 Q. Okay. 2 MR. LEIMAN: Your Honor, we will 3 seek -- continue to seek a better copy of that 4 letter for the record. I'd like to inquire of the 5 witness Exhibit T7005. 6 Q. (BY MR. LEIMAN) T7005 is a copy of 7 the December 5th -- of a page from the 8 December 15th, 1985 San Antonio Light local 9 newspaper in San Antonio. I'd like to ask the 10 witness: Have you ever seen this document? 11 A. I may have seen the article. I may not 12 have. 13 MR. LEIMAN: Okay. Your Honor, we 14 would offer T7005. 15 MR. DUEFFERT: Your Honor, we would 16 object. There is no Bates stamp on this document. 17 There is no indication that it was actually 18 received by United. The witness hasn't indicated 19 that he is sure he is familiar with it. We can 20 turn this into an exercise of running newspaper 21 articles by a witness and trying to get him to 22 admit certain things that may be hearsay or may be 5843 1 opinion. I don't think that's appropriate, and I 2 don't think it would be appropriate to put this 3 into the record. 4 MR. LEIMAN: Your Honor, under Federal 5 Rule of Evidence 902 Subsection 6, newspaper 6 articles are admissible as authentic and, in any 7 event, I intend to inquire of the witness in this 8 regard not necessarily for the truth of the 9 matters that are stated in this newspaper article 10 but, rather, whether or not United would have had 11 notice of these particular -- of the particular 12 information that's cited in here and the sources 13 of this information. 14 MR. DUEFFERT: Your Honor, it may be 15 self-authenticating. That doesn't make it 16 relevant and that doesn't mean it's admissible for 17 purposes of hearsay. 18 MR. LEIMAN: Your Honor, what I am 19 asking the Court to do is to allow me to inquire 20 of the witness with regard to notice because this 21 particular article deals with the real estate 22 situation in San Antonio at a time when United 5844 1 Savings Association of Texas was on the verge of 2 making a 79 and a half million-dollar loan. 3 THE COURT: All right. I think it's 4 relevant, if that's your objection. Received. 5 MR. LEIMAN: Thank you, Your Honor. 6 Q. (BY MR. LEIMAN) Mr. Graham, if you 7 would, read along with me in the second sentence. 8 A. The second what? 9 Q. Second sentence of the first column 10 talking about "But the boom is turning to bust for 11 some, just as it has in Dallas and Houston, as 12 foreclosures mount and new construction slows to a 13 crawl." 14 A. Yes. 15 Q. Was United Savings aware of the fact 16 that there had been an overbuilding of office 17 space, retail apartments, and other construction 18 in San Antonio in December of 1985? 19 A. I think we were aware that the -- that 20 they are showing some overbuilding, yes. And you 21 know, what you need to understand is we weren't 22 doing -- we looked at this as a 10- to 12-year 5845 1 project and we'd anticipate the problem to be the 2 same significant level it was in Houston. We saw 3 an overbuilding particularly in the north side of 4 town, an overbuilding of -- and overdevelopment in 5 the north side of town. Once again, we felt that 6 we were aware of some of the softness, no question 7 about it. But we believed that this was a 8 well-located, long-term project, that we weren't 9 taking a snapshot in time, we were going to be 10 here in 10 years. We were going to be through, 11 typically, several real estate cycles. 12 Q. When you discussed real estate cycles 13 and real estate with Mr. Hurwitz, would it be fair 14 to say that he conveyed to you his sense of the 15 significance of real estate? 16 MR. KEETON: I want to object. Do we 17 have a time frame of when this, quote, discussion 18 occurred and in what context? Was it with the 19 rest of the committee or what? 20 Q. (BY MR. LEIMAN) Before you sent out 21 the letter offering Mr. Simpson the 22 79-and-a-half-million-dollar loan? 5846 1 MR. KEETON: Your Honor, I can't hear a 2 word he's saying right there. 3 MR. LEIMAN: I'll try and speak up. 4 THE COURT: Please speak up. 5 Q. (BY MR. LEIMAN) Let me try the 6 question again. 7 You said that the project would be a 8 10- to 12-year project and that's the way United 9 Savings was looking at Park 410. Right? 10 A. Uh-huh. (Witness nods head 11 affirmatively.) 12 Q. Okay. 13 THE COURT: Would you speak up, please? 14 THE WITNESS: Oh, yes. 15 Q. (BY MR. LEIMAN) Mr. Graham, a 10- or 16 12-year horizon on a real estate project involves 17 considerable financing cost, doesn't it? 18 A. Well, it does up front. I mean, once 19 it's completed, then hopefully, it's self-serving 20 in the sense that it has enough sales to generate 21 income to continue the operation of it so then 22 it's self-liquidating. 5847 1 Q. However, in this article, in looking 2 with me if you would at the third full paragraph, 3 it states "Real estate experts say the boom's 4 recent derailment was driven by overbuilding in 5 the office, retail, and apartment markets and by 6 the drying up about six months ago of financing to 7 buy land and construct new buildings." 8 Were you aware that financing to buy 9 land and construct new buildings had dried up 10 about six months prior to the December 15th, 1985 11 date of this newspaper article? 12 A. Well, I'm sure it's all accurate, what 13 they are saying. 14 MR. DUEFFERT: Your Honor, this is 15 exactly what we were worried about. He's reading 16 this into the record for purposes of the matter of 17 the truth asserted. There is no basis in expert 18 testimony that this is reliable or that this is a 19 fair estimation of what was around in the market. 20 I think it's unfair to run these types of things 21 by a fact witness. 22 THE COURT: Well, these are newspaper 5848 1 reports. And to consider them as established 2 facts seems to accord more credibility to them 3 than justified. 4 MR. LEIMAN: I don't disagree with Your 5 Honor. However, whatever I would like to inquire 6 as to the witness and I was about to ask him -- 7 THE COURT: Well, the question wasn't 8 exactly phrased -- your question was phrased -- 9 and I guess this is the basis of the objection -- 10 that it assumes that these are factual statements 11 and then the witness is asked to comment. And I 12 think you should inquire as to whether he 13 agrees -- 14 MR. LEIMAN: Thank you, Your Honor. 15 Q. (BY MR. LEIMAN) Do you believe that 16 the statement is accurate? 