1790 1 UNITED STATES OF AMERICA Before the 2 OFFICE OF THRIFT SUPERVISION DEPARTMENT OF THE TREASURY 3 In the Matter of: ) 4 ) UNITED SAVING 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 TRIAL PROCEEDINGS FOR 10-6-97 21 22 1791 1 A-P-P-E-A-R-A-N-C-E-S 2 ON BEHALF OF THE AGENCY: 3 KENNETH J. GUIDO, Esquire Special Enforcement Counsel 4 BRUCE RINALDI, Esquire RICHARD STEARNS, Esquire 5 and BRYAN VEIS, Esquire of: Office of Thrift Supervision 6 Department of the Treasury 1700 G Street, N.W. 7 Washington, D.C. 20552 (202) 906-7395 8 ON BEHALF OF RESPONDENT MAXXAM, INC.: 9 FRANK J. EISENHART, Esquire 10 of: Dechert, Price & Rhoads 1500 K Street, N.W. 11 Washington, D.C. 20005-1208 (202) 626-3306 16 12 DALE A. HEAD (in-house) 13 Managing Counsel MAXXAM, Inc. 14 5847 San Felipe, Suite 2600 Houston, Texas 77057 15 (713) 267-3668 16 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO. AND CHARLES HURWITZ: 17 RICHARD P. KEETON, Esquire 18 of: Mayor, Day, Caldwell & Keeton 1900 NationsBank Center, 700 Louisiana 19 Houston, Texas 77002 (713) 225-7013 3 20 21 22 1792 1 ON BEHALF OF RESPONDENT FEDERATED DEVELOPMENT CO., CHARLES HURWITZ, AND MAXXAM, INC.: 2 JACKS C. NICKENS, Esquire 3 of: Clements, O'Neill, Pierce & Nickens 1000 Louisiana Street, Suite 1800 4 Houston, Texas 77002 (713) 654-7608 5 ON BEHALF OF JENARD M. GROSS: 6 PAUL BLANKENSTEIN, Esquire 7 MARK A. PERRY, Esquire of: Gibson, Dunn & Crutcher 8 1050 Connecticut Avenue, N.W. Washington, D.C. 20036-5303 9 (202) 955-8500 10 ON BEHALF OF BERNER, CROW, MUNITZ AND HUEBSCH: 11 JOHN K. VILLA, Esquire MARY CLARK, Esquire 12 PAUL DUEFFERT, Esquire of: Williams & Connolly 13 725 Twelfth Street, N.W. Washington, D.C. 20005 14 (202) 434-5000 15 OTS COURT: 16 HONORABLE ARTHUR L. SHIPE Administrative Law Judge 17 Office of Financial Institutions Adjudication 1700 G Street, N.W., 6th Floor 18 Washington, D.C. 20552 Jerry Langdon, Judge Shipe's Clerk 19 (Not present) 20 REPORTED BY: 21 Ms. Marcy Clark, CSR Ms. Shauna Foreman, CSR 22 1793 1 EXAMINATION INDEX 2 C.E. BENTLEY 3 Cross-Examination by Mr. Nickens.........1814 4 Cross-Examination by Mr. Keeton..........2018 5 Redirect-Examination by Mr. Guido........2023 6 Recross-Examination by Mr. Nickens.......2051 7 Recross-Examination by Mr. Keeton........2053 8 Recross-Examination by Mr. Eisenhart.....2054 9 10 11 12 13 14 15 16 17 18 19 20 21 22 1794 1 P-R-O-C-E-E-D-I-N-G-S 2 (10:24 a.m.) 3 THE COURT: The hearing will come to 4 order. I believe at the conclusion of proceedings 5 on Thursday, the direct examination of Mr. Bentley 6 was completed and we are going to cross. 7 MR. NICKENS: Yes, Your Honor. We're 8 prepared to do that. 9 MR. GUIDO: We have one preliminary 10 matter as I pointed out to the Court with regard 11 to the protective order on the MAXXAM/MCO 12 shareholder list, Your Honor. Mr. Veis would like 13 to address the Court on that. 14 MR. VEIS: Good morning, Your Honor. 15 THE COURT: Good morning, Mr. Veis. 16 MR. VEIS: Your Honor, the parties seem 17 to have reached an impasse in our attempt to 18 negotiate a protective order and, essentially, it 19 comes down to this. Federated and MAXXAM wish not 20 to give copies to the government. They wish 21 instead that the government inspect the documents 22 in the offices of their attorneys or some of other 1795 1 place that would be mutually convenient. 2 At this point, we are in the middle of 3 the trial. Persons on our trial team have 4 significant additional responsibilities and we 5 simply don't have the time and resources to put 6 people in some office to review documents for an 7 extended period of time. It's for that reason we 8 feel it's imperative that we have a copy of these 9 documents so we can review them at leisure because 10 the review will have to be conducted in something 11 of a piecemeal fashion. 12 As a justification for their position, 13 I have been told by counsel that they fear that 14 these documents will be shared with the FDIC and 15 that the FDIC may well pass them on to others not 16 related to this litigation. I believe there are 17 other arguments that they have raised, as well. 18 But essentially, I think it boils down to their 19 view that the government cannot be relied upon to 20 keep these documents confidential. I don't 21 believe that position is justified. 22 In an effort to maintain the 1796 1 confidentiality of these documents, we have 2 provided a draft protective order to the other 3 side which we believe addresses every conceivable 4 concern. It limits the persons to whom the lists 5 may be shown. It limits the circumstances under 6 which the lists may be shown to them. It requires 7 that persons given access sign an agreement 8 acknowledging that the documents are confidential 9 and agreeing not to disclose them. It provides 10 that if the documents are subpoenaed by any 11 government agency, that the parties affected will 12 be given notice so that they may take some action 13 to protect their interests. 14 In an effort to resolve the impasse, we 15 have determined that while there is a sharing 16 agreement between various banking agencies 17 including the FDIC and the OTS, we are willing to 18 agree that we will not turn those documents over 19 to the FDIC pursuant to the sharing agreement in a 20 specific effort to address what has been 21 identified to me as one particular concern. We 22 would, as provided in the text of the protective 1797 1 order which I would like to hand up to Your Honor 2 for consideration, certainly provide notice of any 3 subpoena from the FDIC or any other government 4 agency or grand jury so that they may take such 5 action as they find necessary. 6 Finally, Your Honor, these documents, 7 the newest of them pursuant to Your Honor's order 8 are nine years old and I suggest the sensitivity 9 is somewhat diminished by that fact, as well. 10 These are not current shareholders lists because 11 Your Honor ruled that December 31, 1988, would be 12 the cutoff date. 13 I believe probably Mr. Eisenhart has a 14 response, and I would hand up for Your Honor's 15 consideration the original and a copy of the 16 protective order. Mr. Eisenhart has been provided 17 a copy in a draft form and I will provide him a 18 copy of the precise form this morning. Thank you. 19 THE COURT: Mr. Eisenhart. 20 MR. EISENHART: Thank you, Your Honor. 21 This issue affects both MAXXAM and Federated, and 22 I will speak on behalf of both on this issue. On 1798 1 October 2, which I believe was last Thursday, both 2 counsel for MAXXAM and counsel for Federated wrote 3 to OTS, said the shareholder lists are available. 4 They can be inspected, in the case of the MAXXAM 5 list, either at Dechert, Price & Rhodes offices in 6 Washington. That was on the inspection that most 7 lawyers were in Washington at that point. Or if 8 they wished, at the offices we're using down here 9 which are at 700 Louisiana directly across the 10 street from this courthouse by whomever you wish 11 from OTS on whatever schedule you choose. 12 Federated made a similar offer to 13 produce them at the offices of Mayor, Day which 14 are at 700 Louisiana right across the street from 15 the courthouse. These lists present enormous 16 issues of sensitivity. As Your Honor knows, I'm 17 sure, MAXXAM has had a history over the years of 18 disputes with environmentalists because of Pacific 19 Lumber's holding of redwood trees. One of those 20 environmentalists, Jill Ratner, has been in the 21 courtroom. She was here for virtually the whole 22 week of the trial. I'm told she's purchased a 1799 1 copy of the trial transcript. Ms. Ratner is a 2 MAXXAM shareholder. She has presented shareholder 3 initiatives and has sought frequently over the 4 years to lobby other MAXXAM shareholders on issues 5 relating to environmental concerns. One -- if one 6 looks at the FDIC privileged log, it is replete 7 with references to Ms. Ratner. They share 8 information. She has shared information with the 9 FDIC. The FDIC has shared information with her. 10 She has published newsletters. There are web 11 sites. Information on those clearly comes from 12 documents that are part of this litigation and it 13 is clear that these groups have access to 14 information that's provided in this litigation. 15 I make no charges against my colleagues 16 from OTS. I don't know if they give information 17 to them. I have no reason to believe that they 18 do. I have every reason to believe that the FDIC 19 does because it's right there in their privileged 20 log. 21 The fact is that even though these 22 lists may be, as Mr. Veis points out, nine years 1800 1 old, they are still enormously sensitive. MAXXAM 2 is not a volatile stock although it's publicly 3 traded. The ownership doesn't change all that 4 much. These lists still contain information that 5 would be of use to a dissident shareholder like 6 Ms. Ratner and to other dissident shareholders. 7 We think we made every effort to be 8 accommodating to them. We have said, "You may 9 come over. You may look at them on whatever 10 schedule you like. Tell us which pages you want. 11 Tell us what references on those pages are of 12 interest to you. We will copy the pages. We will 13 delete the other material and we will give you all 14 the pages containing all the references that you 15 think are somehow relevant to this case." That's 16 the offer that we made to them from the beginning. 17 That's the specific offer we made to them on 18 October 2nd, and that's the offer that is 19 contemplated in the protective order that I will 20 hand up to Your Honor on behalf of MAXXAM. 21 For some reason, on this particular 22 copy, I notice Federated has been deleted, but I 1801 1 know that Federated is amenable to the same 2 protective order. The only additional change on 3 behalf of Federated is their counsel doesn't have 4 a Washington office. They would only produce 5 their documents here. I'm not unsympathetic to 6 what Mr. Veis says in terms of them being very 7 busy in the middle of trying a case. However, I 8 would observe that when you seek to reopen 9 discovery on the first day of trial as they did 10 with respect to this particular group of 11 documents, you certainly run the risk that you're 12 going to be inconvenienced somewhat in your trial 13 preparations and I don't think that is a ground 14 sufficient to overcome the legitimate concerns 15 that MAXXAM and Federated have about the security 16 of these documents. 17 So, I don't think there is an issue 18 here except with respect to the mechanics of the 19 production. We are perfectly willing to produce 20 these documents for inspection which is, after 21 all, what the discovery rules envision and 22 require. We are simply not willing to allow them 1802 1 to walk away with material that is extremely 2 sensitive and is not on its face clearly relevant 3 to the issues in this case. We will give them the 4 relevant material, but we don't want to give them 5 the shareholder lists. 6 Your Honor, I'll hand up two copies of 7 the proposed protective order and, as I say, we 8 could submit a similar order or we could have it 9 prepared over the lunch break and submit it to you 10 this afternoon with respect to Federated. 11 THE COURT: You don't think that the 12 government's proposed protective order meets your 13 concerns? 14 MR. EISENHART: I don't really think it 15 does, Your Honor. Up until this morning, their 16 proposal would not have restricted their ability 17 to provide it to the FDIC. Now, Mr. Veis granted 18 has changed his position this morning and has said 19 that they would be willing to live with this 20 additional agreement that they would not routinely 21 give it to the FDIC under their sharing agreement. 22 I have heard no indication that the FDIC agrees 1803 1 with this position. We know, because we've seen 2 the sharing agreement, that the FDIC is footing 3 most of the cost of this proceeding. The FDIC has 4 considerable leverage under that agreement. I 5 have no way of knowing, frankly, that that 6 document is going to be -- is going to remain 7 secure. The FDIC has a parallel proceeding going. 8 They have subpoena power in that proceeding. I 9 don't know that they wouldn't turn around and 10 subpoena these lists. And, as I say, I don't know 11 what the source of all these leaks are. I'm not 12 accusing my colleagues of leaking material, but 13 the fact is material has leaked. And I don't 14 believe we can trust that these lists will remain 15 confidential under the proposal that they have 16 made to us. 17 MR. HEAD: I'm sorry, Your Honor. My 18 name is Dale Head. I'm in-house counsel for 19 MAXXAM. We are also very concerned about the 20 shareholders themselves and about their privacy. 21 In the past when shareholders' names have leaked 22 out, shareholders have been called. We've had 1804 1 them call us and complain that they have been 2 harassed not by the OTS but by this dissident 3 shareholder who on the first day of trial and 4 during the first week of trial was meeting with 5 the OTS. I observed them exchanging some 6 documents. I don't know. That was probably 7 legitimate but -- 8 MR. GUIDO: Your Honor, I object to 9 that. 10 MR. HEAD: It does feed our fear. Our 11 fear may be unfounded. It may be well founded. I 12 don't know. But the only way to ensure that this 13 information is not leaked out is to go about it in 14 the procedure that we have. We've scurried about 15 to pull this information together on very late 16 notice. I know your order even apologizes for the 17 untimeliness of it, but go ahead and do it and 18 we've done that. 19 We've tried to meet them in every way 20 we can. 24 hours a day we'll make the list 21 available to them. We just don't find any other 22 way to absolutely ensure that it doesn't leak out 1805 1 other than to control that information and we're 2 trying to be as cooperative as we can. That's why 3 we sent the information to Washington and the 4 invitation to meet them any time anyplace to do 5 this just so the integrity of the list can be 6 maintained and the protection of the shareholders 7 can be maintained. And, unfortunately, we have 8 not been able to come to agreement on that. 9 MR. GRIFFITH: I'd like to add -- 10 MR. GUIDO: Before Mr. Veis addresses 11 the Court with regard to the specifics, I think 12 that the Court should require the respondents to 13 produce evidence that there have been any leaks 14 from this proceeding. I know of no leaks and I 15 think that this is all an attempt to create a 16 fabricated issue. And I resent the fact that 17 there is a statement that anyone from the OTS has 18 shared any information with dissident shareholders 19 because it is not true, Your Honor. And I think 20 that what's happening here is that these people 21 are trying to impede the OTS from doing its duty 22 pursuant to a protective order which is almost 1806 1 identical to one that they entered into in the 2 parallel proceeding and we believe that we are 3 entitled to it and we believe we are entitled to 4 do it that way and we believe that this claim 5 about leaks and about sharing of information is 6 not true, Your Honor. And they should be required 7 to demonstrate that anything like that has 8 happened because I don't think it has, Your Honor. 9 MR. HEAD: I didn't mean to level a 10 charge against them. I thought when I said it, 11 Your Honor, I said I didn't know what they were 12 talking about. I know they did talk to Jill 13 Ratner. I did see an envelope passed. I also saw 14 them talk to Kirk Boyd who has brought a parallel 15 proceeding against the company. He was also at 16 the trial at the beginning. They were discussing 17 these -- they were discussing something with him. 18 I don't know what. Perhaps it was perfectly 19 legitimate and that's not the issue. The issue is 20 we have this concern. We do believe it's well 21 founded. Whether it's well founded or not, the 22 procedure that we've proposed ensures the 1807 1 integrity of the list, ensures the privacy of the 2 shareholders. We'll do it as quickly as they want 3 to. 4 MR. GRIFFITH: Your Honor, I just have 5 one point. 6 THE COURT: Would you identify 7 yourself? 8 MR. GRIFFITH: David Griffith for 9 Federated, Your Honor. We have already and we 10 will continue to supply them information from our 11 shareholder list of any shareholder that they 12 identify. They don't have to come over and look 13 to find these people. When they say give us -- 14 "give every reference to Drexel," we give them 15 that. "We have information that ML Associates is 16 Drexel related. Give us everything on them." 17 We've done that and we'll continue to do that. 18 The only thing we're talking about is to be able 19 to check to make sure, I guess, that we're giving 20 them the information that they are asking for or 21 they have yet to identify who they may be 22 interested in so they just want to see the entire 1808 1 list. 2 What we're talking about here is a 3 fishing expedition into our shareholders list. 4 We'll give them any information that they say is 5 relevant without them coming over to anybody's 6 offices and without seeing the entire shareholders 7 list. That doesn't require any time on their 8 part. It requires time on our part but none on 9 theirs. "David, I need information concerning 10 this entity, this person," and we'll find it for 11 them and we'll give it to them. 12 THE COURT: All right. I'll look at 13 the respective protective orders and see if I can 14 enter into something. 15 MR. EISENHART: Thank you, Your Honor. 16 MR. VEIS: Thank you, Your Honor. 17 MR. NICKENS: Your Honor, Mr. Bentley 18 is here. If we could ask him to come up and 19 assume his place. 20 MR. GUIDO: Your Honor, can we have a 21 clarification? Mr. Williams is the next witness 22 to come on the stand and the question is when this 1809 1 cross-examination might be finished so we can give 2 him notice of when he's likely to be called. If 3 Mr. Nickens has an estimate, I'd like to know 4 that. 5 MR. NICKENS: Your Honor, I have 6 informed Mr. Guido and the OTS before that I 7 thought I would take all day with the examination 8 of Mr. Bentley. Now, when we broke on Wednesday, 9 I had told them that I thought it would be half a 10 day. But in going through the documents and the 11 other things over the weekend, I called yesterday 12 and said that I thought it would be longer than 13 that. That is my current expectation. Of course, 14 we are -- like all of these things, it's a little 15 bit slower, particularly given our new move. But 16 I still believe that I will be able to finish 17 today, but I believe it will take all day. 18 THE COURT: Are you the only counsel 19 cross-examining? 20 MR. NICKENS: I certainly will be 21 asking -- the only thing -- the answer to that is 22 yes, Your Honor, with the exception that the -- if 1810 1 I happen to raise some issue that is particular to 2 one of the respondents, then they might have a 3 question or two, but there is no plan for anyone 4 to examine Mr. Bentley other than myself. 5 MR. KEETON: Or if he fails to ask a 6 question that I was going to ask. 7 MR. NICKENS: Well, given the fact that 8 I said I'll take all day, hopefully I won't 9 overlook questions. 10 MR. GUIDO: Your Honor, I'd like 11 another clarification to time frame. And that is, 12 does counsel for the respondents anticipate going 13 beyond cross-examination of this witness about 14 what he testified the first day or is he going 15 into new matters? 16 MR. NICKENS: Your Honor, I am planning 17 to ask Mr. Bentley everything we planned to ask 18 Mr. Bentley but I don't believe that any of it is 19 new subject. So, without agreeing that we should 20 be limited, given the fact that this man has 21 already come back once, that he should be subject 22 to being brought back again -- and we've addressed 1811 1 this issue before, but I will say to the Court 2 that I don't believe there is any subject matter 3 that I have here that was not addressed in one 4 form or another by the opening testimony. 5 THE COURT: Are you suggesting that it 6 be confined to -- 7 MR. GUIDO: Your Honor, yes, I am. And 8 it may not come up with this witness but given 9 that over the weekend I heard talk about extending 10 this beyond the half a day that was originally 11 scheduled, I felt that there was a good chance it 12 would. I have a feeling with the next few 13 witnesses that issue will come up and I wanted to 14 make sure that the Court was aware of that issue 15 and that I will be making objections with this 16 witness if it does go beyond the scope of 17 cross-examination. 18 MR. KEETON: Your Honor, we have had at 19 least three examples with three different 20 witnesses where, on redirect, the OTS has gone 21 into matters neither covered in direct or cross. 22 Your Honor permitted that. We ought to try to get 1812 1 witnesses on here once. I have no knowledge of 2 what Mr. Nickens is going to ask. But for 3 Mr. Guido to stand up here now and say let's put 4 us in a box when they have not been would be 5 incorrect and improper. 6 MR. GUIDO: Your Honor, I don't know of 7 any instance where that has occurred, but I have 8 not been here during the entire proceeding and we 9 do -- and Mr. Nickens and I have had discussions 10 about trying to accommodate the witness's 11 schedules and we will try and do that but we don't 12 agree that the respondents' portion of the case 13 can be tried in the middle of the OTS's portion of 14 the case. 15 THE COURT: Well, I ordinarily like to 16 only bring a witness once and if I can do so 17 without prejudicing anybody, I'll do it. I just 18 would rather complete a witness at some risk of 19 exceeding, say, the scope of the direct on cross. 20 MR. GUIDO: If that is the case, Your 21 Honor, I mean, part of the problem is just getting 22 things clear so that we can schedule witnesses. 1813 1 If that is your ruling, Your Honor, I would like 2 to have it made clear when the respondents are 3 moving beyond cross-examination and into their 4 portion of the case there may be objections about 5 leading questions at that point in time, Your 6 Honor. 7 THE COURT: Well, I think that's up to 8 you. 9 MR. GUIDO: Okay, Your Honor. 10 THE COURT: Is he supposed to tell you 11 when he's going beyond the scope of redirect? 12 MR. GUIDO: We will object, Your Honor. 13 MR. NICKENS: Thank you, Your Honor. 14 Initially, Your Honor, I might explain. Your 15 Honor, both as an explanation to yourself and to 16 the witness and to everybody else, I have 17 identified those documents that I thought I might 18 ask him some questions about and as to those that 19 have not been previously received, Your Honor, 20 they have been put in a binder which is at the 21 witness's left which I have just handed to you. 22 The order of that binder, Your Honor, is in -- 1814 1 they are divided into A and B documents and they 2 are then in numerical order. I believe there is 3 one T document but they are in numerical order 4 divided between A and B. With regard to the 5 documents that have already been received, the 6 witness has those by tab number to his left and we 7 will supply those to him as we come to them. 8 And, Your Honor, I believe you have 9 been supplied them supplied by tab number. I will 10 try to identify them both by the original number 11 and by the tab number as we come to them. But 12 that is the organization of the documents so that 13 we can find those for everybody. 14 15 CROSS-EXAMINATION 16 17 (10:45 a.m.) 18 Q. (BY MR. NICKENS) Mr. Bentley? 19 A. Yes, sir. 20 Q. How are you doing this morning? 21 A. Fine. Thank you. 22 Q. We appreciate your coming back. You 1815 1 drove back from Abilene; is that correct? 2 A. I beg your pardon? 3 Q. You drove back from Abilene? 4 A. That's correct. I flew to -- from 5 Dallas to Houston, but I drove from Abilene to 6 Dallas. 7 Q. For the record, I will identify myself 8 as J.C. Nickens and I am the attorney for the 9 respondent MAXXAM. We met for the first time, 10 Mr. Bentley, last week; is that correct? 11 A. That's correct. 12 Q. And you gave us -- you were on the 13 stand last Tuesday and then Wednesday morning, 14 correct? 15 A. I believe that's correct. 16 Q. And for something less than an hour, 17 you met with Mr. Leibold and myself on Monday 18 evening, correct? 19 A. That is correct. 20 Q. And then you had a meeting thereafter 21 with Mr. Guido? 22 A. That's correct. 1816 1 Q. And that's the first time and the only 2 time that you and I have ever discussed any of the 3 issues in the case? 4 A. That is correct. 5 Q. Now, let me, if you will, take you back 6 some 15 years ago plus to the time period of the 7 early part of 1982. At that point in time, what 8 were your plans with regard to retirement? 9 A. I had semi-retired at that point. I 10 intended to fully retire at age 65. 11 Q. And in anticipation of retirement, had 12 you identified a replacement? 13 A. There was a search for a replacement, 14 and we visited with four or five prospects. As it 15 turned out, James A. Coles was the man with whom 16 we were able to make a deal. 17 Q. And so, prior to January, 1982, you had 18 recruited Mr. Coles basically as a replacement for 19 yourself? 20 A. That's correct. 21 Q. Now, prior to December of 1981, who 22 owned UFG? 1817 1 A. For a period of about a year and a 2 half, it was owned by Kaneb Services. 3 Q. Ask then in December of 1981, Kaneb 4 spun off the stock of UFG to Kaneb shareholders? 5 A. That's correct. 6 Q. And even before that spinoff actually 7 occurred, did you begin to get offers to buy USAT? 8 A. I can only recall one specific offer, 9 and it was a tentative situation. 10 Q. And was that -- do you recall the name 11 Daniel Ludwig? 12 A. Yes, that's correct. 13 Q. And who was Mr. Ludwig? 14 A. Mr. Ludwig owned -- he or his -- I've 15 forgotten whether it was individually or through a 16 company, but it seems to me he owned two or three 17 associations, one in Houston which was, as I 18 recall, Home Savings. 19 Q. And was there an agreement reached with 20 Mr. Ludwig for the sale of USAT to him? 21 A. I don't recall whether it was an 22 agreement. It might have been more in the form of 1818 1 a letter of intent of some sort. 2 Q. Let met ask you, if you would, 3 Mr. Bentley, to look at Exhibit A2062 which we 4 have identified under Tab 37 and it's directly in 5 front of you. It has already been received. 6 Mr. Bentley, I believe it's under your right 7 elbow. 8 A. Yes. Okay. 9 Q. And Tab 37 is a series of 13Ds and I'm 10 going to be asking you only about Amendment No. 1 11 which is -- 12 THE COURT: Would you repeat that 13 number, please? 14 MR. NICKENS: Your Honor, it is Tab 37, 15 Exhibit 2062. Excuse me. A2062. And, Your 16 Honor, that is -- it's Amendment No. 1 which I 17 believe should be the second document in that 18 group. 19 Q. (BY MR. NICKENS) Now, Mr. Bentley, if 20 I might, if you'll turn over to the last page of 21 that document, do you see that document? It's on 22 Page 13. 1819 1 A. Yes. 2 Q. And that appears to be a report of an 3 article in the 1982 American Banker of January 27, 4 1982? 5 A. Yes. 6 Q. And if you would, just read along with 7 me there on what the body of that first says. 8 "United Financial Group here said its board has 9 approved the sale of a savings and loan 10 association and two other subsidiaries to investor 11 Daniel K. Ludwig for a cash payment of 12 $47 million." 13 Now, is that consistent with your 14 recollection of the events as reported there in 15 January 27? 