17 A. I believe that there was a softening. 18 I don't think it was as dramatic as they said 19 here, no. 20 Q. Now, the question I have for you, 21 Mr. Graham, is whether or not financing became 22 more difficult to obtain for acquisition and 5849 1 development loans in San Antonio in June of 1985. 2 Do you have any knowledge about that? 3 A. I would have a hard time agreeing with 4 this article just because I saw the -- 5 Q. I'm not asking you about the article. 6 I'm just asking you -- 7 A. I do disagree, yeah. 8 Q. You do disagree with that? 9 A. Yeah. 10 Q. In connection with Page 2 of this 11 article, are you familiar -- I'd like to refer 12 again here to the first column. In the middle of 13 the page is a quote here by John Grieshaber. A 14 partner at Grieshaber and Roberts, Inc. 15 Do you know who that is? 16 A. Yes. 17 Q. Who's John Grieshaber? 18 A. A partner in Grieshaber-Roberts, Inc. 19 Q. Okay. And do you know who he is? 20 A. He's a real estate broker. 21 Q. Did you ever have any business with 22 him? 5850 1 A. I met him. I probably spent more time 2 with Mr. Roberts than I did with Mr. Grieshaber. 3 Q. I'm sorry. Did you ever have any 4 business with John Grieshaber? 5 A. Well, I met him; but I don't think I 6 spent -- I had a lot of visits with him, no. 7 Q. Do you disagree with Mr. Grieshaber's 8 comment here? 9 A. Darn right, yeah. 10 Q. Okay. I'm sorry. Go ahead and read 11 it. 12 A. Once again, it says -- he's emphasizing 13 "across the north side." He's using that as an 14 example. That's what we saw, too. 15 Q. Mr. Grieshaber was emphasizing the 16 north side? 17 A. Well, I mean, he does emphasize that as 18 one of the issues here, about the prices being so 19 high up there. 20 Q. Mr. Graham, do you know whether or not 21 John Grieshaber was associated with marketing 22 effort Park 410 subsequent to an 80-million-dollar 5851 1 loan being made by United Savings Association of 2 Texas in March of 1986? 3 A. Well, if you're saying his firm was 4 involved in the marketing of the property, yes. I 5 don't know if he was personally. 6 Q. In fact, isn't it true that the firm of 7 Grieshaber and Roberts received an exclusive 8 contract to do all of the marketing for Park 410? 9 A. That's probably the case, yeah. 10 Q. Okay. Now, let's look, if we could, at 11 this last column. In the third paragraph up from 12 the bottom is a reference here to uncertainty over 13 the effect of new tax legislation. 14 Are you aware that during 1985, 15 Congress was considering the passage of 16 legislation that ultimately became known as the 17 Tax Reform Act of 1986? 18 A. Probably vaguely. 19 Q. Okay. Do you know if the Tax Reform 20 Act of 1986 affected investment in real estate? 21 A. Probably apartments more than anything. 22 Q. Would it have had an effect on 5852 1 syndications of real estate? 2 A. More apartments than anything is my 3 recollection. 4 Q. Okay. And that was being considered as 5 of what time, sir? 6 A. What was being considered at what time? 7 Q. When did you first become aware of a 8 consideration of reform of the tax laws in 9 connection with -- 10 A. I don't know when I became aware of it. 11 That's a different question than you asked 12 earlier. I just think that the ramifications 13 affected the apartments more. I don't think I 14 really realized the full ramifications till the 15 act was in effect. 16 Q. Am I correct that in connection with 17 the Park 410 property and the subsequent loan that 18 was made, development was to include multi-family 19 housing? 20 A. One portion of it, yes. 21 Q. And those are apartments. Right? 22 A. That's correct. 5853 1 Q. I'll come back to that article and some 2 of the topics in the article a little bit later. 3 I'd like to ask you about another exhibit. T7065. 4 THE COURT: We'll take a short recess. 5 6 (A short break was taken 7 at 3:05 p.m.) 8 9 THE COURT: Be seated, please. We'll 10 be back on the record. Mr. Leiman? 11 MR. LEIMAN: A minor housekeeping 12 matter, Your Honor. In connection with an exhibit 13 that evidently I forgot to offer, it was T7048, 14 which is the Alamo Savings letter to Rosenberg. 15 I'd like to offer it at this time. And in spite 16 of the fact that Mr. Graham has stated that he 17 wasn't certain that he received a copy, 18 Mr. Rosenberg -- I believe the testimony was that 19 Mr. Rosenberg was serving as the lawyer for United 20 in connection with this partnership. 21 MR. DUEFFERT: Your Honor, we didn't 22 object to the exhibit. Your Honor, one other 5854 1 point. I do have a copy now of Exhibit A1643, 2 which is the minutes of the March 18, 1985 real 3 estate investment committee signed by every member 4 of that committee. It was the document we 5 discussed this morning. 6 THE COURT: All right. Can we 7 substitute that for the record, please? 8 MR. DUEFFERT: Yes. It will be 9 substituted. 10 MR. LEIMAN: And I previously stated, 11 Your Honor, I have no objection to its marking. 12 THE COURT: What was the number that 13 you said you had not offered? 14 MR. LEIMAN: Your Honor, that was 15 T7048. 16 THE COURT: All right. You may 17 continue. 18 (3:39 p.m.) 19 Q. (BY MR. LEIMAN) I'd like to just 20 inquire of the witness in connection with the 21 signed copy if he can identify the signatures on 22 what has now been marked as A1643, which is the 5855 1 March 18th, 1985 real estate investment committee 2 minutes concerning the investment of 3 Mr. Rosenberg. 4 Can you identify the signatures on that 5 document, Mr. Graham? 6 A. They correspond with the names below. 7 They are consistent with the names: Gross -- 8 Jenard Gross, Gem Childress, Jerry Williams, and 9 C.E. Bentley. 10 Q. So, you recognize the signatures? 11 A. Yes. 12 Q. All right, sir. I'd like to ask you at 13 this point about T7072. I believe you have that 14 exhibit. 15 A. 72? 16 Q. Yes, sir. I believe that's in front of 17 you. 18 A. Yes. 19 Q. And specifically, I'd like you to turn 20 your attention to the last paragraph on the second 21 page, sir. 22 A. Where it starts "once again"? 5856 1 Q. Yes, sir. It states that "Once again, 2 these are the typical terms and conditions under 3 which our latest acquisition and development loans 4 have been made. Your group will obviously have 5 comments on this draft proposal so please feel 6 free to call me about any aspect of my letter." 7 My question to Mr. Graham is this: 8 What are reflected in this October 29th, 1985 9 letter would, in fact, have been the typical terms 10 and conditions; isn't that right? 11 A. Well, typical, yes. I mean, the 12 definition of "typical," I mean, participation, 13 releases, pricing, collateral, yes. 14 Q. Okay. I'd like to now turn to 15 Exhibit T7065. Mr. Graham, this is a memorandum 16 from you to three addressees: Charles Hurwitz 17 Jenard Gross, and Gerald Williams. The date on it 18 indicates that it was received on December 31, 19 1985. 20 A. That's when it -- oh, received, okay. 21 Q. Yes, sir. 22 A. All right. 5857 1 Q. There is another date at the bottom of 2 the page, 1/1. Let me ask you this: Is that a 3 date? 4 A. I doubt it. 5 Q. Okay. The date listed under your name 6 is December 30, 1985. Did you send a copy of this 7 letter to the addressees? 8 A. I assume I did, yes. 9 Q. I should correct myself. It's a 10 memorandum. I apologize. Turning your 11 attention -- I'd like to offer T7065, Your Honor. 12 MR. DUEFFERT: No objection. 13 THE COURT: Received. 14 Q. (BY MR. LEIMAN) Why were you -- what 15 was the purpose of this letter, Mr. Graham? 16 A. To bring everybody up to date. 17 Q. Okay. And that was consistent with 18 your practice, your real estate practice? 19 A. That was consistent with the way I did 20 things, yes. 21 Q. Okay. Here in No. 1, you're referring 22 back to Stanley's -- Noel Simpson's comments and 5858 1 Stanley Rosenberg's comments. No. 1 says "They 2 would like some relief on the fees. In essence, a 3 reduction in the 3 percent origination fee and the 4 1 percent renewal fee." 5 What are you talking about when you're 6 talking about a 3 percent origination fee? 7 A. The fee that would be paid at closing 8 of the loan and the renewal fee, and I guess the 9 one that was extended. If they had an option to 10 extend, it would be paid at that point. 11 Q. From an accounting perspective, do you 12 know what happens to origination fees on loans? 13 A. I think at that time, they were booked 14 as income at the time they were booked. Today, 15 they are spread. 16 Q. Okay. So, this would not -- this 17 origination fee, if it had been paid, would have 18 been taken directly into income? 19 A. I assume so at the time, yeah. 20 Q. Okay. And what about renewal fees? 21 A. I think they were taken into income 22 when they were paid, but not until then. 5859 1 Q. In the penultimate paragraph, the large 2 paragraph at the bottom of the page says "Since 3 we're close to a meeting of the minds on this loan 4 and, further, since we will have a difficult time 5 during 1986 generating loans this good, I would 6 like to conclude this transaction and close the 7 loan." 8 A. Uh-huh. 9 Q. You go on to say that "Additionally, I 10 certainly prefer a lender's role in this project 11 as to our present role as Stanley's financial 12 partner in serving as a lender would serve us 13 better than having this project in the investment 14 account since our ownership is only 25 percent." 15 So, I assume that this last -- that in 16 this last sentence, you're trying to get 17 Mr. Hurwitz, Gross, and Williams to agree with 18 your recommendation of reducing the fee structure 19 to 2 and a half percent origination fee and a half 20 percent for each renewal and agreeing to giving 21 them credit for earlier principal reductions; is 22 that right? 5860 1 A. That's, in essence, I think what I'm 2 doing here, yes. 3 Q. Okay. Why did you think -- I'm sorry. 4 A. By the way, I just want to point out 5 these two he used the big word this time. They 6 have been complaining to me that I was using words 7 they don't know. Sorry. That's off the cuff. 8 Q. Mr. Graham? 9 A. Yes, sir. 10 Q. What made you say that it would be 11 difficult -- I want to get the wording exactly 12 right here. "We will have a difficult time during 13 1986 generating loans this good." 14 Why did you reach that conclusion? 15 A. Well, as I said before, we thought it 16 was a good opportunity. We liked the way it was 17 structured. We liked the players, the partners in 18 the deal. We liked the equity infusion. It was 19 not very typical in this period of time when you 20 get a lot of equity from the borrowers. We had 21 some guarantees we were comfortable with. We had 22 a project we were comfortable with. And we 5861 1 just -- we had seen a lot of opportunities come 2 across our desk in San Antonio which we were very, 3 very uncomfortable with and we chose not to do. 4 This one, we were comfortable with and we'd 5 anticipate seeing other opportunities come down 6 the road that we were going to be comfortable 7 with. It's that clear. 8 Q. Was one of the reasons that you thought 9 it would be difficult generating loans some of the 10 factors that are set out here in Exhibit T7005 in 11 this newspaper article? 12 A. Well, typically, what we're seeing that 13 we were very uncomfortable with were opportunities 14 in the north. We looked at a lot of projects up 15 there that ultimately other lenders, such as 16 Sunbelt and Western Savings would do, but we chose 17 not to. And they are large projects, also. 40, 18 50 million. We were very uncomfortable with 19 everything we saw up there, and we were afraid 20 that the majority of what we were seeing in the 21 future would be in that market. 22 So, yes, I'd have to agree to some 5862 1 extent that article was right in regard to what we 2 saw in the north. 3 Q. Were you personally comfortable with 4 making a loan of $80 million -- proposing a loan 5 at this point in time of $80 million in connection 6 with -- into this real estate market in 1985, '86? 7 A. Yeah. With this loan, it would be -- I 8 think I had some uncomfort with any loan this size 9 regardless of what market it was in. But I mean, 10 I don't think the market made it any more 11 uncomfortable than I would have been if we did it 12 in the best of times. A big loan is a big loan. 13 Q. And what would make you -- what would 14 make one uncomfortable about a big loan? 15 A. I mean, it's just -- it's more 16 concentrated risk, no question. 17 Q. I'd like to inquire of the witness 18 regarding T7668. These are the senior loan 19 committee minutes from January 6th, 1986. 20 Now, sir, in connection with T7668, one 21 of the matters for discussion at the senior loan 22 committee meeting would have been Park 410. 