16 A. I do not recall it being actually a 17 formal agreement. This appears to be a subject or 18 negotiation of a definitive agreement. 19 Q. Yes, sir. 20 A. I don't recall what kind. 21 Q. I'm sorry. It certainly wasn't final? 22 A. Okay. 1820 1 Q. But there had been an agreement to 2 sell? 3 A. Yes. 4 Q. And if you go on down the page, it also 5 indicates that "United said it also entered into 6 negotiations to sell two other units, Financial 7 Life Insurance Company and Lake Telephone Company 8 in transactions amounting to $2.1 million." 9 Do you see that? 10 A. Yes, I do. 11 Q. And was that an accurate report? 12 A. I believe so. 13 Q. And it indicates that -- just below 14 that paragraph, "Terms of the Ludwig offer also 15 provide that United receive an ownership interest 16 in certain real estate joint ventures. The board 17 has not yet determined the appropriate disposition 18 of the cash proceeds of these various transactions 19 and its real estate interests." 20 Now, was that consistent with your 21 recollection -- 22 A. Yes. 1821 1 Q. -- of these events? 2 A. Yes. 3 Q. And then it was finally indicated that 4 United said the transaction expected to take seven 5 to nine months to complete? 6 A. Yes. 7 Q. Now, when Mr. Hurwitz approached you, 8 the Ludwig sale was still pending, was it not? 9 A. I really do not recall. It would 10 logically seem that way from the time element. 11 Q. And pursuant to that, USAT was to be 12 sold to Mr. Ludwig, right? 13 A. That's correct. 14 Q. And so, Mr. Hurwitz during that time 15 period never indicated to you any intent to 16 control USAT because it was going to be sold, 17 right? 18 A. I expect that's correct. 19 Q. Now, if you -- and, in fact, if you 20 look at exhibit or Tab 37, Page 5 -- it's the same 21 one, Mr. Bentley. It's just Page 5. And if you 22 look at that bottom paragraph that starts out 1822 1 FedRe, then the second sentence reads "Management 2 of the company has announced its approval and 3 principal of a sale to an unaffiliated third party 4 of the company's entire subsidiary savings and 5 loan operation, the subsidiary. In 6 mid-February 1982, a representative of FedRe met 7 with representatives of the company and indicated 8 that FedRe supports management's declared 9 intention to dispose of the subsidiary." 10 Now, does that refresh your 11 recollection that Mr. Hurwitz told you in those 12 initial meetings that they supported the 13 disposition of USAT? 14 A. I presume so. I do not recall it 15 specifically but this certainly would indicate 16 that was the case. 17 Q. Now, what happened to the Ludwig 18 transaction? 19 A. As I recall, on due diligence, Ludwig's 20 attorney became concerned with the exposure that 21 USAT might have regarding the receiver penalties 22 that it might be exposed to in connection with 1823 1 usury law violations. 2 Q. And so, the -- 3 A. That seems to me -- it's been a long 4 time and I believe that was the objection that 5 they had and the reason for the withdrawal 6 possibly of the offer. 7 Q. But the deal fell through? 8 A. That's correct. 9 Q. Now, let me ask you to look over -- and 10 this will be in the binder -- at Document A-12013. 11 That will be over there toward the end of the A 12 binder. 13 MR. NICKENS: Your Honor, I will -- 14 there you go. Although the documents are not 15 tabbed, they are divided by these blue sheets and 16 the document is about three-quarters of the way 17 through the binder. It's A-12013. 18 MR. GUIDO: Is this a document that has 19 been introduced or has not? 20 MR. NICKENS: It has not. It's 12,000. 21 MR. GUIDO: The board minutes, 22 January 13th, '82? 1824 1 MR. NICKENS: That's correct. 2 Q. (BY MR. NICKENS) Now, do you have in 3 front of you, Mr. Bentley, Document A-12013? 4 A. Correct. 5 Q. Which is identified as the minutes of 6 the board of directors of United Financial Group 7 of January 13th, 1982? 8 A. Yes. 9 MR. NICKENS: Your Honor, we offer 10 Exhibit A-12013. 11 MR. GUIDO: No objection, Your Honor. 12 THE COURT: Received. 13 Q. (BY MR. NICKENS) Now, Mr. Bentley, so 14 we can read this together and so that the Court -- 15 we can provided this information to the Court, if 16 you can just read along with me. This was the 17 board meeting and the minutes, official minutes of 18 January 13th, correct? 19 A. Correct. 20 Q. And it's signed by you and Mr. Pledger? 21 A. That's correct. 22 Q. And looking at the third paragraph, 1825 1 "Mr. Coles stated that in late November, he met 2 with Mr. Done Louis, president of Home Savings in 3 Houston, who expressed an interest on the part of 4 Mr. Daniel K. Ludwig in acquiring United Savings. 5 Mr. Coles stated that after such a -- that such a 6 discussion would have to take place after the 7 distribution." 8 Now, was that a reference to the 9 distribution to the Kaneb shareholders? 10 A. Yes, that's correct. 11 Q. "After the distribution, Mr. Coles met 12 with representatives of Ludwig who expressed 13 Mr. Ludwig's interest in S&Ls and specifically 14 United." Then it goes on to indicate that on 15 December 30th, 1981, the executive committee met 16 with representatives of Warburg Paribas & Becker 17 and Fulbright and Jaworski to review the duties 18 and responsibilities of directors in the event 19 that an offer was made. 20 Do you see that? 21 A. Yes. 22 Q. Now, that was the executive committee 1826 1 of UFG? 2 A. Yes, it would be. 3 Q. And why did you not -- why didn't the 4 entire board meet with these representatives? 5 A. I do not recall. 6 Q. Did you think it -- there was anything 7 inappropriate or wrong with having the executive 8 committee meet with these representatives to 9 discuss the sales terms or to discuss what is 10 indicated here? 11 A. No. As a general rule, this type of 12 action taken by the executive committee would be 13 expected to be ratified by the board but, no, we 14 didn't think there was anything wrong at this 15 point. 16 Q. And then it indicates that Mr. Coles 17 met again on January 6th with representatives of 18 Ludwig interest and Morgan Stanley to discuss the 19 Ludwig operations. And it says at this meeting, 20 it became clear that Ludwig was seriously 21 interested in acquiring United. 22 Do you see that? 1827 1 A. Yes. 2 THE COURT: Mr. Nickens, I hate to 3 disrupt your flow but I haven't been able to find 4 the exhibit. 5 MR. NICKENS: Your Honor, let me see if 6 I can help. I apologize. Your Honor, it's 7 certainly not where it should be. Let me see if 8 we can get another -- here's another set. It 9 wasn't in that set. I apologize. 10 Q. (BY MR. NICKENS) Okay. Mr. Bentley, 11 we had read the first three paragraphs of Exhibit 12 A-12013 and we were at the fourth paragraph which 13 indicates that you got a formal letter offer on 14 January 12th, 1982, correct? 15 A. Correct. 16 Q. And you made a press release? 17 A. Correct. 18 Q. Now, let me bring your attention to the 19 second page of Exhibit 12013 at the end of the 20 first paragraph. You got an estimate of the 21 liquidation value of the offer. Right? 22 A. Yes. 1828 1 Q. And that was approximately $6.45 per 2 share not including the value placed on the 3 Randolwood property? 4 A. Right. 5 Q. Now, was $6.45 less than what the stock 6 was trading at or greater? 7 A. I do not recall. I expect it's in 8 excess, but I don't know. 9 Q. In other words, the liquidation value 10 of the company after this transaction was going to 11 be substantially in excess of its current trading 12 value? 13 A. I believe that would be true. 14 Q. And that wasn't even counting the real 15 estate? 16 A. That's correct. 17 Q. Now, let me ask you to look over at the 18 third page and see at the very bottom there 19 whether it refreshes your recollection that on 20 January 18th, the board approved the Ludwig 21 proposal. 22 A. That's correct. 1829 1 Q. And that was after a considerable bit 2 of discussion? 3 A. It would appear so, yes. 4 Q. Some of your board members thought that 5 the price was too low and that you ought to try to 6 negotiate a higher price. Right? 7 A. That's what it appears. 8 Q. And others expressed concern about the 9 fact that savings and loans were doing so poorly 10 in that time frame that Mr. Ludwig might go buy 11 some other association. Right? 12 A. Yes. 13 Q. Now, let me ask you then -- and I 14 apologize for this, Mr. Bentley -- to look over to 15 Exhibit A1680, and it's going to be substantially 16 over here in your book. 17 MR. GUIDO: Is this document the United 18 Financial Group's minutes of February 26, 1982? 19 MR. NICKENS: It is. Although it does 20 not appear to be in the witness's binder. 21 Q. (BY MR. NICKENS) Let me hand you, 22 Mr. Bentley, Document A1680. And does that appear 1830 1 to be the minutes of the board of directors of UFG 2 of February 26th, 1982? 3 A. Yes. 4 MR. NICKENS: We offer, Your Honor, 5 A1680. 6 MR. GUIDO: No objection, Your Honor. 7 THE COURT: Received. 8 Q. (BY MR. NICKENS) Now, let me ask you 9 to look over to Page 2 of Document A1680, 10 Mr. Bentley. Do you see a reference there in the 11 third paragraph to a report from the executive 12 compensation committee? 13 A. Yes. 14 Q. And you and Mr. Coles were entitled 15 under the Kaneb compensation plan to certain 16 bonuses? 17 A. Correct. 18 Q. And those bonuses were payable in cash 19 or in stock? 20 A. In cash. 21 Q. Now, it indicated it was pointed out 22 that such sums -- this is the second sentence -- 1831 1 such sums do Messrs. Bentley and Coles should be 2 assured and be payable by UFG. Do you see that? 3 A. Yes. 4 Q. And that was the parent company? 5 A. Yes. 6 Q. And that was to give you some assurance 7 that you were going to get paid. Right? 8 A. That's correct. 9 Q. Did anyone ever indicate to you that 10 there was something wrong with that arrangement? 11 A. I don't recall. 12 Q. And it goes on to further indicate that 13 you had had a meeting with Mr. Hurwitz and he had 14 represented that they supported management and 15 that they inquired as to whether the board 16 objected to the acquisition of up to 20 percent of 17 UFG stock. Do you see that? 18 A. Correct. 19 Q. Do you have any reason to believe 20 that's not correct as we sit here today? 21 A. I do not. 22 Q. And then you go on and you indicate 1832 1 that you were going to contact some investment 2 bankers to advise you concerning this offer. 3 Right? 4 A. Yes, that would be correct. 5 Q. And the ones that were identified were 6 Rotan Mosley and Goldman Sachs? 7 A. Right. 8 Q. And then it -- the board authorized 9 Mr. Coles to contact those investment bankers? 10 A. That's correct. 11 Q. Do you believe that happened? 12 A. I do not recall, but I'm sure it did. 13 Q. Now, let me ask you to look over to the 14 very last page and tell us what the closing 15 date -- anticipated closing date for the Ludwig 16 transaction was. 17 A. November 30th, '82. 18 Q. And this was the best information that 19 the board had as of February that the transaction 20 couldn't be closed until November of that year? 21 A. Yes. 22 Q. Now let me ask you, Mr. Bentley, if you 1833 1 can look over to the next document which is A1681. 2 A. Okay. 3 MR. NICKENS: Does everybody's binder 4 have 1681, Your Honor? 5 Q. (BY MR. NICKENS) Do you have 1681 in 6 front of you, Mr. Bentley? 7 A. Yes. 8 Q. This purports to be -- A1681 purports 9 to be the minutes of the board of directors 10 meeting of UFG of March 25, 1982, correct? 11 A. That's correct. 12 MR. NICKENS: We offer Exhibit A1681, 13 Your Honor. 14 MR. GUIDO: No objection. 15 THE COURT: Received. 16 Q. (BY MR. NICKENS) Now, let me ask you 17 to read down to the fourth paragraph, Mr. Bentley. 18 "Mr. Coles read a letter received from Mr. Frank 19 Hess, representative of Mr. Daniel K. Ludwig, 20 withdrawing Mr. Ludwig's offer to purchase United 21 Savings Association of Texas Southwestern Group 22 Agency, Inc. and Group Investors Trust Company 1834 1 dated March 25, 1982. Mr. Coles reported on the 2 status of negotiations with Ludwig's 3 representative since the last board meeting and 4 his meeting with Mr. Hess earlier this same 5 morning where he learned of the withdrawal of the 6 offer." 7 A. Yes. 8 Q. And that documents where the deal fell 9 through, correct? 10 A. Correct. 11 Q. Now, what did the board do in 12 relationship to the withdrawal of this offer? 13 A. Presumably, it passed a resolution 14 authorizing Mr. Coles to resume discussion, 15 investigations, and negotiations to identify 16 potential merger candidates. 17 Q. Now that the Ludwig offer was off the 18 table, the response of the board was to seek 19 merger partners, correct? 20 A. I believe that would be the thrust of 21 the resolution. 22 Q. And was it those efforts that led to 1835 1 the merger of First American Financial? 2 A. Most likely. 3 Q. Now, did any of the respondents have 4 anything to do with that decision to seek merger 5 partners after the Ludwig deal fell through? 6 A. By "respondents," you have reference 7 to? 8 Q. Yes, sir. I'm talking about 9 Mr. Hurwitz, Mr. Munitz, Mr. Gross, Mr. Huebsch, 10 MAXXAM, and the other respondents. 11 A. There was cooperation in connection 12 with the merger from the respondents. 13 Q. Yes, sir. But with regard to the 14 decision to seek a merger and, in fact, to make a 15 merger with American First American Financial, did 16 any of the respondents have anything to do with 17 that? 18 A. Not that I recall. 19 Q. Now, had it been suggested to you by 20 the regulators that you seek merger partners? 21 A. I don't recall that. 22 Q. Let me ask you to look at a document 1836 1 that is at B3756. You've got to go all the way 2 over to the back. And if I can -- if you don't 3 mind my helping. 4 MR. GUIDO: What's that number again? 5 MR. NICKENS: 3756. 6 MR. GUIDO: Doesn't appear to be in my 7 book. 8 Q. (BY MR. NICKENS) Now, do you see 9 there a letter of April 13th addressed to 10 Mr. Coles from W.O. Churchill supervisory agent? 11 A. Yes, I do. 12 MR. NICKENS: And we offer, Your Honor, 13 B3756. 14 MR. GUIDO: No objection, Your Honor. 15 THE COURT: Received. 16 Q. (BY MR. NICKENS) And I know it's been 17 a long time but is the sense of that letter, 18 Mr. Coles, that the supervisory agent for United 19 Savings was suggesting possible merger candidates 20 for United Savings? 21 A. Yes. 22 Q. And -- 1837 1 A. Or inquiring of their interest, I 2 presume. 3 Q. And it indicated in the sort of middle 4 of the second paragraph that a lesser priority 5 will be assigned to those plans which require 6 corporation assistance or involve less than a 7 hundred million dollars in total assets? 8 A. Yes. 9 Q. Indicating that you'd have fewer 10 regulatory problems if you could find someone that 11 wouldn't require assistance and that would be a 12 merger of more than a hundred million dollars? 13 A. Right. 14 Q. Now, Mr. Bentley, I'd like to turn our 15 attention to the issue which was explored in part 16 with you about the board and management of USAT in 17 January of 1982. And for that purpose, I'm going 18 to ask you to look at Exhibit A-3071 -- excuse 19 me -- 3017, which is a very long document. It's a 20 10K. 21 Can you identify that document as UFG's 22 Form 10K for the fiscal year ending December 31, 1838 1 1981? 2 A. Yes. 3 MR. NICKENS: We offer, Your Honor, 4 A-3017. 5 MR. GUIDO: No objection, Your Honor. 6 THE COURT: Received. 7 Q. (BY MR. NICKENS) Mr. Bentley, I'm 8 going to ask you again with this document to look 9 over at Page 44 which also bears the Bates 10 identification number UFG2388. 11 A. Okay. 12 Q. And do you see identified there the 13 board of directors of UFG? 14 A. Yes. 15 Q. And the first two people are 16 Mr. Bentley and yourself and Mr. Coles. Right? 17 A. Correct. 18 Q. And then the next one is Mr. Duckett? 19 A. Yes. 20 Q. Tell the judge who Mr. Duckett was. 21 A. Mr. Duckett was the -- had been the 22 chairman of the board as I recall of an 1839 1 association that we acquired in Wharton County. 2 He was a partner in a law firm -- not in the town 3 of Wharton. I've forgotten the other little town 4 there. 5 Q. El Campo perhaps? 6 A. El Campo. 7 Q. And he had been a substantial owner of 8 that savings and loan? 9 A. I do not recall the percentage of 10 ownership, but I expect so. 11 Q. Let me ask you to look over to Page 47 12 where they report his ownership. And you see 13 there in the paragraph called "transactions with 14 management" the third paragraph refers to 15 Mr. Duckett? 16 A. Yes, I see. 17 Q. And indicates that he was a 20 percent 18 owner of the savings and loan association? 19 A. Yes. 20 Q. And he had been an officer of that 21 association? 22 A. I believe so. 1840 1 Q. And is that how he came to be on the 2 board of UFG? 3 A. That's correct. 4 Q. Did you recruit Mr. Duckett to be on 5 the board of UFG? 6 A. Yes, I likely did. He -- our pattern 7 had always been on an acquisition to permit if it 8 was a cash -- if it was a stock exchange, to 9 permit a representative from the institution 10 acquired to serve on the board. 11 Q. And did any of the respondents have 12 anything to do with that decision -- that is, to 13 recruit Mr. Duckett to be on the board of UFG? 14 A. No. 15 Q. And was Mr. Duckett in your observation 16 a good director? 17 A. Yes, he was a good director. 18 Q. In your observation, did he exercise 19 independent judgment? 20 A. Yes. 21 Q. Now, with regard to the next person on 22 the list, that's Mr. Keltner. Tell the Court who 1841 1 Mr. Keltner is. 2 A. Mr. Keltner was an attorney in Fort 3 Worth, Texas, and had been on the board of Mutual 4 Savings Association acquired by United. And he 5 became the representative of the Fort Worth 6 acquisition on the board of the holding company as 7 well as the association, as I recall. 8 Q. Mr. Keltner's firm was one of the 9 larger firms in Fort Worth? 10 A. That is correct. 11 Q. And United Savings used that firm for 12 some of its legal work? 13 A. Yes. 14 Q. And Mr. Keltner was an outstanding 15 member of the bar of the State of Texas, would you 16 say? 17 A. Yes, I would say that. 18 Q. And was he -- did he in your 19 observation exercise independent judgment in doing 20 his duties as a director? 21 A. Yes. 22 Q. Did you ever know him to not exercise 1842 1 or to do his duty with regard to the exercise of 2 his obligations as a director? 3 A. I've forgotten how you asked the 4 question, but I do not recall his doing anything 5 except fulfilling his fiduciary responsibility. 6 Q. Now, the next person on the list is -- 7 well it, also indicates down below that 8 Mr. Keltner had been a director of Southland 9 Royalty Company. 10 Were you familiar with that company? 11 A. Vaguely, yes. I knew the company. I 12 had forgotten the fact that he was a board member 13 of it. 14 Q. Now, the next person on the list is 15 Mr. LeMaistre, correct? 16 A. That's correct. 17 Q. Sometimes known as Dr. Mickey 18 LeMaistre? 19 A. Correct. 20 Q. Tell the Court about Mr. LeMaistre and 21 his qualifications to be a member of the board of 22 directors of UFG. 1843 1 A. From pure memory, I was thinking 2 possibly that Dr. LeMaistre had been on the board 3 maybe even before the Kaneb acquisition, but I'm 4 not certain of that. In any event, Dr. LeMaistre 5 was invited to the board primarily at the 6 suggestion of Rex Baker, who was an old 7 association of his. And Dr. LeMaistre had been, I 8 believe, president of the University of Texas and 9 was at that time the head of the Anderson cancer 10 facility in Houston. 11 Q. In fact, if you look down at the 12 description for Dr. LeMaistre at the bottom of 13 Page 44, it says "Dr. LeMaistre has been" -- it's 14 at the bottom of Page 44. "Dr. LeMaistre has been 15 president of the University of Texas system cancer 16 center and M.D. Anderson Hospital." 17 Now, are those just -- are those 18 substantial institutions or not? 19 A. Yes. Quite substantial. 20 Q. And the Tumor Institute since August of 21 1978. Prior to that time, he had served as 22 chancellor of the University of Texas system for 1844 1 more than five years? 2 A. Correct. 3 Q. Now, is that something that's just 4 passed out to a guy on the street? 5 A. No, it is not. 6 Q. That's a very important position in the 7 State of Texas, is it not? 8 A. That is correct. 9 Q. It indicates that Dr. LeMaistre serves 10 as director of Houston Natural Gas Corporation. 11 Are you familiar with Houston Natural 12 Gas Corporation? 13 A. Yes, I am. 14 Q. Is that a small entity? 15 A. No. It's a large corporation. 16 Q. And as well as the Houston Chamber of 17 Commerce and the American Cancer Society? 18 A. Correct. 19 Q. Did Mister -- the recruitment of 20 Mr. LeMaistre to the board, did any of the 21 respondents have anything to do with that? 22 A. No. 1845 1 Q. Were you pleased to have a person of 2 his stature on your board? 3 A. Yes. 4 Q. Did he exercise independent judgment, 5 as you observed it, while a member of that board? 6 A. Yes. 7 Q. Did he ever slough off his 8 responsibilities as a member of the board of 9 directors of UFG to your knowledge? 10 A. No. 11 Q. Now, the next person identified is -- 12 and I heard you pronounce this. Is this 13 Mr. Putegnat? 14 A. Putegnat. 15 Q. Putegnat. I'm sorry. Now, who was 16 Mr. Putegnat? 17 A. Mr. Putegnat was a representative of 18 the Brownsville unit acquired by United, a 19 well-respected gentleman, man of the community, 20 and served apparently as president of the Model 21 Laundry and Dry Cleaning Company in Brownsville. 22 Q. And did the respondents have the 1846 1 anything to do with the recruitment of 2 Mr. Putegnat to the board of directors of UFG? 3 A. No, they did not. 4 Q. And were you proud to have this 5 gentleman on your board? 6 A. Yes. 7 Q. And did he exercise his 8 responsibilities as a member of the board during 9 all the time you had an opportunity to observe 10 him? 11 A. Yes. 12 Q. Was he the type of person that 13 exercised independent judgment with regard to the 14 affairs of UFG? 15 A. Yes. 16 Q. Now, the next person identified is 17 Mr. Shoup, correct? 18 A. Correct. 19 Q. And Mr. Shoup was the president and 20 chief operating officer of Kaneb? 21 A. Right, on that date. 22 Q. Right. And he got off -- he retired 1847 1 shortly thereafter, did he not? 2 A. Correct. 3 Q. And he got off the board? 4 A. Yes. 5 Q. Was he forced off the board? 6 A. Oh, he resigned, as I recall, because 7 of a conflict. He had accepted an appointment as 8 a director of First City here in Houston and he 9 couldn't serve on both boards. 10 Q. Now, you mentioned First City. That's 11 First City National Bank of Houston? 12 A. That's correct. 13 Q. And at that point in time, what was the 14 size of that institution? 15 A. It was a large institution, several 16 million dollars. 17 Q. Was it, in fact, the largest bank in 18 the City of Houston? 19 A. It well could have been. 20 Q. Now, the next person identified on your 21 board was Mr. Whatley, correct? 22 A. Yes. 1848 1 Q. Did you know Mr. Whatley personally? 2 A. Yes, I did. 3 Q. Had you recruited him to the board? 4 A. He came on the board as a result of the 5 acquisition by -- the institution by Kaneb in '79. 6 Q. And Mr. Whatley's qualifications are 7 discussed on Page 45 if you could look over there. 8 A. Yes. 9 Q. It says "Prior to becoming chairman of 10 the board of directors and chief executive officer 11 of Kaneb on February 23, 1981, Mr. Whatley had 12 served as vice chairman of the board of directors 13 and chief executive officer of Kaneb since 14 February 23rd, 1979, prior to which he had served 15 as president and chief executive officer of Kaneb 16 for more than the past five years." 17 Now, is Kaneb a small company? 18 A. It was -- along about this time it, had 19 close to a billion-dollar net worth, market value 20 of shares. 21 Q. Now, was Mr. Whatley, in your 22 observation, the type of person that you pushed 1849 1 around? 2 A. No. 3 Q. Was he the type of person that 4 exercised independent judgment? 5 A. Yes. 6 Q. Was he the type of person that in your 7 observation exercised well his responsibilities as 8 a member of the board of directors of UFG? 9 A. Yes. 10 Q. Now, it goes on to say that Mr. Whatley 11 served as the director of Daniel Industries, Inc., 12 Dorchester Gas Corporation, First City National 13 Bank of Houston, and Kaneb. 14 A. Correct. 15 Q. Do you see that? 16 A. Yes. 17 Q. All of those are substantial companies, 18 aren't they? 19 A. Yes. 20 Q. Were you proud to have Mister -- a man 21 of his stature on your board? 22 A. Yes. 1850 1 Q. Now, who put this board together? 2 A. It was done over a normal period -- a 3 number of a period of years, probably the last 4 four or five years it had been put together 5 largely by the principals in the company. 6 Q. That would be you and Mr. Coles? 7 A. That's correct. And before 8 Mr. Coles -- 9 Q. Mr. Baker? 10 A. Mr. Baker had a role. 11 Q. Now, if they were loyal to anybody, 12 they were loyal to you and Mr. Coles and 13 Mr. Baker; isn't that correct? 14 A. That would be correct. 15 Q. Do you know of any ties between these 16 people and the respondents in this case? 17 A. None of a business nature. 18 Q. They might have known -- some of them 19 might have known them socially? 20 A. Yes. Or civically or that sort of 21 thing. 22 Q. Was there any -- to your knowledge, was 1851 1 there anything wrong with these people in the 2 exercise of their responsibilities as members of 3 the board of directors of UFG? 4 A. Not to my knowledge. 5 Q. Now, let me ask you some questions 6 about the management of UFG at this point in time, 7 Mr. Bentley. And for that purpose, if we could 8 look at Page 45. There are six people listed 9 there as the top executive officers of the 10 company. Right? 11 A. Correct. 12 Q. And you and Mr. Coles are first and 13 then Mr. Dawson? 14 A. Yes. 15 Q. Now, tell the Court who Mr. Dawson was. 16 A. Mr. Dawson I would identify as being a 17 highly capable real estate lending officer. He 18 had been with the company since about 1985. 19 Q. 1985 or 1975? 20 A. 1975. I beg your pardon. 21 Q. Yes, sir. And it indicates here in 22 Exhibit 3017 that he served as executive vice 1852 1 president of Southwestern Group Financial 2 Investment Company, the predecessor of United 3 Financial Corporation, a subsidiary of United, 4 correct? 5 A. Yes, that's correct. 6 Q. Now, was Mr. Dawson a person who to 7 your experience exercised his responsibilities in 8 the management of the company? 9 A. Yes. 10 Q. Did you ever know him to be derelict in 11 his duties? 12 A. No. 13 Q. Now, with regard to Mr. Barrett who is 14 next, who was Mr. Barrett? 15 A. He was a senior vice president and 16 controller -- treasurer -- I beg your pardon -- in 17 1980. Apparently we designated him as the chief 18 financial officer. 19 Q. Did you believe Mr. Barrett to be a 20 competent manager? 21 A. Yes. 22 Q. And did ever know him to have been 1853 1 derelict in the exercise of his responsibilities 2 in the management of UFG? 3 A. No. 4 Q. Now, Mr. Trevino is next. Tell the 5 Court who Mr. Trevino was. 6 A. Mr. Trevino was -- had been the 7 controller of United apparently since January of 8 '78, and then he had served prior to that as 9 controller of a subsidiary company. 10 Q. And was he competent to handle the 11 responsibilities given to him by the board of 12 directors? 13 A. Yes. 14 Q. And did he responsibly exercise those 15 duties as you saw it? 16 A. Yes. 17 Q. Now, next on the list is Mr. Pledger. 18 Tell the Court who Mr. Pledger was. 19 A. He was our general counsel and 20 secretary, had been with the company since January 21 of '81. And prior to that, he had served as an 22 associate general counsel for the National Savings 1854 1 and Loan League in Washington. 