5863 1 Right? 2 A. Yes. 3 Q. And you would have gotten a copy of the 4 meeting of January 6th, 1986, the senior loan 5 committee. Right? 6 A. Probably would have. That looks like 7 my initials on it maybe, yeah. 8 Q. Do you see your initials on this? 9 A. I can't tell if that is or not. 10 Q. Well, if you will, Mr. Graham, look 11 with me at the very first paragraph where it 12 states those present at the meeting were 13 Jenard Gross, Gerald Williams, Charles Hurwitz, 14 Barry Munitz, yourself, and others? 15 A. Right. 16 Q. And so, you would have been present at 17 the meeting? 18 A. Oh, yes. 19 MR. LEIMAN: Your Honor, I offer T7668 20 into evidence. 21 MR. DUEFFERT: No objection. 22 THE COURT: Received. 5864 1 Q. (BY MR. LEIMAN) Now, looking at the 2 fourth -- I'm sorry -- the fifth paragraph down, 3 it states "There was discussion on the Park 410 4 West proposal and it was agreed that the minimum 5 3 percent release fee would remain. However, the 6 renewal fees are to be reduced to one-half percent 7 each." 8 Now, comparing the result of the senior 9 loan committee meeting of January 6th in response 10 to your memo of December 30, 1985, to Hurwitz, 11 Gross, and Williams, would I be right in thinking 12 that the renewal fees were reduced in that regard? 13 And if you'd like, it's Exhibit 7065, sir. 14 A. Okay. What's the question? 15 Q. Was the action taken in the senior loan 16 committee consistent with what you were -- one of 17 the items that you were proposing in 7065? 18 A. Well, apparently, the renewal fee was 19 reduced, yes. 20 Q. Okay. And that would have happened 21 after discussion of the committee? 22 A. Excuse me? 5865 1 Q. Would that have happened pursuant to 2 discussion of the senior loan committee? 3 A. That's what these minutes reflect, yes. 4 Q. Okay. Do you remember it differently? 5 A. No. 6 Q. Did you have any separate discussions 7 with anybody that -- 8 A. I have no recollection. 9 Q. Okay. I'd like to ask the witness 10 about T7070. Mr. Graham, 7070 purports to be real 11 estate development financial planning model which 12 is, in effect, a pro forma financial analysis of 13 the Park 410 West San Antonio project, and this 14 run date would have been Sunday, October 6th, 15 1985. 16 Do you see that? 17 A. Yes. 18 Q. Okay. And this report date was 19 October 6th, 1985. That's up in the upper 20 right-hand corner. 21 A. Right. 22 Q. Got it? 5866 1 A. (Witness nods head affirmatively.) 2 Q. Okay. Would you have seen this pro 3 forma on or about October 6th, 1985? 4 A. I can't recall specifically, but I 5 probably did. I mean -- 6 Q. If you look with me on the first -- the 7 second page of the exhibit, which is the first 8 page of this pro forma run, it talks about the 9 multi-use land development to which this 10 particular project was going to be put which 11 includes mid-rise and high-rise office space, 12 hotels, mid-rise/high-rise hotels, business park, 13 office showroom, office warehouse, multi-family 14 residential. I guess those are apartments. 15 Right? 16 A. Yes. 17 Q. And retail. Now, if you would, 18 Mr. Graham, would you turn with me to Page 13 of 19 the pro forma. 20 By the way, do you know who actually 21 created this pro forma? 22 A. No. 5867 1 Q. Would it have been somebody at the 2 developer? 3 A. Yes. 4 MR. LEIMAN: Your Honor, before I 5 forget, I'd like to offer this into evidence. 6 MR. DUEFFERT: Your Honor, the document 7 doesn't bear a Bates number except for the first 8 page and we have no way of knowing where it came 9 from or whether, in fact, United ever received it. 10 If OTS will provide a copy that is properly Bates 11 stamped, we will have no objection to the 12 document. 13 MR. LEIMAN: Your Honor, if I might 14 respond, I believe the witness has indicated that 15 he believes he saw this document. He would have 16 been in charge of underwriting the loan. And pro 17 forma analysis, which I'm going to ask him about, 18 would have been important to that underwriting 19 process. 20 MR. DUEFFERT: There is no objection 21 that it's an important document, but the witness 22 has also said that it was created by the borrower 5868 1 and he's unsure if he saw it. 2 THE COURT: Do you think you saw the 3 document? 4 THE WITNESS: I can't be truthful if I 5 did or not. I just don't recall it. I saw a lot 6 of documents during this period. I can't recall 7 specifically this one. 8 THE COURT: Well, I think we have to 9 have some foundation to receive it if there is an 10 objection. If this witness can't authenticate it 11 or -- 12 MR. LEIMAN: Well, I believe we will 13 have a witness who can actually authenticate this 14 particular document; but if I might ask the 15 witness a few foundation questions, perhaps we can 16 clear it up now. May I proceed? 17 THE COURT: Okay. 18 Q. (BY MR. LEIMAN) Mr. Graham, in order 19 to assess the viability of a development, it's 20 important to know what the -- what a financial -- 21 what the financial analysis looks like in terms of 22 profit picture, sellout period, absorption time, 5869 1 sales price. Right? 2 A. Yes. 3 Q. In that regard, would United Savings 4 have prepared its own pro forma analysis of the 5 Park 410 project? 6 A. We probably did not. We probably 7 looked at and refined or modified or reviewed the 8 borrower's projections. 9 Q. The borrower's projections? 10 A. Yes. 11 Q. And would you agree with me that 12 these -- this particular document, referring to 13 the second page of the exhibit, refers to a 14 software package that's the property of Gulf 15 Management Resources? 16 A. Uh-huh. 17 Q. Gulf Management Resources was your 18 co-venturer -- co-venturer with Stanley Rosenberg 19 and one of the proposed borrowers and developers 20 of the Park 410 project. Right? 21 A. That's correct. 