2 Q. And prior to that? 3 A. As assistant general counsel to the 4 national league for more than five years prior to 5 that time. 6 Q. And were those -- 7 A. And he currently is commissioner, 8 savings and loan commissioner of the State of 9 Texas. 10 Q. So, he is currently the savings and 11 loan commissioner for the State of Texas? 12 A. That's correct. 13 Q. And he served as your general counsel 14 and treasurer -- excuse me -- and secretary, 15 correct? 16 A. Yes. 17 Q. And we'll see here that he signed, 18 along with you, many of these minutes that have 19 become a matter of record in this case? 20 A. Correct. 21 Q. Did you ever know him to be derelict in 22 the exercise of his responsibilities as general 1855 1 counsel of UFG and as secretary to these various 2 committees? 3 A. No, I did not. 4 Q. Was he a highly qualified or poorly 5 qualified individual for those responsibilities? 6 A. In my opinion, he was qualified. 7 Q. Now, one of the principal businesses of 8 United -- of USAT had to do with real estate; is 9 that right? 10 A. That's correct. 11 Q. And who did you have who was in charge 12 of your real estate operations at that point in 13 time? 14 A. Gem Childress and David Graham. 15 Q. And what was your opinion -- how did 16 they come to be members of your organization? 17 A. Mr. Childress had been initially an 18 employee of the savings and loan holding company 19 with responsibilities in real estate and his 20 employment would have dated back into the 21 mid-Seventies, along about '74 or '75. 22 Mr. Barrett came along about that same time and 1856 1 was hired by the company from -- I've forgotten 2 what his previous employment was. But they were 3 both very capable real estate operators. 4 Q. And did the respondents in this matter 5 have anything to do with the hiring of those 6 individuals to head up the real estate activities 7 of United Financial Group and USAT? 8 A. Now, when you refer to "these 9 gentlemen," you're talking about Childress and 10 Graham? 11 Q. Yes. Mr. Graham and Mr. Childress. 12 A. I'm not sure I understand that 13 question. 14 Q. Let me -- Mr. Childress and Mr. Graham 15 were part of your organization prior to the time 16 that Mr. Hurwitz -- 17 A. Oh, that's correct. 18 Q. And they were recruited totally 19 independent of anything having to do with 20 Mr. Hurwitz, Federated, MCO, or anybody else that 21 are respondents in this matter? 22 A. Correct. 1857 1 Q. And they stayed on, did they not? 2 A. Yes, for a period of time. 3 Q. Were they still there when you left? 4 A. Yes. They were there when I left. 5 Q. And were a number of these other 6 individuals that we discussed still there when you 7 left? 8 A. They were still there. 9 Q. Now, with regard to those real estate 10 activities, let's just take a minute if we can, 11 Mr. Bentley. And if you could look over at Page 12 11. 13 A. Okay. 14 Q. USAT had begun as early as this time to 15 develop equity opportunities in its real estate 16 activities, had it not? 17 A. Correct. 18 Q. And if we read right there in your 10K 19 for 1981 under real estate development activities, 20 it says "United conducts real estate development 21 activities either directly through investments in 22 real property held for development or indirectly 1858 1 through investments in joint ventures which, in 2 turn, own land for development purposes." 3 Were you ever told there was anything 4 wrong with that type of investment activity for an 5 S&L? 6 A. No. It was authorized under Texas law. 7 Q. "Participating with United in such 8 joint ventures are usually persons or concerns 9 having prior experience in real estate development 10 who are charged with primary responsibility for 11 the day-to-day development of the project." 12 And the people put in charge of those 13 activities at UFG and USAT were David Graham and 14 Gem Childress, right? 15 A. That's correct. 16 Q. And at this point in time, you were 17 reporting to the general public that you had 65 18 such joint ventures or investments at that point 19 in time? 20 A. Yes. 21 Q. And did any of those have anything to 22 do with any of the respondents in this case as far 1859 1 as you know? 2 A. (Witness shakes head negatively.) As 3 far as I know. 4 Q. Did you have independent accountants 5 while you were at UFG? 6 A. Yes. 7 Q. And who were they? If you could look 8 own at Page 21, it might -- 9 A. Yes. Arthur Young at that time, 10 although -- 11 Q. You see -- Page 22, you see Arthur 12 Young and then you see a similar accountant's 13 report for Peat Marwick? 14 A. Yes. 15 Q. You had made a change from Arthur Young 16 to Peat Marwick, correct? 17 A. I believe that's correct. 18 Q. Arthur Young was Kaneb's accountant? 19 A. Pete Marwick was Kaneb's accountant. 20 Q. What was the reason for your deciding 21 to change accountants if this is what that 22 reflects? 1860 1 A. The change had been made to 2 Peat Marwick because of economies of scale and 3 that they did Kaneb's work, and I presume they 4 gave us a better bid although I don't recall 5 specifically. 6 Q. Do you know who the account executive 7 was for the UFG account at the time? 8 A. No, I do not recall. 9 Q. Do you recall the name Rick Millinor? 10 A. Yes. 11 Q. Does that refresh your recollection -- 12 A. Yes. 13 Q. -- that he was the account executive? 14 A. That's correct. 15 Q. And that didn't change thereafter, did 16 it? 17 A. Not to my knowledge. 18 Q. Now, was Peat Marwick & Mitchell a 19 respected accounting firm or not? 20 A. Yes, they were. 21 Q. Internationally known? 22 A. Yes. 1861 1 Q. Did you select them because they were 2 easy on you? 3 A. No. 4 Q. Now, I want to talk a little more 5 detail. You indicated to Mr. Guido last week that 6 the financial condition of UFG and USAT at the 7 time -- at the time we're talking about, January 8 1982, was, I believe you said, tenuous at best; is 9 that correct? 10 A. That's correct. 11 Q. And you later in response to another 12 question I believe said it was tentative at other 13 points in time. What did you mean by "tenuous"? 14 A. I meant the economic conditions were 15 such as to indicate that the institution with its 16 negative spread or near negative spread difference 17 in cost of money and the return on those dollars 18 was deteriorating and that, absent a decline in 19 interest rates, could make future maintenance of 20 net worth requirement difficult. 21 Q. Did you feel it was your responsibility 22 to address those unfavorable conditions? 1862 1 A. Yes. 2 Q. Did it ever occur to you to just close 3 the savings and loan up and just leave it? 4 A. Never. 5 Q. Why not? 6 A. We probably couldn't have liquidated 7 it, but that was never -- that was never a viable 8 option. 9 Q. Well, did it ever occur to you that by 10 trying to save the institution, you might, in 11 fact, incur additional losses? 12 A. That's correct. 13 Q. Well, now, why were you prepared to 14 take that risk? Why didn't you just shut it down? 15 A. That was not a viable option. 16 Q. Well, why was that, Mr. Bentley? 17 A. You just don't take an institution in 18 which the public has trust and shut it down. 19 Q. Well, even if you're losing money? 20 A. Yes. 21 Q. Didn't you feel like you had an 22 obligation to your depositors to shut it down? 1863 1 A. No. 2 Q. Now, let's look at some of the details, 3 if we might, of this financial condition that you 4 were encountering in 1982. Let me ask you to look 5 over to page -- and why that occurred. 6 Did you try to explain to the public as 7 to why you were having problems, financial 8 problems? 9 A. I don't recall. 10 Q. Let me ask you to look over at Page 14 11 of your 10K. 12 MR. GUIDO: Is this Exhibit 3017 still? 13 MR. NICKENS: 3017, yes, correct. 14 Q. (BY MR. NICKENS) Do you see there on 15 Page 14, Mr. Bentley, a discussion about 16 competition? 17 A. I must be on the wrong page. What -- 18 Q. It's Page 14 of Exhibit 3017, the 10K. 19 Do you see there a description of the 20 competitive conditions that you were encountering 21 that was making business more difficult -- 22 A. Yes. 1864 1 Q. -- for United Financial Group? 2 A. Yes. 3 Q. And in particular, in the third 4 paragraph, "In recent years, regulatory limits on 5 the maximum savings account interest rates payable 6 by banks have been partially insulated -- have 7 partially insulated savings and loans from some 8 effects of direct competition. These maximum 9 rates have been lower for banks than those allowed 10 for savings and loan associations." And it goes 11 on and the last sentence concludes "These new bank 12 services may intensify the competition between 13 banks and savings and loan associations to attract 14 and retain savings deposits." 15 A. Correct. 16 Q. Was that an accurate description of the 17 situation that you encountered in 1981? 18 A. Yes. 19 Q. Through regulatory actions, your 20 competitive situation had deteriorated? 21 A. That's correct. Vis-a-vis banks. 22 Q. And also vis-aa-vis, as it is reported 1865 1 in the next paragraph, money market mutual funds, 2 correct? 3 A. Right. 4 Q. Now, what did you have to do in order 5 to retain those deposits or to gain new deposits 6 in competition with these mutual funds and banks? 7 A. We had to pay competitive rates. 8 Q. And, in fact, were you having to pay 9 the highest rates allowed? 10 A. That's correct. 11 Q. In order to just get -- 12 A. Generally. 13 Q. Now, let me ask you to look over to 14 Page 19. Do you see at the top of there Item 7, 15 management's discussion and results of operations? 16 A. Correct. 17 Q. And what you reported in 1981 is that 18 revenues had increased 22 percent compared to 1980 19 but the company had a net loss of $12.4 million 20 compared to net income of 3.7 million during 1980? 21 A. Right. 22 Q. And you indicated that interest expense 1866 1 increased 46.7 percent in 1981 over the same 2 period in 1980 and operating expenses increased 3 only 7.8 percent, correct? 4 A. Correct. 5 Q. Now, did any of the respondents have 6 anything to do with the conditions that had 7 produced this financial situation in 1981? 8 A. No. 9 Q. Now, in fact -- I'll refer you to Page 10 24. Your pre-tax loss, 1981, was over 11 $25 million; isn't that correct? It's Page 24 12 which is the actual consolidated statement of 13 operations. 14 A. Correct. 15 Q. You were reporting a 12 million-dollar 16 loss after tax, but your pre-tax loss from 17 operations was $25 million? 18 A. Right. 19 Q. Was that a serious or not a serious 20 situation, Mr. Bentley? 21 A. Serious. 22 Q. Now, what was your situation with 1867 1 regard to your gap -- and explain to the Court, 2 although I'm sure he knows, what gap means. 3 A. It's been a long time since I've tried 4 that one. 5 Q. I'm not asking you the technical 6 definition. Tell us what you recall. 7 A. It would represent a mismatch of 8 interest rates on the liability and the asset side 9 and the mismatch of maturities of assets and 10 liabilities. 11 Q. UFG had a large portfolio or, excuse 12 me, USAT had a large portfolio of mainly long-term 13 mortgage loans financed with short-term deposits, 14 didn't it? 15 A. Correct. 16 Q. And if we look over at Page 3 of 17 Exhibit 3017 -- let me see if I can help you find 18 it. You reported there that you had over a 19 billion six in what was essentially these 20 long-term mortgages, correct? 21 A. Close to that. Typically, the consumer 22 loans would not be long-term. 1868 1 Q. Okay. If you take those out, you've 2 got about a billion five or so? 3 A. Correct. 4 Q. But in any event, a serious situation 5 if you've got a mismatch with your cost of your 6 deposits, right? 7 A. That's correct. 8 Q. And what was your situation with regard 9 to REO? 10 A. I would guess that REO was increasing 11 at that point. 12 Q. And REO, is real estate owned? 13 A. Yes. That's foreclosed real estate. 14 Q. Is that a good or bad development 15 for -- 16 A. That's a bad development. 17 Q. And had you, in fact, at that point 18 made some transactions with Couch Mortgage to try 19 to trade some of that REO for loans? 20 A. Yes, on a nominal basis. We had 21 exchanged real estate for performing real estate 22 mortgages. 1869 1 Q. Did any of the respondents have 2 anything to do with the decision to try to address 3 the problem in that way? 4 A. No. 5 Q. And did problems develop with the Couch 6 Mortgage transactions? 7 A. Yes. I can't pinpoint the date, but in 8 the letter, sometime in I suppose 1987, a serious 9 problem developed. And that could be a year 10 either way, but probably '86 to '87. 11 Q. And that certainly wasn't known back in 12 1983? 13 A. That was not known. 14 Q. Or in '82? 15 A. That's correct. 16 Q. And that was -- a transaction with 17 Couch was entered into to help you address the REO 18 problem, right? 19 A. That's correct. 20 Q. And the problems with Couch turned out 21 to be a result of outright fraud by Couch? 22 A. It developed to be that, yes. 1870 1 Q. Now, Mr. Bentley, I'd like for you to 2 look over at Exhibit 3018 which is the 10K for the 3 following year. Do you have that in front of you? 4 A. Yes, I do. 5 Q. 3018. A-3018. It's the next document, 6 although 3017 is a very voluminous document. Now, 7 let me -- this is your 10K for the next year, 8 right? 9 MR. GUIDO: The next year being 1982. 10 MR. NICKENS: Year end 1982, correct. 11 A. Yes. 12 Q. (BY MR. NICKENS) Now, let me ask you 13 to look over to the next to the last page of 14 Exhibit -- 15 MR. NICKENS: Excuse me, Your Honor. I 16 offer A-3018. 17 MR. GUIDO: No objection, Your Honor. 18 THE COURT: Received. 19 Q. (BY MR. NICKENS) It's the next to the 20 last page which bears the number OFD1289. Now, 21 look at those people there that list your board of 22 directors and your executive officers. 1871 1 A. All right. 2 Q. Now, during this year, you had received 3 FedRe's notice of their purchase of substantial 4 shares in UFG, correct? 5 A. That's right. 6 Q. Now, with regard to your board of 7 directors, what changes, if any, do you observe 8 one year later? 9 A. To the best of my knowledge, without 10 comparing them, I note the presence of Barry 11 Munitz. 12 Q. And Mr. Shoup, as you indicated, had 13 retired? 14 A. Had retired, yes. 15 Q. Otherwise, that's the same board? 16 A. I believe that's correct. 17 Q. Now, how about the executive officers? 18 What changes, if any, do you note there? 19 A. It would include Barry Munitz as a 20 member of the executive committee at least. 21 Q. Yes, sir. But as to your list of 22 executive officers -- 1872 1 A. Oh. Offhand, I note no difference. 2 Q. Same people, right? 3 A. That's correct. 4 Q. Now, had they changed with regard to 5 their abilities as far as you observed? 6 A. No. 7 Q. Now, how about your accountants? Was 8 that different? You'll see on Page 22. 9 A. Pete Marwick, yes. 10 Q. Still Pete Marwick? 11 A. Right. 12 Q. Had they gone soft on you the year 13 before? 14 A. No. 15 Q. Now, let me ask you to look over at 16 Page 9 of Exhibit 3018. The next to the last 17 paragraph, you're reporting to the public on 18 October 27th, 1982, "Congress passed the 19 Garn-St. Germain Depository Institution Act 20 directing the DIDC to establish a new account 21 effective December 14th, 1982, to enable regulated 22 financial institutions to directly compete with 1873 1 money market funds." And it goes on to -- why was 2 that a development that you felt should be 3 reported in your 10K? 4 A. It was a change in the financial 5 structure of banks and S&Ls. It effectively 6 eliminated restrictions and may eliminated Reg Q, 7 as it was known. 8 Q. To your understanding, did the passage 9 of Garn-St. Germain have anything to do with the 10 competitive conditions that you had described in 11 the year before? 12 A. Yes. They would have accelerated the 13 problem. 14 Q. Now, let me ask you to look over at 15 Page 6 seven. Excuse me. That can't be correct. 16 Let me ask you to look over at Page 1 and the 17 fourth paragraph under -- the first paragraph 18 under "savings and loan operations." 19 A. Yes. 20 Q. You report down there at the end of the 21 paragraph "On November 13th, 1982, USAT sold four 22 of its savings branches in the Abilene area. Such 1874 1 sale constituted an exchange of savings deposits 2 for a mortgage-backed bond at a price that 3 resulted in a gain of $6.7 million." 4 A. I recall that, but I don't see that. 5 Q. Okay. Let me -- it's right here. 6 A. Okay. 7 Q. Do you see that? 8 A. Yes. 9 MR. GUIDO: What page are you on. 10 MR. NICKENS: It's on Page 1. It's 11 numbered page 1. It's actually the second page 12 but numbered Page 1 of Exhibit 3018. 13 MR. GUIDO: Is that OFD1240? 14 MR. NICKENS: It is. 15 Q. (BY MR. NICKENS) Now, you made a 16 decision to sell some branches. In fact, in this 17 particular case, branches in your hometown, right? 18 A. That's correct. 19 Q. And why did you do that? 20 A. In an effort to beef up net worth. 21 Q. Well, were those good branches? 22 A. Yes, they were good branches located 1875 1 in, as I recall, Cisco, Hanson, Coleman, and one 2 more. 3 Q. Well, why would you sell a branch that 4 might make you money in the future for current 5 money? 6 A. Net worth. 7 Q. Did any of the respondents here have 8 anything to do with the decision that you made to 9 sell those branches? 10 A. No, they did not. 11 Q. Now, let me ask you to look over at 12 Page 4. Again we're talking about your financial 13 condition here a year later. Page 4 refers under 14 the heading "consumer loans," the very last 15 paragraph -- let me see. 16 The very last paragraph says "The 17 following table summarizing the yield on USAT's 18 loan portfolio, its cost of money, and the spread 19 between the two during the periods indicated." 20 And this was what you were referring to earlier 21 about the negative spread? 22 A. Correct. 1876 1 Q. And if you look at that very last line, 2 it indicates that in 1981 you had a negative 3 spread of 1.77? 4 A. Correct. 5 Q. Which you had managed to reduce to a 6 negative 1.22 in 1982, right? 7 A. Correct. 8 Q. But that was -- was that a serious 9 condition or something that you could ignore? 10 A. That was serious. 11 Q. And what happens if you continue to 12 have a negative spread on your entire loan 13 portfolio? 14 A. You'll soon run out of net worth. 15 Q. Now, let me ask you to look over at 16 Page 8 at the very top. You see there, it's 17 reported at the very first sentence of Page 8, 18 "Because of competitive conditions, USAT generally 19 pays the maximum interest rates permitted by the 20 Federal Home Loan Bank Board." Right? 21 A. Correct. 22 Q. That's what we were talking about a few 1877 1 minutes ago? 2 A. Yes. 3 Q. And why would you pay the maximum rate? 4 A. In order to retain deposits. 5 Q. Did that make it easier or harder for 6 you to show a profit? 7 A. It made it more difficult. 8 Q. And with regard to your real estate 9 operations a year later, let me ask you to look 10 over at Page 11. Basically reporting what you had 11 the year before about your investments in equity 12 or equity investments in real estate? 13 A. I don't recall the year before. 14 Q. Yes, sir. We've read that from the 15 earlier 10K. This is essentially the same 16 reporting? 17 A. Yes. 18 Q. And at this point in time, the number 19 of projects was at 67? 20 A. Correct. 21 Q. Let me ask you to look over at Page 17 22 with regard to your loss on average equity. Do 1878 1 you see there in Item six "elected financial 2 data"? 3 A. Yes. 4 Q. And if you turn -- if you go down the 5 page about a little more than halfway, you've got 6 "return (loss) on average equity." 7 Do you find that line? 8 MR. GUIDO: What's the OFD page number? 9 MR. NICKENS: It's OFD1256, Your Honor. 10 Q. (BY MR. NICKENS) Do you see that 11 line, Mr. Bentley? 12 A. Yes. 13 Q. It shows that for 1982, you had a 14 return on average equity -- or a loss on average 15 equity of over 34 percent? 16 A. Correct. 17 Q. Up from a little over 17 percent in 18 1981? 19 A. Correct. 20 Q. Now, is that a good or a bad 21 development -- 22 A. That's a. 1879 1 Q. -- for a savings and loan? 2 A. That's a bad development. 3 Q. Now, how long can you last if you're 4 losing 34 percent of your equity every year? 5 A. About three years -- about three years. 6 Q. Now, did you feel like your condition 7 was such that you needed to address that, those 8 problems? 9 A. Yes. 10 Q. Now, let me ask you to look over at 11 Page 19 where you discuss results of operations. 12 A. Yes. 13 Q. Now, you say that "During 1982, total 14 revenues were approximately 215 million as opposed 15 to 196.8 million during 1981, an increase of 16 9.16 percent. Total expenses were 239,000 and 17 222,000,000 for the respective periods." Do you 18 see that? 19 A. Yes. 20 Q. Now, what was -- taking the difference 21 between your revenues and your expenses, what was 22 your loss for 1982? 1880 1 A. It may be here. I don't see it. 2 Q. It doesn't state it. If you take the 3 difference between your expenses and your 4 revenues, Mr. Bentley, that would be about 5 $24 million? 6 A. That's correct. 7 Q. Now, is that a good or a bad 8 development for a savings and loan? 9 A. That's bad. 10 Q. And had any of the respondents in this 11 case had anything to do with the situation that 12 had put you into that loss circumstance? 13 A. No, they had not. 14 Q. Now, you say there under results of 15 operations, "Operating losses continue to occur as 16 interest expense exceeded revenues. If the 17 decrease in the interest rates evidenced in the 18 latter part of August, 1982, continues, USAT's 19 interest-bearing liabilities will be more even 20 matched with earning assets, thereby allowing USAT 21 to return to a positive spread." 22 A. Right. 1881 1 Q. So, at this point in time, you were 2 depending upon a decrease in interest rates to get 3 back to profitability? 4 A. Correct. 5 Q. Let me ask you to look over at Page 29 6 of your 10K. And you have there in your footnotes 7 to your consolidated financial statements a 8 description of the current operating environment. 9 "United Financial Group, Inc.'s savings and loan 10 subsidiary United Savings Association of Texas and 11 the savings and loan industry in general 12 experienced unfavorable operating results and 13 declining retained earnings in 1982 and 1981 as a 14 result of high and volatile interest rates. This 15 extraordinary operating environment affected the 16 savings and loan industry more severely than many 17 other sectors of the economy because of the 18 mismatch of the maturities and interest rates of 19 their assets as compared to their liabilities. In 20 a declining rate environment as is presently being 21 experienced, USAT will improve its operating 22 results." You see that? 1882 1 A. Correct. 2 Q. Now, did that accurately describe your 3 situation at the time? 4 A. I think so. 5 Q. And was that what you were referring to 6 earlier when you told the Court about the 7 situation you encountered? 8 A. Yes. 9 Q. Now, one last item for this document. 10 If you would turn over to exhibit --well, it's 11 another exhibit. 12 MR. NICKENS: Your Honor, I notice that 13 it's a few minutes or a minute or so before 12:00. 14 I will move to the next document or whatever your 15 wishes are. 16 THE COURT: All right. We'll adjourn 17 till 1:30. 18 19 (Luncheon recess.) 20 (1:31 p.m.) 21 THE COURT: We'll be back on the 22 record. Mr. Nickens. 1883 1 MR. NICKENS: Thank you, Your Honor. 2 Q. (BY MR. NICKENS) Mr. Bentley, when we 3 took our lunch break, I was asking you some 4 questions about the organization and some of the 5 problems United Savings had. I'd like to finish 6 up on that subject if we could. Could you look at 7 Exhibit A-1051? It's right here at the beginning. 8 I put it right there. Now, in addition to your 9 accountants and the other people who we talked 10 about, did you have lawyers that assisted you at 11 United Savings? 12 A. I'm sure we did. I don't recall 13 exactly who all they were at that time. 14 Q. Now, I've directed your attention to 15 the minutes of the board of directors for USAT of 16 January 28, 1982, which we have identified as 17 Exhibit A-1051. 18 MR. NICKENS: And, Your Honor, at this 19 time, I offer A-1051. 20 MR. GUIDO: No objection, Your Honor. 21 THE COURT: Received. 22 Q. (BY MR. NICKENS) Now, looking over at 1884 1 the second page of A-1051, that shows the 2 organization of the institution as of the 3 beginning part of 1982, correct? 4 A. That's correct. 5 Q. And they are basically the people we 6 have discussed? 7 A. Yes. 8 Q. And then if you look over at -- I'm 9 sorry. If you go over about five pages, you have 10 there a resolution identifying your lawyers, 11 correct? 12 A. That's correct. 13 Q. And the lawyers here in Houston were 14 Baker, Brown, Sharman, Wise & Stevens? 15 A. Right. 16 Q. Right? 17 A. Yes. 18 Q. That's counsel that you selected? 19 A. That's correct. 20 Q. And you also had Mr. Keltner's firm in 21 Fort Worth? 22 A. Correct. 1885 1 Q. And then in San Antonio, who were your 2 lawyers? 3 A. Oppenheimer, Rosenberg, Kelleher & 4 Wheatley. 5 Q. And these are lawyers you selected, 6 correct? 7 A. That's correct. 8 Q. Now, did you know -- who did you know 9 at the law firm of Oppenheimer, Rosenberg, 10 Kelleher & Wheatley? 11 A. I did not know anybody. We accepted 12 that firm, I believe, as they had represented 13 World Savings that we had acquired there and we 14 did not know personally any of the lawyers. 15 Q. But they weren't selected because of 16 any reasons having to do with the respondents? 17 A. No, no. Not at all. 18 Q. Now, do you know Mr. Stanley Rosenberg? 19 A. I believe I have met him. I'm not 20 sure. 21 Q. You know him to be the Rosenberg of 22 Oppenheimer, Rosenberg, Kelleher & Wheatley? 1886 1 A. I probably did not know that at the 2 time, but I do know it now. 3 Q. Now, also, one small point if you will, 4 Mr. Bentley. Over on the last page of the 5 document, the next to the last paragraph, again, 6 this is your signature and Mr. Pledger's 7 signature? 8 A. Yes, that's correct. 9 Q. Okay. And the next to the last 10 paragraph states that "Mr. Coles announced there 11 would be a United Financial Group, Inc. board 12 meeting in conjunction with the February 26, 1982, 13 United Savings board meeting," correct? 14 A. Yes, that's correct. 15 Q. And was it unusual to have such 16 meetings together? 17 A. No. 18 Q. And this was a policy established when? 19 A. I can't recall the date, but shortly 20 after the spinoff from Kaneb. 21 Q. Well, certainly by this date of 22 January 28, 1982, that policy had been 1887 1 established? 2 A. Yes, that's correct. 3 Q. And did it have anything to do with the 4 respondents? 5 A. No, it did not. 6 Q. Now, I'd like to turn if we might, 7 Mr. Bentley, to some of the things that you did in 8 response to the problems that you had seen 9 developing in 1981 and '82. 10 Have we got our place? Where is it? 11 Well, sir, what were -- you described 12 in your direct testimony something about hunkering 13 down, as I recall. 14 A. Yes. 15 Q. Is that right? What did you mean by 16 "hunkering down"? 17 A. Is this in reference to this time frame 18 of June of '82? 19 Q. Yes, sir. I'm talking about in 20 reference to the process as it developed -- 1982, 21 '83, '84 -- because those problems didn't just go 22 away, did they? 1888 1 A. No, they did not. 2 Q. And so, there was -- and I'd like for 3 you to describe for the Court how you developed 4 ways of trying to address those problems and what 5 kinds of things that you tried. 