22 Q. It would have been part of safe and 5870 1 sound underwriting, wouldn't it, to have received 2 a copy of the borrower's pro forma and his 3 analysis and financial planning model in 4 connection with making a loan, wouldn't it? 5 A. Well, yes. I just can't tell you if 6 this is the one we received. I don't disagree 7 with what you're leading, but I don't know if this 8 is the one or we received others. Typically, we 9 usually get two or three times during a period 10 where they get reformed. So, I don't know if this 11 is the one I saw or another one I saw. 12 Q. So, you don't know if you relied upon 13 this particular -- 14 A. That's what I'm telling you. What 15 you're saying is true. We probably got one. I 16 just can't tell you this is the one we got. 17 Q. How would I be able to tell which one 18 you got? 19 A. I don't know if you can. I mean, I 20 don't recall. I know we probably got one; but, 21 you know, I can't -- they all look relatively the 22 same. It's 14 years. I have a hard time telling 5871 1 you which one I got, if this is the one I got. 2 Q. Would you have gotten more than one? 3 A. I could have. They could have been 4 updated. I just can't tell you. 5 Q. Okay. 6 MR. LEIMAN: Your Honor, in light of 7 the testimony of the witness, I'd like to hold in 8 abeyance our offer of this particular exhibit and 9 what I'd like to do is discuss with the witness 10 Exhibit No. 7345 and ask him if he, in fact, had 11 received that. And I'll provide a copy to him 12 right now. 13 Q. (BY MR. LEIMAN) T7345 is a Bates 14 number CN version GMR development loan revised 15 financials that deal specifically with the 16 February 18th, 1986 projection. And I'd like to 17 know, Mr. Graham, whether or not you would have 18 seen this document. 19 A. I think we're going through the same 20 issue here. I mean, I saw documents such as this. 21 Whether this specific one is the one I saw versus 22 the other one, I'll be honest. I don't know. But 5872 1 I know we received, at times, projections. Now, 2 which ones, I don't know. 3 MR. BLANKENSTEIN: Your Honor, we don't 4 seem to have a copy of that document. Can 5 Mr. Leiman provide us with a copy? 6 THE COURT: Do you have another copy of 7 T7345? 8 MR. LEIMAN: I'll apologize to 9 respondents' counsel if they don't have a copy. I 10 was under the impression that we had provided it 11 previously, but we will certainly provide 12 additional copies promptly. 13 MR. SCHWARTZ: Paul, it should be on 14 your pull list. 15 MR. DUEFFERT: Your Honor, it appears 16 that the number was juxtaposed when on the pull 17 list that we received from the OTS. We can make a 18 copy, I would think. 19 MR. LEIMAN: In light of the fact that 20 they don't have a copy yet, Your Honor, the 21 respondents' counsel doesn't have a copy, and in 22 view of the fact that I've held the other document 5873 1 in abeyance at this time, I'll wait to discuss the 2 matter with the witness and we'll move on to 3 another area. 4 MR. DUEFFERT: While we have a break in 5 the proceedings, I will hand up a clean version of 6 what was previously discussed as Exhibit T7073, 7 which is Mr. Graham's December 9th, 1985 letter to 8 Mr. Noel Simpson. This version is marked 9 Exhibit B686, and it is legible. 10 MR. LEIMAN: Your Honor, we would be 11 happy to substitute this December 9th, 1985 letter 12 from Mr. Graham which Mr. Dueffert has provided to 13 us as Exhibit B686. 14 MR. DUEFFERT: No objection. 15 THE COURT: All right. I will receive 16 that one under your number T7073. 17 MR. LEIMAN: Thank you, Your Honor. 18 Q. (BY MR. LEIMAN) I'd like to examine 19 the witness in connection with a document which is 20 numbered T7667 and has an "A" number of 1649. 21 These are the senior loan committee agenda and 22 minutes of March 17th, 1986. 5874 1 Mr. Graham, I'd like you to look at the 2 second page of Exhibit T7667 or 16 -- A1649 and 3 tell me if you have a recollection of being at the 4 senior loan committee on March 17th, 1986. 5 A. Yes. 6 Q. Best of your recollection, do these 7 minutes accurately reflect the substance of the 8 meeting? 9 A. Yes. 10 MR. LEIMAN: Your Honor, I would offer 11 T7667 as it's already been accepted. 12 MR. DUEFFERT: No objection. 13 THE COURT: Would you state that number 14 again, please? 15 MR. LEIMAN: Yes, sir. The "A" number 16 is 1649 and the "T" number is 7667. 17 THE COURT: All right. I'm going to 18 receive it as A1649. 19 Q. (BY MR. LEIMAN) Mr. Graham? 20 A. Yes, sir. 21 Q. Looking at the second full paragraph, 22 it states that there was approval of an 5875 1 80-million-dollar loan to Park 410 West joint 2 venture on 427 plus acres and the terms and 3 conditions are shown on the attached senior loan 4 committee sheet. 5 When we previously were looking at the 6 limitations that were set for the senior loan 7 committee, limitation was set at $70 million for 8 loans to be approved by that committee. My 9 question to you is: How do you explain the 10 variation here in the approval of an 11 80-million-dollar loan? 12 MR. KEETON: Your Honor, I want to 13 object. He's misrepresenting the document. He 14 wants to show the witness what the authority is. 15 It's very easy to see in there why they were 16 approving an 80-million-dollar loan. 17 THE COURT: Well, maybe -- 18 MR. KEETON: The answer is they have 19 got to approve it before the board does. It's in 20 the -- counsel -- Your Honor. 21 MR. LEIMAN: Excuse me. There is a 22 witness on the stand and this individual is 5876 1 testifying or purporting to testify in the 2 presence of the witness. If you have an 3 objection, just state it. But you don't have to 4 answer questions unless you want to be sworn and 5 testify yourself. 6 MR. KEETON: Your Honor, I don't 7 believe Mr. Rinaldi has assumed your position. I 8 think you're in charge of the courtroom. What my 9 objection was is that Mr. Leiman misrepresented to 10 the witness. He says "In light of the authority 11 you were given before, why are you approving an 12 80-million-dollar loan? 13 THE COURT: All right. Well, let's 14 take the question. I'll deny the objection. 15 We'll let the witness answer. 16 A. Well, we approved it; but it was not 17 official until the board approves it. It has to 18 be presented to the board. 19 Q. (BY MR. LEIMAN) Okay. 20 A. I mean, we had the right to approve it 21 in the initial step. I mean, it's not any 22 different than I'm involved in now. We approve 5877 1 things at our level. It has to go to the board 2 for final approval if it's required to do so. 3 Q. I'm sorry, Mr. Graham. There is no 4 conditional -- 5 A. This is just -- this is just a wrap-up 6 of the damn presentation. It is not God-given 7 cast in concrete. That simply states what 8 happened at that day in general terms. It doesn't 9 have any of the specifics of what were in that 10 agreement, what was approved, and what were the 11 conditions of the approval. That doesn't mean 12 anything without the attachment. 