6 A. I'm not going to be able to tie these 7 things to a precise date. I could more accurately 8 describe the actions taken after I resumed the CEO 9 slot in October/November of '83. At this 10 particular time, Jim Coles was the CEO and I, of 11 course, don't recall what he was doing quite as 12 well as I recall what I did when it was under my 13 watch. But I do know that Jim took measures such 14 as adjustments in the organizational chart of 15 switching from -- to more or less functional 16 lines, reduction in personnel, the sale of some 17 branches, probably initiated the sale of some 18 assets. I don't recall the dates under which 19 transactions were actually consummated. It could 20 be that we had started the sale of some servicing 21 at that time although I'm not aware of that date. 22 Expense control. Those were the major items at 1889 1 that particular time to the best of my knowledge. 2 Q. Did you expand your investments? 3 A. There probably was some expansion in 4 investments, although the expansion and the time 5 frame are not clear to me. 6 Q. And we've looked at the issue about the 7 real estate where you were investing -- actually 8 investing in some real estate interests? 9 A. That's correct. 10 Q. Now, let me ask you to look over at 11 Exhibit 3003, A-3003, Mr. Bentley. 12 MR. GUIDO: Is that a 13 previously-admitted document? 14 MR. NICKENS: No. 15 MR. GUIDO: It's not in the book. 16 MR. NICKENS: It should be an annual 17 report. It's the annual report for 19 -- dated 18 February 28th, 1984. Your Honor, I'll just come 19 back to that as we get the copies made. If we 20 could get some copies made. 21 THE COURT: Mr. Nickens, Mr. Langdon is 22 not here this week, but could I get a copy of 1890 1 these exhibits, an extra one? 2 MR. NICKENS: Yes, sir. There is a 3 copy here that we had for Mr. Langdon. And as you 4 noted, there are a few missing but this is for 5 him. 6 THE COURT: All right. 7 MR. NICKENS: Is B476 in our exhibits? 8 Okay. 9 Q. (BY MR. NICKENS) Let me ask you, 10 Mr. Bentley, to look over at B476. And this is 11 the annual report for the next year dated 12 March 13, 1985. Do you see that? 13 A. It's blacked out. It doesn't show. 14 Q. Let's see. Right here. 15 MR. NICKENS: Your Honor -- 16 Q. (BY MR. NICKENS Can you identify that 17 as the annual report that you signed. 18 A. Yes. 19 Q. Dated March 13th, 1985? 20 A. Yes. 21 MR. NICKENS: We offer Exhibit B476, 22 Your Honor. 1891 1 MR. GUIDO: No objection, Your Honor. 2 THE COURT: Received. 3 Q. (BY MR. NICKENS) Now, looking over to 4 the page addressed to our shareholders which is 5 the fourth or fifth page over, fifth page over, 6 Mr. Bentley, did you sign that document? 7 A. Yes, as chairman of the board. 8 Q. And you describe there some of the 9 steps being taken to address the problems that 10 you've had; is that right? 11 A. That's correct. 12 Q. Now, let's review some of those with 13 the Court. It says "The redirection of 14 United Financial Group that began in 1983 took on 15 added significance in 1984. Major steps were 16 taken this past year to transform United from 17 predominantly a savings and loan oriented company 18 with a traditional emphasis on mortgage lending 19 and deposit gathering to one that also operates as 20 a merchant bank for its wholesale customers. This 21 redirection will allow United to expand its real 22 estate development activities in addition to 1892 1 participating in profitable new areas of 2 business." 3 Do you see that? 4 A. No, I really don't. I never did pick 5 up when you started reading as to what paragraph 6 you were -- 7 Q. It's the very first one, Mr. Bentley, 8 and I apologize for not -- 9 A. Oh, okay. I got you now. I see it. 10 Q. Now, this was what was called the 11 wholesale strategy of merchant banking? 12 A. Yes, that would be true. 13 Q. And did you agree with that change in 14 direction for United? 15 A. Yes, I did. 16 Q. And did you believe it was necessary in 17 order to address the problems you had? 18 A. I thought it would contribute to 19 alleviating some of the problems. 20 Q. Did you ever try to hide the fact that 21 you were taking this new direction from anybody? 22 A. No, I don't believe so. 1893 1 Q. In fact, isn't it true that you touted 2 it to the point that it was the first paragraph of 3 your notice to your shareholders in March of 1985? 4 A. Yes, that would indicate that by this 5 copy, yes. 6 Q. Now, if we look down a couple of 7 paragraphs, you write "The gain from the branch 8 sale was 81 and a half million dollars after 9 related expenses and write-off of goodwill. This 10 transaction was the key to implementing the 11 fundamental marketing strategy of concentrating 12 United's operations on Texas' most promising 13 growth markets: Houston, Dallas, Fort Worth, 14 Austin, and San Antonio." 15 Do you see that? 16 A. Yes. 17 Q. Now, that's the branch sale that you 18 had initiated -- 19 A. That's correct. 20 Q. -- some years before? 21 A. That's correct. The year before. 22 THE COURT: Mr. Nickens, what number 1894 1 did you read? 2 MR. NICKENS: Your Honor, I'm reading 3 from the page -- 4 THE COURT: I know. What was the 5 number you used? 6 MR. NICKENS: 81 and a half million. 7 THE COURT: Okay. I thought I heard 8 eight, but go ahead. 9 MR. NICKENS: Okay. I meant to say, 10 Your Honor, if I didn't, 81 and a half million 11 dollars. 12 MR. GUIDO: Your Honor, that's the 13 $81 million that we referred to on direct. 14 THE COURT: All right. 15 Q. (BY MR. NICKENS) Now, you go on to 16 reference in the continuation of that paragraph, 17 Mr. Bentley, "THE branch sale had two additional 18 favorable results. First, the company's capital 19 position was substantially strengthened. Second, 20 the unfavorable gap position between interest rate 21 sensitive assets and liabilities of the company 22 was reduced by $537 million to 648 million of 1895 1 deposit -- as 648 million of deposits were traded 2 for a like amount of fixed interest rate debts 3 secured by mortgaged loans and other similar 4 assets. The six-month gap at December 31, 1984, 5 was 634 million compared with 1.4 billion a year 6 ago." 7 Now, was that a good or a bad 8 development? 9 A. That was a favorable development. 10 Q. And to what actions was that favorable 11 development attributed? 12 A. Primarily the branch sale. 13 Q. And then you go on to say 14 "Unfortunately, 1984 was a difficult year in the 15 Texas real estate market, especially in the latter 16 half of the year." And you go on to describe it. 17 Tell the Judge what the situation was 18 like here in Texas in the latter part of 1984 in 19 the real estate market. 20 A. I don't have specific recall without 21 reading to refresh my memory. But generally, real 22 estate values were beginning to erode and some 1896 1 overdevelopment and overproduction of 2 overdevelopment in lots and overbuilding of 3 residential and office buildings was occurring. 4 Just a general deterioration in the real estate 5 market. 6 Q. And -- okay. And you go on to describe 7 at the bottom of the page "Progress was made 8 during the year in a number of other areas." 9 You mean other than real estate? Let 10 me help you. 11 A. I have it. I'm just trying to recall. 12 This is a little cold to me. I did not write this 13 report to shareholders but -- and I'm having a 14 little difficulty with the timing. 15 Q. Well, you certainly agreed with, it did 16 you not, Mr. Bentley? 17 A. Yes. In large, I agreed with 18 everything that's said here. 19 Q. You wouldn't have signed it otherwise, 20 correct? 21 A. That's correct. 22 Q. Now, let me direct your attention to 1897 1 the second -- on the right-hand side of the page 2 at the top, the paragraph, the first full 3 paragraph after the carryover. It says "The 4 company continued to expand its equity 5 participation in commercial real estate and land 6 development projects by serving primarily as a 7 joint venture partner instead of merely a lender." 8 And this was a policy that you had 9 initiated back in '82, correct? 10 A. Prior to that, yes. 11 Q. Okay. In 1981; is that right? 12 A. Or prior to that. 13 Q. "In addition, the company purchased a 14 36 percent interest in Weingarten Realty, Inc., 15 probably the finest shopping center developer in 16 Texas and among the best in the United States. 17 During 1984, real estate investments rose to 18 170.70 million from 92.2 million at the end of 19 1983." 20 You see that? 21 A. That's correct. 22 Q. Now, was that a policy that you agreed 1898 1 with and promoted? 2 A. Yes, I agreed. 3 Q. Then if you skip down a paragraph, it 4 says "In an innovative step for a savings and loan 5 institution, United established an investment 6 department to match money market investment 7 opportunities with broker deposit funds. The 8 operation enables the company to "lock in" a 9 profitable spread between the interest paid on 10 long-term deposit funds and the return on 11 investments in corporate and government 12 securities, thus providing protection against 13 fluctuations in interest rates." 14 Was that a development that you 15 approved of? 16 A. I approved of that. 17 Q. And did you agree with these words that 18 you signed? 19 A. By and large. The paragraph that you 20 skipped related to Bank United. I was in 21 opposition to the opening of that internal branch 22 which was a boutique bank within the S&L. And I 1899 1 stated I would not object to it occurring, but I 2 predicted that we -- it would not be successful 3 and it was not. 4 Q. Well, with regard to this -- it was 5 certainly a useful effort to try to match -- 6 A. That's correct. I described it as an 7 ingenious plan and while I didn't think it would 8 succeed, that I would support it. But in that I'm 9 attesting to everything I did do positively, I 10 wanted to at least clarify that issue. 11 Q. But -- was it -- did you think it was a 12 worthwhile development to try to match your 13 liabilities with your assets? 14 A. Yes. That's a little bit different 15 question. I concur with the paragraph about 16 attempting to match money market investment 17 opportunities with broker deposit funds. 18 Q. And then -- okay. Let me ask you to 19 look over one page. It's called "strategy and 20 market definition." You've got a little -- you've 21 got an introductory paragraph there and then you 22 got "United's overall strategy has four 1900 1 objectives." You see that? 2 A. Yes. 3 Q. "One, reducing the company's exposure 4 to the volatility of interest rates through a more 5 closely matched asset liability structure." 6 Was that a worthwhile objective? 7 A. Yes, it was. 8 Q. One you agreed with? 9 A. Correct. 10 Q. "Two, placing more emphasis on new and 11 existing financial services which generate fee 12 income through product diversification." 13 Was that a worthwhile objective? 14 A. Yes, although I don't recall the 15 specific financial services. It certainly would 16 be a favorable diversification. 17 Q. Then it says "Expanding the company's 18 business mix to become a more balanced 19 retail/wholesale organization." 20 Was that an objective with which you 21 agreed? 22 A. By and large, yes. 1901 1 Q. Then in No. 4, "Increasing the asset 2 base with the addition of variable rate, higher 3 yielding assets to dilute the effect of existing 4 long-term fixed rate mortgage portfolio." 5 Did you agree with that objective? 6 A. Correct. 7 Q. Then it says "With these objectives in 8 mind, we have formulated specific strategies for 9 each of our major business groups which are 10 highlighted in the following sections." And it 11 goes on with some of the things we have discussed. 12 Let me draw attention, if I might, to the 13 paragraph dealing with real estate. 14 A. Okay. 15 Q. The last sentence says "More emphasis 16 will be placed in the high growth areas of Dallas, 17 Fort Worth, San Antonio, Austin, and select 18 out-of-state regions." 19 You see that? 20 A. Yes. 21 Q. Now, why was Houston left out of that? 22 A. I don't recall. It does make reference 1902 1 to a reduced but strong presence but we did 2 attempt to place individuals in the other markets 3 to serve as United in those areas for the 4 development of those real estate projects. 5 Q. Now, the Houston market or economy was 6 dominated by the oil and gas industry, right? 7 A. Yes. 8 Q. And is it your recollection that these 9 other major areas were not -- were at least 10 thought not to be so closely connected to oil and 11 gas? 12 A. That's correct. 13 Q. Was there a period of time in which it 14 was thought that the Austin/San Antonio area would 15 be immune from the problems associated with the 16 oil and gas industry? 17 A. Less susceptible instead of immune, I'd 18 say. 19 Q. Hindsight proved that to be incorrect, 20 correct? 21 A. That's correct. 22 Q. But at the time, what was the thinking 1903 1 with regard to those areas in relationship to the 2 oil and gas business? 3 A. They were thought to have more 4 potential than I would say the Dallas, Fort Worth, 5 Houston areas. 6 Q. And then the next paragraph they 7 describe something called merchant banking? 8 A. Yes. 9 Q. Now, let me ask you along the same 10 lines to look at Exhibit B378, Mr. Bentley. And 11 can you identify for the Court this document as a 12 memo from Mr. Gerald Williams to the executive 13 committee of C.E. Bentley, Charles Hurwitz, Barry 14 Munitz, and James R. Whatley dated October 25th, 15 1984? 16 A. Yes. 17 MR. NICKENS: Your Honor, we offer 18 Exhibit B378. 19 MR. GUIDO: No objection, Your Honor. 20 THE COURT: Received. 21 Q. (BY MR. NICKENS) Mr. Bentley, if you 22 would, this is a document authored by 1904 1 Mr. Williams. Who was Mr. Williams? 2 A. Mr. Williams was president of United 3 Savings. 4 Q. And he had replaced Mr. Coles as of 5 this time? 6 A. That's correct. 7 Q. Now, Mr. Williams had come from where? 8 A. Via Oklahoma. He had come from a First 9 City Bank in Houston. 10 Q. And he was the executive vice president 11 of First City Bank? 12 A. I believe that's correct. 13 Q. And chief financial officer of the 14 holding company? 15 A. I do not remember. 16 Q. Those are high positions in the banking 17 industry at the time, right? 18 A. That's correct. 19 Q. Mr. Williams, was he well thought of or 20 poorly thought of? 21 A. He was well thought of. 22 Q. Did you, in fact, you and Mr. Coles 1905 1 interview him for his job? 2 A. Yes, we did. 3 Q. Did you recommend him or did you 4 recommend that he not be hired? 5 A. I recommended he be hired. 6 Q. And why did you do that? 7 A. He was a capable gentleman. 8 Q. He had a good background? 9 A. Yes. And we were needing a man to get 10 into the internal organization of the company and 11 do some things that probably -- that certainly I 12 wasn't capable of doing nor was probably 13 Mr. Coles. 14 Q. And he had a strong financial 15 background? 16 A. Yes, he did. 17 Q. Do you know what he is doing today? 18 A. Yes. I believe he's with the 19 Huntington Bancshares in Columbus, Ohio. 20 Q. And that's among the top 20 banking 21 organizations in the country? 22 A. I would guess so, yes. 1906 1 Q. And what's his position there? 2 A. Last I heard, he was executive vice 3 president. I don't know whether that's changed or 4 not. 5 Q. And did Mr. Williams, when he came to 6 USAT, bring Mr. Crow with him? 7 A. At a later date. 8 Q. And tell the Court what you know about 9 Mr. Crow and his qualifications. 10 A. As I recall, Mr. Crow had worked with 11 or for Mr. Williams at First City maybe -- was 12 certainly in a different position. But when Jerry 13 recommended that we have a chief financial officer 14 with whom he had good rapport and he recommended 15 Mike Crow as -- for that position and after 16 interviewing him and looking into his background, 17 I think both Mr. Coles and I agreed that he was a 18 very good nominee for that position. 19 Q. And in your observations of 20 Mr. Williams, did he do his job well or poorly? 21 A. He did his job well. 22 Q. How about Mr. Crow as far as you 1907 1 observed? 2 A. As far as I know, from my experience, 3 he did his job well. 4 Q. Paid attention to his duties? 5 A. Correct. 6 Q. Did what he thought was right for the 7 institution? 8 A. Yes. 9 Q. Never looking out for himself? 10 A. Not that I know of. 11 Q. With regard to either one of those two 12 gentlemen? 13 A. No. 14 Q. Now, let's see what Mr. Williams wrote 15 in October of 1984. At the beginning, "As we 16 begin the 1985 planning process, it is appropriate 17 to reflect on those factors that have affected the 18 current year's performance. This is especially 19 important in view of the strategic shift taking 20 place within the company from a predominantly 21 consumer oriented unit to one that is intended to 22 operate equally with a retail and wholesale 1908 1 orientation. Before discussing implications for 2 1985, it is important to understand what impact 3 this transition is having on the company. These 4 thoughts are as follows." 5 Did you think it was useful for 6 Mr. Williams to sort of review the situation at 7 this point? 8 A. Yes, it would be useful. 9 Q. And was there a strategic shift taking 10 place within the company? 11 A. There was a shift taking place. I 12 don't know -- maybe it would be -- maybe it would 13 be strategic. I would question. There was a 14 shift for sure. 15 Q. Well, was it described as the wholesale 16 or strategy or merchant banking at various times? 17 A. I presume so. 18 Q. Now, in operations, Mr. Williams writes 19 as follows: "The back office situation within 20 USAT is in much worse shape than any of us 21 realized. Everyone understood the impact of 22 introducing a new computer system, but this has 1909 1 not turned out to be our most pressing concern. 2 The big problem is the company's inefficiency and 3 the total disarray of our loan files and missing 4 documents that are fundamental to the business. 5 It is taking an extraordinary amount of time by 6 second and third level managers to clean house 7 that will continue into 1985." 8 Was that consistent or inconsistent 9 with your observations? 10 A. I would say it was consistent that it 11 was -- particularly the loan files was as a result 12 of the centralization of the loan files in Houston 13 and the adoption of the plan of functional change, 14 the change in the organizational chart along 15 functional lines. We had stored in warehouses 16 hundreds of filing cabinets that had been shipped 17 from every out post in Texas and that's, I'm sure, 18 what Jerry has reference to and it was called to 19 our attention as we started trying to unravel it. 20 Q. The merger with First American had been 21 much more difficult than first realized. Is that 22 fair? 1910 1 A. Well, yes. That is -- that's in 2 addition to the other problem. 3 Q. And the other problem had arisen from 4 the branch sales in part at least? 5 A. Well, the branch sales did not take 6 place until October of '85 or December 31st of 7 '84. So the branch sale had not taken place but 8 we may have been assembling the security that 9 would be required to consummate the branch sales 10 and by putting together securitized loan packages 11 and it may have at this early date, we may have 12 been in the process of assembling them. I don't 13 know what directed Jerry's calling this to our 14 attention at this time. 15 Q. Okay. Let me ask if you look at the 16 next paragraph which is called bad shown/REO. 17 "Because of the weakened economy that has resulted 18 in a substantial increase in troubled credit 19 situations, USAT has shifted from a fragmented 20 loan decision company to one that is centrally 21 controlled. The result has been an elevation of 22 senior management's awareness of the total credit 1911 1 picture and a signal to the rest of the company 2 that loan procedures and documentation 3 requirements must be followed." 4 Now, did you agree with that 5 assessment? 6 A. Yes, I agreed with that. 7 Q. And including the assessment that this 8 was a result of the weakened economy? 9 A. Yes. 10 Q. Then in the next paragraph on strategic 11 redirection, "While we have concentrated on the 12 potential sale of half our branches during 1984, 13 other changes have been taking place. We intend 14 to become a mortgage banging operation in 1985 15 instead of a portfolio lender. In addition, 16 consumer lending will be curtailed and 17 construction lending will be limited to only a few 18 important builders." 19 Now, did you agree with this 20 redirection? 21 A. Generally, I agreed with that. 22 Q. Then under net income, it says "While 1912 1 the company has made net income of" -- I believe 2 it's 11.3 million -- "for the first nine months of 3 1984, most of it has been from special items." 4 Was that true? 5 A. That would be correct. 6 Q. Now, did anybody indicate to you that 7 there was something wrong with that? 8 A. No. 9 Q. Did you try to hide this situation from 10 the regulators? 11 A. No. 12 Q. Let me ask you to turn over to the last 13 page or the next to the last page rather. He says 14 "The preceding table highlights two factors that 15 negatively impact earnings that will carry over 16 into the future. We have a $940 million of 17 permanent loans and portfolio that cost the 18 company 3.4 million in negative third quarter 19 margin and approximately $12 million on an annual 20 basis. Two, we are incurring a significant cost 21 of carry on non-earning assets funded by 22 interest-bearing liabilities. In September, these 1913 1 assets which comprised goodwill, REO, and" -- I 2 can't read that. Something real estate -- "et 3 cetera, averaged $183 million. With a cost of 4 carry for the quarter of $3 million on an annual 5 basis, this would be $20 million." 6 A. Yes, I see that and I agree with that. 7 Q. Were those significant problems to deal 8 with? 9 A. Yes, they still were significant 10 problems. 11 Q. Okay. Let me ask you to look over on 12 the last page. Mr. Williams writes to the 13 executive committee -- and I'm starting on the 14 second sentence on that page, "The annualized 15 negative spread described above of approximately 16 $28 million plus the potential cost of carry on 17 major investments of $22 million requires 18 alternative sources of income to supplement 19 earnings such as." 20 Now, did you agree or agree with 21 disagree with that, Mr. Bentley? 22 A. I would agree with that. 1914 1 Q. "And is such as was the gain on the 2 sale of branches." You clearly agreed with that. 3 You initiated it? 4 A. Right. 5 Q. "Sale of additional loan servicing." 6 You mentioned that? 7 A. Correct. 8 Q. "Sale of real estate investments such 9 as Randolwood." 10 A. Correct. 11 Q. Did you agree with that? 12 A. Correct. 13 Q. And fourth, "opportunities to generate 14 earnings in the Weingarten and the Houstonian 15 investments." 16 Did you agree with those invest wants? 17 A. I agree with that. 18 Q. Finally, in the paragraph, he says "In 19 summary, we believe the ship is turning around. 20 It is taking more time and at a higher cost than 21 originally thought, but we believe the general 22 direction and reallocation of assets is 1915 1 appropriate. If this is correct, the executive 2 committee and directors should be prepared for a 3 few bad quarters until some of the longer term 4 projects begin to pay off. If this is not 5 acceptable, then we must find short-term 6 alternatives to get us through the next six to 7 nine months." 8 Did you agree with that assessment? 9 A. I agree with that. 10 Q. Were you optimistic or pessimistic 11 about the prospects of the company at the end of 12 1984? 13 A. At the end of 1984 following the branch 14 sale, I was optimistic about the changes. 15 Q. Thought you were going to make it 16 through? 17 A. Absolutely. 18 Q. How much money -- how much stock did 19 you have in United -- UFG? 20 A. I don't recall. Somewhere in the 21 neighborhood of two to 3 percent of the shares 22 outstanding. 1916 1 Q. Over a hundred thousand shares? 2 A. Oh, yes. 3 Q. And what happened to that stock? 4 A. I sold it for 10 cents a share. 5 Q. You road it all the way down? 6 A. Correct. 7 Q. And you did that because you thought it 8 was going to turn around and succeed? 9 A. Yes. 10 Q. And you were mistaken? 11 A. Correct. 12 Q. You lost the whole thing? 13 A. Right, virtually. 14 Q. Now -- 15 MR. NICKENS: Your Honor, we've made 16 some additional copies and I'm going to try to 17 keep this as brief as possible. We don't have one 18 for everybody, but I think we have one for you and 19 the witness and for the other side. And we would 20 offer Exhibit A-3003. 21 MR. GUIDO: I can't read the 22 description of it. Could you read that into the 1917 1 record? 2 MR. NICKENS: I will. Your Honor, this 3 is -- on the third page, it appears to be the 4 annual report dated February 28, 1984. So, this 5 is the 1984 annual report. 6 MR. GUIDO: No objection, Your Honor. 7 THE COURT: Received. 8 Q. (BY MR. NICKENS) If you turn over to 9 the third page, Mr. Bentley -- and it's extremely 10 hard to read and I'm not going to go through all 11 of this in the detail that we've just done the 12 1985. But the Court looking back on this can see 13 what you were saying back in the beginning of 1984 14 about your situation, right? Mr. Bentley, what 15 you told the shareholders in 1984 and in 1985 was 16 just things had moved on a little further; isn't 17 that correct? 18 A. That's correct. 19 Q. Same basic themes had been identified 20 in 1984 as were expressed in 1985? 21 A. That's correct. 22 Q. Now -- and we can all read these at our 1918 1 leisure if we can get a magnifying glass. But let 2 me ask you about the next to the last paragraph 3 which refers to a Mary Grigsby. Who was Mary 4 Grigsby? 5 A. Mary Grigsby had been at one time the 6 chief executive officer of Houston First, and I 7 think maybe she was chairman of the board of First 8 American. She, at the conclusion of the merger, 9 became a vice president of -- a vice chairman of 10 United to serve one year. At the end of that 11 year, she had been nominated as a member of the 12 Federal Home Loan Bank Board and was in the 13 process, possibly had been confirmed by this time 14 in 1984, as a member of the Federal Home Loan Bank 15 Board in Washington. 16 Q. And had she served for some period of 17 time, a short period of time, as a director of 18 USAT? 19 A. Yes. She was a director when she was 20 the vice chairman for that time from the time of 21 the completion of the merger until she took the 22 bank board appointment. 1919 1 Q. Now, let me ask you to look back with 2 me to another one of these 10Ks which is at 3 A-3019. 4 MR. GUIDO: They only go through 18 in 5 my book. 19 through 22 are missing. They are not 6 in the A. Mr. Nickens, we've been looking for 7 those for about three hours in the A documents 8 that you produced to us. They don't appear to be 9 there. 10 MR. NICKENS: Well, Your Honor, I have 11 a copy that's labeled A-3019. I'm sure -- here's 12 an extra copy. 13 THE COURT: Is that A-3019. 14 MR. NICKENS: Yes, sir. 15 THE COURT: There is a copy in mine. 16 Q. (BY MR. NICKENS) Let me show you 17 that, Mr. Bentley. Can you identify that as 18 United Financial Group's Form 10K for the fiscal 19 year ended December 31, 1983? 20 A. Correct. 21 MR. NICKENS: And we would offer 22 A-3019. 1920 1 MR. GUIDO: No objection, Your Honor. 2 If we could have an extra copy so we could read 3 along with Mr. Nickens, we'd appreciate it. 4 THE COURT: Received. 5 Q. (BY MR. NICKENS) Mr. Bentley, I want 6 you to turn over to Page 5. Just a few points 7 here. You remember the chart we saw earlier about 8 your margin? 