13 Q. Well, maybe we can get to the bottom of 14 this if we look at the attachment, as well. 15 A. Well, it would certainly help. 16 Q. I'm going to show you, Mr. Graham, 17 Exhibit No. T7670. And this is a March 17th, 1986 18 loan committee approval in connection with 19 427 acres in San Antonio for Park 410 property. 20 And my first question to you, 21 Mr. Graham, is: Is this the attachment to which 22 you were referring a few moments ago in 5878 1 connection -- 2 A. Best of my recollection, yes. 3 Q. I'm sorry. Let me finish so that we 4 can try and keep the record -- 5 A. No problem. 6 Q. Okay. Previously, we were referring to 7 Exhibit No. 7667 -- and these are the March 17th, 8 1986 loan committee minutes. And my question to 9 you is whether or not this particular document, 10 T7670, would have been attached to that 11 particular -- those minutes? 12 MR. LEIMAN: Excuse me, Mr. Leiman. I 13 think you misidentified the exhibit. The 14 March 17th, 1986 senior loan committee agenda with 15 its attachment which purports to be the senior 16 loan committee minutes is A1649, I believe. 17 Thank you. 18 THE COURT: Well, the exhibit that I 19 have before me is T7670. So, I don't know how 20 many numbers we want to give each of these 21 exhibits but -- 22 MR. LEIMAN: T7670, I believe, the 5879 1 witness will testify as to what -- as to what that 2 document is. I think it's an attachment. Your 3 Honor -- 4 THE COURT: It wasn't attached to the 5 prior exhibit. 6 MR. LEIMAN: No. You're absolutely 7 correct, Your Honor. It was not attached. And it 8 probably should have been attached, Your Honor. I 9 think the confusion here lies in the fact that 10 there is an A exhibit number which is for the same 11 exhibit. So, 7667 and A1649 are actually the same 12 document. Those are senior loan committee 13 minutes. In any event, T7670 should have been 14 attached to one of those two prior numbers. 15 Q. (BY MR. LEIMAN) And my question to 16 you, Mr. Graham, is whether or not this document, 17 7670, would have been attached to the loan 18 committee minutes? 19 A. It should have been. It's what it's 20 referring to, yes. 21 Q. Okay. Look with me, please, at the 22 next-to-last page here. 5880 1 A. Yes. 2 Q. And if you would, please, identify the 3 signatures on that. 4 A. It's mine, Mr. Williams', Mike Crow, 5 and Jenard Gross. 6 Q. Okay. And the date this was signed is 7 March 17th, '86. Right? 8 A. Correct. 9 Q. And what is the amount of the loan 10 that's been approved by the senior loan committee 11 here? 12 A. 70 million until further approval from 13 the board of directors as per No. 2 on the top of 14 that page. 15 Q. Which page, sir? 16 A. The page you told me to look at with 17 the signatures. It's clear that we approved no 18 more advances than 70 million, which we 19 acknowledge was our limitation within this 20 committee, until subsequent approval was from the 21 directors -- board of directors. 22 Q. So, am I right, then, in thinking that 5881 1 in spite of the fact you were actually considering 2 an 80-million-dollar loan, the committee minutes 3 reflect an 80-million-dollar loan was actually 4 approved -- 5 A. No, it wasn't approved. 6 Q. The way you understand the limitation 7 in the resolution to operate would be that you 8 could fund up to $70 million or approve up to 9 $70 million of a loan that exceeded that amount. 10 Right? 11 A. Well, the loan didn't exceed that 12 amount. If you approve 70 million, that's your 13 loan. It doesn't exceed the amount. By 14 definition, what you approve is your loan. They 15 would have less interest earned. They would have 16 less development funds. They would have to come 17 out and water the pocket. But whatever we 18 approved is the loan amount. 19 Q. If you would, look with me at -- this 20 particular Page 2 is OW012905 under proposed loan. 21 And across from the word "amount:" what does it 22 say? 5882 1 A. It's 80 million if we get the authority 2 from the board of directors. I don't know how 3 more clear this can be. We knew what our 4 limitations were, and we presented it in that 5 manner. 6 Q. Turning to Page 3 of this exhibit under 7 "appraisal," it states here that "Borrowers 8 project sales through 1990 and cash payoffs 9 through 1992. Their projected sales total 10 $123,000,448 with our share of profits projected 11 to be $9.7 million plus or minus." 12 I read that right, didn't I? 13 A. Yes. 14 Q. Okay. Did the developers provide 15 information to the appraiser in connection with 16 sales projections in order for the appraiser to 17 come up with an appraisal figure? 18 A. That's typical, yes. 19 Q. Okay. 20 A. I mean, that's -- I think in all cases 21 the appraiser wants to see the developer's 22 projections, yes. 5883 1 Q. Did that happen in this case? 2 A. I assume it did. 3 Q. Do you have any reason to think that it 4 didn't happen? 5 A. No. 6 Q. Now, it says here in the next sentence 7 that "Edward B. Schulz" -- who is Edward B. 8 Schulz? 9 A. The appraiser that we had hired. 10 Q. United Savings had hired Edward Schulz? 11 A. That's correct. 12 Q. -- "is presently completing a detailed 13 R-41B appraisal which will indicate a present 14 discounted economic value between 86 million, 15 $90 million." 16 How was that information obtained for 17 purposes of putting it into this document? 18 A. I imagine I called him and asked him 19 how far along he was and at what point he could 20 give us a value, and I think he probably told me 21 that with what information he had at the time, it 22 would probably fall in that range. 5884 1 Q. So, as of -- let me see -- March 17th, 2 1986, you did not yet -- not you, but the real 3 estate -- the loan committee did not yet have an 4 R-41B appraisal from Mr. Schulz; is that right? 5 A. Not completed, no. 6 Q. Okay. 7 MR. LEIMAN: Your Honor, I would offer 8 T7670 at this time. 9 MR. DUEFFERT: No objection. 10 THE COURT: Received. 11 Q. (BY MR. LEIMAN) Now, going on here 12 under the subheading of "appraisal," it says on 13 Page 4, "Since the initial loan amount would be 14 $73 million, the proposed advances shall not 15 exceed 80 percent of collateral value." 16 A. Correct. 