9 A. Yes. 10 Q. And what is reflected for what occurred 11 in 1983? 12 A. There was a slight improvement. There 13 was a deterioration in the -- no. There was an 14 increase in the yield on the loan portfolio. 15 There was an improvement in the weighted average 16 cost of money. 17 Q. And you had gone from a negative 1.22 18 to a positive 1.65? 19 A. 1.65, that's correct. 20 Q. And if we look over at the -- however, 21 if we look over at the next page which is Page 6, 22 your slow loans had substantially increased? 1921 1 A. That's correct. 2 Q. And if we go over to Page 8, your real 3 estate -- the number of real estate investments 4 that you had had increased to '95. 5 A. I'm on Page 7. Excuse me. 6 MR. GUIDO: What page was that again? 7 MR. NICKENS: Page 8. 8 Q. (BY MR. NICKENS) I don't remember the 9 exact number, but I believe it was about 67 the 10 prior year. So, you -- 11 A. Yes, that's right. It was 67. That 12 had increased to 95. 13 Q. And you were there disclosing that you 14 were going to possibly sell branch offices at the 15 bottom of Page 8, correct? 16 A. Correct. 17 Q. And if we go over to Page 13, on the 18 financial data, your loss on average common 19 stockholders equity -- down there towards the 20 bottom -- had substantially improved but was still 21 negative? 22 A. That's correct. 1922 1 Q. And your loss on Page 14 had 2 substantially improved but was still negative? 3 A. Correct. 4 Q. Now, you had -- you still had the same 5 accountants, Peat Marwick. Right? 6 A. Correct. 7 Q. And how about your personnel? What was 8 the status of the board on this 10K? 9 MR. GUIDO: You mean year end 10 December 31, '83? 11 MR. NICKENS: Yes, sir. And I'm going 12 to try and find that. 13 A. The last page is the signatures. 14 Q. (BY MR. NICKENS) Yes, sir. If we 15 look at page -- or the page following 45, we have 16 a list of the signatures of the board of 17 directors, right? 18 A. Correct. 19 Q. Okay. Now, the first one is yourself. 20 The second one is Mr. Williams who you've 21 described, right? 22 A. Right. 1923 1 Q. And Mr. Crow who you have described, 2 correct? 3 A. Yes. 4 Q. And then -- 5 A. Larry Trevino, controller. 6 Q. And then -- these are officers that are 7 being described there? 8 A. The first four are officers. 9 Q. And then the next one is Mr. Burton 10 Borman? 11 A. Right. 12 Q. Who was Mr. Borman? 13 A. Mr. Borman had been chairman of 14 PennCorp and came to our board in connection with 15 the merger with First American. 16 Q. And how did he come to be on the board? 17 A. It was by agreement of their retaining 18 preferred stock in the company. 19 Q. Did that have anything to do with -- as 20 far as you know with the respondents in this 21 matter? 22 A. No. 1924 1 Q. Now, was he a responsible person in 2 your observation? 3 A. Yes. 4 Q. Independent person? 5 A. Yes. 6 Q. Substantial person? 7 A. Yes. 8 Q. What -- tell the Court what PennCorp 9 was. 10 A. PennCorp was largely an insurance 11 company or a holding company for an insurance 12 company. It was a company traded -- whose stock 13 was traded on the New York Stock Exchange, 14 substantial net worth. 15 Q. How about Mr. Campbell? Who was he? 16 A. Mr. Campbell was a director from 17 Abilene and a substantial shareholder. 18 Q. Was this a person that you had 19 recruited onto the board? 20 A. Yes. 21 Q. He had been on the board before 1982, 22 correct? 1925 1 A. That's correct. 2 Q. And why had he gone off the board? 3 A. There was a time when we reduced the 4 size of the board and then it was re-expanded and 5 he went off a few years previous and came back on 6 at our request in '84. 7 Q. And then -- 8 A. In '83. 9 Q. We had Mr. Hurwitz. Mr. Keltner we've 10 described. Mr. Kozmetsky. 11 A. Yes. 12 Q. Now, did you come to know 13 Mr. Kozmetsky? 14 A. Yes. 15 Q. Was he a substantial person? 16 A. Yes, he was. 17 Q. What is his background as you 18 understood it? 19 A. He was co-founder in a large 20 publicly-traded company and he had been head of 21 the business school at the University of Texas and 22 a noted author and entrepreneur. 1926 1 Q. In your observation of Mr. Kozmetsky, 2 was he the sort of person that took orders from 3 people? 4 A. No. No, he was not. 5 Q. He had a mind of his own? 6 A. Yes. 7 Q. Expressed himself well? 8 A. Yes. 9 Q. Didn't hesitate to do so? 10 A. No. 11 Q. Dr. LeMaistre we've talked about. 12 Mr. Munitz is next on the list that we've talked 13 about. I'm just never going to get this. 14 Putegnat? 15 A. Putegnat. 16 Q. Putegnat. Mr. Silverman, he's next on 17 the list. Who was Mr. Silverman? 18 A. He was an attorney with PennCorp. 19 Q. And how did he come to be on the board? 20 A. By negotiations in connection with the 21 First American acquisition. And the same thing is 22 true for Barry Sterling who is the next listed. 1927 1 Q. With regard to these people, did you 2 observe them while they were members of the board 3 of directors? 4 A. Yes, I did. 5 Q. Were they independent people? 6 A. Yes, they were I beg your pardon 7 penitentiary. 8 Q. Substantial people? 9 A. I would say so. 10 Q. Do you know what they are doing today? 11 A. I have no idea. 12 Q. Mr. Whatley we've described before. 13 He's been on the board for a long time. Right? 14 A. Right. 15 Q. And then Mr. Winters, who was 16 Mr. Winters? 17 A. Mr. Winters had been the chief 18 executive officer of First -- of a holding company 19 and of Houston First. 20 Q. And he's the one that you and Mr. Coles 21 negotiated the acquisition of First American with? 22 A. Well, it was initiated with him and he 1928 1 was the prime mover behind it. 2 Q. Did you know of him -- for him to have 3 had any connections with Mr. Hurwitz or Federated 4 or MCO? 5 A. Not that I know of, no. 6 Q. Was he a person of his own mind? 7 A. Yes. 8 Q. And expressed himself when he disagreed 9 with things? 10 A. Yes. 11 Q. Was there anybody on this board that 12 you would not so characterize? 13 A. Oh, I would say that Barry Munitz was 14 beholden somewhat and didn't represent himself as 15 such. 16 Q. And you're saying beholden. He was an 17 employee of Federated? 18 A. That's correct. 19 Q. And he was on there, as you have 20 indicated, designated to represent Federated? 21 A. That's correct. 22 Q. Now, this is what, a 16- or 17-person 1929 1 board? 2 A. Yes. 3 Q. Other than Mr. Munitz, is there anybody 4 on there that you would identify as not expressing 5 themselves when the time came to do so? 6 A. No. 7 Q. Now, having a 16- or 17-person board, 8 does that create some management problems? 9 A. Logistically, yes. It was a little 10 high. 11 Q. And is one of those problems that you 12 can't just have a meeting at the drop of a hat? 13 A. That's correct. 14 Q. And as a result -- how did you deal 15 with that problem of having a 16-person board? 16 A. Well, following a certain period, we 17 reduced the size of the board. I have 18 forgotten -- maybe at the end of '84 we reduced 19 the size of the board. 20 Q. Well, was one of the things you did to 21 delegate more of the activities to the executive 22 committee? 1930 1 A. Yes. That was done, I believe, in '85 2 where a large part of the board's -- what had been 3 the board's obligation was delegated to the 4 executive committee. I don't recall the date of 5 that occurrence. 6 Q. Now, with regard to the hiring of 7 Mr. Williams, Mr. Whatley had been on the board of 8 First City or was on the board of First City. Did 9 he approve of the hiring of Mr. Williams? 10 A. Yes, he did. 11 Q. Did he know Mr. Williams? 12 A. I recall that he did, yes. 13 Q. Now, Mr. Bentley, I'm going to ask you 14 some questions about some of the minutes and 15 although this is an imposing list, maybe we can 16 move through here chronologically and note for the 17 Court some of the developments in the company. 18 I'd like to start, if we might, with 19 Exhibit A-1038 which is the minutes of January 28, 20 1981. It should be right here at the beginning. 21 A. 10 -- 22 Q. 1038. And can you identify that as the 1931 1 minutes of the board of directors of United 2 Savings of January 28, 1981? 3 A. Yes. 4 MR. NICKENS: Your Honor, at this time 5 we offer Exhibit A-1038. 6 MR. GUIDO: No objection, Your Honor. 7 THE COURT: Received. 8 Q. (BY MR. NICKENS) Let me ask you to 9 look over at the sixth page which is -- down at 10 the bottom, it says 6977. And which law firm did 11 you have in San Antonio at the beginning of 1981? 12 A. It appears to be Oppenheimer, 13 Rosenberg, Kelleher & Wheatley. 14 Q. Same one we showed in 1982, correct? 15 A. Correct. 16 Q. Then let me ask you to look over at 17 page -- and I know this is difficult to read, but 18 it looks like it's 6983. 19 A. Is that in this group? 20 Q. Yes, sir. I think -- I'm not sure. 21 There it is. 6983 and it's the third paragraph 22 from the bottom. "The board discussed the 1932 1 scheduled items report. Mr. Bentley explained the 2 pending sale to Dean Couch that should 3 substantially reduce REO in Houston. The sale 4 would involve a trade of REO for earning assets 5 and some loan may be eligible for CIF investment," 6 correct? 7 A. Yes. 8 Q. Is that what we had discussed earlier 9 about the efforts to reduce REO by trading Couch 10 mortgages? 11 A. That's correct. 12 Q. And this was something that started 13 back early part of 1981, right? 14 A. Well, actually, it had started prior to 15 that but on any kind of a basis, a dollar basis -- 16 well, I don't recall. 17 Q. Okay. 18 A. But in all likelihood, this type of 19 activity started accelerating in dollars about 20 that time. 21 Q. Okay. And, in fact, that was examined 22 by the regulators, was it not? 1933 1 A. That's correct. 2 Q. And I want to refer you to Exhibit 3755 3 which -- it's going to be right over here at the 4 end. You have 3755 in front of you? 5 A. Yes, I do. 6 Q. And can you identify that as a letter 7 from -- B3755 as a letter from Robert F. Chieffalo 8 to E. Shelton Miles, assistant district director, 9 on the letterhead of the Federal Home Loan Bank 10 Board dated February 4th, 1982? 11 MR. NICKENS: We would offer 12 Exhibit B3755, Your Honor. 13 THE COURT: Received. 14 MR. GUIDO: Your Honor, we don't -- 15 THE COURT: I'm having trouble finding 16 it. 17 MR. GUIDO: I don't have a copy of it 18 either. 19 Q. (BY MR. NICKENS) Now, this indicates 20 that there had been an examination of the 21 institution at the end of 1981, correct? 22 A. That would be correct. 1934 1 Q. And as of the date of this report, it 2 says "We have accumulated 399 man days since 3 commencing the examination November 3rd, 1981," 4 right? 5 A. Yes. 6 Q. And they were commenting on two 7 transactions with Couch Mortgage in their No. 1 8 comment, right? 9 A. Correct. 10 Q. Now, this was long before Federated had 11 made any investment in UFG, right? 12 A. I believe that's correct. 13 Q. Well, let me correct the record. This 14 was at about the same time you had first became 15 aware of any investment by Federated, correct? 16 A. That could be, yes. 17 Q. And these Couch mortgages -- 18 transactions didn't have anything to do with 19 Federated, Mr. Hurwitz, or any of the other 20 respondents, right? 21 A. That's correct. 22 Q. Now, let me ask you to -- 1935 1 A. I was totally unfamiliar with these 2 memos, of course, but I will acknowledge the facts 3 in them. 4 Q. Sure. I understand. Let me ask you to 5 look over -- and this is going to be back on the 6 other side -- to A-1056 which has been admitted as 7 Tab 108. 8 MR. NICKENS: Your Honor, this won't be 9 in our book because it has been already admitted. 10 And it's the minutes of UFG of May 27th, 1982. 11 MR. GUIDO: Is that Exhibit A-1056? 12 MR. NICKENS: A-1056. 13 Q. (BY MR. NICKENS) Mr. Guido asked you 14 about this, and I'm going to try to avoid 15 repeating that. But is this the minutes in which 16 it's reflected about the pending discussions with 17 First American Financial? 18 A. Yes. 19 Q. And that didn't have anything to do, 20 Mr. Bentley, with the respondents in this 21 matter -- that is, the initial discussions and 22 leading up to an agreement to merge? 1936 1 A. That's correct. 2 Q. And, in fact, the only role of the 3 respondents was to assist you in that merger; 4 isn't that correct? 5 A. That would be correct. 6 Q. And that was in acquiring a certain 7 block of shares, a large block of shares that was 8 owned by someone in Ohio? 9 A. Correct. 10 Q. And was that something you approved or 11 disapproved of? 12 A. Approved. 13 Q. And did that acquisition have the 14 beneficial effect of avoiding dilution of the 15 other shareholders? 16 A. Yes, it would have. Potential 17 dilution. 18 Q. Let me ask you to look at A-12014. 19 It's toward the back of the book, 12014. A-12014, 20 12014. 21 A. Got you. 22 MR. NICKENS: Your Honor, it's possible 1937 1 that some people may not have this because this 2 was added early this morning. And I'll just go 3 ahead and -- 4 THE COURT: I seem to have it. 5 MR. NICKENS: Thank you. 6 Q. (BY MR. NICKENS) Do you have that in 7 front of you, Mr. Bentley? 8 A. Yes, I do. 9 Q. Are those the minutes of 10 United Financial Group dated June 24, 1992? 11 A. Correct. 12 Q. Is that your signature on the second 13 page along with Mr. Pledger's? 14 A. Yes. 15 MR. NICKENS: We offer Exhibit A-2014, 16 Your Honor. 17 MR. GUIDO: No objection, Your Honor. 18 THE COURT: Received. 19 Q. (BY MR. NICKENS) Now, Mr. Bentley, 20 did there come a time when Mr. Hurwitz or 21 Mr. Munitz indicated to you that Federated would 22 like to increase its investment in UFG? 1938 1 A. Yes. 2 Q. And one way of doing so would have been 3 to buy treasury stock, correct? 4 A. Correct. 5 Q. And was it proposed by the company to 6 Mr. Hurwitz or Mr. Munitz that that would be one 7 way of increasing their investment? 8 A. I don't recall that. 9 Q. Let me ask you to look at the bottom of 10 Exhibit A-2014 where it says "Mr. Coles met 11 earlier with Mr. Charles Hurwitz of Federated and 12 it appears that Federated would be amenable to 13 purchasing the stock from the company rather than 14 on the open market. Mr. Coles discussed asking 15 shareholders to approve a rights offering at a 16 special meeting which would be called to approve 17 the merger. The offering would be a one for four 18 offering of two million shares at $3 per share. 19 Federated Reinsurance would underwrite the 20 offering and agree to purchase up to 1.7 million 21 shares. Mr. Coles said this alternative would be 22 reviewed carefully. Mr. Whatley suggested that 1939 1 the company should obtain an opinion from an 2 investment banker as to the effect on the market 3 price of United Financial Group Inc.'s shares if 4 Mr. Hurwitz decided to purchase this volume of 5 shares in the open market." 6 Now, does that refresh your 7 recollection as to those conversations? 8 A. It really doesn't. 9 Q. Sir, I guess we're all -- do you have 10 any reason to believe -- 11 A. I don't have any reason to disbelieve 12 it. I just don't specifically recall. 13 Q. It's been a long time ago. That was 14 over 15 years ago, right? 15 A. Yes, sir. 16 Q. Now, if Federated bought shares from 17 treasury, those funds would go directly into the 18 company, wouldn't they? 19 A. That's correct. 20 Q. This was, like, a 5 million-dollar 21 capital infusion that's being discussed? 22 A. That would be correct. 1940 1 Q. And as opposed to buying on the open 2 market where the money would not go to the 3 company, right? 4 A. That's correct. 5 Q. And instead, it would be likely that 6 that purchase of that size would increase the 7 price of the stock? 8 A. I don't recall what the stock might 9 have been at that time. 10 Q. Would it be your supposition anyway 11 that a purchase of 1.7 million shares would likely 12 increase the demand for the stock? 13 A. I don't have an opinion. 14 Q. Well, in fact, you were seeking advice 15 from an investment banker on that very point, 16 right? 17 A. That's correct. 18 Q. But it was the company that didn't want 19 Mr. Hurwitz -- ultimately decided not to sell 20 shares directly to Mr. Hurwitz or Federated? 21 A. I believe I've read that somewhere in 22 the minutes. 1941 1 Q. Now, why was that? 2 A. I don't know. I don't recall without 3 reviewing it. 4 Q. Let me ask you -- and hopefully, we 5 can -- I would like to ask you to look over at 6 A-1058 which as we would know is at the beginning. 7 1058, the minutes of the board of directors of 8 United Savings Association of Texas of June 24th, 9 1982. 10 A. Got you. 11 MR. NICKENS: Your Honor, we offer 12 Exhibit A-1058. 13 MR. GUIDO: No objection, Your Honor. 14 THE COURT: Received. 15 MR. NICKENS: Do you have your copy, 16 Your Honor? 17 THE COURT: I'm looking. Yes. 18 Q. (BY MR. NICKENS) Okay. Mr. Bentley, 19 I'm going to draw your attention if I might to the 20 fourth line where Mr. Coles reviewed the financial 21 reports for May which showed a net loss of 3.49 22 million for the month. Do you see that? 1942 1 A. Yes, I do. 2 Q. And so, this -- we've come back and 3 forth some. We're back in the period of mid-1982 4 where things were not going well for 5 United Financial Group. Right? 6 A. Right. 7 Q. And to sort of get an idea of the 8 genesis of this, if you turn over to the next to 9 the last page, do you see a discussion there 10 concerning a branch sale that had been done by 11 another savings and loan in California? 12 A. Yes. 13 Q. Mr. Coles is commenting on how it was 14 done and the benefits it provided? 15 A. Yes. 16 Q. And Mr. Coles said -- Mr. Coles asked 17 whether the board was interested in such a 18 transaction. Mr. Whatley suggested that a pro 19 forma of the transaction be developed and then if 20 feasible the association should ascertain whether 21 it could obtain an expression of interest from a 22 potential buyer? 1943 1 A. Correct. 2 Q. And was this the genesis of the 3 interest in branch sales? 4 A. I presume it was or led to it. 5 Q. And this was before any of the 6 respondents had any -- I mean, you were aware had 7 anything to do with it; is that correct? 8 A. That's correct. 9 Q. Let me ask you to turn to 1059. 10 A. Okay. 11 Q. And that is the minutes of the board of 12 directors of United Savings of July 29th, 1982. 13 MR. NICKENS: And we offer it at this 14 time, Your Honor. 15 MR. GUIDO: No objection, Your Honor. 16 THE COURT: Received. 17 Q. (BY MR. NICKENS) And it indicates in 18 the fourth paragraph, "The financial report for 19 June showed that the company sustained a 20 55,000-dollar profit for the month of June." 21 Do you see that? 22 A. Yes. 1944 1 Q. Now, how do you go about sustaining a 2 profit? 3 A. I don't know. 4 Q. The -- 5 A. I thought you meant that was the end 6 result. 7 Q. Okay. Well, if you look down at the 8 next paragraph, you'll see that it -- or two 9 paragraphs, I guess, after the one-line paragraph 10 where it says Mr. Shoup entered, "The 2.5 million 11 in extraordinary income included approximately 1.7 12 million from the sale of Hastings Green, 800,000 13 for the sale of the regional office building in 14 Corpus Christi, and an adjustment due to the 15 higher dividend from the Federal Home Loan Bank of 16 Little Rock than was expected." 17 So, your profit had resulted from some 18 extraordinary gains? 19 A. That's correct. 20 Q. Now, was this indicative of the types 21 of things that you were having to do to survive 22 back in July of 1982? 1945 1 A. Correct. 2 Q. Has anyone ever suggested to you that 3 there was something wrong with what you did in 4 that regard? 5 A. No. 6 Q. Now -- and if you'll just turn over to 7 the next to the last page, you'll see there is 8 another discussion about branch sales? 9 A. Yes. 10 Q. Without going into every word, you're 11 talking about issuing a cash flow mortgage-backed 12 bond for $43.7 million carrying a rate equal to 13 the yield on the deposits plus an additional 14 spread of approximately 1 percent? 15 A. That's correct. 16 Q. And it goes on to say that these kinds 17 of sales had been pioneered by Goldman Sachs and 18 their fee for the work is $150,000. You see that? 19 A. Yes. I don't recall it, but I see it. 20 Q. And you -- it says here "Mr. Coles said 21 that this would improve the association's net 22 worth cushion and should defer any need for an 1946 1 accelerated sale of a portion of Randolwood to 2 improve net worth. The sale of branches should 3 not impact the Abilene operations because these 4 branches are in outlying areas." Now -- but to 5 finance this transaction, you had to issue bonds, 6 right? 7 A. That's correct. 8 Q. Through an investment banker? 9 A. Their being involved in the issuance of 10 bonds. My recollection is -- and I certainly will 11 be corrected by this -- I thought that we 12 exchanged secured notes and it's possible that it 13 was required that we get a statement of fairness 14 or something from a brokerage house. I just don't 15 remember the details. 16 Q. All of this occurring before any 17 involvement from any of the respondents in this 18 matter? 19 A. That's correct. 20 Q. Let me ask you to turn over to A-12015. 21 Now, can you identify A-12015? 22 A. Yes. 1947 1 Q. As the board minutes for UFG of 2 July 29, 1982? 3 A. Yes. 4 Q. And on the second page is it reflected 5 it's signed by and you Mr. Pledger? 6 A. Yes. 7 MR. NICKENS: Your Honor, at this time, 8 we offer A-12015. 9 MR. GUIDO: No objection, Your Honor. 10 THE COURT: Received. 11 Q. (BY MR. NICKENS) Let me direct your 12 attention, Mr. Bentley, to the second page, next 13 to the last paragraph. "The board discussed the 14 decisions reached at the recent executive 15 committee meeting and Mr. Coles pointed out that 16 the committee concluded that it was not a good 17 time to sell common stock due to its current 18 market price and it decided not to approve an 19 offering to Federated Reinsurance." 20 A. Yes, I see that. 21 Q. Now, that decision was made in the 22 executive committee. Right? 1948 1 A. Apparently so. 2 Q. And it was brought to the board and 3 discussed about what the views of the executive 4 committee were -- 5 A. Correct. 6 Q. -- correct? Was there anything unusual 7 about that process in your experience? 8 A. No, it was not at that time. 9 Q. And do you have any recollection about 10 the reasons why the company preferred to have 11 Federated make its investment by purchasing stock 12 on the open market as opposed to buying shares 13 from the company? 14 A. I do not recall specific discussion of 15 the subject. It would be less dilutionary if 16 bought in the public. 17 Q. And you might get some complaints from 18 other shareholders? 19 A. That's correct. 20 Q. From -- okay. 21 MR. NICKENS: Your Honor, if this is an 22 appropriate time to take our afternoon break, I'm 1949 1 moving to another document. 2 THE COURT: All right. We'll take a 3 short recess. 4 5 (A break was taken at 2:47 p.m.) 6 7 THE COURT: Back on the record. 8 Mr. Nickens, you may continue with your 9 cross-examination. 10 MR. NICKENS: Thank you, Your Honor. 11 Mr. Guido? Should I proceed, Your Honor? 12 THE COURT: Yes, you may. 13 MR. RINALDI: He'll be right back. 14 (3:07 p.m.) 15 Q. (BY MR. NICKENS) Mr. Bentley, let me 16 ask you to look at what has been previously 17 admitted as Exhibit 10523 and identified in the 18 record as Tab 110. And that is the minutes of 19 United Savings Association of Texas of 20 September 23rd, 1982. 21 Mr. Bentley, this was Dr. Munitz's 22 first meeting -- first board meeting that he had 1950 1 attended, correct? 2 A. Yes. I recall that from last week. 3 Q. And it was also where you finalized the 4 merger with First American? 5 A. I believe that's correct. 6 Q. And Dr. Munitz abstained. Did you 7 think that was appropriate or inappropriate since 8 that was his first meeting? 9 A. I didn't give any thought. I don't 10 know what was behind it. 11 Q. And this is also where, if you look 12 over at the last page, there is some discussion in 13 your direct with the Nu-West investment. And do 14 you see there at the top of the page, it says "The 15 appraisal of the Nu-West property in Florida has 16 been completed and Mr. Coles said the association 17 was proceeding with the discussions regarding the 18 purchase of that property through a 19 mortgage-backed bond at the association level and 20 a preferred stock issuance at the holding company 21 level." You see that? 22 A. That's correct. 1951 1 Q. So, the Nu-West investment had been 2 made before Dr. Munitz -- or had been started 3 before Dr. Munitz ever attended a board meeting? 4 A. I believe that's correct. 5 Q. And was this Nu-West investment 6 something that Mr. Coles shepherded? 7 A. It's my opinion that's correct. 8 Q. Now, let me ask you to look over at 9 Exhibit A-1067. And I have turned in your book 10 there. And it purports to be the minutes of the 11 board of directors of United Savings Association 12 of Texas of a meeting occurring on January 25, 13 1983. 14 A. Correct. 15 Q. And did you -- 16 MR. GUIDO: What's that number again? 17 MR. NICKENS: It's A-1067. 18 Q. (BY MR. NICKENS) If you turn over to 19 Page 15, is that your signature along with 20 Mr. Pledger's? Page 15. 21 A. Yes. 22 MR. NICKENS: And we offer, Your Honor, 1952 1 A-1067. 2 MR. GUIDO: No objection, Your Honor. 3 THE COURT: Received. 4 Q. (BY MR. NICKENS) Now, in this 5 document, Mr. Bentley, we identify again for -- at 6 the beginning of 1983 the people in charge of the 7 management of the company, of the institution. 8 Right? 9 A. Correct. 10 Q. And it's basically the same people we 11 saw for '82, right? 12 A. Correct. 13 Q. We've got yourself and Mr. Coles, 14 Mr. Barrett, Mr. Trevino, Larry Inman, 15 Mr. Dawson, Mr. Ballard, Mr. Childress, Mr. Graham, 16 Mr. Ott? 17 A. Correct. 18 Q. And then if you look over on Page 5, 19 you see that the loan committee -- 20 A. Yes. 21 Q. And on the next page after the senior 22 loan committee is identified, it states "The board 1953 1 of directors of United Savings Association of 2 Texas hereby delegates to the senior loan 3 committee the responsibility to approve all loans. 4 The senior loan committee is authorized to appoint 5 and delegate to the regional vice president 6 certain criteria for their action." 7 A. Yes. 8 Q. Was that the policy of United Savings 9 as of January, 1983? 10 A. Correct. 11 Q. And so, there were no limitations on 12 the amount of the loan that the senior loan 13 committee could make? 14 A. Does not appear to be. 15 Q. Let me ask you to look over to page -- 16 A. There are some guidelines in this. 17 Q. Yes, sir. And they are set out there 18 in the document for all. But as far as an amount, 19 at this point in time, there was no limitation on 20 the amount of the loan that the senior loan 21 committee could make? 22 A. That's correct. 1954 1 Q. Without having to come back to the 2 board? 3 A. Right. 4 Q. Now, let me ask you to look over to 5 Page 13. 6 A. Mine doesn't extend beyond Page 8. 7 Q. Let's see what's happened here. 8 MR. NICKENS: Your Honor, let me 9 explain. I don't know where we are on the copies. 10 But there was a version of A-1067 which was an 11 eight-page document which I believe to be 12 incomplete. The complete document is 15 pages. 13 But I don't know what's made into the various 14 copies. Does your copy end at eight? 15 THE COURT: All I have is eight. 16 MR. NICKENS: I will supply -- I'm 17 going to ask just one question, if I might, Your 18 Honor, and I will supply everybody with a copy. I 19 just want to ask him about that. 20 A. I remember seeing the minutes 21 somewhere. 