17 Q. How were you able -- how was the 18 committee able to determine that this loan would 19 be -- would be funded and approved for an initial 20 loan amount of $73 million at this point in time 21 if it hadn't yet gone to the board of directors? 22 A. I guess I'm real confused by that 5885 1 question. I mean, our job was to structure the 2 loan and then present it to the board of 3 directors. I mean, that's all we do. We're 4 structuring the loan. The structure will be 5 approved by the board of directors. It's not 6 their job to go out and negotiate. We negotiate, 7 find the loan, and present it and that's what we 8 did here. So, I'm real confused about what you're 9 trying to get at. 10 Q. Under "special conditions" near the 11 bottom of the page under No. 1, it states that "If 12 Mr. Rosenberg and International Property 13 Investment Company will not agree to the required 14 cross default provision, USAT will agree that 15 their guarantees on this particular loan can be 16 secured by their interest on other projects on 17 which United Savings has the loans"; is that 18 right? 19 A. That's what it says, yes. 20 Q. And that those interests in other 21 projects shall not be accelerated on default but 22 shall continue to secure the guarantees. 5886 1 Now, Mr. Graham, earlier, we looked at 2 what, I believe, were the typical loan provisions 3 or described as the typical loan provisions in an 4 October 1985 offer to Mr. Simpson in connection 5 with the property and that that particular offer 6 of a loan included collateral provisions. Right? 7 A. Yes. 8 Q. My question to you is: Are these 9 conditions different from those typical 10 conditions? Are these -- these are different 11 because they are -- I don't want to -- 12 A. Well, I'm not sure we required, 13 typically, cross-collateralization across default. 14 So, I think this is somewhat unique to this one. 15 And I can't really recall the reasons and the 16 justification or the non-justification of this 17 position. I didn't recall this provision until I 18 saw this, and I don't recall this at all. 19 Q. Were cross default provisions part of 20 special conditions of this loan as it was 21 ultimately approved by the board of directors? 22 A. I don't recall. It was not something I 5887 1 focused on. I don't recall. 2 Q. Looking at the last page of the 3 exhibit, my first question to you is: Do you know 4 who prepared this? 5 A. No, I don't recall. 6 Q. Mr. Graham, when this loan was 7 ultimately put in place -- it was ultimately put 8 in place, right? 9 A. Yes, sir, uh-huh. 10 Q. How much was it put in place for? 11 A. You mean the loan amount? 12 Q. Yeah. What was the total on that? 13 A. I think pretty much what was said here. 14 Q. $80 million? 15 A. What? 16 Q. $80 million ultimately? 17 A. Best of my recollection, yes. 18 Q. Okay. We'll get to some documents, I 19 think, that will help you remember on that one. 20 Do you remember whether or not the -- 21 any of the guarantees that were part of this loan 22 were joint and several guarantees? 5888 1 A. Not without looking at documentation, 2 no. 3 Q. I'd like to show the witness 4 Exhibit T7587 which bears an "A" number of 1113. 5 MR. LEIMAN: Your Honor, these are the 6 minutes of the meeting of the board of directors 7 of United Savings Association of Texas from 8 May 8th, 1986. 9 MR. DUEFFERT: Your Honor, we don't 10 have a copy of the exhibit. 11 MR. LEIMAN: Your Honor, this, as I 12 mentioned a moment ago, this May 8th, 1986 letter 13 which I may have omitted from the pull list 14 Mr. Dueffert has reminded me, I believe bears this 15 A1113 designation which -- is that available to 16 respondents' counsel? Is he obtaining that now? 17 If we could just take a pause. 18 MR. BLANKENSTEIN: Your Honor, we have 19 the document now. Mr. Leiman can proceed now. 20 Thank you. 21 THE COURT: You may proceed, 22 Mr. Leiman. 5889 1 MR. LEIMAN: Thank you for the Court's 2 indulgence. 3 Q. (BY MR. LEIMAN) You have in front of 4 you, Mr. Graham, a copy of the May 8th, 1986 5 minutes of the board of directors of United 6 Savings Association of Texas which bears two 7 identifying numbers: A1113 and T7587. If you 8 would, turn with me, please, to Page 2 of the 9 exhibit. 10 A. Page 2? 11 Q. Yes, sir. 12 A. Okay. 13 Q. And looking at the resolution about 14 three quarters of the way down the page that an 15 investment committee was established, do you have 16 any familiarity with the fact that the persons 17 that are identified there -- Munitz, Gross, 18 Williams, Crow, and others -- were, in fact, 19 constituted an investment committee? 20 A. What's the question again? 21 Q. Whether or not these people were -- do 22 you have any firsthand knowledge -- 5890 1 A. No, no. 2 Q. -- as to whether or not -- 3 A. I never had no involvement with the 4 investment committee. 5 Q. Let's look together, please, at 6 Page No. 5. 7 A. Yes. 8 Q. It states that "On motion by Dr. Munitz 9 and second by Mr. Duckett, the following 10 resolution was adopted with Mr. Winters objecting 11 as to the loan amount and value of the property." 12 It goes on to talk about "Whereas the delegation 13 of loan approval authority to the senior loan 14 committee requires approval by the board of 15 directors for any loan in excess of $70 million 16 and whereas the senior loan committee approved on 17 March 17th, 1986, a loan in the amount of 18 $80 million with the amount in excess of 19 $70 million subject to the approval of the board 20 of directors. It was resolved that the loan in 21 the amount of $80 million to Park 410 West joint 22 venture is hereby approved on the terms and 5891 1 conditions set forth in the senior loan committee 2 approval dated March 17th, 1986." 3 A. That's correct. 4 Q. Is this what you were referring to 5 earlier by way of board of directors' approval? 6 A. Correct. 7 Q. Mr. Graham, were you present -- 8 A. No. 9 Q. Let me finish the question. 10 A. Okay. 11 Q. Were you present at this board of 12 directors meeting? 13 A. No. 14 Q. So, you didn't make a presentation to 15 the board? 16 A. No, I did not. 17 Q. Were you asked to prepare anything in 18 particular for the board of directors' 19 consideration in connection with passage of this 20 resolution? 21 A. I can't recall if I was or not. 22 Q. Do you know Dr. Munitz was on the board 5892 1 of directors of United Savings? 2 A. No. 3 Q. Okay. Do you know what the board of 4 directors would have considered in connection with 5 approving this 80-million-dollar loan apart from 6 what we have previously seen as Exhibit 7670, 7 which is the March 17th, 1986 loan and committee 8 approval of the Park 410 West loan? 9 A. To answer your question, all I know is 10 they approved it. I wasn't privy to the 11 conversations of the board. 12 Q. Did you have an opportunity to discuss 13 with any board members, after the meeting, the 14 approval of the 80-million-dollar loan? 15 A. I had no contact with the board 16 members. 17 Q. Before this loan for $80 million went 18 to the board of directors, did you have any reason 19 to believe that it would not be approved for 20 $80 million? 21 A. I think we always had some doubt or we 22 wouldn't have structured it the way we did it. 5893 1 Q. Did you personally think that -- did 2 you personally have any doubt? 3 A. I can't really recall whether I did or 4 not. I mean, I had never said anything to the 5 board. So, I'm not sure how they would have 6 reacted. 7 Q. Now, Mr. Winters apparently -- did you 8 know who Mr. Winters was? 9 A. Yes. 10 Q. He apparently voted against this loan 11 for the reasons that are set forth in these 12 minutes. 13 Did you have an opportunity to discuss 14 those with Mr. Winters, those reasons? 15 A. I didn't give a damn what Mr. Winters 16 thought. 17 Q. Why is that? 18 A. I didn't like him. He -- I didn't have 19 much respect for him so -- I mean, I didn't know 20 he voted against it until I saw this, until I saw 21 this document. But I could care less what he 22 said. 5894 1 MR. LEIMAN: Your Honor, I would offer 2 T7587/A1113 into evidence. 3 THE COURT: How was that again? 4 MR. LEIMAN: It bears two numbers. I'm 5 not sure which one we're going to use. 6 THE COURT: All right. Any objection? 7 MR. DUEFFERT: No objection, Your 8 Honor. 9 THE COURT: Receive T7587. 10 Q. (BY MR. LEIMAN) You stated a few 11 minutes ago that you didn't care what Mr. Winters' 12 objection -- about his objection. So, I'm not 13 sure if you were relating that to Mr. Winters as a 14 person or whether you didn't respect the fact that 15 he objected to the loan amount -- 16 A. Well, I didn't -- 17 Q. -- in the value of the property? 18 A. I really didn't have much respect for 19 his opinion. 20 Q. Do you believe that it was relevant 21 concern for Mr. Winters to object -- to consider 22 the value of the property and the loan amount? 5895 1 A. He could have his own opinion. I mean, 2 that's the whole point of having voting. But I 3 mean, I just didn't particularly care what -- for 4 his opinion. 5 Q. Do you know if any other members of the 6 board of directors felt the same way? 7 A. No. I have no idea. 8 Q. What about the senior loan committee? 9 Do you know if they felt the same way as you did? 10 A. I know Childress did, yes. 11 Q. Anyone else? 12 A. Not that I recall. 13 Q. If you'll indulge me for a moment, 14 Mr. Graham, I'd like to go back to T7670, please. 15 A. Okay. 16 Q. And ask you about a couple of items 17 here. This is the March 17th, 1986 loan committee 18 approval. And with respect to this loan committee 19 approval, it refers to financing. And under 20 "financing" it talks about an interest reserve of 21 $17,034,308. 22 Do you see that? 5896 1 A. Yes. 2 Q. What is an interest reserve? 3 A. That is a reserve at which to pay 4 interest on a project to carry cost of the 5 financial cost associated with the loan. 6 Q. Who puts up that money? 7 A. We do. 8 Q. Meaning the institution does? 9 A. Yes. It's in the loan. They draw it 10 down as they need it. 11 Q. Meaning the borrowers do? 12 A. Meaning the borrower does. 13 Q. Now, with regard to financing fees, it 14 states here that those fees would be $2.4 million; 15 is that right? 16 A. That's correct. 17 Q. And is that what we were talking about 18 earlier today? 19 A. We talked about a lot of things earlier 20 today. Could you be a little more specific? 21 Q. Yeah. Is that what we're talking -- 22 what we were talking about earlier today with 5897 1 respect to origination fees that would be taken 2 directly into income by the institution? 3 A. Apparently, that would be the 4 origination fee if it's 3 percent, yes. And if we 5 were correct this morning, yes, it would be taken 6 into income. 7 Q. I'd like to ask you about T7595 now, 8 Mr. Graham. 9 A. Is that something I have? 10 Q. I don't think you do. I'm going to get 11 it for you. It bears an "A" number of 1115. 12 MR. LEIMAN: Your Honor, I'd like to 13 offer this exhibit into evidence. I believe it's 14 been stipulated to by respondents' counsel. 15 Am I wrong about that, Mr. Dueffert? 16 MR. DUEFFERT: One moment, Your Honor. 17 Your Honor, we have no objection. 18 THE COURT: Received. Received T7595. 19 Q. (BY MR. LEIMAN) Mr. Graham, if you 20 would, look at the last page of this particular 21 exhibit. Attached to the exhibit is a letter from 22 Wayne C. Winters to Arthur Berner. 5898 1 Do you see that? 2 A. Yes. 3 Q. Do you have any knowledge as to why 4 Mr. Winters resigned other than what is stated 5 here in his resignation letter? 6 A. No. 7 Q. Did you know that he had resigned in 8 October of '86? 9 A. I don't know when he resigned. I knew 10 he left. 11 Q. And you don't know if his resignation 12 had anything to do with -- 13 A. No. 14 Q. -- the approval of loans? 15 A. No. I have no idea. I never had any 16 direct contact with him. 17 MR. LEIMAN: Your Honor, at this point, 18 I'd like to -- we're going to shift gears into 19 another loan and I don't know what the 20 tradition -- having not been in the courtroom as 21 often as I'd like in the past several weeks, I'm 22 not certain what the recess time is. 5899 1 THE COURT: You're going to the Norwood 2 loan? 3 MR. LEIMAN: Yeah. I'm going to move 4 into the Norwood loan. 5 THE COURT: All right. We'll adjourn 6 until 9:30 tomorrow. 7 8 (Whereupon at 4:28 p.m. 9 the proceedings were recessed.) 10 11 12 13 14 15 16 17 18 19 20 21 22 5900 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 29th day of 17 October, 1997. 18 ____________________________ MARCY CLARK, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 4935 Expiration Date: 12-31-97 21 22 5901 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 29th day of 18 October, 1997. 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