22 Q. (BY MR. NICKENS) I have one question 1955 1 or a couple of questions about the Warwick Towers 2 loan, Mr. Bentley, which is discussed at Page 13 3 on my copy of A-1067. You see there -- and I've 4 highlighted it -- that it says "Mr. Coles reported 5 that a substantial transaction is being negotiated 6 with U.S. Homes and that this business has 7 traditionally gone to Gibraltar Savings. A 25 8 million-dollar end loan of the Warwick Towers with 9 two points in fees in advance of close is also 10 anticipated." 11 Do you see that? 12 A. Yes, I do. 13 Q. Was there is anything wrong, to your 14 knowledge, of collecting two points in fees in 15 connection with that loan? 16 A. I know of none. 17 Q. Was there an effort made to get points 18 at this point in time during the business of 19 United Savings? 20 A. Yes, there was. 21 Q. Now, let me ask you to look, 22 Mr. Bentley, at Tab 115. 1956 1 MR. NICKENS: Which, Your Honor, is 2 Exhibit A-10530, the minutes of UFG of May 26th, 3 1983. 4 MR. GUIDO: The number again? 5 MR. NICKENS: A-10530. It's Tab 115 in 6 the other book. It is Tab 115 or A-10530 and I 7 will say for the record Tab 115 has a page 8 attached to the front but if you go to the second 9 page, you'll see that it's the minutes of the 10 board of directors of UFG of May 26, 1983. 11 MR. GUIDO: Within the tab, there are a 12 number of other minutes. Are you offering those. 13 MR. NICKENS: This has already gone in, 14 Tab 115. I'm just going to ask about -- pardon 15 me, Your Honor -- this right here. 16 MR. GUIDO: No objection, Your Honor. 17 THE COURT: Received. 18 Q. (BY MR. NICKENS) Now, this was the 19 first meeting at which you had gotten your new 20 directors as a result of the American Financial 21 merger, correct? 22 A. Correct. 1957 1 Q. And I believe Mr. Guido asked you about 2 this document. And I just want to refer you to 3 the fifth page over, Mr. Bentley. It's the -- at 4 the side, it says K -- you see there is a 5 paragraph, first full paragraph that starts 6 "Mr. Bentley also reported"? 7 A. Correct. 8 Q. And they are talking -- you're talking 9 about there about option shares? 10 A. Yes. 11 Q. And it notes that Mr. Hurwitz and 12 Dr. Kozmetsky agreed that continuing options with 13 delayed vesting provides a tremendous incentive 14 and enhances continuity of management. Do you see 15 that? 16 A. Yes. 17 Q. And it comes after Dr. Munitz had 18 explained that he had opposed or voted against the 19 grants because the options vested immediately? 20 A. Yes. 21 Q. And he believed that a major purpose of 22 such options should be to provide key employees 1958 1 with an incentive to continue to work for the 2 company? 3 A. Yes. 4 Q. Now, do you believe that to be correct? 5 I mean, when you have an option, if it vests 6 immediately, you can sell the shares and leave the 7 company? 8 A. That's correct. 9 Q. And one of the purposes of the -- these 10 executive options is to try to encourage people to 11 stay with the expect and to make those options 12 more valuable, right? 13 A. That's correct. 14 Q. So, was Dr. Munitz's position 15 unreasonable in your view? 16 A. I do not recall the discussion at all 17 but from the minutes, I would not disagree with 18 that position. 19 Q. Then down below a couple of paragraphs, 20 Mr. Guido asked you about this. It says 21 "Mr. Hurwitz asked what planning had taken place 22 in the area of corporate direction and strategy." 1959 1 A. I have it. I see it. 2 Q. Is there anything wrong with raising 3 the question of strategy or corporate direction? 4 A. No. 5 Q. Did the institution need direction at 6 that point in time? 7 A. It would have been helpful. 8 Q. Let me ask you to look at Tab 119 which 9 is also identified in the record as A-1087 and has 10 been -- is the November 10th, 1983, minutes of 11 United Savings Association of Texas. 12 A. Okay. 13 Q. And let me ask you to look over at the 14 fourth page. 15 A. Okay. 16 Q. It says "On motion by Mr. Campbell and 17 seconded by Ms. Grigsby, the following resolutions 18 were approved. No. 1, that the board of directors 19 of United Savings Association of Texas hereby 20 delegates to the senior loan committee the 21 responsibility to approve all loans." 22 That's the same delegation that we saw 1960 1 earlier in the year, correct? 2 A. Correct. 3 Q. And it was just -- the policy was just 4 continued on motion by Mr. Campbell and seconded 5 by Ms. Grigsby? 6 A. Correct. 7 Q. Now, let me ask you to turn over to the 8 second page. This is reflecting Mr. Coles' 9 resignation, correct? 10 A. Correct. 11 Q. And it says "Whereas Mr. Coles has been 12 the driving force of United Financial Group and 13 United Savings during all of the years he served 14 the company, culminating in the merger of the 15 companies with Houston First American Savings 16 Association and First American Financial of Texas 17 and leaving United with 3.4 billion in assets, the 18 second largest S&L in the State of Texas and among 19 the 50 largest S&Ls in the nation." 20 Now, was there anything wrong with 21 Mr. Coles being the driving force of 22 United Financial Group? 1961 1 A. No. 2 Q. What did that mean exactly? 3 A. I don't really recall. I know that the 4 thrust of the resolution was to commend Mr. Coles 5 for his leadership during the time he headed the 6 association and the holding company. 7 Q. He had good ideas and he put them forth 8 and tried to get them instituted? 9 A. Correct. 10 Q. Anybody ever suggest that that was 11 something that, as the driving force, he shouldn't 12 be doing? 13 A. No. 14 Q. Now, Mr. Coles had an employment 15 contract; isn't that correct? 16 A. That is correct. 17 Q. And I believe that employment contract 18 is attached to some of the 10Ks that we've looked 19 at; but rather than going back there, isn't it 20 correct that under that contract, it was a three 21 year contract? 22 A. That's correct. 1962 1 Q. And it was -- at the end of the 2 expiration of the first year, it was extended for 3 another year? 4 A. I believe that's correct. 5 Q. So, it went into the future for another 6 year? 7 A. Yes. 8 Q. And if he left the company for any 9 reason other than disability or for being fired 10 for cause, he got paid his entire contract? 11 A. Correct. 12 Q. For the entire three years? 13 A. That's correct. 14 Q. Now, did anyone ever suggest that that 15 was improper compensation for Mr. Coles? 16 A. Not to my knowledge. 17 Q. And the board as reflected in this 18 meeting voted that he be paid his entire 19 compensation upon his resignation, correct? 20 A. I believe that's correct. 21 Q. And that the terms were to be liberally 22 interpreted so as to provide him with all benefits 1963 1 due him? 2 A. Correct. 3 Q. Now, at the time Mr. Coles left, was 4 the institution having difficulty? 5 A. Difficulty with -- consistent with what 6 we have discussed. 7 Q. Yes, sir. There were hard times but 8 you had some hopes for the future? 9 A. Correct. 10 Q. And you were doing whatever you could 11 to address those problems? 12 A. Correct. 13 Q. But did anyone ever suggest that it was 14 inappropriate to pay Mr. Coles the entire amount 15 of his contract under these circumstances? 16 A. Not to my recollection. 17 Q. Let me ask you to look over at Tab 125 18 which is Exhibit A-1090. It is in the record, and 19 it's the board of directors minutes for United 20 Savings for January 25, 1984. Now, this is the 21 beginning of 1984, Mr. Bentley, correct? 22 A. That's correct. 1964 1 Q. And let me draw your attention to the 2 "On motion by Dr. LeMaistre and seconded by 3 Mr." -- 4 A. Putegnat. 5 Q. -- "Putegnat." By the time this is 6 over, I'll be able to do it and then I won't have 7 any use for it for the rest of my life. Putegnat. 8 "The following resolution was unanimously 9 approved. No. 1, whereas it is the intention of 10 the board of directors of United Savings 11 Association of Texas to have certain matters which 12 would come before the entire board of directors be 13 brought before a lesser number of directors and 14 that these matters be acted upon by a lesser 15 number of directors constituting a committee with 16 the same effect as if acted upon -- acted on by 17 the entire board which shall include but not be 18 limited to the intent to declare dividends on its 19 capital stock and the actual deck layerings of 20 dividends on its capital stock." You see that? 21 A. Correct. 22 Q. So, it was in the beginning of 1984 1965 1 shortly after the culmination of the First 2 American merger that this delegation to an 3 executive committee occurred? 4 A. I believe that's correct. 5 Q. And did that have anything to do with 6 the fact that you were then dealing with a 7 16-person board? 8 A. Yes. 9 Q. Now, let me ask you if you would to 10 turn to Tab 127 which is A-1092. 11 MR. GUIDO: What's the tab again. 12 MR. NICKENS: 127. And, Your Honor, 13 this is the United Financial Group's minutes of 14 February 28, 1984. 15 Q. (BY MR. NICKENS) Now, I'd like to 16 draw your attention if you would, Mr. Bentley, to 17 Page 4 of 7 at the top. 18 A. Okay. 19 Q. It indicates a resolution there that 20 the board of directors hereby ratifies and 21 approves the action taken by the association in 22 hiring Solomon Brothers and Goldman Sachs to 1966 1 analyze, prepare for, and identify potential 2 purchasers for the sale of certain branches of the 3 association? 4 A. Correct. 5 Q. And was that done? 6 A. Yes. 7 Q. Now, who suggested Goldman Sachs and 8 Solomon Brothers for this purpose? 9 A. I do not recall. 10 Q. And did Mister -- did Dr. Munitz insist 11 that you hire Drexel? 12 A. I do not recall the conversation 13 leading up to this. 14 Q. In any event, the association hired 15 these competing investment bankers for this 16 purpose? 17 A. Correct. 18 Q. And it goes on to say down below that 19 the board discussed the proposed rights offering? 20 A. Correct. 21 Q. You see that? Now, that was a 22 preferred -- convertible preferred that was 1967 1 underwritten by MCO and Federated to provide new 2 capital to the institution, wasn't it? 3 A. That's correct. 4 Q. And who was the -- who was the 5 investment banker hired by the association for 6 that transaction? 7 A. Apparently Goldman Sachs. 8 Q. And did Mister -- Dr. Munitz or anybody 9 else insist that you consider Drexel for that 10 purpose? 11 A. Not that I recall. 12 Q. Let me ask you to look at Exhibit 13 A-1193. And it will be in the book here with any 14 luck. And it purports to be the minutes of the 15 meeting of the executive committee of the board of 16 directors of United Financial Group of May 3rd, 17 1984, correct? 18 A. Correct. 19 MR. NICKENS: And we offer Exhibit 20 A-1193, Your Honor. 21 MR. GUIDO: No objection. 22 THE COURT: Received. 1968 1 Q. (BY MR. NICKENS) Let me ask you to 2 turn your attention, Mr. Bentley, to the second 3 page where it is recorded that "The committee 4 discussed the plans to sell the association's 5 portion of the Marriott loan" -- this is May 3rd, 6 1984 -- "and the possible sale of servicing. 7 Several bids were expected soon for the sale of 8 servicing and Mr. Hurwitz recommended that we 9 properly analyze whether we should sell servicing. 10 Mr. Williams pointed out that the primary reason 11 the sale of servicing was being considered was to 12 relieve the back office workload." 13 Do you see that? 14 A. Yes, I do. 15 Q. Now, was there anything wrong to your 16 recollection in the suggestion that you properly 17 analyze the sale of servicing? 18 A. No. 19 Q. Did you see some sinister purpose to 20 the suggestion there by Mr. Hurwitz that you 21 analyze before you sell the servicing? 22 A. No, I did not. 1969 1 Q. Now, there was some -- in your direct 2 testimony, you were asked about Mr. Hurwitz and 3 Dr. Munitz attending executive committee meetings, 4 right? 5 A. Correct. 6 Q. They were on the executive committee, 7 right? 8 A. Correct. 9 Q. They were supposed to attend the 10 executive committee, right? 11 A. That's correct. 12 Q. Was there anything that suggested to 13 anybody that you're aware of sinister or wrong 14 with the fact that they attended the meetings of 15 the committees on which they served? 16 A. No. 17 Q. Let me ask you to turn to Exhibit 1096. 18 It's A-1096. Mr. Bentley, A-1096 purports to be 19 the minutes of the board of directors of United 20 Savings Association dated June 27th, 1984? 21 A. Correct. 22 Q. And it's signed by you and Mr. Pledger 1970 1 on the third page? 2 A. Correct. 3 MR. NICKENS: Okay. We offer, Your 4 Honor, Exhibit A-1096. 5 MR. GUIDO: No objection, Your Honor. 6 THE COURT: Received. 7 Q. (BY MR. NICKENS) I want to draw your 8 attention, Mr. Bentley, to the fifth paragraph on 9 the first page. 10 A. Okay. 11 Q. Where it states "Mr. Bentley reported 12 that the executive committee approved the 13 investment of $25 million in liquidity investments 14 and another $25 million in non-liquidity corporate 15 debt securities." 16 Do you see that? 17 A. Correct. 18 Q. Now, was this part of the plan to 19 expand your investments into marketable 20 securities? 21 A. Correct. 22 Q. And this was done at the executive 1971 1 committee level and then reported to the board? 2 A. I believe that's correct. 3 Q. Now, this particular executive 4 committee was of United Savings Association of 5 Texas, right? 6 A. Yes. 7 Q. Mr. Hurwitz did not serve on that board 8 or that committee? 9 A. I don't believe so at that time. I 10 don't remember the date in which he went on the 11 USAT board, the USAT executive committee. 12 Q. Did Mr. Hurwitz ever serve on the 13 executive committee of USAT as opposed to UFG? 14 A. I don't recall. 15 Q. Let me ask you now to turn to Exhibit 16 A-1100 which is the minutes of the board of 17 directors of USAT for November 13th, 1984. 18 MR. NICKENS: Well, Your Honor, we 19 appear to be missing those copies. This purports 20 to be the minutes of the board of directors of 21 United Savings of November 13th, 1984, with Bates 22 numbers US3003059, 3060, and 3061. And I will ask 1972 1 you, Mr. Bentley, is that your signature on the 2 last page? 3 A. That's correct, yes. 4 MR. NICKENS: We would offer A-1100. 5 You apologize, Your Honor, and we will provide the 6 appropriate copies. 7 MR. GUIDO: Your Honor, we don't have a 8 copy either. No objection to its admission, 9 however. 10 THE COURT: All right. I have a copy. 11 Received. 12 Q. (BY MR. NICKENS) I just have one 13 question, Mr. Bentley, relating to the second page 14 of A-1100 where it states "Mr. Bentley reported 15 that the executive committee acted prior to this 16 meeting to increase the association's investment 17 in high-yield floating rate corporate debt 18 securities from 100 million to 200 million. He 19 also stated that the association has received 20 approval for this increase from the Texas savings 21 and loan commissioner." 22 Do you see that? 1973 1 A. Yes. 2 MR. GUIDO: Do you mean commission? 3 MR. NICKENS: Commissioner. 4 Q. (BY MR. NICKENS) Now, that was 5 increasing your investment limits to invest in 6 so-called high-yield or junk bonds, correct? 7 A. That is correct. 8 Q. And this was done by the executive 9 committee in November of 1984 as reflected by the 10 minutes? 11 A. Correct. 12 Q. Now, do you recall the hiring of 13 Mr. Phillips? 14 A. Yes, but I can't give you a date. I 15 recall the hiring of him. 16 Q. Was one of the things that he brought 17 to the institution the idea of matching maturities 18 of certain deposits with the maturity dates for 19 high-yield or junk bonds? 20 A. That's correct. 21 Q. And what was his background, if you 22 recall? 1974 1 A. I believe he had worked for American 2 General, although I could well be mistaken. But 3 he had experience in this area. 4 Q. And he was -- well, in your 5 observations of Mr. Phillips, how would you 6 describe him as far as paying attention to his 7 duties? 8 A. He appeared to be very capable and 9 experienced in the area in which we were 10 considering his employment. 11 MR. NICKENS: Pardon me, Your Honor. 12 This is a little late but still there. 13 Q. (BY MR. NICKENS) Did you think he was 14 overmatched for his job? 15 A. I don't know what you mean by 16 "overmatched." 17 Q. Well, that he was overwhelmed by his 18 job, he couldn't do it, he was incompetent. Did 19 you ever have that impression? 20 A. No. 21 Q. And as chairman of the board of the 22 institution, you entrusted to him the investment 1975 1 of some $200 million as reflected by these 2 minutes? 3 A. I think that was the boundary line. 4 Q. I'm not saying that he invested the 5 entire amount but that was the idea was to 6 increase it so that he could make additional 7 investments, right? 8 A. That's correct. 9 Q. And he was managing it? 10 A. That's correct. 11 Q. And you felt comfortable giving him 12 that authority? 13 A. Yes. 14 Q. Let me ask you to look at Exhibit 10251 15 which purport to be the minutes of the board of 16 directors of United Savings of February 14th, 17 1985. It's going to be all the way over at the 18 back, Mr. Bentley. 19 MR. GUIDO: 1102? 20 MR. NICKENS: 10251. 21 MR. GUIDO: 102 -- 22 MR. NICKENS: -- 51. It's a lengthy 1976 1 document. 2 Q. (BY MR. NICKENS) Could you look over 3 at the last page, which is Page 26 of 26, 4 Mr. Bentley, and identify for us your signature? 5 A. Correct. 6 MR. NICKENS: Your Honor, we offer 7 Exhibit A-10251, the minutes of the board of 8 directors of United Savings Association 9 February 14th, 1985. 10 THE COURT: I haven't been able to find 11 them. 12 MR. GUIDO: Neither have I, Your Honor. 13 I found mine. Mines is right in front of A-3036, 14 Your Honor. Yours may be in the same order. 15 Looks like it's the fifth blue paper from the back 16 of that section. 17 MR. NICKENS: It's going to be toward 18 the back of the book, Your Honor, because it's 19 coming before the Bs but -- Your Honor, here it 20 is. 21 We offer A-10251. 22 THE COURT: Received. 1977 1 MR. GUIDO: No objection, Your Honor. 2 Q. (BY MR. NICKENS) Let me ask you to 3 look at the second page of Exhibit 10251, 4 Mr. Bentley. At the top paragraph there, it says 5 "In response to a question by Dr. Winters" -- 6 excuse me -- "by Mr. Winters, Mr. Bentley" -- 7 that's you, correct? 8 A. Correct. 9 Q. -- "explained that advances to 10 subsidiaries will increase by $250 million at the 11 end of the year in anticipation of the direct 12 investment regulations." Right? 13 A. Yes. 14 Q. And why were you increasing that -- 15 those advances in anticipation of direct 16 investment regulations? 17 A. As I recall, there was a pending -- a 18 proposed regulation that would limit the amount of 19 dollars that you could put into -- well, maybe 20 there was at that time a limit on the amount that 21 you could put into what they call direct 22 investments. But there was a proposed change that 1978 1 provided maybe an additional limitation to that. 2 The original limitation was 25 percent of assets 3 which was a large amount of money. But we felt 4 like that we should go ahead and authorize the 5 funding to the subsidiaries to this dollar to 6 where it would not be affected by any future 7 regulation, any future limitations. 8 Q. Anybody ever suggest to you there was 9 something wrong with doing that? 10 A. No. 11 Q. Did you personally feel like there was 12 something wrong in doing that and knowing that the 13 regulations were going to change? 14 A. No. 15 Q. Now, let me ask you about -- at Page 4, 16 again, once a year, you listed the people in 17 various positions, right? 18 A. Correct. 19 Q. And under the finance administration, 20 we see Mr. Crow but just below him, Mr. Barrett, 21 right? 22 A. Page 4? 1979 1 Q. Page 4 of 26. 2 A. Uh-huh. 3 Q. Is that the same Mr. Barrett that had 4 been there? 5 A. That's correct. 6 Q. And then below him, Mr. Trevino, right? 7 A. Correct. 8 Q. So, they are still there? 9 A. Correct. 10 Q. Then we go over to the next page and 11 you see Mr. Huebsch and Mr. Phillips. We 12 discussed them. And that's a new department on 13 investments, isn't it? 14 A. Correct. 15 Q. Just below that, we see Mr. Pledger. 16 He's still there, correct? 17 A. That's right. 18 Q. Turn to the next page, and who are the 19 heads of your real estate and commercial lending? 20 A. Mr. Childress and Mr. Graham. 21 Q. Let me ask you to look over to Page 8. 22 Here again, as you had in the past, you delegated 1980 1 all loans to the senior loan committee. That's 2 sort of down there at the last resolved. 3 A. Okay. 4 Q. Just as you had done in the past, you 5 continued that policy, right? 6 A. Correct. 7 Q. Except if you look over at Item C on 8 the next page, there was a limitation in the 9 amount to $70 million, correct? 10 A. Yes. 11 Q. Now, who suggested that limitation? 12 A. I do not recall. 13 Q. Did you think that was a good or a 14 proper or improper limitation? 15 A. In all probability, it was a favorable 16 suggestion. 17 Q. Okay. Then let me ask you to look all 18 the way over to Page 23. 19 A. Okay. 20 Q. Now, at this point in time, Mr. Gross 21 is a member of the board, is he not? 22 A. Correct. 1981 1 Q. Along with Mr. Williams, correct? 2 A. Yes. 3 Q. And on Page 23 it is resolved that 4 you're going to sell some additional branches in 5 the Houston area, right? 6 A. Yes. 7 Q. And it says "Further resolved that the 8 engagement of Solomon Brothers and Goldman Sachs 9 is hereby approved for the purposes of assisting 10 the association in identifying an acceptable 11 purchaser." 12 Do you see that? 13 A. Correct. 14 Q. And then there is another two branches 15 to be sold at the bottom of the page and, again, 16 it's Solomon Brothers and Goldman Sachs, right? 17 A. Correct. 18 Q. Now, who insisted that Drexel be hired 19 to handle that? 20 A. I don't know anything about Drexel in 21 connection with branch sales. 22 Q. Now, let me ask you to look over to 1982 1 May 16th, 1985, which is at Tab 130 and it's 2 Exhibit A-1104. 3 MR. NICKENS: It's the USAT board of 4 directors minutes of May 16th, 1985, Your Honor. 5 THE COURT: I have it. 6 MR. NICKENS: And it is already in 7 evidence. 8 Q. (BY MR. NICKENS) Mr. Bentley, this 9 particular copy if we look over is not signed. It 10 was prepared for your signature. Do you see that? 11 A. My -- 12 MR. GUIDO: What's the tab number? 13 MR. NICKENS: Tab No. 130. 14 A. Mine is signed. 15 Q. (BY MR. NICKENS) Well, okay. 16 A. May 16th? 17 Q. May 16th, yes, sir. 18 A. This is a signed copy. 19 Q. It sounds like someone got the 20 substitution and I've got the older copy, but 21 let's see if we can deal with that. Now, this is 22 the one that you recall Mr. Guido had asked you 1983 1 about about the meeting with Bane & Company that 2 had occurred in Austin? 3 A. Correct. 4 Q. And it indicates that you chaired the 5 meeting but, as I remember your testimony, you 6 don't remember that? 7 A. I really don't. 8 Q. Now -- 9 A. And I was no longer the CEO of the 10 company of the association. 11 Q. So, were you -- were you upset about 12 not being invited to the meeting or -- 13 A. Oh, it was just -- I thought it was a 14 lack of class. 15 Q. You thought you should have been 16 invited? 17 A. I didn't ask to go. I was not asked to 18 go. 19 Q. And you had just stepped down from your 20 position as CEO of the company? 21 A. That's correct. 22 Q. And you were going to -- I think you 1984 1 had explained that you were going to concentrate 2 on some other policy matters and particularly to 3 shepherd through the sale of the branches, right? 4 A. The San Antonio branches. 5 Q. And you were going to have to travel 6 extensively with, what was it, investor relations 7 or stockholder relations? 8 A. Shareholder relations. 9 Q. Shareholder relations. Now, in any 10 event, what I'd like to draw your attention to, if 11 I might, on Page 6 of 7 is the "resolved further" 12 at the top of the page. Do you see that? 13 A. Yes. 14 Q. It says that "The engagement of Solomon 15 Brothers and Merrill-Lynch capital markets 16 pursuant to underwriting agreements to serve in 17 the capacity of underwriters of the offer and sale 18 of darts to the public and the payment to Solomon 19 Brothers and Merrill-Lynch capital markets of a 20 reasonable customary fee for services rendered as 21 underwriters are hereby ratified, approved, and 22 adopted." 1985 1 Do you see that? 2 A. Yes. 3 Q. Now, did you ever hear of any quid pro 4 quo secret conspiracy between Merrill-Lynch 5 capital markets, Solomon Brothers, and USAT? 6 A. No. 7 Q. Well, who was it that insisted that you 8 hire Drexel to do this work as underwriting for 9 this offering? 10 A. I have no reference point to Drexel. 11 Q. That's because it didn't happen, did 12 it? 13 A. I don't know of it. 14 Q. Let me ask you to look over to Tab 131, 15 which is also identified in the record as A-1108 16 and is the minutes of USAT for November 14th, 17 1985, the board of directors minutes. 18 A. Okay. 19 Q. Now, this is -- this is where you 20 resigned from the board of USAT, is it not? 21 A. That's correct. 22 Q. And that's reflected on Page 8 and I 1986 1 believe Mr. Guido asked you about that? 2 A. Correct. 3 Q. And it was pursuant to a resolution 4 sponsored by Mr. Hurwitz and seconded by 5 Dr. Munitz that you were commended for your long 6 service to the institution and the association, 7 right? 8 A. Yes. 9 Q. Now -- 10 A. If I might, the minutes do not 11 correctly reflect my reason for resignation as a 12 member of the board. It will not take a half a 13 second to tell you why. But just to correct the 14 minutes, when we concluded the branch sale or just 15 before we concluded the branch sale, there was an 16 executive committee meeting wherein the principal 17 in the institution who were buying the branches 18 came to Houston to discuss the requirements for 19 him to go forward with the closing of that 20 transaction which, as has been reflected, was very 21 meaningful to the institution -- I don't recall 22 all of the requirements, one of which dealt with 1987 1 possibly lending him some money should certain 2 things happen which the board said "We cannot do 3 that. We're in the business to make loans and 4 should it develop that you need a loan, we will 5 consider it." No. 2 was that his banker might 6 call a note that he owed him and would we take 7 that up and we said absolutely not. The third 8 item was that he wanted a call in the event that, 9 in his mind certain things were happening at his 10 institution that he would have a call on my time 11 and that I would agree I would resign from 12 whatever position I had at United and I would come 13 and contribute time in his behalf as an advisor to 14 his board. And I agreed to that. All of the 15 members of the executive committee agreed to it 16 and it was reported at this meeting. I don't know 17 why that portion is omitted from the minutes. But 18 at that point in time, I had to resign any 19 connection I had other than as a consultant to 20 United. 21 Q. Because you would have had a conflict 22 on taking on these new responsibilities? 1988 1 A. That is correct, because -- 2 Q. This is -- I'm sorry. I didn't mean to 3 interrupt. 4 A. Because I was required to assume a 5 position as an advisory director and my little 6 personal investment company became a consultant to 7 the institution. That's -- 8 Q. And that was something that you wanted 9 to do? 10 A. That's something I was obligated to do. 11 Q. Now, let me -- if you could turn to 12 Page 2 -- and thank you for that information, 13 Mr. Bentley. Page 2, do you see a resolution 14 there on the first "Whereas, that the executive 15 committee of the board of directors of the 16 association has deemed it to be in the best 17 interest of United Savings Association of Texas to 18 establish a finance subsidiary which has been 19 named United Mortgage Finance, Inc."? 20 A. Correct. 21 Q. You see that? 22 A. Yes. 1989 1 Q. And that was to establish a subsidiary 2 which could invest in mortgage-backed securities 3 through a risk-controlled arbitrage program? 4 A. That is correct. 5 Q. Now, that was the second such 6 investment that United Savings had engaged in, 7 correct? 8 A. I believe that's right, but I don't 9 recall specifically. 10 Q. And that had been under the management 11 of Mr. Joe Phillips? 12 A. I believe so. 13 Q. If you look at the next page, they are 14 indicating entering into reverse repo agreements 15 and the acquisition of an interest rate collar for 16 purposes of these investments, right? 17 A. That's correct. 18 Q. And this was just as you were 19 leaving -- your final meeting of the board of 20 directors of the institution? 21 A. That would be correct. Like the other 22 board meeting, I have very little recollection 1990 1 about this particular meeting other than my 2 resignation and statement to the board at that 3 time. 4 Q. Now, Mr. Bentley, I'd like to refer to 5 some specific real estate transactions that are 6 initially at Exhibit 103 -- A-10336 and that's 7 going to be over here toward the back. 8 MR. GUIDO: Your Honor, at this point 9 in time, I'd like to object to this line of 10 questioning. It's going beyond the scope of the 11 direct examination of this witness and the 12 documents haven't been provided to the OTS 13 pursuant to our agreement prior to this session 14 today, Your Honor. 15 MR. NICKENS: Well, Your Honor, two 16 things. One is this just deals with the approval 17 of specific real estate transactions which the 18 witness has testified was a part of their 19 investment strategy which Mr. Guido raised. We're 20 just talking about three documents. I believe 21 that they have all been supplied to the OTS. And 22 what they show is that this witness approved the 1991 1 very transactions that they are challenging. And 2 I can't imagine why we would want to have 3 Mr. Bentley come back to address those issues. 4 THE COURT: Well, what are those 5 exhibits? Can you make them available to the OTS. 6 MR. NICKENS: Yes, Your Honor. I'm 7 certain that we have done that. But they are 8 A-10336, B-524, and A-1643. 9 THE COURT: What was the last one? 10 MR. NICKENS: A-1643, Your Honor. 11 THE COURT: Are they supposed to be in 12 this book now? 13 MR. NICKENS: They are supposed to be, 14 Your Honor. I would hope that they are. 15 Unfortunately, they are quite separated because 16 they have got A, B, and then A-10000. The first 17 one, Your Honor, A-10336, is in Mr. Bentley's book 18 and it should be in all of the books and follows 19 A-10251. 20 THE COURT: We'll be off the record for 21 a minute. 22 1992 1 (A break was taken.) 2 3 THE COURT: All right. We'll be back 4 on the record. I'm going to allow this area of 5 examination. 6 Q. (BY MR. NICKENS) Mr. Bentley, do you 7 have in front of you Exhibit A-10336? 8 A. Yes, I do. 9 Q. And will you look on the last page and 10 can you identify your signature indicating your 11 approval as a member of the senior loan committee? 12 A. Yes, I do. 13 Q. And can you identify Mr. Graham's' 14 signature? 15 A. Yes. 16 Q. Mr. Crow's signature? It's hard to 17 make out. 18 A. Yeah, it is. 19 Q. And Mr. Williams'? 20 A. Yes. 21 Q. And this approves -- 22 MR. NICKENS: We offer, Your Honor, 1993 1 A-10336. 2 MR. GUIDO: We have no basis for an 3 objection, Your Honor, because I don't know. 4 THE COURT: You don't have it? 5 MR. GUIDO: I have the document, but I 6 have no idea whether or not it's authentic or not. 7 I can't -- if the witness testifies those are his 8 signatures, then, and the signatures of the 9 committee, I have no basis for objection, Your 10 Honor, but I can't read the document. 11 MR. NICKENS: Well, Your Honor, let me 12 point out with that regard, there is an 13 identifying label at the top called 14 Exhibit RE9562695. And what the evidence will 15 show is that this document was used by the OTS in 16 the investigative depositions and was marked as 17 RE95. 18 MR. GUIDO: Which one -- are you doing 19 10336? I'm looking -- I'm sorry. I'm looking at 20 532. Your Honor, I said I have no basis for an 21 objection but -- 22 THE COURT: All right. Received. 1994 1 MR. GUIDO: My concern is having a 2 document produced which I believe is direct at the 3 time of the testimony and I think that the 4 procedure should be that if we're going to use 5 documents not for cross-examination but for new 6 areas, they should be produced to counsel 7 beforehand. 8 THE COURT: They should be. 9 MR. GUIDO: So that they could be 10 prepared. 11 MR. NICKENS: Your Honor, they have 12 been produced but if I'm -- I don't know the exact 13 day. They were put in the books. We have 14 identified these exhibits as additional 15 supplemental exhibits. They have been provided to 16 them. And so these -- this particular document is 17 one that came from their records and from the 18 investigative depositions. 19 THE COURT: I think he's referring to 20 an understanding that you'll have the documents 21 for each witness produced the day before or 22 something to that effect. 1995 1 MR. GUIDO: That's correct, Your Honor. 2 That's what I'm responding to. And I'm not 3 responding to the production of documents, but I 4 thought we had an understanding if we were going 5 to use documents on direct that they were going to 6 be produced the day before or lists were going to 7 be produced. I've been doing that on direct, and 8 I believe that this goes beyond the scope of 9 cross-examination and that it violates that 10 agreement. 11 MR. NICKENS: I don't think this is 12 direct; but in any event, Your Honor, we -- 13 THE COURT: I received the document. 14 What's your question about that exhibit? 15 Q. (BY MR. NICKENS) Mr. Bentley, does 16 Exhibit A-10336 indicate that you as a member of 17 the senior loan committee approved the so-called 18 Norwood loan, a 94.713-acre tract in Austin, 19 Texas? 20 A. Yes, it does. 21 Q. In the amount of $18,200,000? 22 A. That's correct. 1996 1 Q. Now, did the senior loan committee 2 function on this loan as it had on the other loans 3 that came in front of it? 4 A. As I recall, yes. 5 Q. Was there anything wrong or different 6 or unusual about the consideration of this 7 particular loan to your recollection? 8 A. Say that again, please. 9 Q. Yes, sir. There are several questions 10 in there. Was there anything unusual about the 11 loan committee's consideration of this particular 12 loan to your recollection? 13 A. No. 14 Q. Let me ask you to look over at B524. 15 And looking at the last page, can you identify 16 your signature as of 6-17-1985 indicating your 17 approval of this action of the senior loan 18 committee? 19 A. That is my signature. 20 Q. There on the upper right side? 21 A. That's correct. 22 Q. And do you see Mr. Williams' signature? 1997 1 A. Yes. 2 Q. Mr. Graham's' signature? 3 A. Correct. 4 Q. Mr. Crow's signature, Mr. Charles 5 Patterson's signature, Ms. Dolores Jackson's 6 signature, and the signature of Lovett Baker? 7 A. Yes. 8 MR. NICKENS: We offer Exhibit B524, 9 Your Honor. 10 MR. GUIDO: Same objection, Your Honor. 11 THE COURT: Received. 12 Q. (BY MR. NICKENS) Now, Mr. Bentley, 13 does this indicate -- does Exhibit B524 indicate 14 that the senior loan committee approved the -- 15 this action recommended by David Graham? 16 A. Yes, it does. 17 Q. And the action requested was a renewal 18 extension and increase of the loan for an 19 additional six months to give them time to 20 finalize zoning and cost figures for a new 21 development plan? 22 A. Yes. 1998 1 Q. Was there anything unusual or out of 2 the ordinary about the senior loan committee's 3 consideration of this loan or extension? 4 A. I don't believe so. 5 Q. Now, let me ask you to look at A-1643. 6 And if you look over to the last page of A-1643, 7 can you tell us if that is your signature 8 indicating your approval of the investment 9 committee action of March 28, 1985, on this 10 particular proposal? 11 A. This -- 12 MR. GUIDO: I think the date on the 13 document is March 18th. 14 Q. (BY MR. NICKENS) On the back page, it 15 indicates real estate investment committee action 16 as of March 28, 1985. 17 A. The form I have only has a signature of 18 David Graham. 19 Q. Let me show you -- well, okay. Your 20 document has OW-161973. My document has 21 OW-215381. And on my document, do you see your 22 signature? 1999 1 A. Yes. 2 MR. NICKENS: Okay. We would offer, 3 Your Honor, Exhibit A-1643 and I'll conform the 4 Bates numbers so that we have the signed document. 5 MR. GUIDO: Same objection. 6 THE COURT: Received. 7 Q. (BY MR. NICKENS) Now, Mr. Bentley, by 8 your signature, do you indicate that you and the 9 other members of the senior loan -- the real 10 estate investment committee had approved this 11 recommended action? 12 A. Yes, although I do not recall it 13 specifically. 14 Q. And let me ask you to look over on the 15 comment section which is at the third page of the 16 document toward the bottom. 17 A. Okay. 18 Q. It says "This is the same tract that 19 Gemini tried to purchase last year from Alamo. 20 The price in this contract is only slightly higher 21 than the price we offered. We felt good about 22 this tract then and its location and even more 2000 1 now. The present appraisal on an as-is basis is 2 $72,550,000." 3 And then it goes on to talk about on 4 the next page, "Mr. Rosenberg is very high on this 5 tract based upon his knowledge of what is 6 happening in this general area and Mr. Cisneros' 7 commitment to the freeway and the full development 8 of the western section of San Antonio." And it 9 attaches some contracts and some other things and 10 concludes with his recommendation that the 11 committee approve this investment opportunity for 12 USAT, UFC as proposed, and that would have been 13 the recommendation of Mr. David Graham? 14 A. Correct. 15 Q. And was there anything unusual or 16 untoward about the real estate committee's 17 consideration of this investment opportunity to 18 your knowledge? 19 A. Not to my knowledge. 20 Q. Mr. Bentley, I'd like to ask you a few 21 questions concerning high-yield bonds and 22 specifically some documents that began at B355. 2001 1 You now have B355 in front of you? 2 A. Yes. 3 Q. And is that your signature on the 4 second page on this letter to Mr. L.A. Anderson 5 dated July 23rd? 6 A. Yes, it is. 7 MR. NICKENS: Your Honor, we offer 8 B355. 9 MR. GUIDO: No objection, Your Honor. 10 THE COURT: Received, but I don't seem 11 to have a copy of it. 12 MR. NICKENS: Well, Your Honor, it 13 appears that it's also missing from this book. I 14 believe this is it, Your Honor. 15 Q. (BY MR. NICKENS) Is B355, 16 Mr. Bentley, your letter to Mr. Anderson asking 17 for approval pursuant to discussion with Jim 18 Pledger of certain investments in high-yield 19 bonds? 20 A. Yes. 21 Q. And if you could turn over to 356? 22 A. Yes. Is that the letter from Pledger 2002 1 to Bowman. 2 Q. Yes. Is this letter addressed to you? 3 A. No. I don't have a letter addressed to 4 me. 5 Q. It's 356, the next -- there we go. 6 MR. NICKENS: We offer Exhibit B356, 7 Your Honor. 8 MR. GUIDO: No objection, Your Honor. 9 THE COURT: Received. 10 Q. (BY MR. NICKENS) And just -- okay. 11 Then if you turn over to B370, is that letter 12 again from Mr. Anderson dated September 20, 1984, 13 addressed to you? 14 A. Correct. 15 MR. NICKENS: We offer Exhibit B370, 16 Your Honor. 17 MR. GUIDO: 370 or 371? 18 MR. NICKENS: 370. 19 MR. GUIDO: No objection, Your Honor. 20 THE COURT: Received. 21 Q. (BY MR. NICKENS) And that is a letter 22 by which Mr. Anderson indicated his approval of an 2003 1 investment of $5 million in Coffman and borrowing 2 senior subordinated exchangeable variable rate 3 notes? 4 A. Correct. 5 Q. Let me ask you to turn over to 6 Exhibit 371. You see on the third page of this 7 document that a copy was sent to you? 8 A. Correct. 9 Q. And this is a memo from Mr. Joe 10 Phillips to Gerald Williams dated September 24th, 11 1984, with regard to investment summaries? 12 A. That's correct. 13 MR. NICKENS: And we offer B3.1, Your 14 Honor. 15 MR. GUIDO: No objection, Your Honor. 16 THE COURT: Received. 17 Q. (BY MR. NICKENS) Now, Mr. Bentley, 18 with regard to Exhibit B371, Mr. Phillips states 19 that "The purpose was to document my review of 20 holdings of high-yield fixed income securities 21 held by the association upon his arrival," 22 correct? 2004 1 A. That's correct. 2 Q. And he goes on to discuss high-yield or 3 junk bonds, right? 4 A. Yes. 5 Q. And if you turn to the second page, it 6 says at the bottom of the page, it's the last 7 sentence there, last two sentences. "I am in 8 touch with analysts specializing in the industries 9 represented above and will speak with them 10 regularly. I have written to the issuers 11 requesting historical and future finance as 12 published for the files." 13 Did you ever have any indication that 14 Mr. Phillips didn't do as he said there? 15 A. No. 16 Q. Let me ask you to turn to B398. Is 17 that your letter to Mr. Bowman dated December 6th, 18 1984? 19 A. Yes. 20 MR. NICKENS: We offer B398, Your 21 Honor. 22 MR. GUIDO: Your Honor, it's not in my 2005 1 book. No objection, Your Honor. Sorry. 2 THE COURT: All right. Received. 3 Q. (BY MR. NICKENS) B398 is your letter 4 where you request approval for certain investments 5 in high-yield bonds, is it not, Mr. Bentley? 6 A. That's correct. 7 Q. And you attach certain -- identify the 8 bonds on the attachments? 9 A. Correct. 10 Q. Let me ask you to move to, if you 11 would, to Exhibit B405. 12 A. I have it. 13 Q. And you are you indicated as having 14 received a copy of this memo from Mr. Phillips 15 about his visit with the deputy commissioner of 16 the Texas Savings and Loan Department dated 17 December 12th, 1984? 18 A. Yes. I had accompanied him on that 19 visit. 20 MR. NICKENS: Your Honor, we offer 21 B405. 22 MR. GUIDO: No objection, Your Honor. 2006 1 THE COURT: Received. 2 Q. (BY MR. NICKENS) And, again, was this 3 reflecting your discussion with Mr. Anderson about 4 what was called the non-liquidity portfolio? 5 A. Correct. 6 Q. And this was a means of establishing a 7 procedure by which you could submit a report to 8 the Texas regulators about your investments in 9 high-yield or junk bonds, correct? 10 A. That's correct. 11 Q. I want to ask you a few questions, 12 Mr. Bentley, concerning the investment in Castle & 13 Cooke. And I would like for you to look at 14 Exhibit 11 A-1187. 15 MR. NICKENS: Your Honor, I just would 16 like for the witness to -- apparently I don't have 17 the copies of this document. Let me go past that 18 and I'll come back to it. 19 Let me ask you to look at B3738. Now, 20 do you recognize B3738 as a Houston Post article 21 of 3-13-1984 in which you were quoted? 22 A. Correct. 2007 1 Q. And you were quoted as saying with 2 regard to the Castle & Cooke investment, quote, 3 "It in no way jeopardizes the security of savers 4 of United Savings." That is you, correct? 5 A. I haven't found that yet. 6 Q. I'm sorry. 7 A. The portion I see referring to me is 8 there. Oh, okay. I just hadn't read down far 9 enough. 10 Q. You're quoted as saying "In no way 11 jeopardizes the security of savers of United 12 Savings"? 13 A. Correct. 14 Q. The investment decision was totally 15 independent of Hurwitz? 16 A. Correct. 17 Q. Now, were you accurately quoted by the 18 Houston Post on 3-13-84? 19 A. That would have been a little strong to 20 say totally independent. I don't know really what 21 I might have said; but at that point in time, I 22 would have -- I would have said that Hurwitz did 2008 1 not direct us to make that investment. That's 2 basically what I meant. 3 Q. Okay. What happened was you were 4 looking for marketable -- you and Mr. Coles -- 5 Mr. Williams, rather, were looking for marketable 6 securities that you could invest in to help shore 7 up the net worth of the institution, correct? 8 A. That's correct. 9 Q. And you went to Mr. Hurwitz and asked 10 him whether there was anything he could suggest? 11 A. In all likelihood, yes. 12 Q. And you developed between the three of 13 you a list of some seven possible investments that 14 has been identified in the record by Mr. Guido? 15 A. Yes. 16 Q. And one of those was Castle & Cooke? 17 A. Correct. 18 Q. And the investment was made? 19 A. Correct. 20 Q. And the -- you were told -- you were 21 asked questions about a meeting of December 5th, 22 1983, where you were not at the meeting of the 2009 1 executive committee, correct? 2 A. Correct. 3 Q. But you were polled by telephone 4 concerning that investment? 5 A. That could be. I don't recall. 6 Q. Well, that's what the minutes indicate. 7 A. Yes, I understand. 8 Q. And you say you don't recall. You're 9 not saying that that didn't happen? 10 A. No. 11 Q. You just don't remember? 12 A. I'm saying I don't recall it. 13 Q. And you were told later, were you not, 14 by Mr. Williams that Mr. Hurwitz had been 15 authorized at that meeting to make the investment 16 on behalf of United Financial Corporation? 17 A. Something to that effect. 18 Q. And that was because he was already 19 dealing with the broker involved which was 20 Bear Sterns and make making purchases on behalf of 21 MCO? 22 A. That's most likely. 2010 1 Q. Now -- 2 MR. NICKENS: Your Honor, here's 1187. 3 THE COURT: Thank you. 4 Q. (BY MR. NICKENS) I'd like for you to 5 compare, if you could, to 11 -- A1189 which is at 6 Tab 122? 7 MR. GUIDO: Tab 122 is 10538. 8 MR. NICKENS: No. Excuse me. I must 9 have -- let me get the right number. 10 MR. GUIDO: 1188 is Tab 121. 11 MR. NICKENS: What I'm looking for 12 is -- it's 121, yes. 13 Q. (BY MR. NICKENS) Now, looking at 14 A-1187 and 1188, A-1188 being in evidence, do they 15 appear to report the same information except for 16 the first paragraph? 17 A. That would appear to be correct. 18 MR. NICKENS: We offer A-1187, Your 19 Honor. 20 MR. GUIDO: Your Honor, no objection. 21 Q. (BY MR. NICKENS) Now, Mr. Guido -- 22 THE COURT: Received. 2011 1 MR. NICKENS: I'm sorry, Your Honor. 2 Q. (BY MR. NICKENS) Mr. Bentley, 3 Mr. Guido questioned you about this meeting of the 4 executive committee and the only difference here 5 is in the first paragraph, it says "The bi-weekly 6 meeting of the executive committee of the board of 7 directors of United Financial Group was held in 8 the company's offices, et cetera. Present were 9 Gerald R. Williams, Barry Munitz, and Charles 10 Hurwitz. Also present was James L. Pledger." 11 Do you see that? 12 A. Uh-huh. 13 Q. And -- well, there is more -- let's 14 see. This particular minute doesn't reflect that 15 you were polled? 16 A. Correct. 17 Q. Now, it does say that "Such investments 18 will be made on the advice and direction of the 19 executive committee and may begin as soon as the 20 committee deems appropriate." Right? 21 A. Correct. 22 Q. And sometime thereafter, it came to 2012 1 your attention that an investment had been made 2 in -- by either USAT or UFC in the stock of Castle 3 & Cooke? 4 A. Yes. 5 Q. And your objection to it was that you 6 didn't feel like Mr. Hurwitz should be doing that 7 sort of thing because he was not an employee of 8 United Savings? 9 A. Correct. 10 Q. Or of UFC? 11 A. That's correct. 12 Q. But it was explained to you that the 13 executive committee had authorized him to do so 14 because of his prior dealings with Bear Sterns on 15 that particular security, was it not? 16 A. I don't recall. I do recall calling 17 Bear Sterns and citing to them that the stock had 18 been purchased in the wrong name and that to 19 please change their records that would require the 20 confirmation of any purchaser by the chief -- then 21 chief financial officer of USAT who also served in 22 capacity for United Financial Group -- United 2013 1 Financial Corporation. And the records were 2 changed to reflect that the stock had been 3 purchased in the name of United Financial 4 Corporation and requiring that David Barrett be 5 the person to authorize the purchase. 6 Q. There is no question that this 7 $50 million was authorized at this meeting for the 8 purchase of Castle & Cooke, is it? 9 A. No. That's not an issue. I was 10 addressing the -- what could have become a 11 supervisory problem of the purchase in the wrong 12 company and the authorization by someone who had 13 not been authorized. 14 Q. And this was reflected in the records 15 of Bear Sterns as related to you by somebody at 16 Bear Sterns? 17 A. That's correct. 18 Q. And Bear Sterns had been making 19 purchases on behalf -- up until that time -- of 20 MCO or Federated? 21 A. That's my understanding. 22 Q. Now, there would be a lot of good 2014 1 reasons not to mention in these minutes this 2 potential investment before you actually did the 3 investment; isn't that correct? 4 A. That would be correct. 5 Q. It would be important to maintain the 6 confidentiality of that -- of your intention to 7 make a 50 million-dollar purchase in that stock, 8 right? 9 A. Yes. It should not be excluded from 10 the members of the committee, however. 11 Q. Right. But you knew that there was 12 going to be a Castle & Cooke investment? 13 A. That is correct. That is correct. 14 Q. And you know that the investments 15 didn't begin until about a week after this 16 meeting? 17 A. I don't know. I assumed that maybe 18 they had been made the day of the meeting. My 19 report, I don't recall being gone that long. My 20 first information came from Jerry Williams on 21 whatever date that was. It never occurred to me 22 it would be a different date than this. 2015 1 Q. You haven't checked the 13Ds to 2 indicate exactly what dates the -- 3 A. No. 4 Q. -- investments began? 5 A. I have no curiosity in that. 6 Q. Okay. Now, the investment in Castle & 7 Cooke was profitable to the institution, right? 8 A. Oh, absolutely. 9 Q. Was it improper -- did you know of 10 anything improper about it at the time that that 11 investment was discussed? 12 A. No. 13 Q. And did it come to your attention later 14 that the nomination of Mary Grigsby was threatened 15 by the banking regulators unless MCO divested 16 itself of this stock? 17 A. I'm not familiar with that. I know 18 that there was some publicity regarding Mary's 19 confirmation that had been generated, my opinion, 20 by the politicians from Hawaii at the behest of 21 Castle & Cooke. That's my information. 22 Q. Was there any question about Mary 2016 1 Grigsby's qualification in your mind to be on the 2 bank board? 3 A. None whatsoever. It had absolutely 4 nothing to do with Castle & Cooke. 5 Q. But were you there present at the time 6 of her Senate confirmation hearings? 7 A. No. I attended a party following her 8 official confirmation. 9 Q. Did it ever come to your attention the 10 questions that Senator Proxmire questioned her 11 about the Castle & Cooke investment? 12 A. I was not familiar with that until I 13 took a peek at these proceedings that are in the 14 book. I was not privy to that information. 15 Q. How much money did the Castle & Cooke 16 investment make for United Savings? 17 A. It was a substantial sum. I do not 18 recall specifically. 19 Q. And you participated in that decision? 20 A. That's correct. And I was wholly 21 supportive of it. I was only objecting to the 22 bookkeeping, to the housekeeping surrounding the 2017 1 purchase. 2 Q. Mr. Bentley, during the time that you 3 were at United Savings and UFG, did anything occur 4 of which you are aware that would support the 5 charges that have been brought in this matter? 6 A. I'm not familiar with the charges that 7 have been brought. 8 Q. Was there any wrongdoing, any 9 self-dealing, any people lining their pockets 10 while you were at United Savings? 11 A. Not that I'm aware of, no. 12 MR. NICKENS: That's all we have at 13 this time, Your Honor. 14 THE COURT: How much redirect do you 15 have? 16 MR. GUIDO: Your Honor, I have probably 17 about a half an hour of redirect. 18 MR. KEETON: Your Honor, I actually 19 have a couple of questions, also. 20 THE COURT: All right. Well, let's 21 take Mr. Keeton's questions. 22 2018 1 CROSS-EXAMINATION 2 3 (4:36 p.m.) 4 Q. (BY MR. KEETON) To stay with 5 Mr. Nickens' last line, Mr. Bentley, did you 6 believe that any of the persons in authority, 7 whether board members or officers, acted in 8 reckless disregard of their duties while you were 9 at the institution or associated with it? 10 MR. GUIDO: Objection. It asks the 11 witness for a legal conclusion, Your Honor. 12 THE COURT: Denied. 13 Q. (BY MR. KEETON) You may answer. 14 THE COURT: You may answer. 15 A. Now, are you speaking of an illegal -- 16 would you rephrase the question? 17 Q. (BY MR. KEETON) Let's not even take 18 it as illegal. Just acted in reckless disregard 19 of their duties, didn't pay attention, didn't try 20 to pay attention, did things willy-nilly without 21 thought. Any of your officers or directors do 22 that? 2019 1 A. There was one occasion that I found out 2 of line and offensive to me. 3 Q. Does it involve any of the respondents, 4 or is this some other person -- 5 A. No, no. This involves one of the 6 respondents, and it's not -- you've asked the 7 question and that was when Dr. Munitz who was 8 chairman of the compensation committee advised us 9 that he would be going on the payroll of the 10 company at $17,000 a month part-time. Call it 11 whatever you like. I felt that that was 12 outlandish. 13 Q. Did you raise an objection at the time? 14 A. No, I did not. 15 Q. Did anyone? 16 A. No one did. 17 Q. And he raised this in a compensation 18 committee meeting? 19 A. He simply said it in passing. There 20 was no action taken. He said "I will be," and I 21 presume that it happened at a later date. I was 22 not privy to it nor did I vote on it. 2020 1 Q. All right. That's the only instance -- 2 A. That's the only instance I can recall. 3 Q. Okay. Now, let's turn back to Castle & 4 Cooke. The idea of the institution purchasing 5 marketable securities actually originated with 6 you, did it not? 7 A. I would say I certainly contributed 8 strongly to the idea. 9 Q. You and Mr. Pledger? 10 A. I don't recall Jim's role in it. I'm 11 not saying that he didn't. I just -- 12 Q. Didn't you ask him to check the regs to 13 see if that could be done? 14 A. Yes, that's correct. 15 Q. And this was irrespective of what 16 security might be purchased, correct? 17 A. Correct. 18 Q. And he actually made a trip to Austin, 19 maybe you did, to check on the propriety of that, 20 correct? 21 A. Probably, yes. 22 Q. And after you learned that it could be 2021 1 done, you then with Mr. Williams went to 2 Mr. Hurwitz and asked him if he had any ideas of 3 what securities might be purchased? 4 A. In general. 5 Q. And he gave you a number of securities 6 that he or one of his companies was interested in 7 at the time, correct? 8 A. He probably gave us some. I don't 9 recall. 10 Q. And among those was Castle & Cooke? 11 A. That's correct. 12 Q. And you actually decided, along with 13 Mr. Williams, Castle & Cooke looked like it would 14 fit the institution, correct? 15 A. That's correct. 16 Q. So, Mr. Hurwitz wasn't pushing Castle & 17 Cooke down your throat, was he? 18 A. No, he was not. 19 Q. And isn't it also true that he told you 20 and Mr. Williams that should the institution 21 decide to purchase shares of Castle & Cooke, 22 companies with which he was associated, not the 2022 1 institution, would stop their purchases so they 2 wouldn't conflict? 3 A. I believe that's correct. 4 MR. KEETON: I have no other questions. 5 Thank you. 6 THE COURT: Any other respondents have 7 questions? 8 MS. CLARK: No, Your Honor. 9 MR. BLANKENSTEIN: No questions. 10 THE COURT: Mr. Bentley, do you have 11 any objection to coming back tomorrow or do you 12 want to finish tonight. 13 THE WITNESS: I would certainly love to 14 finish today if I could, sir. 15 THE COURT: All right. Mr. Guido. 16 MR. GUIDO: Thank you, Your Honor. Can 17 I consult with counsel for just one second? 18 THE COURT: Yes. 19 MR. GUIDO: I'm sorry, Your Honor. We 20 were just trying to schedule additional witnesses. 21 22 REDIRECT-EXAMINATION 2023 1 2 (4:41 p.m.) 3 Q. (BY MR. GUIDO) When you discussed the 4 Castle & Cooke acquisition, Mr. Bentley, with 5 Mr. Hurwitz, had you contemplated acquiring enough 6 stock to have a reportable position under the 13D 7 requirements of the securities law? 8 A. Initially, I don't believe we did. I 9 think it was discussed later that it would require 10 a 20 percent interest in order to do that. But at 11 the initial discussion, I don't recall having 12 discussed the equity up front. 13 Q. Did at some point in time the executive 14 committee authorize going up to the reportable 15 20 percent? Do you recall that? 16 A. I really -- from my recollection, I 17 recall their having authorized going to 15. I 18 don't remember the 20. That's entirely possible 19 that's the case. I just don't recall the 20 specifics. 21 Q. Who suggested that the position in 22 Castle & Cooke stock be increased? 2024 1 A. I don't recall. 2 Q. Now, you've looked at two of these 3 minutes, A-1187 and A-1188, that are the purported 4 executive committee meeting of December 5th, 1983. 5 Do you know why they differ? 6 A. One is purported to be executive 7 committee of UFG and another one is apparently a 8 joint meeting of UFG and USAT is the only 9 difference I see, other than the first paragraph. 10 Q. And one says it's a bi-weekly meeting 11 and the other refers to it as a joint meeting? 12 A. That's correct. 13 Q. Were you in attendance at either of 14 these meetings? 15 A. I don't recall. 16 Q. Do you know why there are two 17 renditions? 18 A. I do not. 19 Q. Was there an attempt to clean up the 20 record from the purchase of the Castle & Cooke 21 stock because of anticipated litigation? 22 A. I'm not aware of that. I don't know. 2025 1 Q. Now, you were asked questions about 2 Exhibits B355 through B371, the list of the 3 high-yield or what I call the junk bond purchases. 4 A. Counselor, if I may. There appears to 5 be another difference in these minutes which I had 6 not noticed before. And that is in the reference 7 to the service corporation, United Financial 8 Corporation. And I don't see that in the other 9 December 5th meeting. I had not noticed that. 10 Q. Which -- 1187 or 1188? 11 A. 1188 makes reference to non-affiliated 12 companies by the service corporation, United 13 Financial Corporation, subject to approval of the 14 securities. And the other one, I don't see that 15 specific reference in 1187. I thought the first 16 paragraph was the only difference, but there is 17 that other difference. 18 Q. And both of them say "such investments 19 will be made on the advice and direction of the 20 executive committee and may begin as soon as the 21 committee deems appropriate." 22 Do you see that? 2026 1 A. Yes. And then this one adds that 2 Bentley and Whatley were polled by telephone 3 whereas the other one did not. 4 Q. Now, are these minutes public 5 documents? 6 A. Well, they are not public documents. 7 Q. Did you have any discussions with 8 anyone on or about December 5th about not 9 mentioning that the purchase in Castle & Cooke had 10 been specifically authorized at this meeting? 11 A. I do not recall. 12 Q. Now, let's go back to Exhibits 355, 13 Exhibit 356, 370, and 371, the list of exhibits 14 that you were asked questions about with regard to 15 the high-yield bond purchases. And Exhibits B355, 16 B356, B371 all pre-date the September 24th, 1986, 17 memo No. 371 from Joe Phillips. Do you see that? 18 A. No. 19 Q. 355, 356, and 370. They pre-date -- 20 A. I know we looked at them. Well, I've 21 got 324 and 625 unless I have them here. Let's 22 see. I do not seem to have a copy. 2027 1 Q. Let me hand you my set of those. I 2 thought you had a -- 3 A. I remember seeing them, but I don't -- 4 Q. Why don't I come up here with you? 5 A. Okay. Fine. 6 Q. The various lists that were discussed 7 with the savings and loan commissioner, B355 and 8 356 and 370, all of those are dated before the Joe 9 Phillips list. You testified, I think, that Joe 10 Phillips had been hired to make high-yield or 11 bond -- or junk bond purchases on a matched -- 12 duration matched basis on behalf of UFG and USAT. 13 Do you recall that? 14 A. Yes. 15 Q. Were the purchases that are mentioned 16 in B355 and 356, were those made prior to Joe 17 Phillips' hiring by United Financial Group or 18 USAT? 19 A. I do not recall the date on which Joe 20 Phillips became an employee. 21 Q. Look at his memo on 371. He lists 22 high-yield bonds that were purchased prior to his 2028 1 joining. Okay? 2 A. Okay. 3 Q. And he lists them as Occidental 4 Petroleum, MDC Corporation, Mesa Petroleum, 5 Coastal Corporation. I think it's Kaufman and 6 Broad. Coffman & Broad? 7 A. Kaufman. 8 Q. Continental Illinois, LTV Corporation. 9 Do you see those? 10 A. Yes, I do. 11 Q. You testified yesterday that there were 12 junk bond purchases that were made by Ron Huebsch 13 that you found objectionable, the procedures. Are 14 those those junk bond purchases? 15 A. I don't -- the thing I raised objection 16 to was the lack of hard copy evidence of 17 authorization. And it -- it seems to me to the 18 best of my recollection Joe Phillips was aboard at 19 that time, but it could be that certain purchases 20 of bonds were being effected by Mr. Huebsch and no 21 hard copy was being furnished to us until and 22 after the fact sort of thing. 2029 1 Q. Do you dispute the accuracy of 2 Exhibit 371 when Joe Phillips says that there were 3 junk bonds that were purchased prior to his 4 arrival? 5 A. No, I do not. 6 Q. Who authorized those purchases, do you 7 know? 8 A. I don't know. I don't recall. 9 Q. Was anyone -- 10 A. I'm sure they had been authorized and 11 I'm sure that Mr. Huebsch was instrumental in 12 making recommendations. Whatever the procedure 13 was, my objection to it was that we were not 14 receiving a hard copy to substantiate the 15 purchase. 16 Q. At this point in time, was the 17 executive committee the entity authorized to make 18 specific investments in high-yield bonds or 19 corporate securities on behalf -- 20 A. I believe that would be correct. 21 Q. And at this point in time, was Ron 22 Huebsch an employee of UFG or USAT? 2030 1 A. He was not. He subsequently became an 2 employee. 3 Q. And who was he employed by at that 4 time? 5 A. MCO, Federated. I don't know. 6 Q. One of the other Hurwitz' -- 7 A. I believe so. 8 Q. Do you know who it is that suggested 9 that UFG or USAT make purchases in junk bonds in 10 1984? 11 A. Not specifically. 12 Q. Do you have a general idea? 13 MR. NICKENS: Your Honor, I object. He 14 said he doesn't know. He said he didn't know who 15 the person was. 16 THE COURT: All right. Sustained. 17 MR. GUIDO: I'm sorry, Your Honor? 18 THE COURT: I sustained the objection. 19 If he doesn't know, he doesn't know. I don't know 20 how he can know generally. 21 Q. (BY MR. GUIDO) What do you mean by 22 the term "specifically," you don't know 2031 1 specifically, Mr. Bentley? 2 A. There was an awful lot of business 3 transacted back in those days, and I -- you know, 4 I just don't remember specifically if I may -- 5 specifically who may have brought it -- probably a 6 lot of people brought it up. 7 Q. Now, in the -- was there ever an effort 8 to ascertain from the Federal Home Loan Bank Board 9 whether the purchases of junk bonds underwritten 10 by Drexel might have triggered the affiliated 11 party restrictions of the Federal Home Loan Bank 12 Board's regulations? 13 A. I just don't know. 14 Q. You also testified about the purchase 15 or the creation of United Mortgage Finance to 16 invest in high-yield -- I mean in mortgage-backed 17 securities. Do you recall that? 18 A. Yes. 19 Q. And in 1984, the institution had also 20 invested in mortgage-backed securities. Do you 21 recall that testimony? 22 A. Yes. 2032 1 Q. In 1984 when the institution invested 2 in high-yield debt securities, was the concept 3 that it would just invest in those without 4 building in any protection from shifts in interest 5 rates? 6 A. I believe it was anticipated that there 7 would be some hedging in connection with it. 8 Q. Was it -- in 1984, was it discussed in 9 terms of the concept of what's been referred to as 10 risk-controlled arbitrage? 11 A. Yes. 12 Q. And was that the concept that was 13 intended with regard to USAT mortgage finance in 14 the end of 1985? 15 A. USAT had -- what was the official name? 16 Q. United Mortgage Finance I think is what 17 the name of it was. 18 A. I have forgotten there was an approach 19 to where the financing subsidiary -- at that 20 particular time, the use of a financing subsidiary 21 provided the institution some advantages, some 22 enhancement. I honest to gosh have forgotten the 2033 1 details of those advantages. But I know that the 2 creation of those were supposed to be highly 3 advantageous to the institution. But my specific 4 recollection of it would be limited to those 5 little plastic things that whoever handled the 6 underwriting give you when it's over that said -- 7 Q. Well, was one of the advantages of 8 creating a service corporation -- 9 A. I do not specifically recall the 10 details. 11 Q. Well, let me ask the question before 12 you answer it. Thank you. 13 Was one of the advantages that the 14 total investment, the total assets in the service 15 corporation didn't count against the liability 16 growth restrictions of the Federal Home Loan Bank 17 Board? 18 A. It could have been. I don't recall. 19 Q. Now, you testified about the C 20 preferred stock. Do you recall -- 21 A. Yes. 22 Q. -- Mr. Nickens asking you about that? 2034 1 And you said it was underwritten by MCO and 2 Federated. Do you recall that? 3 A. Yes, I do. 4 Q. Now, in that C convertible stock, it 5 had a date in it before which conversion was not 6 allowed. Do you recall that? 7 A. That is correct. 8 Q. And did you represent the interests of 9 UFG in negotiating that transaction? 10 A. Largely so. 11 Q. And what law firm had you been using at 12 that time for securities type underwriting 13 activities? 14 A. Mayor, Day, I believe. 15 Q. Okay. And who was it that drafted the 16 C preferred stock agreement? 17 A. I honestly don't know. 18 Q. Who was the law firm that worked on it? 19 A. It would have either been Mayor, Day or 20 Levin, a gentleman by the name of Levin out of New 21 York. I don't recall the first name. 22 Q. Was that the person who took the lead 2035 1 in drafting the document? 2 A. I believe that was the person with whom 3 or the firm with whom I discussed that portion 4 that I discussed with them. 5 Q. And what portion did you have an input 6 into including into the agreement? 7 A. There may have been one or two items. 8 The only one I recall dealt with the rounding up 9 of the option to shareholders to go to the next 10 highest figure on their option to purchase the 11 shares. And the way it had been drafted is it 12 had -- it went downward instead of upward and 13 there was no objection to that. 14 Q. Did you negotiate the date for the 15 conversion of the preferred to common stock? 16 A. No, I did not. 17 Q. How did that get into the agreement? 18 Do you know? 19 A. I don't know. The date I did not 20 object to, but I don't -- 21 Q. Was that a date selected by MCO? 22 A. In all likelihood. 2036 1 Q. Now, you testified about the role of 2 the executive committee vis-a-vis the board and 3 you read into the record or one or the other 4 counsel read into the record the resolutions of 5 the board of directors which gave the executive 6 committee all of the authority of the board of 7 directors. Do you recall -- 8 A. Yes. 9 Q. -- those questions? Now -- and you 10 also testified about who the executive committee 11 was at various points in time. And in December of 12 1982, who was the executive committee? 13 A. Without reference -- I can tell you I 14 think I know. 15 Q. Okay. Who do you think it was? 16 A. I would think it would have been Jim 17 Coles, myself, probably Whatley or Shoup at that 18 time. 19 Q. Okay. So, you, Mr. Coles, and Whatley 20 or Shoup, three members of the committee? 21 A. That's the way I recall it. There 22 could have been another member, but I don't 2037 1 remember. 2 Q. All right. But that basically was the 3 composition until Mr. Munitz and Mr. Hurwitz went 4 on the committee of UFG; isn't that correct? 5 A. Well, initially, Mister -- Dr. Munitz 6 went on and Mr. Hurwitz at a later date. 7 Q. All right. And was that -- 8 A. And Jerry Williams came on. 9 Q. -- in late 1983 or late spring of 1983? 10 A. I beg your pardon? 11 Q. Was that the late spring of 1983 after 12 their election or Mr. Hurwitz's election to the 13 board? 14 A. Yes, I believe that's correct. 15 Q. And did the committee remain the same 16 until approximately February of 1985 when 17 Mr. Gross went on the committee? 18 A. That's probably correct. 19 Q. And during all that time, the committee 20 had the authority to act instead of the board of 21 directors? 22 A. I believe that's correct. 2038 1 Q. Now, you testified about a document 2 B378 which was a document that was prepared by 3 Mr. Williams. 4 A. Yes. 5 Q. And it dealt with strategy earnings 6 consideration. 7 A. Yes. 8 Q. And do you remember the last page, it 9 talked about the future strategies and it talks 10 about the gain on the sale of branches being one 11 thing that needed to be considered going forward. 12 A. Yes. 13 Q. Two, the sale of additional loan 14 servicing. Do you recall that? 15 A. Yes. 16 Q. Three, the sale of real estate 17 investments. And the opportunities to generate 18 earnings in the Weingarten and the Houstonian 19 investments? 20 A. Correct. 21 Q. Now, the Weingarten investment, how did 22 UFG come to learn about the advantages of the 2039 1 Weingarten investment? 2 A. I believe at Mr. Hurwitz encouraged us 3 to look at it, maybe even dated back into Jim 4 Coles' days. 5 Q. But Mr. Hurwitz is the one that raised 6 that? 7 A. Yes. 8 Q. What about the Houstonian investment? 9 A. I believe that would be the same 10 category. 11 Q. Now, there is no mention in this 12 memorandum about strategy earnings consideration 13 to investments in junk bonds, is there? 14 A. I don't recall. I stand corrected by 15 the wording of the minutes. 16 Q. Okay. It's a memorandum. It's not the 17 minutes. 18 A. Memorandum, yes. 19 Q. And there was no discussion of 20 investments in corporate equity securities? 21 A. I don't recall it being in there. 22 Q. And there was no mention of investments 2040 1 in junk bonds? 2 A. I don't recall. 3 Q. And no mention of investments in 4 mortgage-backed securities. You don't recall 5 that? 6 A. I don't recall it being in the 7 memorandum. 8 Q. In 1984, were investments in junk bonds 9 a major consideration by the executive committee 10 of UFG or USAT? 11 A. By "major consideration," what -- 12 Q. A major investment. 13 A. I would not say a major investment. I 14 would say that it was considered as a viable 15 strategy with some limitations. That would have 16 been the way I would have personally expressed it. 17 Q. Did the original group of the executive 18 committee have any expertise in investments in 19 high-yield debt or junk bond securities? 20 A. The original group? 21 Q. Yeah. 22 A. Very limited. 2041 1 Q. That's you, Mr. Whatley, and Mr. Coles, 2 right? 3 A. Correct. 4 Q. Had you ever discussed it among the 5 three of you prior to Mr. Hurwitz becoming a 6 member of the executive committee? 7 A. I don't recall. 8 Q. And did either of the three of you -- 9 yourself, Mr. Coles, or Mr. Whatley -- have any 10 previous experience in investing in 11 mortgage-backed securities? 12 A. Probably we had had experience in 13 purchasing instruments of Ginnie Mae, Fannie Mae 14 which you can term to be mortgage-backed 15 securities. To that extent, we had experience in 16 buying and selling those instruments. 17 Q. Had you ever had any experience in 18 creating risk-controlled arbitrage portfolios? 19 A. No. 20 Q. Did you ever discuss the creation of 21 risk-controlled arbitrage portfolios among 22 yourself prior to Mr. Hurwitz and Mr. Munitz 2042 1 joining the board, the executive committee? 2 A. We had discussed limitations -- 3 establishing limitations on risk of interest rates 4 through the use of futures, either put or call as 5 the case may be. That had been discussed over a 6 period of years but never actually implemented. 7 Q. Did you ever discuss the creation of 8 mortgage-backed security risk-controlled arbitrage 9 portfolios? 10 A. Not that I recall. 11 Q. Did you ever have any discussion -- or 12 did you have any experience in what is referred to 13 as equity arbitrage investments? 14 A. No. 15 Q. Did you ever discuss investing in 16 equity arbitrage investments or programs prior to 17 Mr. Hurwitz or Mr. Munitz joining the executive 18 committee? 19 A. Not that I recall. 20 Q. Did you have any experience in 21 investing in high-yield or junk bonds prior to 22 Mr. Hurwitz or Mr. Munitz joining the executive 2043 1 committee? 2 A. No. 3 Q. Did you discuss among yourselves 4 investment in junk bonds by USAT or UFG prior to 5 Mr. Hurwitz or Mr. Munitz joining the executive 6 committee? 7 A. Probably on some basis, we probably -- 8 they were out there. We were aware of them. But 9 I can't recall with specificity what we may have 10 discussed. 11 Q. Had you ever made any such investments 12 before Mr. Hurwitz and Mr. Munitz joined the 13 executive committee? 14 A. No. 15 Q. Had you made any investments in any of 16 these areas prior to Mr. Hurwitz and Mr. Munitz 17 joining the executive committee? 18 A. On some limited basis, we had made a 19 few equity investments. 20 Q. What's the magnitude? 21 A. On a very limited basis. We had 22 acquired some stock in an airline, small airline. 2044 1 More of a civic nature than of an investment 2 nature. 3 Q. Are those the investments that you 4 talked about that you had been previously 5 authorized under the Texas savings and loan law? 6 A. That's correct. 7 Q. Ask there was a limited number of 8 investments? 9 A. That's correct. 10 Q. Now, on B476, Mr. Nickens asked you a 11 number of questions. It looks like it's an annual 12 report, although I can't read the first page. 13 A. B what? 14 Q. B476. It looks like the 1984 annual 15 report. It has a letter dated March 13th, 1985, 16 on it. Do you see that? B476? 17 A. Okay. 18 Q. You see the letter dated March 31, 19 1985, that Mr. Nickens asked you about? 20 A. Yes. 21 Q. Who wrote that letter, a draft of that 22 letter? 2045 1 A. I do not know. 2 Q. It's signed by you, Gerald Williams, 3 and Charles Hurwitz? 4 A. Correct. 5 Q. Did you edit any of that letter? 6 A. All I know is I didn't write it. 7 Q. At the time of that letter, the writing 8 of that letter, had the executive committee or the 9 board authorized investments in equity arbitrage 10 portfolios? 11 A. I just do not recall. 12 Q. As of the time of that letter, had the 13 executive committee or the board authorized 14 investments in junk bonds? 15 A. In my opinion, they probably had in 16 that some had been made. I presume there was 17 authority for it. 18 Q. There were a limited number that were 19 made in 1984 which we just talked about? 20 A. That's correct. You -- 21 Q. And -- 22 THE COURT: Finish your answer. 2046 1 A. I beg your pardon? 2 THE COURT: Were you through with your 3 answer? 4 THE WITNESS: Yes. I was going to 5 further explain that along about the time of this 6 letter is the time that I ceased to be very active 7 with the institution. I ceased to be the chief 8 executive officer of the association and my role 9 was very limited. 10 Q. (BY MR. GUIDO) Does this letter 11 reflect essentially a shift in strategy of the 12 institution? 13 A. I've given it a very cursory 14 examination, and it could well be that it implies 15 a change in direction. 16 Q. Is this a change in direction that was 17 initiated by Mr. Hurwitz? 18 A. I can't say. 19 Q. You can't say. Did he propose the 20 matters that are discussed in that -- 21 A. I'm sure some of them were discussed. 22 I recall some of them being discussed. 2047 1 Q. Now, you testified about various 2 individuals who were in officer positions. I 3 think you said as of 12-31-81, you were the 4 chairman of the board of directors of 5 United Financial Group. Do you recall that? 6 A. Correct, yes. 7 Q. And who was the chairman of the board 8 of United Financial Group December 31, 1985? 9 A. Chairman of -- 10 Q. United Financial Group. 11 A. It would have either been -- I don't 12 know actually. It would have been Charles or -- 13 Q. Let me hand you exhibit -- 14 A. -- Jenard, I believe. 15 Q. Wasn't Jenard the president of United 16 Savings Association of Texas at 12-31-85? 17 A. No. I -- 18 Q. Let me hand you -- 19 A. I think he was the chairman. 20 Q. Let me hand you A3021 which is United 21 Financial Group's 10K. Now, on 12-31-81, you 22 testified that you were the chairman of the board 2048 1 of directors of United Financial Group. Do you 2 recall that? 3 A. That's correct, yes. 4 Q. Who was the chairman on 12-31-85? 5 A. Charles Hurwitz. 6 Q. And you testified that James Coles was 7 the president and chief executive officer of 8 United Financial Group on 12-31-81. Do you recall 9 that? 10 A. Correct, yes. 11 Q. Who was the president and chief 12 executive officer of United Financial Group on 13 12-31-85? 14 A. Jenard Gross. 15 Q. And you testified that a Robert Dawson 16 was vice president on 12-31-81. Was he an officer 17 at 12-31-85? 18 A. No. 19 Q. You testified that David Barrett was 20 the treasurer at 12-31-81. Was he an officer on 21 12-31-85? 22 A. No. 2049 1 Q. You testified that Lawrence Trevino was 2 the controller as of 12-31-81. Was he the 3 controller on 12-31-85? 4 A. No. 5 Q. And you testified that James Pledger 6 was the secretary on 12-31-81? 7 A. Correct. 8 Q. Was he the secretary on 12-31-85? 9 A. Yes, apparently. 10 Q. Now, who were the additional officers 11 of UFG at 12-31-85? 12 A. Gerald Williams, executive vice 13 president and chief operating officer; Barry 14 Munitz, chairman of the executive committee; Art 15 Berner, senior vice president and corporate 16 counsel; Mike Crow, senior vice president and 17 chief financial officer; James Wolfe, vice 18 president, controller; and a Bruce Williams, vice 19 president and treasurer. Those appear to be the 20 new people. 21 Q. Who recruited Mr. Gross? Art Berner. 22 I'm sorry. 2050 1 A. I do not know. 2 Q. And who recruited Mr. Wolfe? 3 A. I do not know. 4 Q. Who recruited Mr. Williams? 5 A. I don't know. 6 Q. But as of 12-31-85, the only person 7 that was on was one of the officers of 8 United Financial Group that had been on at 9 12-31-81 was Mr. Pledger? 10 A. I believe that's correct. 11 Q. How did that come about? Why did that 12 happen? Do you know? 13 A. I do not know. 14 Q. I mean, you had been chairman of the 15 board? 16 A. That's correct. 17 Q. You had represented an initial control 18 group at United Financial Group; is that correct? 19 A. That's correct. 20 Q. And you, as part of that control group, 21 had discussions about the purchases of stock by 22 MCO and Federated groups. Do you recall that? 2051 1 A. Correct. 2 Q. And that you had discussions about 3 whether or not that reflected a possible change of 4 control. Do you recall that? 5 A. That's correct. 6 Q. Did control effectively shift to the 7 MCO/Federated shareholders between December 31, 8 1981, and December 31, 1985? 9 A. I would say so. 10 MR. GUIDO: I have no further 11 questions, Mr. Bentley. 12 13 RECROSS-EXAMINATION 14 (5:16 p.m.) 15 Q. (BY MR. NICKENS) Well, the fact of 16 the matter is that the board that was left there 17 was essentially the one that you had put in place 18 some years before, isn't it, Mr. Bentley? 19 A. Say that again. 20 Q. The members of the board, you still had 21 Mr. Whatley and Mr. LeMaistre and all these people 22 that you had put in place before, correct? 2052 1 A. Yes. 2 Q. What had happened was that the older 3 group represented by you had gone on to other 4 things? 5 A. That's correct. 6 Q. Now, with regard to the actions by the 7 executive committee, those actions had to be 8 ratified by the board of directors, did they not? 9 A. Yes. 10 Q. And they were routinely -- those 11 matters were brought to the board and they were 12 ratified by that board or not ratified, correct? 13 A. That was the case up until my 14 departure. I don't know what happened after my 15 departure, but that is the case to that point. 16 Q. As to when these matters were discussed 17 and considered, would you defer to the documents? 18 A. Yes, I would defer. 19 Q. Was the Weingarten investment a good 20 investment for the institution? 21 A. Very good investment. 22 Q. Was the Houstonian investment a good 2053 1 investment for the institution? 2 A. I don't know. 3 Q. Castle & Cooke you've talked about? 4 A. Yes. 5 Q. Isn't it the case that you and 6 Mr. Williams would go to Mr. Hurwitz and ask him 7 is there any other things that he could bring to 8 benefit the institution? 9 A. I don't recall. 10 MR. NICKENS: That's all that I have, 11 Your Honor. 12 THE COURT: Mr. Keeton? 13 14 RECROSS-EXAMINATION 15 16 Q. (BY MR. KEETON) Mr. Bentley, don't 17 you recall going to Mr. Hurwitz and saying "We 18 need something that will really get us some money" 19 and he told you "Here's an opportunity, Weingarten 20 Realty"? 21 A. I would not dispute that. 22 MR. KEETON: Thank you. 2054 1 MR. EISENHART: Your Honor, I have two 2 questions. 3 THE COURT: All right. Mr. Eisenhart. 4 5 RECROSS-EXAMINATION 6 (5:18 p.m.) 7 Q. (BY MR. EISENHART) Mr. Bentley, were 8 you aware in 1984 and 1985 that there were 9 regulations which governed USAT engaging in 10 transactions with affiliated parties? 11 A. Yes. 12 Q. Did you have any reason to believe in 13 1984 and 1985 that the investment banking firm of 14 Drexel Burnham Lambert was an affiliated party of 15 USAT? 16 A. I did not regard them such. 17 MR. EISENHART: Thank you. 18 THE COURT: If there are no further 19 questions, you may step down. 20 THE WITNESS: Thank you. 21 THE COURT: We'll adjourn until 22 9:00 o'clock tomorrow morning. 2055 1 MR. GUIDO: Thank you, Your Honor. 2 3 (Whereupon at 5:13 p.m. 4 the proceedings were recessed.) 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 2056 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 6th day of October, 17 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 2057 1 STATE OF TEXAS COUNTY OF HARRIS 2 REPORTER'S CERTIFICATION 3 TO THE TRIAL PROCEEDINGS 4 I, Shauna Foreman, 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 6th day of October, 17 1997. 18 _____________________________ SHAUNA FOREMAN, CSR 19 Certified Shorthand Reporter In and for the State of Texas 20 Certification No. 3786 Expiration Date: 12-31-98 21 22